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A More Sanguine View as the Dust Settles

December 14, 2007
The doom and gloom directed toward the US seems exaggerated. Warnings that the Fed has lost its credibility, that the dollar was losing its status as a reserve currency and that the US economy was stagnating here in Q4 all seem to be misplaced.
A More Sanguine View as the Dust Settles A More Sanguine View as the Dust Settles Reviewed by magonomics on December 14, 2007 Rating: 5
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The Conditions for Intervention

November 23, 2007
The US dollar appears to have become a one-way bet and with important psychological levels having been approached and official rhetoric having been ratcheted up a notch, it may be prudent to consider under what conditions central bank intervention is likely.
The Conditions for Intervention The Conditions for Intervention Reviewed by magonomics on November 23, 2007 Rating: 5
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Dollar to Fall, but Demise Exaggerated

November 19, 2007
The US dollar is likely to continue to fall as the year winds down, but reports of its demise have been grossly exaggerated.
News reports this week claiming that Brazil’s super-model Gisele Bundchan demanded compensation in euros rather than dollars, hedge fund manager Jim Rogers announcing he was selling all his dollars, buying yuan and moving to…
Dollar to Fall, but Demise Exaggerated Dollar to Fall, but Demise Exaggerated Reviewed by magonomics on November 19, 2007 Rating: 5
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A Yen for Stocks

November 16, 2007
A recent pattern has become evident to currency and equity traders. The stock market appears to trade opposite of the Japanese yen. When the yen strengthens, stocks weaken and vice versa. As compelling as the patterns appear, we caution against putting much emphasis on it or confusing correlation with cause and effect.
A Yen for Stocks A Yen for Stocks Reviewed by magonomics on November 16, 2007 Rating: 5
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Foreign Policy Association: William K. Tell Lecture Foreign Policy Association: William K. Tell Lecture Reviewed by Marc Chandler on November 07, 2007 Rating: 5
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How Appropriate is Central Bank Policy

November 02, 2007
The FOMC and ECB are often criticized for being either too accommodative or not accommodative enough. The Fed funds target rate has been cut by 75bp and the more balanced outlook from the recent FOMC meeting initially prompted talk that the end of the mini-easing cycle was at hand. However, renewed concerns about the soundness of financial institu…
How Appropriate is Central Bank Policy How Appropriate is Central Bank Policy Reviewed by magonomics on November 02, 2007 Rating: 5
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Look out Below: Dollar Losses Accelerating

October 19, 2007
To be forewarned is to be forearmed: Risks are mounting that the US dollar’s slide accelerates into the end of the year. While the $1.4570 area, the euro equivalent of the old Deutschemark record high from 1995, is the obvious near-term objective, the combination of market sentiment and deteriorating interest rate support for the dollar, warns of …
Look out Below: Dollar Losses Accelerating Look out Below: Dollar Losses Accelerating Reviewed by magonomics on October 19, 2007 Rating: 5
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G7 is Overshadowed

October 12, 2007
Another G7 meeting is upon us. It is the first such gathering since the market turmoil began and the acceleration of the US dollar’s decline. Some observers have suggested that it may be one of the most important G7 meetings in years. More likely though such hopes will be dashed and the G7 meeting will be overshadowed by two other gatherings, Chin…
G7 is Overshadowed G7 is Overshadowed Reviewed by magonomics on October 12, 2007 Rating: 5
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And Now What? Q4 and Beyond

October 05, 2007
The closing of a couple of European bank managed funds and the failure to secure financing for two large acquisitions in August marked the beginning of the credit crisis in earnest. The rally in US share prices that lifted the Dow Jones Industrials and S&P 500 to new record highs and the September US jobs data, coupled with the sharp upward re…
And Now What? Q4 and Beyond And Now What? Q4 and Beyond Reviewed by magonomics on October 05, 2007 Rating: 5
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Making Cents of the Dollar

September 21, 2007
The US dollar’s slide is once again prompting a steady drum beat warning that the end is nigh. While a further dollar decline seems likely, its demise is likely being exaggerated and a recovery is likely late this year or early next year. This view is predicated on the understanding that what is ailing the dollar is largely cyclical in nature and…
Making Cents of the Dollar Making Cents of the Dollar Reviewed by magonomics on September 21, 2007 Rating: 5
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Trade and The Dollar

September 14, 2007
One of the interesting elements in the US dollar’s recent decline is that few, if any, are suggesting that it is being driven by its perennial nemesis, the large trade deficit. Most seem to recognize that the divergence of monetary policy and the anticipated trajectory of interest rate differentials are the significant force driving the greenback …
Trade and The Dollar Trade and The Dollar Reviewed by magonomics on September 14, 2007 Rating: 5
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The Rubicon is Crossed

September 07, 2007
The unexpected decline in non-farm payrolls, the first such decline in four years, leaves no doubt that the Federal Reserve will cut interest rates at the September 18 FOMC meeting. The jobs data, which included a downward revision of 81k jobs over the past couple of months, is simply horrific and fans the most pessimistic fears. The housing mark…
The Rubicon is Crossed The Rubicon is Crossed Reviewed by magonomics on September 07, 2007 Rating: 5
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(In) Securitization

August 24, 2007
The meltdown in the alphabet soup of the derivatives market—from ABCP and CDOs to RMBS and CDS—has given rise to concerns that the problem is systemic to these kinds of financial products. No less than Warren Buffet, one of the most successful investors of our generation has called derivatives “financial weapons of mass destruction”. Given the eve…
(In) Securitization (In) Securitization Reviewed by magonomics on August 24, 2007 Rating: 5
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Moral Hazard on Main Street and Wall Street

August 17, 2007
The Federal Reserve has taken several steps up a policy escalation ladder to address the turmoil in the capital markets. It has allowed the Fed funds rate to deviate sharply from its target, and has created conditions that have allowed an approximate five-fold increase in excess reserves of the banking system.
The Federal Reserve took additional s…
Moral Hazard on Main Street and Wall Street Moral Hazard on Main Street and Wall Street Reviewed by magonomics on August 17, 2007 Rating: 5
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Moral Hazard on Main and Wall Street

August 17, 2007
The Federal Reserve has taken several steps up a policy escalation ladder to address the turmoil in the capital markets. It has allowed the Fed funds rate to deviate sharply from its target, and has created conditions that have allowed an approximate five-fold increase in excess reserves of the banking system.
Moral Hazard on Main and Wall Street Moral Hazard on Main and Wall Street Reviewed by magonomics on August 17, 2007 Rating: 5
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China and the Dollar, Thunder but no Rain

August 10, 2007
Only the suggestion that China could use its vast US dollar holdings to influence American policy managed to rival the dramatic developments in the capital markets for the attention of investors and the media. Of all the things that investors and policy makers have to worry about, China’s dollar holdings should keep any one up at night.
China and the Dollar, Thunder but no Rain China and the Dollar, Thunder but no Rain Reviewed by magonomics on August 10, 2007 Rating: 5
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The Long and Short of It: Outlook for the Dollar

August 08, 2007
The US multi-year down trend is over. The process we described as “carving out a bottom” has been completed. Recent days have been a watershed, but it has been a long time in the making. The dollar bottomed against the British pound and Canadian dollar (half of the G7 currencies) last November, as the Federal Reserve expanded its lending facilitie…
The Long and Short of It: Outlook for the Dollar The Long and Short of It: Outlook for the Dollar Reviewed by magonomics on August 08, 2007 Rating: 5
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Upper House Elections in Japan and the Yen

July 26, 2007
Japan goes to the polls on July 29 to elect half of the upper chamber of the Diet called the House of Councilors. The Liberal Democrat Party, the main political party in Japan, with the New Komeito Party, is unlikely to hold on to their slim majority. However, barring a horrific showing which forces the LDP to dissolve the lower house and call for…
Upper House Elections in Japan and the Yen Upper House Elections in Japan and the Yen Reviewed by magonomics on July 26, 2007 Rating: 5
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What it Takes for the Dollar to Recover

July 20, 2007
Clearly any recovery in the dollar requires someone to buy it. It may be a worthwhile exercise to consider who would buy the dollar. Among short-term players, using the IMM Commitment of Traders, anecdotal and proprietary data, speculators have amassed a large short dollar position. The net short US dollar positions in the futures market stand nea…
What it Takes for the Dollar to Recover What it Takes for the Dollar to Recover Reviewed by magonomics on July 20, 2007 Rating: 5
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The Word is Resilience

July 13, 2007
Even with the disappointing US June retail sales report, the take away point from recent developments is the all-round resilience of everything, but the US dollar.
The Word is Resilience The Word is Resilience Reviewed by magonomics on July 13, 2007 Rating: 5
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The Rise of Retail

July 06, 2007
The global capital markets are usually understood to be the domain of large pools of capital and institutions. Mergers and acquisitions are increasing the consolidation and concentration in the financial sector. While this is clearly one theme, there is a second one that runs in the opposite direction. For various reasons, there has been an increa…
The Rise of Retail The Rise of Retail Reviewed by magonomics on July 06, 2007 Rating: 5
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Ten Years After

June 29, 2007
The tenth anniversary of the Asian financial crisis is a cause for celebration. Aluminum is traditionally associated with ten-year anniversaries, and it seems to appropriately capture the essence of the changes that have transpired since the crisis.
Ten Years After Ten Years After Reviewed by magonomics on June 29, 2007 Rating: 5
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The Incredible Shrinking Yen

June 22, 2007
Can nothing stop the yen from falling? It is the worst performing major currency against the dollar over the past week, losing almost 0.5% and 1.8% so far this month. It is trading at multi-year lows against other major currencies besides the dollar, like the euro, sterling and the Swiss franc. Its weakness against the New Zealand dollar has frust…
The Incredible Shrinking Yen The Incredible Shrinking Yen Reviewed by magonomics on June 22, 2007 Rating: 5
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IMF takes a Major Step without Fanfare

June 19, 2007
Yesterday, the IMF announced its first update of its foreign exchange surveillance mechanism in three decades. Aside from some media coverage, which was generally descriptive in nature, there was little fanfare. Yet there seems to be potentially far-reaching implications that have yet to be grasped.
IMF takes a Major Step without Fanfare IMF takes a Major Step without Fanfare Reviewed by magonomics on June 19, 2007 Rating: 5
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Testing Hypotheses

June 15, 2007
One of the criticisms often levied against the social sciences is that they cannot conduct experiments like the natural sciences. Yet, experimentation is not possible in all of the hard sciences, like parts of physics or astronomy. Even if experimentation is difficult in the social sciences, hypotheses can still be tested.
Testing Hypotheses Testing Hypotheses Reviewed by magonomics on June 15, 2007 Rating: 5
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Is the End Nigh?

June 08, 2007
There has been a significant change in perceptions of the investment climate. Many have now recognized that far from slipping into a recession, the world’s biggest economy is accelerating. Rather than the prospect of lower interest rates, in the US, for the first time in a year, our warning that the Federal Reserve may still need to raise rates is…
Is the End Nigh? Is the End Nigh? Reviewed by magonomics on June 08, 2007 Rating: 5
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Alchemy: Oil and Water into Food

May 30, 2007
The incredible rally in a broad range of commodity prices has captured the imagination of many and is creating a cruel dilemma for policy makers who need to be concerned about inflation even as economic momentum wanes. The April G7 statement seemed to recognize that the volatility of the dollar may be aggravating the move and prompted them to seek…
Alchemy: Oil and Water into Food Alchemy: Oil and Water into Food Reviewed by magonomics on May 30, 2007 Rating: 5
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The Fate of the G8 and China

May 18, 2007
The market has long regarded the periodic G8 meetings as largely photo opportunities. It has been nearly two decades since monetary policy was coordinated. Although it appeared to provide a useful forum for coordination of attempts to curb the financing of terrorism, it may have outlived its usefulness as currently conceived. Like the weighted vot…
The Fate of the G8 and China The Fate of the G8 and China Reviewed by magonomics on May 18, 2007 Rating: 5
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Why the Fed is Right and the Market Wrong

May 07, 2007
There is an epic struggle going on between the Federal Reserve and the markets. The Federal Reserve has been very clear of its views. Growth will pick up later this year as the main headwinds fade. Price pressures, while elavated, will likely moderate. It sees the main risk to this benign scenario is that inflation does not ease.
Why the Fed is Right and the Market Wrong Why the Fed is Right and the Market Wrong Reviewed by magonomics on May 07, 2007 Rating: 5
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Currency Bulls Still in Driver's Seat

May 04, 2007
Since early March there has been a clear trend toward a lower US dollar. Made vulnerable by the extended positioning, and frustrated by the stalling of downside momentum, the stronger than expected ISM data provided the spark for a bout of short-covering. The dollar’s recovery was been cut short by the weaker than expected US employment data.
Currency Bulls Still in Driver's Seat Currency Bulls Still in Driver's Seat Reviewed by magonomics on May 04, 2007 Rating: 5
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The Dollar and Stocks- Don't Confuse 'em

April 27, 2007
The US dollar’s downtrend appears to have reached a point that it has entered the public’s consciousness, judging from the media’s attention. Such level of interest often seems to come after a protracted trend is in place, rather than in anticipation of a significant move. The dollar’s move has also captured the imagination of many equity traders …
The Dollar and Stocks- Don't Confuse 'em The Dollar and Stocks- Don't Confuse 'em Reviewed by magonomics on April 27, 2007 Rating: 5
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Making Cents of the Dollar

April 20, 2007
There is modest run on the US dollar in underway. Over the past month, the greenback has lost nearly 5.5% against the New Zealand dollar, 4% against the Australian dollar, 3% against the Canadian dollar, more than 2% against sterling and the euro. By contrast, the yen has under-performed, losing more than 1% against the dollar. The dollar appears …
Making Cents of the Dollar Making Cents of the Dollar Reviewed by magonomics on April 20, 2007 Rating: 5
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Europe is 50, But not Middle Aged

March 23, 2007
It is 50-years this week that six countries, France, West Germany, Italy, Netherlands, Belgium and Luxembourg signed the Treaty of Rome and founded the European Economic Community. And so began in earnest the process that has culminated in the creation of the European Union and a shared currency for 15 of the members. Just because it is 50, though…
Europe is 50, But not Middle Aged Europe is 50, But not Middle Aged Reviewed by magonomics on March 23, 2007 Rating: 5
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Q2: Make it or Break it

March 20, 2007
As the first quarter wound down, one of the key features for policy makers and investors has been an increase in uncertainty. Much of the uncertainty may be resolved in the period ahead. In many ways, what happens in the second quarter may very well set the tone for the remainder of the year.

Q2: Make it or Break it Q2: Make it or Break it Reviewed by magonomics on March 20, 2007 Rating: 5
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The Balance of Imbalances

March 16, 2007
There have been numerous Cassandra-like calls warning that global imbalances pose the largest risk to the world economy. Some observers will even place these imbalances at the heart of their explanation for the spasms in the market. There are only two problems with this view: the theory and the facts.
The Balance of Imbalances The Balance of Imbalances Reviewed by magonomics on March 16, 2007 Rating: 5
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Jack Bauer, Risk-Aversity, and the Dollar

March 02, 2007
A common cultural theme, found even in the Bible, is the complicated relationship between fathers and sons. Star Wars, which pits Luke Skywalker against Darthvader, who, in a later episode, we learn is Luke’s father, celebrates its 30th anniversary this year. It was an exciting, even if not new, twist that many boys, of various ages also found lib…
Jack Bauer, Risk-Aversity, and the Dollar Jack Bauer, Risk-Aversity, and the Dollar Reviewed by magonomics on March 02, 2007 Rating: 5
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BOJ Hilkes, Market Yawns

February 21, 2007
The Bank of Japan raised the overnight call rate by 25 bp to 0.50% and the yen sold off. Expectations had been nearly evenly divided. Early in the session, Japanese media reported that BOJ Governor Fukui had proposed a rate hike. The market reacted by taking the dollar from JPY120.50 to JPY119.75. The dollar had then stabilized until the actual an…
BOJ Hilkes, Market Yawns BOJ Hilkes, Market Yawns Reviewed by magonomics on February 21, 2007 Rating: 5
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Fading of the Home Bias: The Unappreciated Story

February 16, 2007
Investors have traditionally shown a preference for their own markets. This is perfectly understandable. Invest in what you know best, is often the advice of professionals. However, liberalization of capital markets and the pursuit of better returns have seen the home-bias fade. This is especially noteworthy in Japan, one of the world’s largest cr…
Fading of the Home Bias: The Unappreciated Story Fading of the Home Bias: The Unappreciated Story Reviewed by magonomics on February 16, 2007 Rating: 5
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Gaming G7

February 09, 2007
Over the last couple of weeks we have consistently argued that the European finance ministers were setting up the market for disappointment if the G7 statement does not single out Japan or express concern over the weakness of the yen. We had thought such disappointment would hit the yen hard. However, the price action has been such where we now su…
Gaming G7 Gaming G7 Reviewed by magonomics on February 09, 2007 Rating: 5
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Eyes on the Prize: Yuan not Yen

February 05, 2007
There is much focus on the upcoming G7 meeting. European finance ministers have bemoaned the yen’s weakness. The US policy toward China prevents it from being sympathetic towards Europe’s concerns.
Eyes on the Prize: Yuan not Yen Eyes on the Prize: Yuan not Yen Reviewed by magonomics on February 05, 2007 Rating: 5
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Currencies Should Reflect Fundamentals, I love Mom, and Apple Pie

January 26, 2007
Who can disagree with such platitudes? And yet officials appear to think they are saying something substantive when they say foreign exchange prices should reflect fundamentals. Of course they should. Can they do anything but reflect fundamentals? The issue is not fundamentals versus something else, but which set of fundamentals.
Currencies Should Reflect Fundamentals, I love Mom, and Apple Pie Currencies Should Reflect Fundamentals, I love Mom, and Apple Pie Reviewed by magonomics on January 26, 2007 Rating: 5
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Knowing the Known

January 19, 2007
Over the past six weeks, foreign exchange and short-term interest rate markets have made significant adjustments. The way that prices have responded to the latest economic data warns that this adjustment process is largely complete. This suggests a period of consolidation likely lies ahead, during which some of the recent trends may retrace. At th…
Knowing the Known Knowing the Known Reviewed by magonomics on January 19, 2007 Rating: 5
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Central Banks, Surprises and Otherwise

January 12, 2007
In our age of transparency, monitoring the signals from the major central banks is not a full time occupation. Wall Street used to hire people whose sole job was to mine the data and official comments for clues into policy. Such people now are among the endangered species. When one wants to contemplate the Federal Reserve’s next move, one can cons…
Central Banks, Surprises and Otherwise Central Banks, Surprises and Otherwise Reviewed by magonomics on January 12, 2007 Rating: 5
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Poor Conjugation: US Economy and the Dollar

January 05, 2007
The U.S. jobs data caps a string of impressive data that should but probably won’t silence the pessimists. Already the unseasonably warm weather is being cited by some to dismiss the recent stability of new and existing home sales and the stronger than expected employment data. It is unlikely that one of the biggest bond fund managers will change …
Poor Conjugation: US Economy and the Dollar Poor Conjugation: US Economy and the Dollar Reviewed by magonomics on January 05, 2007 Rating: 5
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