by Rasool Cunningham
Trading Editor
Philadelphia, PA (DYDD)
I am not a journalist. I am not a writer. I am not an economist. I am a curious person whom likes to share. I have no gospel. I don’t have any clients. I trade for myself and all I have is history and math. Inside history is the work of men who tried to understand the world how it was and how it may be in the future. Men like Friedrick A. Hayek. He left a lot of work but my fave is: The Road To Serfdom. I’ve been watching video audio book vids, and got a lot more out of the audio than when I read it. The first time I had it out on loan from a library so I wanted to finish it fast. This time it’s right on youtube.
Men like George Soros and Ed Seykota are still here leaving valuable work for us to study and attempt to understand even more. Nothing I write here can help you much if you don’t have a basic understanding of the markets and the world.
Sorry, I’m not a journalist.
I won’t put links to everything. I will put links to some things, but even then they’ll likely link to something else you need some basic understanding to get the most out of it. I say all this to say thanks for reading but be sure to #STUDY.
Anyway, I was reading a report that @ReformedBroker tweeted out and it is good shit. (more examples of people sharing good work READ IT) The first part (and most interesting part to me) was about the million dollar dinners Bernanke has been having and the effect they may be having on the market and interest rates.
I would add to it though, that what we are seeing is the tail wagging the dog.
Image may be NSFW.
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The Fed or Bernanke or any of us can only say what we believe. The only reason rates are so low in the U.S. is because the dollar isn’t tanking. Bernanke doesn’t know exactly why the dollar isn’t tanking. He has his theory and his theory may be the best, most informed theory, but it is still only a theory because there are too many variables to calculate a fact.
George Soros would say he’s using the manipulative function. That’s where powerful people use their words to manipulate people and events in a way that benefit themselves and their friends agendas. When you hear the word “agenda” don’t creep out. Apple has an agenda. GE has an “agenda” we all have agendas. And while Bernanke and friends agenda may not be to destroy the world that doesn’t mean it’s good for everyone.
The only thing that matters is what the world thinks.
Or what the market thinks.
If the dollar starts going down hard it says mainly that people are selling dollar denominated assets and or people are not buying U.S. products while people in the U.S. go on buying more things from everywhere else. Ultimately the stability and control of currency is the main driver of interest rates. In a world where all the old rules are broken (don’t believe me, #STUDY) this old rule still stands true. The dollar looked weak but not collapse weak. Not even QE weak. When the taper was started the dollar reacted unexpectedly. It started going down! So the Fed was printing less money but the dollar went down. It’s counter intuitive.
I pontificate on why that happened but I’ll save the bulk of that for another post.
The point is it was puzzling. At that same time bonds looked like death on a stick. Correlation is not causation, ok. But…
Bond futures cracked lower making the move in bonds look worse than it was but none the less rates did move up from the time of the taper start/ announcement to the start of 2014. We can’t say it’s complete causation as there are too many variables, but we know that U.S. bonds looking weak and the USD looking weak are not separate phenomena. They’re connected because U.S. bonds are denominated in USD dollars.
If I’m selling bonds I’m selling USD’s but if I live in the U.S. it cancels out and shouldn’t effect currency only bond prices if I’m slamming the bid. If I’m a foreigner on the other hand, USD’s turn into my home currency, and that will effect currency.
I’m selling bonds and USD’s at the same time. If I’m a fat cat U.S. person I could sell bonds and turn that money from bond sales into Euro or British Pounds and sell USD’s if I wanted to get out of USD’s for some reason.
Bernanke is worth a million dollar dinner because he knows better than most where the fat cat U.S. big money is, who it’s listening to (him and his friends), and most of it’s options should it want to move in any direction inside or outside the U.S. and effect the currency.
The U.S. monetary system overall is the backbone of the global monetary system. That’s not over dramatization by an American either.
For this the question of when interest rates will rise takes on that much more importance. Rising rates mean falling bond prices so it represents loss and risk for some of the biggest money. It also means credit everywhere will get tighter. Big money paid for dinner with Bernanke to look him in his eyes and ask questions and see his face when he answers, but the people asking the questions really hold the answer. Not one but all together they could move rates just by selling or buying. You see? They are the market!
So when you see dinners with Bernanke go for a million dollars it’s the ultimate example of the tail wagging the dog.
After those dinners rates went lower (bond prices higher) because the tail can wag the dog and the dog willingly bought bonds like Ben advised them. Respect it and benefit from it. You don’t have to pay a million dollars though. You can watch the dollar index and bond futures and know just as much of what matters as Bernanke does. Bernanke may know a day or two before us but if the shit hits the fan we’ll all find out pretty soon. Right now the dollar looks coiled up.
Long term Dollar index charts look like they’re on the lows. At the same time I wouldn’t look for a big spike in the dollar because people don’t expect credit to get tight any time soon.
Janet Yellen cleared things up about her gaff on raising rates six months after the taper and Bernanke cleaned up (million dollar dinner!) and then cleared up even more seemingly judging by bond futures. You’ll still hear quotes from central bankers saying rates may go up sooner because they can’t just give it away. But judge by bond futures not words. Ukraine is still happening. Long term serfdom problems in the U.S. are still visible on the distant horizon. Reflexive problems could flare up on the Fed’s exit, but the time to exit is predicated on the economy going almost gangbusters. Not so much on stocks going gangbusters. And right now neither really looks like gangbusters. Which means the Fed exit is thought to be pushed back giving stocks a reprieve… for now..
Anyway, thanks for reading, happy hunting, and may the force be with you!