Double Whammy

Friday, November 30, 2007

Q. What is stonger than The Economist cover curse for dollar bears?

A. An Economist dollar cover that they've ripped off from someone else.

Yes, ladies and gents, we have a double whammy potential dollar cover curse this week, as both Der Spiegel and The Economist put the falling dollar on the cover. Amusingly, they both use the same metaphor, that of a plane going down in flames. Note that Der Speigel came out earlier in the week, so the next time an Englishman tells you about the great English wit, ask him why they need to steal ideas from the Germans!
In any case, the dollar on the cover of The Economist traditionally spells the end, if only temporarily, of rallies in EUR/USD. For those who are relatively new to this space, take a walk with Macro Man down memory lane, back to December 2006.....

....December 2004.....
....and February 2004.

At this point, Macro Man is not prepared to say that the buck is going to quit going down, especially given yesterday's open letter calling for a maxi-reval of GCC currencies. By the same token, after a nice run it's not terribly difficult to bank profits on longstanding short dollar exposure.
Macro Man therefore closes EUR/USD at 1.4750 spot, and will bid 109.80 for $15 mio USD/JPY to partially hedge his straddles.
Elsewhere, the risk aversion trade may be slowly morphing, however temporarily, back to a liquidity trade. Yesterday's price action in equities was broadly encouraging....and yet bonds rallied like a banshee. Emerging markets have come roaring back as well. And all of this has happened in a context of broadly poor US macro data!
If it continues, the portfolio should benefit, as Macro Man is long both equities and fixed income. Another day like the last couple, however, and he will probably look to set some hedges and lock down profits. For the meantime, though, he is humming AC/DC under his breath, as the blog portfolio is "back in (the) black" with just the London and New York sessions until month end.
Finally, a milestone of sorts was reached while Macro Man was nursing a modest hangover on the train this morning; fourteen and a half months after he started scribbling his thoughts down in cyber-space, the 100,000th visitor passed through his electronic door. Thanks to all and sundry for reading, and especially to those who thoughtfully pointed out the Economist cover via email or the comments section last night!

Posted by Macro Man at 9:01 AM  

9 comments:

The euro bottom trawlers seem to be coming up mostly with the grand banks in their nets. Anybody here long Newfoundland?

Charles Butler said...
12:04 PM  

I do think we're perhaps seeing some appetite to rotate the axis of dollar weakness away from the Europeans and back towards the peggers and/or Asia.

How durable that is may depend on whether PBOC decides to buy €5 billion at 7 am London time on Monday morning....

Macro Man said...
12:20 PM  

I'm glad that some of y'all read that shiny toilet-paper rag, so I don't have to ....

12:29 PM  

Guud pikturs, wud lak to chat but hecilopters outisde and Momma says come on and git some. Better go.

Anonymous said...
1:19 PM  

MM, you said "I do think we're perhaps seeing some appetite to rotate the axis of dollar weakness away from the Europeans and back towards the peggers and/or Asia."

What do you mean by rotate the axis of weakness? What trade does it suggest (long peggers)? What is the best instrument for this?

Anonymous said...
7:07 PM  

I simply meant that dollar shorts may have decided to maintain their dollar position, but sell our their euros and pounds, for example, and buy things like RMB, or some of the Gulf currencies. Certainly that's been my stance in the real job.

A professional investor can sell USD/AED, USD/KWD, USD/SAR et al through a bank/broker. I suspect that such opportunities are probably limited for retail. A proxy might be other Asian currencies, including (if you're concerned about further equity market weakness) the yen.

Macro Man said...
8:13 PM  

MM,

For ur weekend reading

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=980690#PaperDownload

Anonymous said...
1:54 AM  

I consider The Economist poorly art directed, but would still guess that they had finished cover art before they had a chance to see Der Spiegel.
A plane going down in flames is an obvious enough metaphor to be a coincidence.

Anonymous said...
5:28 PM  

Oh, I absolutely agree that it's a coincidence, but given the British national obsession about the quality of domestic wit, I couldn't resist a little dig....

Macro Man said...
6:27 PM  

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