Notes From Underground: The Bernanke Speech Did Little to Clear The Air; It Was About Central Clearing Houses

There was very little economic news to roil the markets today. Being Monday, there was some merger and acquisition  news that helped stocks hold on to recent gains. Globally, there was a hostile takeover bid by MINMETALS Resources of China to buy EQUINOX RESOURCES of Canada for 6.3 BILLION Canadian Dollars. Equinox has copper mining interests in Zambia and is another example of the Chinese putting their foreign reserves to work by purchasing HARD ASSETS.

Later in the day, news broke that TEXAS INSTRUMENTS had made a bid for NATIONAL SEMI CONDUCTOR.

Otherwise, the news was sparse as a few FEDERAL RESERVE presidents droned on about their economic views. This evening Chairman Bernanke spoke at an ATLANTA FED gathering–the topic being the need to monitor the risk at Central Clearing Houses. The major theme was that CCP‘s have performed well throughout history but now they have become so large and systemically important that they need to be closely monitored.

This SPEECH will forever be known as the PUDD’NHEAD WILSON SPEECH as Bernanke used the parable of Mark Twains famous character: “If you put all of your eggs in one basket, you had better watch that basket.”

Under the Dodd-Frank Bill with its new regulations and directives and central clearers taking on an added importance, we had better heed PUDD’NHEAD’s advice. It seemed that the FED Chairman offered little about the economy in the Q and A that followed.

There is a great deal of chatter about a DOLLAR RALLY that is on the horizon. It seems that many of the pundits who have gotten the direction of the DOLLAR wrong for the past six months are sticking to their calls. The only thing I can say is that they will be correct–BUT WHEN?

In a BLOOMBERG article by Catarina Saravia and Lukanyo Mnyanda, the two journalists go back and talk to some  analysts who made very bullish calls. We are reminded of George Soros saying that the EU may well dissolve.

Alan Ruskin of Deutsche Bank also maintains that the EURO is extraordinarily strong under its circumstances–Ruskin called for a 1.28 EURO by last December. Even Paul Volcker was ill-timed in his calling for the break up of the EURO ZONE. These are all well respected currency analysts. John Taylor of FX CONCEPTS, a firm with BILLIONS under management, predicted that the EURO would fall to PARITY with the DOLLAR. These are all interesting calls but as traders we are to worry only about protecting ourselves when we are wrong.

The DOLLAR will at some point rally but as Keynes may have asked: Will I be Solvent? All the analysts have looked at EUROPE, diagnosed the problem and figured that the EURO was going to get trashed. The failures of the EUROPEAN UNION are certainly of a magnitude of seismic proportions but as to follow up with yesterday’s POSTING: DON’T LEAVE THE FED OUT OF THE EQUATION. Remember, FOREIGN CURRENCY trading is not based on ABSOLUTES BUT ALL THINGS BEING RELATIVE.

How do the fundamentals stand in comparison to other competing CURRENCIES or potential STORES OF VALUE? Also, the fundamentals are fluid meaning that IT IS A DYNAMIC AND NOT STATIC RELATIONSHIP. To exemplify this, there was astory out of Japan today. It seems that MR.YEN, EISUKE SAKAKIBARA, has changed his view on the value of the YEN post-NUCLEAR REACTOR problems.

Mr. Sakakibara had recently opined that the YEN would trade 70 YEN to the DOLLAR and that the strong YEN was not a problem for Japan–he held this view as the market was trying to build up massive short YEN positions. Now, Mr. Sakakibara has changed his views and that with all the new problems for Japan, the currency should/will trade over 90 YEN to the DOLLAR.

It is important to always be aware of the changing views in the world of FOREX, but more importantly to have a technical basis to know when you are wrong. Any analyst can make a grandstand call, but not everybody knows where they are wrong. Protecting capital is the true basis to success in the FINANCIAL WORLD.

2 Responses to “Notes From Underground: The Bernanke Speech Did Little to Clear The Air; It Was About Central Clearing Houses”

  1. whitewavetrader Says:

    John Taylor was the genius I was sitting next to in 1998
    at the World Bank Conference with no stop for his long
    usd/Jpy at 132

  2. yra Says:

    Whitewave—it says a great deal

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