FX Trading – Careful Talking Your Book

Though I don’t spend too much time worrying about it, I often wonder where our esteemed leaders – financial and political – have their money hidden away. Where are their investments?

Let’s assume for a moment these folks target the foreign exchange market for capital gains. It’s likely they’re part of a large net short position on the buck. They discuss their decisions to spend, spend, spend … their need to print, print, print … or their need to cut, cut, cut.

I don’t have to tell you what the current US administration thinks – their top dog speaks to the public on a daily basis. But it’s the central bankers’ comments that really get my attention.

For one, they tend to be speaking independently, in their own words — the Chairman of the Dallas Fed saying something different from the New York Fed. Granted, there’s not much of a spread between their respective comments, but they tend to be more candid and potentially market-moving than the typical transparency we’re given from the FOMC.

And it’s not just in the US – ECB members from several different countries tend to put their own spin on things. Granted, the ECB members, in their extra-meeting remarks, tend to be a little more split and opinionated over policy. Still, often times it seems the markets are all over their every word … and all over the place at that.

And the buck doesn’t stop there. Popularized fund managers and investor emeriti love speaking their minds. We all know how George Soros made big money going short the British pound years ago. More recently he was accused of trying to overplay the negatives in Malaysia’s economy to potentially bolster his fund’s short positions on the country’s currency.

So is it a coincidence that Soros was able to practically call the British pound’s recent bottom around $1.40? Or is he just that good?

Maybe a combination of both. Mr. Soros’s success and understanding of markets has become so well known that his sound bites are taken as credible financial advice.

Then there’s Bill Gross. The financial media proclaimed “Bond King” seems to be loving his time in the spotlight. And the more notorious he becomes the more his off-the-cuff comments are going to shake up markets.

Recently he took the opportunity to tell us the United States’ triple-A credit rating was at risk of downgrade. Gee Bill … thanks for that. Not only did the US dollar take a beating on that idea, but all US assets seem to have had the air let out of them after the “King’s” comments.

Now Gross is urging investors to diversify out of US dollars, which has already begun according to the “king”.

Turn on CNBC and you’ll find similar sentiment – get out of the dollar … how low must this dollar go … commodities are set to launch higher because of the dollar.

A sentiment extreme? It’s looking that way. If so, yesterday and this morning are surely breaking some hearts. How’s it going for you, Bill?

John Ross Crooks, III
Black Swan Capital LLC

Key News
•Bill Gross: who is going to buy all this US debt? Citywire.co.uk
•ECB Keeps Benchmark Rate Unchanged, Is Unlikely to Signal Further Stimulus (Bloomberg)

Key Reports Due (WSJ):
8:30 a.m. Initial Jobless Claims For May 30 Week: Expected: -3K. Previous: -13K.
8:30 a.m. 1Q Productivity: Expected: +1.2%. Previous: +0.8%.
8:30 a.m. 1Q Labor Costs: Expected: +2.9%. Previous: +3.3%.
10:00 a.m. DJ-BTMU Business Barometer For May 23: Previous: -0.2%.
10:30 a.m. May 29 EIA Natural Gas Inventories
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