We attempt to reconcile the flood of Expectations with hard fundamental data

Posted by Jack Crooks - Black Swan Capital LLC

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Live Black Swan and ISE Event today
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“This is a government of the people, by the people and for the people no longer. It is a government of corporations, by corporations, and for corporations.” – Rutherford B. Hayes

FX Trading – Reconcile This!

The word of the day is: reconcile. 

Merriam-Webster is gracious enough to define it for us as: rec·on·cile 

1 a: to restore to friendship or harmony <reconciled the factions> b: settle, resolve <reconcile differences>

2: to make consistent or congruous <reconcile an ideal with reality>

3: to cause to submit to or accept something unpleasant <was reconciled to hardship>

4 a: to check (a financial account) against another for accuracy b: to account for

Can we really reconcile the expectations flooding the market this week with key fundamental data we’ve got our hands on? I sure can’t. Can you?

It’s early in second-quarter earnings season – I mentioned that briefly on Tuesday. This week has so far been a testament to the fact that investors are more than willing to jump all over better (and less-bad) than expected earnings numbers; they’re loving on growth projections for the second half of 2009 too. 

Sure, the quarterly earnings expose is far from over … and the mood can certainly change quickly … or not change at all. But as things stand now, I can’t seem to reconcile the nascent optimism – whether it is over earnings, China, or whatever — with the underlying economic developments. 

The job market is in the tank. Many analysts are starting to feel unemployment’s ‘lagging indicator’ characteristic is a bunch of baloney at a time like this. And rightly so — estimates call for joblessness to surpass 10% in the US. The picture ain’t much prettier everywhere else you look either. (Yes, unemployment is an issue even in China!)

Past and future unemployment numbers alone should leave investors with a discomforting feeling. But if need be, reach for some other reason for caution and you’ll probably find it. Oh, let’s say … capacity utilization.

Yeah, capacity utilization – everyone’s favorite statistic. Ok, I admit – capacity utilization is not everyone’s favorite statistics. I think the US deficit is everyone’s favorite statistic – at least everyone in the currency market anyway. (By the way, TIC data for the month of May is scheduled to be released today in the New York session. This simply reveals investment capital flows into and out of the US. Expectations have it coming in much improved from the previous month’s read, meaning the US is demanding fewer foreign assets than foreigners are demanding of US assets.)

Ok, sorry – back to capacity utilization. Have a look at the following chart:

….read pages 3-5 HERE. Start with the chart on the top of page 3.


John Ross Crooks III
Black Swan Capital LLC

Black Swan Capital is an independent minded currency advisory firm established to provide subscription-based services to help retail and institutional clients consistently attain above average profits trading and investing in both forex and currency futures markets. We tell our Members when to enter and exit and why. HERE for more information.

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