Nov 11, 2004

Morning thoughts

My first thought is that this is the beginning of the Dollar bounce I have been looking for for a week and a half. My second thought is that while there is a lot of speculation that the $/Yen bounced on BoJ intervention but too me it bounced with all major currencies on the trade data released yesterday morning. The data surprised the market because U.S. exports grew unexpectedly and actually shrunk the trade deficit. It is obviously only 1 data point but the markets have been inundated for years with the idea that improving the trade deficit would require a much much lower dollar. If the trade deficit begins trending lower I think that would really shake up the markets long term outlook for the dollar and probably for U.S. equities too.

Don't have a very strong feeling of what will happen today. I would guess bonds continue to weaken. Many people believed the Fed would keep rates low indefinitely and some are taking yesterday's comment that rates are still accommodative to mean rates are going to be taken back near historical norms (3% instead of 2%). Time will tell. The comments definitely indicate a December hike but beyond that I don't think they give much indication. At any rate a 4% 10 yr will seem very expensive if the overnight rate heads to 3%.

I will probably not be doing a whole lot but I generally think the U.S. equity market is going to remain stable over the next 9 months so accumulating stocks with good technical patterns makes sense. Very little seems to make sense on the short side right now but maybe that will change over the next week.

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