Macro swings

The big news this year is clearly the movement in the dollar, bonds, metals and oil. Equities by comparison are trading mostly flat. Today's latest jump in the dollar is being attributed by most to the new Bush budget. This is a less sanquine view that elminates a lot of the rhetoric from the mainstream reporting.

The dishonesty of the administration about budget deficits has reached levels unheard of. These folks have absolutely no shame. Bush presented today a budget that claims that he will achieve his goal of reducing the deficit by half by 2008 (from a false 2004 baseline of $521 billion rather than the actual 2004 deficit of $412b) and will achieve a deficit of "only" $233b by 2009. Even better news, the administration claims today: the "halving" of the deficit will be reached by 2008, a year earlier than original 2009 target for it.

Who are these accounting scam artists trying to deceive? Do they think everyone in America and around the world is a mathematically challenged total idiot or an accounting moron?

The reality is, that based on realistic scenarios outlined last week by the non-partisan Congressional Budget Office, the deficit by 2009 will be close to $600b (or 4.0% of GDP) rather than falling to $233b; and the deficit will reach over $1,100b (or 5.5% of GDP) by 2015. (continue reading)

While I can't really find any fault with that summary, for trading purposes I would set it aside. The markets clearly like something here about the dollar which is creating some broad knock on effects. While the budget may not justify the move now I bet by the time this move is over we will see some actual good news coming out. It looks like maybe 2 months or longer before the weakening dollar / U.S. debt problems will have a shot at reasserting themselves in markets.

One of the difficulties in trading the U.S. equity markets right now is the lack of passion in participants. Most seem willing to chase whatever move is underway and there is very little commitment by bulls or bears to a longer-term view. This may be due in part to the dollar volatility which makes it very difficult to predict where earnings and equity values will go. At any rate it makes it difficult for the market to create a lasting trend. This is absolutely not so for the dollar, gold, oil and other macro variables. Everyone has an opinion and even the viscious moves we are seeing now do not seem to be causing many side changes. I am pretty sure I spent January a bit caught up in my view too and am going to step back a bit to evaluate things from a longer term perspective.