I have spent some time on my IPhone playing Texas Hold’em. This is self-therapy as we all yearn to control the environment even as the rest of the world has spun out beyond our wildest dreams. The one trouble with losing to a computer or worse a phone – is that there is no real benefit or cost. The world today is getting nearer the same outlook – the cost of failure has fallen dramatically. There is less opportunity therefore less concern over missing something – which makes today’s rally suspect and as we dive into the close many see it ending in tears. There are three things that stand out about today:
1) Fear measures like the VIX are going up even as we break out of technical downtrends. Libor is sticky (some blame month-end). List is long and suggests that this market doesn’t trust the tape.
2) Cheerleaders don’t win games. This was a lesson from highschool. Sometimes if you are losing, distracting the crowd helps. G20, Bernanke, Geithner, Obama and others – were they cheerleaders or playmakers?
3) Wall Street and Main Street are different places. The joy of a bounce back in equities of 10% falls on deaf ears today when unemployment climbs and credit gets harder to find. The separation of the banks from the manufacturers and others that drive the “real” economy is missing the point about the over all recession risk. Deflation remains a risk even if prices in some assets inflate. What does this mean for FX? Seems clear that EUR break out of 1.30 may be doomed today and that the USD will gain back ground overnight if the US rally fizzles into the close. We have the potential to end a 4 day winning streak with a thud. The rally in MXN has the same dynamic and the list of other currencies could be long – but let’s not dwell on the negative but the real – the best way to win at poker is by playing people not machines.
Robert Savage, Goldman Sachs
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