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
b: settle, resolve
2: to make consistent or congruous
3: to cause to submit to or accept something unpleasant
4 a: to check (a financial account) against another for accuracy b: to account for
We do our best to build alternative plausible scenarios that are in competition to our current trading positions; we say our best because we know by virtue of taking a position, the bias already exists. One of the scenarios we laid out recently in a seminar was our view the dollar had the potential to become the carry trade currency (borrow dollar at low rates and reinvest in higher yielding asset classes) should the US government conclude a weak dollar is what’s needed to get “things moving again” and move back into an implicit weak dollar policy environment (yellow area in the chart below).
First-quarter earnings season, characterized by low-ball estimates and less-bad-than-expected results, helped drive a sharp rally in stock markets and risk appetite.
Second-quarter earnings season began last week. Expectations were rather dismal coming in, but that could already be changing.
If you’ve followed the newsletter crowd much at all, many love to talk about the dollar, but few really risk their well-being trying to make money for real people trading it (it’s a beautiful thing being a guru with impunity).
This cocky crowd of gurus, often wrong but never in doubt, was till recently forever pontificating on the sole cause of future dollar doom, heck it’s the soaring current account deficit they said; there is no way out.
China is dead in the water without exports. They are in panic mode. That is why they are flooding their economy with massive amounts of capital and suppressing any hint of decent everywhere. That is why they have chased out the major financial news outlets, and forced them to take all cues from the state. But no matter how many bridges they build, excess capacity they expand, stock market propping they do, dollar reserve currency jawboning they employ, or internet sites they shut down, it doesn’t change the fact that exports have crumbled and until Mr. US Consumer starts buying again, it will get worse instead of better. The brunt of global rebalancing is upon, as it is for all those so dependent on exports.
