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Key News

  • Bank of England Is More Likely to Expand Bond Purchases After Slump in GDP (Bloomberg)
  • German Business Confidence Rises to 13‐Month High as Recovery Accelerates (Bloomberg)


“Be courteous to all, but intimate with few, and let those few be well tried before you
give them your confidence. True friendship is a plant of slow grow, and must undergo
and withstand the shocks of adversity before it is entitled to the appellation.”

                              George Washington

FX Trading – What Happens in Europe Stays in Europe
There’s a very good and little‐known movie starring Anthony Hopkins. The title: World’s
Fastest Indian. It’s about a New Zealand man who made it his life’s goal to break the
land speed record on his motorcycle. It’s been called a “feel‐good” story.

Kind of like this latest rally in risk.

I continue to look at the markets as a feel‐good story for investors. After getting totally
demoralized from the credit crunch fallout, investors have had the opportunity to
restore a good portion of their portfolio values in a relatively short amount of time.

The funny thing is: they seem to be a little too caught up in the show. The show being
the lengths policy‐makers have gone to restore confidence and reverse the negative
wealth effect. It has worked. And we all know the result up to this point.

The currency market has practically returned to pre‐crisis sentiment, i.e. an all‐ornothing
bet against the buck. At times we’ve expected the dollar to find support when it
has not. But considering the view that’s developed among global investors, it does not
surprise us that the dollar is under pressure. There are key deficiencies that need be
addressed in the US.

What we continue to wonder, though, is why the euro has been able to shake off

Perhaps it’s because what happens in Europe stays in Europe.

There are no secrets about what’s going on in the US; the globe is able to neatly
dispense our issues between each other at light speed. And it’s not that Europe is able
to keep its problems under wraps. But it doesn’t have to … the market takes care of that
for them.

Ongoing concerns over the financial system in Europe, the health of banks and the
uncertain potential of returning to sustainable trend growth are all being swept under
the rug.

Let’s forget the fact that credit isn’t getting to consumers and small businesses. Credit to
euro area residents from monetary financial institutions is virtually at a standstill:

Let’s forget that European banks have not wiped clean their toxic debt.

Let’s forget that many banks still rely on short‐term money from the ECB because they
can’t fund themselves.

Let’s forget that inventory restocking and stimulus money are not sustainable means of

Let’s forget that consumer prices and household spending are falling.

Eurozone CPI, year‐over‐year change

Consumptions Expenditures by Households, year‐over‐year

It’s Friday; let’s forget about all that stuff. Just watch out for the big lump under the rug.