Enis’s Macro Wrap – From New York to Antioch

by Enis June 20, 2012 7:57 am • Commentary

My cousin lives in the ancient city of Antioch (former Eastern Mediterrenean capital of the Roman Empire).  He’s a dentist who trades currencies on the side, for better or for worse.  I once asked him, “How often do you trade?”

He responded, “I trade every day that that goddamn Bernanke doesn’t speak.  When he talks, everything goes crazy, so I don’t trade.”

My uncles, who live in the neighboring town of Iskenderun (Alexandretta on old English maps, as the city’s named after Alexander the Great), also only have one markets-related concern for me each time I visit.  “What’s the dollar going to do?  Is Bernanke going to print more money?”

In my uncles’ case, they care because their business loans are dollar-denominated, which they obtained due to the cheaper dollar rates.   As a result, their liabilities are in U.S. dollars, so they monitor the exchange rate like hawks.

The dollar is the most important price in the world.  The most important.  It’s not just investors, traders, or large corporations who care.  The first thing that people outside the U.S. care about when it comes to global markets is my opinion on the U.S. dollar.

So when Bernanke speaks today, the world will be listening.  And I think Bernanke himself is quite aware that it’s not just domestic political scrutiny that he faces, but global scrutiny as well.

I’m skeptical on a bazooka response by the Fed today.  When QE1, QE2, and Operation Twist were announced, the market was down on the year.  The market is up almost 8% in 2012 after yesterday’s rally.  10 year bond yields are at 1.6%, vs. around 2.5% for QE2 and 2.0% for Operation Twist.  And Bernanke and Dudley, the most important voices at the Fed, have sounded cautious in their most recent public statements.  The table has not been properly set, and with the world watching, Bernanke himself must know that it would be bad manners to start service just yet.

I’m obviously positioned accordingly, and will have to lick my wounds and reassess if we do get a monster QE today.  Similar to what I posted on Monday though about trading the Greek elections, if I ask myself, what if there was no event?  Then I like my current posture, and kept it as a result.