Investment Mixology: Finding The Illusive Holy Grail Cocktail
Wall Street investment mixologists promote a cocktail that has broad popular appeal but which typically creates an unpleasant aftertaste in the form of bursting bubbles, market crashes, and shareholder lawsuits. Many of the most creative financial nightclubs have been fined by regulators and beaten up by angry mobs with terminal pocketbook cramps.
The Euro is rebounding this morning after a sharp sell-off on Wednesday. Pressure was on the single currency yesterday following the confirmation of a technical closing price reversal top the day before. Fundamentally, traders turned bearish on the currency after Moody’s Investors Service downgraded 30 Spanish banks and following the resignation of Portugal’s prime minister.
The GBP USD jumped overnight on renewed talk of an interest rate hike by the Bank of England. Traders reacted positively to the news that the Office for National Statistics reported a rise in consumer inflation more than double the Bank of England’s 2% target. The actual report showed that inflation rose at a 4.4% annual pace in February, up from 4% in January.
Interest Rates Driving Euro and British Pound Higher
The surprise this week in the Forex markets is the inability of the U.S. Dollar to attract fresh investors given the escalating problems in the Middle East and North Africa. With crude oil and gold rising as traders take protection, many traders thought the Greenback would benefit from flight-to-safety buying.
There are at least eight reasonable explanations for recent price weakness --- there are at least eight excellent reasons why investors should be viewing this weakness as a buying opportunity. Clearly, the financial press has not attended any of my seminars on income investing. Lower prices and higher yields are good news for income investors!
The Dollar is trading weaker across the board except the Japanese Yen. Investors are feeling more confident about the global economic recovery and shedding safer currencies. Commodity-linked currencies are trading higher let by the Australian Dollar as traders buy ahead of tomorrow’s CPI report.
The Australian Dollar rebounded on Tuesday following a three-day setback boosted by stronger U.S. equity markets and increased demand for currency-linked commodities. Speculation mounted that the central bank would raise interest rates before the end of the year following news that the Asian Development Bank increased its growth forecast for China.
Low Interest Rates; Global Recovery Fears Driving T-Bonds Higher
Flight-to-safety buying is driving June Treasury Bonds sharply higher. Thursday trading action took out the recent high at 124’16. Upside momentum seemed to be indicating that another surge was likely. The move in the T-Bonds looks more reactionary than speculative with investors taking their cues from the falling equity markets.