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Michael Sankowski
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Michael Sankowski lives in Oak Park, IL. Michael has been a professional trader for 20 years and traded billions of dollars on four continents. He's traded Futures, Currencies, Stocks and written for Agora Publishing, Absolute Wealth, and SFO Magazine. He's a CFA Charterholder and CAIA... More
My company:
Generate FX
My blog:
Trend Following 101
My book:
The Trader's Toolbox for Trend Following Millions
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  • Why Operation Twist Is Like A Martini

    "Rate cuts are like martinis. The first one really feels good. The next few are sort of ho-hum. By the time one comes to the tenth, everyone is numb"

    Art Cashin

    This week, the U.S. Federal reserve announced Operation Twist would be extended by $267bn. The initial rounds of Quantitative easing were met with cries of horror and panic over the potential for hyperinflation.

    But not this time. It appears the extension of Operation Twist is like that 10th martini, because there was very little or any clamor around the web about the imminent "Zibabwefication" of the U.S dollar. Even zerohedge could not muster up much more than a grumble.

    And how about those bond vigilantes? Where are the warnings of yields on U.S. Treasuries skyrocketing to 8-9%?

    So this makes me think of the great Art Cashin's comparison of rate cuts and martinis. Mr. Cashin made this excellent comparison after the fed had cut rates again and again in 2001 in an attempt to stimulate the economy.

    Now, Operation Twist is not exactly a cut in the fed funds rate, but I like to think Art Cashin would approve of comparing this extension of operation twist to the 10th martini of the night.

    Expect a replication of the massive rallies which came to the bond market after QE I and QEII stopped to hit long bonds (TLT, IEF). Do not fight the fed.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: IEF, TLT, etf-analysis
    Jun 25 5:38 PM | Link | Comment!
  • FX Markets Dominated By Central Banks, Governments

    The FX markets are dominated by the actions of Central Banks and Governments in the post-2008 crisis world. Much of what drives the FX markets today is the result of what politicians say and do, instead of capital flows and economic factors.

    The capital flows in and out of countries are being driven by decisions taken by central banks and governments. These are largely political decisions, and happen outside the realm of economic factors and capital allocation decisions.

    This has made trading much more difficult. Instead of predicting fundamental economic factors and the response of capital flows to these factors, the active hand of government intervention must be taken into account - and how large players might react to those decisions.

    Simply look to Europe as the extreme example. Much of what happens with the price action of the euro will be driven by the actions of governments and the ECB, the timing of those actions, and the commitment of the government to follow through with the actions. These are nearly all political decisions, with very little actual economic or financial information making much of a difference at all.

    The FXE and EURUSD are driven by political outcomes and statements instead of the relationship between European fundamentals and capital flow response.

    This is just one currency, but look to any currency and you'll find politics play a far larger role in determining currency levels than pre-2008. Japan, the U.K., Switzerland, Australia and New Zealand, China, Emerging markets like Brazil - all of these have currencies which have been massively impacted or even dominated by the active hand of government.

    This is very different than the environment pre-2008, where government actions were less frequent, typically more predictable, and less extreme.

    Many of my trading friends and colleagues are weary of creating trading scenarios - only to have them dashed by some new announcement or program. We've all become analysts of the political situations as they relate to the currency markets, instead of a market action and capital flow analysts.

    As you are formulating any trading scenarios for the FX markets - or the interest rate markets - keep in mind a major force determining the outcome will be government actions.

    Tags: FX, Forex, Currency
    Jun 19 3:57 PM | Link | Comment!
  • U.S. Durable Goods Could Strengthen Canadian Dollar

    U.S. Durable Goods comes out Wednesday. This particular number could be absolutely huge in impact. There is little consensus on the recovery/recession debate here in the U.S.

    This durable goods is a big number for estimating how the U.S. economy is performing right now. The expectation is +3%, I am looking for it to be higher.

    Last month was horrible, so the expected gains better be there this month or we're going to have a bad surprise.

    The chances of a significant surprise in either direction are high. We have oil prices skyrocketing - which could have taken a huge bite out of consumer spending. But then we also had the warmest March on record, sustained employment growth, and the tax cut extension, all of which should have boosted spending.

    Last months negative number was something of a surprise. What factors will dominate this month?

    The number will have important implications for several huge debates unfolding in the currency markets:

    1. Inflation vs. Deflation: As long as the U.S. economy is going ok, then there will be a subset of traders/investors/analysts terrified of inflation. A good number will stoke inflation fears.

    2. Recession/Recovery: The argument right now is we're either falling off a cliff or in a decent recovery. The high oil prices seem to have taken a toll on mood for people, but those oil and gasoline prices seem to be the only complaint. If we see actual orders, the mood doesn't matter

    3. China slowdown/Continuation: If the U.S. is booming, China is on a rocket. This is the conventional wisdom. A decent durable goods number will dampen fears of a slowdown in China.

    These market debates make this particular durable goods number more important than most. The number will give evidence to help settle these debates.

    Over the last few weeks, we're seeing the the currency wars start to fire up again. The U.S. has been stronger than expected, and this has tended to translate into a stronger USD and increasing interest rates for U.S. Treasuries.

    This is unusual for the last few years. Since the crisis until just recently, the USD and U.S. Treasuries have moved in tandem.

    A better than expected durable goods number should be good for the U.S. and the Australian Dollar, and also for the Canadian Dollar. The Australian and Canadian dollars are both "commodity currencies" and a recovery in the U.S. means demand for commodities.

    I think the biggest impact from a good number will be on the Canadian Dollar. The Canadian Dollar tends to follow oil - as oil goes up, the CAD goes up. But when oil gets too high, the CAD tends to stay put. This is because the high oil prices (good for CAD) are offset by the implied U.S. recession from high gasoline prices(bad for CAD).

    A strong Durable Goods number means the best of both worlds for the Canadian Dollar. High oil prices plus a strong U.S. economy means the Canadian Dollar could see significant gains.

    Tags: FXC, USDCAD
    Mar 26 7:40 AM | Link | Comment!
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