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Futures Trade Desk- Year-End Window Dressing

Client Note

Year-End Window Dressing

The last trading days of 2011 look as though they will follow the same pattern as the months that came before; raising concern over momentum, sentiment, and the inability to break a trading channel. This is a pivotal two-week period for fair value to be found on equities, commodities, and bonds, which by default will move currency valuations into 2012.

There are five or six times a year that global asset valuations get heavily revamped as the market moves as one to adjust fair value on the dollar. There are many reasons to think that right now, in the midst of a channeling, low momentum, high volatility trading pattern, that the market may be about to reveal a swing change in valuations.

How many times have the big-break opportunities come and gone before a realization that they were even there sinks in? This may be the warning that garners attention; the cause and effect built over the last three months may be about to break, and if so, it will be a big move.

December 31st brings quarter four (Q4) to a close, and also brings a swath of economics from all regions, that whatever the numbers are very likely to create moves across the commodity, currency, and equity markets.

Bubble Notes

There are questions being asked about Treasury market reporting, USD reserve values, and also financial questions surrounding the bubble-like look of note values. The last week of the month also brings window dressing; the tidying up of Managed Fund portfolios to disguise the weak hands held over the last period which in itself creates volatility.

Window dressing is the least exposed and talked about of the general market mechanics, but may be the one that has the most equity value impact, and equity markets right now are leading global market valuations. The cloak and dagger charade that is getting played out to revalue the trade book and to disguise the previous trading history only benefits just one group; the ones holding and running the book. 

This volatility of year-end may just spill over into a big price action movement when added to the other variables coming down the pipe. For many reasons traders may be on the cusp of something big and may not want to let the last month create a false feeling that things will be hard pushed to change. This could be the easiest break-out of recent times, and one that is a little overdue.

Since the gold standard was scrapped in 1971, and the subsequent  expansion in the 1980’s from exchange control being removed by most countries, and electronic trading opening up the markets in the 1990’s, global trade has been about covering forward commitments in another currency, and hedging open positions in another market. 

Bubble Debt

Additionally, it has been more about buying or selling interest rates than it has been about looking for base appreciation in asset values. All of that may now come sharply back into focus, and will allow some clean cut separation from the recent channels.

For decades, the link between Forward Growth (NYSEMKT:GDP) and Inflation (Interest Rates) has dominated global asset class values, and right now the fact that the only growth coming from the U.S. is based around government spending at debt levels that are literally beyond compare, places the USD in a unique place.

It may be that the American currency can more easily depreciate than any other, at a time that all regions would like a low value currency, for one simple reason; historical forex values aid growth. 

Debt-to-Growth ratios out of the U.S. looks appalling, and for whatever reason, and under whatever agenda, the U.S. administration may just want to re-think how easily the masses believe their commitment is to a “strong dollar policy”. This year-end will leave most asset classes with very little 12-month movement, which is something that could quickly change once Window Dressing is out of the way.