The Dollar Carry Trade is Collapsing

Friday, January 22nd, 2010

This article is a guest post by Vince Fernando, The Business Insider.

Dollar strength at the end of 2009 sent the dollar carry trade (where by one borrows in dollars, then parks the proceeds in higher yielding assets) into a tailspin. This is why even small upward moves in the dollar could instigate substantial selling for 2009’s star currencies. For example, for the Australian dollar shown to the right.

Bloomberg: Funding the carry trade with the greenback lost money in December for the first time since February as the U.S. currency gained 4.8 percent against the euro amid growing confidence in the U.S. economy and expectations that the Federal Reserve will raise borrowing costs by June. Futures trading on Dec. 31 suggested a 62 percent chance the Fed would increase its benchmark to at least 0.5 percent by mid-year from a range of zero to 0.25 percent, up from 30 percent in November, Bloomberg data show. The Bank of Japan’s target rate is 0.1 percent.

Buying and selling high- and low-yielding currencies to take maximum advantage of global rate moves gained 19 percent from February to November, the carry trade’s best nine months since 2003, a Royal Bank of Scotland Plc index shows. The index fell 0.9 percent in December.

Few engaged in such an arbitrage will want to hang around should last year’s prevailing weak-dollar expectations be substantially reversed by persistent dollar strength.

[AA] Looking at the chart below of the dollar index, you can see that the dollar has rallied since the end of November, as a result of the accumulation of large short positions, not being covered. This has been a very profitable trade on both a currency pairs as well speculation in last year’s winning trades.

Currencies fared vary well against the dollar from an exchange rate standpoint as you can see in the following table:

* reflects the percentage change in the value of the non-USD currency compared to USD

Is it really a surprise that risk assets (commodities, the Canadian and Aussie dollars, equities, emerging markets) are selling off as institutional and hedge fund traders unload this increasingly squeezed short trade?

Read Bob Janjuah’s updated outlook for more insight on the short squeeze raising the dollar’s value - Janjuah points out that Senator-elect Scott Brown’s GOP victory in Massachusetts upsets Obama’s applecart so much so, that the resulting backlash will be for Obama to speed up plans for fiscal tightening, which means possibly a more rapid windup of the Fed’s quantitative easing, monetary tightening later this year.

Axel Merk puts it nicely, saying “In that context, the conventional wisdom that a country needs to have economic growth to have a strong currency is, in our assessment, wrong. Such a relationship only applies to countries that depend on foreigners to finance their deficits. In the U.S., foreigners finance the twin deficits; one of the reasons why the U.S. has economic growth as a top priority is to entice foreigners to keep financing U.S. deficits. Australia also has a current account deficit and, as a result, has a currency that is sensitive to economic growth prospects. Japan, however, traditionally finances its deficits domestically; as a result, the value of the yen is not very sensitive to changes in growth forecasts. The same can be said for the euro zone: because the euro zone does not have a significant current account deficit, in our assessment, the euro can do well in the absence of economic growth.

Source: StockCharts

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Tags: Arbitrage, Australian Dollar, Bank Of Japan, Bank Of Scotland, Benchmark, Bloomberg, Business Insider, Canada, Carry Trade, Commodities, Currency Pairs, Dollar Index, Dollar Strength, Emerging Markets, Federal Reserve, Futures Trading, Global Rate, Greenback, Maximum Advantage, Nine Months, Percentage Change, Profitable Trade, Royal Bank Of Scotland, Royal Bank Of Scotland Plc, Tailspin, Target Rate, Weak Dollar
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Byron Wien’s Ten Surprises for 2010

Tuesday, January 5th, 2010

Dead on target at the beginning of the new year, 76-year-old Byron Wien again published his annual list of surprises to expect in 2010. Wien, Vice Chairman of Blackstone Advisory Services and one of Wall Street’s best known veterans, has been publishing his list of economic, market and political surprises since 1986.

Reviewing Wien’s 2009 list, he was very accurate with the direction of most of his predictions.

He foresaw a second-half recovery in the US economy, and the S&P 500 Index rising to 1,200 (up from 903 at the end of 2008 to 1,115 by December 31, 2009). He also predicted: “The ten-year US Treasury yield climbs to 4% [up from 2.24% to 3.84%]. Later in the year, as the economy shows signs of recovery, economists and investors shift their mood from concern about deflation to worries about inflation. A weak dollar, rapid growth in money supply and record-setting deficits (over $1 trillion) are behind the change.” Spot on.

Wien also expected the gold and oil prices to climb to $1,200 and $80 respectively - a feat accomplised in December.

He believes his ten surprises have at least a 50% chance of occurring at some point during the year. Although this is not a very high probability, his predictions nevertheless make for stimulating reading. His list for 2010 follows below.

1. The United States economy grows at a stronger than expected 5% real rate during the year and the unemployment level drops below 9%. Exports, inventory building and technology spending lead the way. Standard and Poor’s 500 operating earnings come in above $80.

2. The Federal Reserve decides the economy is strong enough for them to move away from zero interest rate policy. In a series of successive hikes beginning in the second quarter the Federal funds rate reaches 2% by year-end.

3. Heavy borrowing by the US Treasury and some reluctance by foreign central banks to keep buying notes and bonds drives the yield on the 10-year Treasury above 5.5%. Banks loan more to corporations and individuals and pull away from the carry trade, thereby reducing demand for Treasuries. Obama says, “The suits are finally listening”.

4. In a roller coaster year the Standard and Poor’s 500 rallies to 1,300 in the first half and then runs out of steam and declines to 1,000, ending where it started at 1115.10. Even though the economy is strong and earnings exceed expectations, rising interest rates and full valuations present a problem. Concern about longer term growth and obligations to reduce leverage at both the public and private level unsettle investors.

5. Because it is significantly undervalued on a purchasing power parity basis, the dollar rallies against the yen and the euro. It exceeds 100 on the yen and the euro drops below $1.30 as the long slide of the greenback is interrupted. Longer term prospects remain uncertain.

6. Japan stands out as the best performing major industrialized market in the world as its currency weakens and its exports improve. Investors focus on the attractive valuations of dozens of medium sized companies in a market selling at one quarter of its 1989 high. The Nikkei 225 rises above 12,000.

7. Believing he must be a leader in climate control initiatives, President Obama endorses legislation favorable for nuclear power development. Arguing that going nuclear is essential for the environment, will create jobs and reduce costs, Congress passes bills providing loans and subsidies for new plants, the first since 1979. Coal accounts for about 50% of electrical power generation, and Obama wants to reduce that to 25% by 2020.

8. The improvement in the US economy energizes the Obama administration. The White House undergoes some reorganization and regains its momentum. In the November Congressional election the Democrats only lose 20 seats, much less than expected.

9. When it finally passes, financial service legislation, like the health care bill, proves to be softer on the industry than originally feared. There is greater consumer protection, more transparency, tighter restriction of leverage and increased scrutiny of derivatives, but the regulatory changes for investment bankers and hedge funds are not onerous. Trading volume and merger activity increases; financial service stocks become exceptional performers in the US market.

10. Civil unrest in Iran reaches a crescendo. Ayatollah Khameini pushes out Mahmoud Ahmadinejad in favor of a more public relations adept leader. Economic improvement becomes the key issue and anti-Israel rhetoric subsides. Talks with the US and Europe begin but the country remains a nuclear threat. Pakistan becomes the hotspot in the region because of the weak government there, anti-American sentiment, active terrorist groups and concerns about the security of the country’s nuclear arsenal.

Source: PR-inside.com, January 4, 2009.

Tags: 10 Year Treasury, Advisory Services, Blackstone, Byron Wien, Central Banks, Deflation, Economic Market, Federal Funds Rate, Federal Reserve, Gold, Interest Rate Policy, Money Supply, oil, Oil Prices, Rapid Growth, Reluctance, S 500, Target, Unemployment Level, United States Economy, Us Treasury, Vice Chairman, Weak Dollar
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Gravity Will Drag the US Dollar

Thursday, December 24th, 2009

The US dollar ($US) is on a roller coaster. And since S&P downgraded Greece to BBB+, the dollar has been on the rise. One can attribute the recent shift in the $US to many things - improving US economic conditions, return to risk, or relative weakness in other G7 countries, whatever. But what is clear, is that the dollar’s gaining some strength, 4.7% since the beginning of December on a trade-weighted basis.

But this is not sustainable. As economic recoveries diverge (i.e., the G7 recovery is expected to be slower than that in key emerging markets), the dollar will likely fall. That’s just gravity, and a necessary condition for sorting out global trade flows.

The chart illustrates the effective value of the $US, which is a composite index of the value of the $US against US trading partners (one source for this data is the Bank of England). As recently as November, the $US slid to its lowest value since March 2008. At that time - and really anytime the $US initiates a descent - Washington gets all worked up; but why? One of the necessary conditions for the re-balancing of trade flows between major trading partners is dollar depreciation.

Just look at the contribution to GDP growth from exports in 2006 and 2007, when not coincidentally the dollar was sliding.

The chart illustrates export growth and the contribution to GDP growth, as released by the Bureau of Economic Analysis. Note: an easy way to get this data is to simply download the excel file in the right sidebar of the release page.

A weak dollar can drive economic growth - especially as trade resumes, and emerging markets see a much quicker rebound than that expected for the G7. According to the Financial Times, its already happening - Asia ex-Japan is moving Japan’s export market:

Japanese exports continued to increase in November because of robust demand from Asia, easing concerns about the strength of the country’s economic recovery.

Real exports were up by 0.6 per cent on October, according to Bank of Japan data. This was the eighth consecutive monthly rise, although the pace of increase was the slowest since exports began to recover in April.

A weaker dollar is a big part of the story for a re-balancing of trade flows. And its not just a US and China problem. According to the IMF, the 2007 US current account deficit was $731 billion, while the value of China’s surplus was just half that, $372 billion. It’s much of Asia and the Middle East that are likewise driving imbalances (of course, the US is not an innocent bystander here). The dollar will see weakness again on a trade-weighted basis; that’s gravity.

Rebecca Wilder

Tags: Accordi, Bank Of England, Bbb, Bureau Of Economic Analysis, China, Composite Index, Economic Recovery, Emerging Markets, Export Market, Financial Times, G7 Countries, GDP Growth, Global Trade, Japanese Exports, Major Trading Partners, Necessary Condition, Necessary Conditions, Page Advertisement, Relative Weakness, Robust Demand, Roller Coaster, Weak Dollar
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Is the USD Carry Trade for Real?

Thursday, December 3rd, 2009

Caroline Baum, one of Bloomberg’s most highly respected columnists, questions the veracity of Nouriel Roubini’s claim that the carry trade is inflating assets around the world.

Zero percent interest rates started it. A weak dollar fueled it. Speculators fanned it. And famed forecasters see it everywhere they look. There’s only one problem with the claims that the dollar carry trade - borrowing dollars cheaply to invest in higher-yielding assets abroad - is inflating bubbles across the globe: There is no visible credit expansion, at least in the US, to support them.

Roubini’s bubbles float on flimsy credit source, Bloomberg, December 2, 2009

Tags: Assets, Bloomberg, Bubbles, Caroline Baum, Credit Expansion, Credit Source, Forecasters, Globe, interest rates, Nouriel Roubini, Speculators, Veracity, Weak Dollar, Zero Percent
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Gold Bullion - Eight Day Streak - What’s next?

Thursday, November 12th, 2009

I have just arrived in Geneva after an exhausting but hugely successful few days in Ljubljana, quaint capital of Slovenia. It is rather difficult to write proper posts while on the road, but I will do my best to feed interesting snippets through - that is when not investigating how the gnomes see the future of Swiss banking.

Gold hit a new peak after a drop in the US dollar to a 15-month trough, resulting in the precious metal recording an eight-day winning streak. According to Bespoke, the current run represents the seventh time since 1980 that gold has had a streak of eight or more consecutive days with a gain. The report said: “As shown below, the only time one of these streaks went for more than eight days was back in 1982 when the ninth day was also positive (on the tenth day it fell 5.7%, or $63 in today’s prices). Looking out over the next week, there has been little consistency in the results as periods of negative and positive returns have been evenly split.”

Source: Bespoke, November 11, 2009.

Meanwhile, if you are looking for an explanation for gold’s strength that goes beyond the weak dollar argument routinely offered, spend a few minutes to read Mish’s recent post entitled “Budget deficits soar out of control in Eurozone, Germany, US, UK, Japan; yen’s last hurrah“. Then consider as an investment option “something that has no budget deficit” (in Mish’s words).

Fellow-bull Adam Hewison of INO.com expects a possible consolidation or correction before gold advances further. He explains his thinking in a short technical analysis presentation you can access here. As said a few days ago, I remain bullish on gold in the medium term but, given its notorious volatility, will only do additional purchases on pullbacks.

Tags: Analysis Presentation, Budget Deficit, Budget Deficits, Capital Of Slovenia, Consecutive Days, Eight Days, Eurozone, Gnomes, Gold, Gold Bullion, Investment Option, Japan Yen, Medium Term, Mish, New Peak, Ninth Day, Precious Metal, Pullbacks, Seventh Time, Weak Dollar, Winning Streak
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David Rosenberg: These Belong in Ripley’s

Tuesday, November 10th, 2009

Ahead of a record week of new government supply in the U.S., the demand for the 3-year Treasury note at yesterday’s auction was unbelievable. It drew a 1.40% yield, which was 3bps through the auction bid deadline level. And indirect bidding also took up 68.6% of the auction, which in part reflects a very healthy foreign central bank appetite for Uncle Sam’s obligations.

At the same time, gold, the antithesis of U.S. government credit quality, shot up to yet a new record high. Then we have the equity market, which, despite ongoing contractions in credit and employment, is approaching its bear-market-rally highs (in fact, the Dow has already accomplished that). But the rub remains that these distribution sessions where the gains are exaggerated by light volume (barely over a billion shares on the Big Board? Are you kidding? After a 16.6% plunge on Friday, volume in yesterday’s session was still far below normal and the second lowest in the past two weeks). This is a sign that conviction over the current rally remains unusually light.

The U.S. dollar traded down to a 15-month low, which may help partly explain the continued run-up in gold, though bullion is in a bull run against most currencies; and the weak dollar is widely considered as the genesis for the ‘carry trade’ rally in risk assets, though many countries outside the U.S.A. also have their funding costs near zero. It would seem that investors are optimistic on the future insofar as governments and central banks around the globe are going to damn-the-torpedoes-and-go-full-steam ahead and act as the consumer of first and last resort for their economies. The fact that the U.S. government, at a time when the deficit/GDP ratio is already at record levels of 10%, feels compelled to:

• Extend jobless benefits for up to two years (why not just put these folks on the government payroll? At least the unemployment rate will start to go down).

• Expand the homeowner tax credit.

• Provide tax breaks to homebuilders (the ones who helped get us in to this mess).

• Provide businesses with tax credits for new hires.

• And bump up social security payments once again.

All this really attests to how rotten things are beneath the surface. No doubt that all the government stimulus is going to provide some impetus to corporate profits, but what exactly is the fair-value P/E multiple in a period of state capitalism is a legitimate question.

Tags: Auction Bid, Bear Market, Bullion, Carry Trade, Central Banks, Contractions, Credit Quality, David Rosenberg, Gdp Ratio, Gold, Gold Bullion, Government Credit, Government Payroll, Government Supply, Jobless Benefits, Light Volume, Market Rally, Time Gold, Torpedoes, Unemployment Rate, Weak Dollar, Year Treasury Note
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Paul Tudor Jones: Buying Gold and Curve Flatteners

Monday, November 2nd, 2009

Investing legend, Paul Tudor Jones’ has published his latest latest letter to investors.

Here are some excerpts:

Tudor Jones believes there is a better opportunity to buy equities in the year-end period, as he is expecting a pullback in the fall.

While 45% is nothing to ignore, one should take into account that the S&P through July 31 is still down more than 20% on a price basis year-over-year. The bottom line is that we are not inclined to aggressively chase the market here. Rather, we eye a better opportunity to be long equities into year-end on a potential autumnal pullback.

The economy will remain strong until Q2 2010 as a result of ongoing support from the government, easy monetary policy, a weak dollar, and continuing inventory de-stocking:

The forceful policy response to avert depression tail risks posed by the financial crisis has likely unleashed a wave of liquidity which is probably greater than that of 2001-2003. Our job is to identify the best performing assets of this “Great Liquidity Race.” At present, it appears those assets are gold, emerging market equities denominated in local currencies, and commodity related stocks.

Liquidity is making its way into bond purchases by banks, into equity markets, into capital flows to emerging markets and into international reserve accumulation and related diversification away from the dollar. This will be the trend over the next quarter—or two—even before discussing potential portfolio shifts within it.

He likes gold on the basis of easy money and inflationary outlook:

Dealbook says:

Winning the race, Mr. Jones posits, will be gold, emerging-market equities denominated in local currencies and commodity-related stocks. “I have never been a gold bug,” he says in the letter. “It is just an asset that, like everything else in life, has its time and place. And that time is now.” (A link to the entire letter is below.)

Tudor Jones says:

“precious metals exposure has been increasing and is currently the largest commodity exposure. As a result we have included, for this quarter, a separate discussion on gold as an appendix. I have never been a gold bug. It is just an asset that, like everything else in life, has its time and place. And now is that time.”

Tudor notes that curve flatteners provide ‘tail risk insurance’ against the trades of long gold, short the US dollar, and long equities. Tudor writes, “As deflation recedes to the background, market participants will start expecting a removal of policy accommodation. If the markets begin to price early, fast and large tightening before inflationary expectations are allowed to take hold, then curves could bear-flatten significantly from current historically high levels.”

Tudor Jones also likes the Aussie dollar, and equity selections in Brazil and Taiwan. You may read the whole letter here, below inside the Scribd window.

Tudor Third-Quarter Letter

Tags: Accumulation, Commodities, Dealbook, Easy Money, Emerging Market, Emerging Markets, ETF, Financial Crisis, Gold, Gold Bug, International Diversification, liquidity, Monetary Policy, Ongoing Support, Paul Tudor Jones, Policy Response, precious metals, Price Basis, Pullback, Related Diversification, Time And Place, Weak Dollar, Winning The Race
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Weak dollar is protectionist barrier, says Bill Gross

Thursday, October 29th, 2009

The dollar is likely to continue depreciating and the “new normal” will see consumers shedding debt in an attempt to balance their books, Bill Gross, the influential manager who runs top bond fund Pimco, told CNBC Wednesday.

“I think the dollar is an over-owned currency. The Chinese, the Asians have basically owned too many dollars for too long,” Gross told “Squawk Box”.

The government has increased borrowing and this will make the dollar “more and more owned and less and less desirable” but this is necessary for balancing the world economy, as it may result in higher production in the US and lower production in China.

Source: CNBC, October 28, 2009.

Tags: Asians, Bill Gross, Bond Fund, Books, China, Cnbc, Consumers, Currency, Dollar Bill, Emerging Markets, PIMCO, Squawk Box, Weak Dollar, World Economy
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Marc Faber: Stocks Will Rise On Weakening Dollar

Monday, September 14th, 2009

Marc Faber says that stocks will rise on the weakening dollar, in an interview with Bloomberg Radio’s Pimm Fox. But isn’t the weak dollar a sign that things are not so good in the US, and how is that good for stocks? On the surface this seems like just the sort of statement I’d expect to hear from Marc Faber, author of Gloom Boom Doom. Faber is often painted with the same brush as many other Doomsayers, when in reality, Faber has predominantly been forecasting the eventual decline of America’s hegemoney.

Faber is, after all, based in Hong Kong, so he has many years on us  in terms of witnessing an Asia in the midst of an economic transformation not seen since the industrial revolution that reshaped the global economy  in the eighteenth and nineteenth centuries.

This school of thought falls into a similar basket as Bill Gross’ ‘New Normal,’ where the hallmarks of today’s global economy are Delevering, Deglobalization, and Reregulation - the DDRs.

It is in fact, delevering and de-risking, i.e. selling assets in favour of cash, which fortified the US dollar before March, while the market was in liquidation, and it is now the chase back into the risk trade out of cash that is weakening the dollar. As the momentum picks up for stocks and risky investments, the dollar suffers.

Which comes first, the weakening dollar or the stronger equity market? Doesn’t matter, in fact the two go hand-in-hand.

Click play to listen to the Faber interview here:

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Bottom Line:  A rising dollar may indicate flight to safety, and a falling dollar may be good indication of a return to risk. Basically, zero-interest rates are driving investors back to the market, because as Faber says, retirees can’t live on zero interest, and that is why the dollar has gone down. Investments made in anything other  than cash (e.g. municipal bonds) will result in a weaker dollar.

On days when stocks are strong, the dollar is weak, and vice versa. To answer my earlier question, Faber says the stronger equity market follows the weakening dollar, and a weaker market follows strengthening of the dollar.

Faber is always interesting to listen to. He coins himself a depressive optimist.

He is depressive that the same people who brought us the Nasdaq bubble, then the Housing, Credit and Refinancing bubble, and the economic bounces in between are the result the so-called Greenspan and Bernanke ‘puts.’ This idea that the economy can be managed by policymakers, and that big recessions are a thing of the past are most troubling and Faber believes that the same people are doing it all over again; i.e. creating yet another bubble, and not really taking care of the real problems of the economy other than to pass the bag, and leave middle class Americans holding it.

On the upside, Faber is optimistic and says that despite David Rosenberg saying the market’s rally is built on quicksand, he sees a lot of breakout moves on individual stocks, on strong volume from bases they formed during the last 6-9 months, and that, he has to respect.

“Its not the type of bull market that I like, that is based on sound fundamentals,” he said. Though he feels equity markets could go higher, he also believes that valuations are not that attractive anymore. In other words it is a strong market based on policies that crowd the market out of the dollar, and as long as the economy is weak, interest rates will remain closer to zero.

David Rosenberg says equity valuations are at risk, if earnings do not live up to economic expectations. In the end, Faber is less than optimistic about the economy, and feels that Bernanke’s policies could still lead to depression.

On another note, if a rebalancing of the dollar is due, to maintain global stability, then stocks could correct if you follow this line  of thinking.

Source: Bloomberg on the Economy, September 10, 2009, Pimm Fox Interviews Marc Faber.

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Tags: Bill Gross, Bloomberg Radio, Ddrs, Decline Of America, Doomsayers, Economic Transformation, Eventual Decline, Favour, Global Economy, Gloom Boom Doom, Hallmarks, Hege, Industrial Revolution, Marc Faber, Midst, Municipal Bonds, Nineteenth Centuries, Optimist, Pimm, Risky Investments, School Of Thought, Weak Dollar
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Byron Wien: Ten Surprises for 2009

Tuesday, January 6th, 2009

Byron R. Wien, Chief Investment Strategist of Pequot Capital Management, Inc., today issued his list of Ten Surprises for 2009. Mr. Wien has issued his economic, financial market and political surprises annually since 1986. The 2009 list follows:

1. The Standard and Poor’s 500 rises to 1200. In anticipation of a second-half recovery in the U.S. economy, the market improves from a base of investor despondency and hedge fund and mutual fund withdrawals. The mantra changes from “fortunes have been lost” to “fortunes can still be made.” Higher quality corporate bonds, leveraged loans and mortgages lead the way.

2. Gold rises to $1,200 per ounce. Heavy buying by Middle Eastern investors and a worldwide disenchantment with paper currencies drive the price of precious metals higher. In a time of uncertainty, investors want something they can count on as real.

3. The price of oil returns to $80 per barrel. Production disappointments and rising Asian demand create an unfavorable supply/demand balance. Other commodities also rise, some doubling from their 2008 lows. Natural gas goes to $9 per mcf.

4. Low Treasury interest rates coupled with huge borrowing by the Treasury send the dollar into a serious downward slide. Overseas investors become concerned that the currency printing presses will never stop. The yen goes to 75 and the euro to 1.65.

5. The ten-year U.S. Treasury yield climbs to 4%. Later in the year, as the economy shows signs of recovery, economists and investors shift their mood from concern about deflation to worries about inflation. A weak dollar, rapid growth in money supply and record-setting deficits (over $1 trillion) are behind the change.

6. China’s growth exceeds 7% and its stock market revives. World leaders credit China’s authoritarian government for its thoughtful stimulus policies and effective execution during a challenging period. The Chinese consumer begins to spend more and save less and this shift is behind the unexpected strength in the economy.

7. Falling tax revenues from the financial sector cause New York State to threaten bankruptcy and other states and municipalities follow. The Federal government is forced to step in and provide substantial assistance. The New York Post screams “When will the bailouts stop?”

8. Housing starts reach bottom ahead of schedule in the fall, and house prices stabilize after dropping 15% from year-end 2008 levels. The Obama stimulus program proves effective and a slow growth recovery begins before year-end. Third and fourth quarter real gross domestic product numbers are positive.

9. The savings rate in the United States fails to improve beyond 3%, as most economists expect. The concept of thrift seems to have vanished from American culture. Peak job insecurity and negative growth drive increased savings early in the year, but spending resumes as the economic growth turns positive in the second half, making Christmas 2009 the best ever.

10. Citing concerns about Iraq’s fragile democratically elected government and the danger of a Taliban-controlled Afghanistan, Barack Obama slows his plan for troop withdrawal in the former and meaningfully increases U.S. military presence in the latter. In a hawkish speech he states that the threat of terrorism forces the United States to maintain a strong military force in this strategic area.

Mr. Wien believes these surprises, which the consensus would assign only a one-in-three chance of happening, have at least a 50% probability of occurring at some point during the year. In previous years, more than half of the elements of the list have proven correct.

Pequot Capital Management is a private investment firm.

Source: Business Wire
http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20090105005763&newsLang=en

Tags: Authoritarian Government, Capital Management Inc, Chief Investment Strategist, Chinese Consumer, Corporate Bonds, Demand Balance, Despondency, Disenchantment, Downward Slide, Leveraged Loans, Overseas Investors, Paper Currencies, Pequot Capital Management, Pequot Capital Management Inc, precious metals, Price Of Oil, Printing Presses, U S Treasury, Unexpected Strength, Weak Dollar
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