The Fed balance sheet contracted last week. But that's not what raised an eyebrow, this did.
The Fed had about $69.5 B in carry "profits" to remit to the Treasury Dept this year. 2 new Dodd/Frank agencies are reaping the benefit- The Office of Financial research received $42m vs $11m last year and the Consumer Protection Agency (sorry Liz) has received ...wait for it..$249m vs $147m last year !! QE is financing new regulatory bureaucracy.
Many folks have been questioning “why the EUR strength?” recently. Although I don’t know the answers, what I can say is technically, the EUR is rallying against most every currency. So, from a “cross rate” perspective, this should keep the EUR (at least) afloat and performing better than most other G10 currencies for a while.
I wanted to turn your attention to this weekly chart on the EUR/NZD. It’s attempting a major breakout from a long term descending wedge. A move above and daily close above 1.5900 today would be extremely bullish technically in the near term. Whether you look to trade this pair or not, it should at least make you consider the following 2 points:
- Reconsider long NZD/USD trades for the near term (or long NZD for that matter).
- EUR bullishness on crosses like this should make you think twice about being short EUR’s
One of the best trades (post) financial crisis have been short the EUR/NZD & EUR/AUD for the positive carry interest and….well…just to be short “EUR” in light of the European crisis. Heaven forbid if those trades get unwound, you could see a pretty aggressive short squeeze here which would be EUR positive, high beta (NZD and AUD) negative.
Also consider that bullish EUR/NZD moves typically have a “risk off” association for most other asset classes too.
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Disclaimer: I have carried a long EUR/NZD for the last 1+ month and am adding to longs currently.
Long time followers know our crush on Abundance Economics and how it has changed the core foundation of Economic Theory :scarcity. Pointed out by "recovering Washingtonian and heavily armed Bonobo" @Mark_Dow , the above link illustrates an old rant for us. The tax structure has been skewed in favor of capital and at a cost to employment. This has been a boon to the credit/technology super cycles. In the post crash denouement', this structure embeds the Structural Trap (not liquidity trap) and reduces Fed efficacy. Easy fix: shift the imbalance back and "Get Nominal"