Against All Odds
Archives of “January 2020” month
rssUS to Iraq: Kick out our military and we will seize your central bank accounts
US puts the petrodollar at risk
The US warned Iraq that if it kicks American forces out of the country, it would lock the country out of its central bank accounts held at the New York Fed.
Iraq uses the account to settle oil sales of oil and other international transfers.
Iraq’s elected legislature voted last week to expel US troops who were invited to the country to fight ISIS in 2014. The Prime Minister moved forward with those plans this week in a call with Secretary of State Mike Pompeo.
The threat may spark a shift away from US dollar use and pricing in the international oil trade. It could also cause other countries to reconsider keeping money or other financial assets in the United States.
An adviser to the prime minister, Abd al-Hassanein al-Hanein, said that while the threat of sanctions was a concern, he did not expect the U.S. to go through with it. “If the U.S. does that, it will lose Iraq forever,” he said.
In its most-recent disclosures from end-2018, Iraq’s central bank said it held $3 billion in overnight deposits at the NY Fed.
What were the financial lessons of the 2010s?
The next decade is often different from the prior one
“Financial markets tend to base their expectations of the future on the experiences of the recent past”
That’s a part of human nature that has repeatedly led to folly. Nowhere moreso than in financial markets.
We’ve started a new decade with the same enthusiasm that ended one of the greatest decades in stock markets. Yet few people are out there to remind market participants that the S&P 500 had an average annual total return of negative 0.95% from 2000 through 2009.
One is the WSJ’s Jason Zweig who wrote the Heard on the Street column edited the latest edition of Benjamin Graham’s classic the Intelligent Investor.
In a recent article he highlighted how investors (and traders) tend to pile into trades that have worked recently. A parallel from the 2000s decade as the carry trade. Buying NZD/JPY was a spectacular trade, until it wasn’t. In the most-recent decade the market fell in love with the US dollar.
Market patterns don’t reverse in 10-year cycles like clockwork; there’s no guarantee that the coming decade will be the opposite of the one that just ended. But before you bet that the future will be like the past, it’s worth remembering that this decade hasn’t turned out the way investors predicted it would 10 years ago.
Here is how FX returns looked in the past 10 years:
What that doesn’t include is emerging markets. The South African rand lost 48%, the Russian ruble 52%, the Brazilian real 56.5% and the Turkish lira 75%.
Thought For A Day
S&P500 EV/EBITDA is almost as high as at the dotcom bubble peak of 1999/2000.
One of my favorite pieces of bitcoin artwork.
Bitcoin is a hedge against the world falling apart.
US tried to assassinate another Iranian official at the same time as Soleimani – report
Washington Post report
On the same day US forces launched a drone strike that killed Qasem Soleimani, they launched another operation to kill a senior Iranian official in Yemen, the Washington Post reports.
The assassination did not succeed but it’s raising questions on whether this was truly designed to stop an imminent attack, as US officials have said. Or if the plan was to cripple Iran’s military leadership.
The target was Abdul Reza Shahlai, a financier and key commander of Iran’s elite Quds Force who has been active in Yemen.
The details about what happened aren’t clear but the news increases the risks that the US will strike again and that Iran won’t wait until they do.
CFTC Commitments of Traders: Dollar bulls retreat
Futures forex positioning data for the week ending January 7, 2020:
- EUR short 61K vs 74K short last week. Shorts trimmed by 13K
- GBP long 17K vs 12K long last week. Longs increased by 5K
- JPY short 12K vs 25K short last week. Shorts trimmed by 13k
- CHF short 4K vs 6K short last week. Shorts trimmed by 2K
- AUD short 27k vs 38K short last week. Shorts trimmed by 11K
- NZD short 1K vs 5K short last week. Shorts trimmed by 4K
- CAD long 26k vs 12K long last week. Longs increased by 14K
The theme across the board was less enthusiasm for the dollar. All the dollar longs were trimmed and there are growing longs in CAD and GBP. Is this really the big turn in the dollar? There is certainly some room to run on the speculative side before we get even close.
Here’s a look at the GBP net:
US stocks stumble after hitting record highs
Closing changes for North American trade on January 10, 2020:
On the day:
- S&P 500 down 9 points to 3265 after hitting 3282 (-0.3%)
- DJIA down 133 points to 28823
- Nasdaq down 24 points to 9178
On the week:
- S&P 500 up 0.9%
- DJIA up 0.7%
- Nasdaq +1.75%
The turnaround today is a bit of warning signal. Note that January is a weak seasonal month but there is a long-term trend of strength early in the month. I also tend to think the signing of the ‘phase one’ deal is sell-the-fact risk.