This note was originally published at 8am this morning. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK in real-time, published by 8am every trading day.
"Nobody can really guarantee the future. The best we can do is size up the chances, calculate the risks involved, estimate our ability to deal with them and make our plans with confidence."
- Henry Ford II
Staying as far away as I can from America’s professional politicians on Washington’s Sunday talk shows, this morning I’m rolling with an outstanding risk management quote from the man they called “The Deuce”, Henry Ford’s grandson, Henry Ford II.
According to my good friend who is currently working for Ford, Henry Ford II “doesn’t quite get the historical credit he deserves and is often remembered for his personal gruffness and feud’s with Lee Iacocca in the 1970’s, but his leadership and accomplishments during his era at Ford were amazing.”
After serving in the Navy in WWII, Henry Ford II came home to rid his family’s company of complacency and bureaucracy. He may not have been as “experienced” or as “polished” as some of America’s corporate executives are today, but as President of the Ford Motor Company (1945-1960) then CEO (1960-1979), he definitely sized up chances, calculated risks, and executed his plans with confidence.
Ford came public under Henry Ford II’s leadership in 1956. Don’t worry, I’m not wasting this morning’s missive on General Disaster’s pending IPO. Instead, I’m going to get right into the math associated with last week’s macro market moves and focus specifically on the impact of another deuce – the US Dollar not going down for the 2nd week in a row!
Now before we get into some Dollar correlations, let’s first realize this: a deuce does not a TREND make. In our TRADE, TREND, and TAIL risk management process we are wed to 3s. In order for us to start thinking about shifting a strategy point of view (like covering our short position in the USD), we need to see at least 3 consecutive weeks confirm the direction of price.
Last week the US Dollar Index was barely up week-over-week (by +0.13%) for just the 2nd week in the last 12, closing out the week at $83.06. This followed the prior week’s significant +3.2% week-over-week move off of its recent 12-week low after Ben Bernanke didn’t give into the Fiat Fools begging for quantitatively easing America into becoming the debt-laden bureaucracy of Japan.
Measuring the math associated with a US Dollar Index not going down on our most immediate term risk management duration (TRADE = 3-weeks or less) is actually quite revealing.
The following are the 3 most negative TRADE (or inverse) correlations to the US Dollar:
- SP500 = -0.97
- Crude Oil = -0.94
- Commodity Index = -0.93
Here are the 3 most positive TRADE correlations to the US Dollar (again, using 3-weeks or less as our duration):
- Coffee = +0.85
- Cotton = +0.79
- Gold = +0.75
In other words, the decision by the Fed NOT to obliterate the credibility of America’s currency in one fell swoop has really hammered US stocks and the price of oil. The size of the Fed’s balance sheet actually contracted for once last week by $13.9B to $2.32 TRILLION.
Maybe not so ironically, prices at the pump going down also lifted US Consumer Confidence. In the last 2 weeks, despite stocks going down, the ABC/Washington Post Consumer Confidence reading has improved from minus -50 to minus -45.
In the very immediate term, could it be that The Deuce of Dollar UP has provided Americans with some things that they really want?
- The value of their currency stopped burning.
- The price of oil is down -8.6% in the last 2 weeks.
- The probability of their least favorite American politician being voted out keeps going up.
Food for thought on a Monday morning in America where all that is conventional wisdom about the Fiat Republic’s dollar devaluation policy is ripe for change. It’s time we “estimate our ability to deal” with change and start leading this country with confidence.
My immediate term TRADE support and resistance lines for the SP500 are now 1059 and 1087, respectively.
Best of luck out there today,