Greenspan’s Crystal Ball
From “In a Comback, It is Rally Time for the Dollar”, The Wall Street Journal, February 10, 2005:
“Yet unlike other relief rallies during the dollar’s three-year decline, this advance reflects something new: a rare belief that the widening U.S. trade and budget deficits could be coming under control. But can this new optimism be sustained? Some traders certainly think so. They point to a speech last week by Federal Reserve Chairman Alan Greenspan, who suggested that the dollar’s decline should help narrow the trade deficit. Then, on Monday, President Bush proposed a budget plan that calls for sharply cutting the shortfall by 2008. ‘We’ve changed the tone of the debate from one with ever-widening deficits to one where something is going to be done on both accounts,’ says Robert Sinche, head of global foreign-exchange research and strategy for Bank of America. ‘The future for the dollar doesn’t look nearly as scary as it did six weeks ago.’”
Craig Karmin
Why does Wall Street persist in believing that Alan Greenspan has a crystal ball? Is it the need to be optimistic? Patriotic? Or just the unquenchable thirst for fundamentals you can “trust”? And if you can’t trust fundamentals from the Federal Reserve Chairman…but doesn’t this whole debate miss the point?
If you have a trading strategy it must answer these 5 questions regardless of what Greenspan says on some odd day:
- How does the system determine what market to buy or sell at any time?
- How does the system determine how much of a market to buy or sell at any time?
- How does the system determine when you buy or sell a market?
- How does the system determine when you get out of a losing position?
- How does the system determine when you get out of a winning position?
