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November 21, 2018

The End Zone and the Mighty Dollar

US Dollars
US Dollars

The end zone in american football is where a football team scores. Some teams will start the move near their own end zone and string a sequence of moves to get to the opponent's end zone. Occasionally, a team will throw a ''hail-mary'' pass and make a score out of nowhere.

The dollar had been in a precipitous decline in 2017 and until last week had crashed about 12 per cent lower versus the euro and as an index [against a basket of currencies] was down 11 per cent. The $5.1 trillion (Sh529.74 trillion) a day foreign exchange markets [the most liquid market in the world] had watched incredulously as Washington metastasized into a new epicentre of global uncertainty and as the special prosecutor Robert Mueller the third's hot breath could be felt on President Trump's collar. President Trump is a unique individual but his twitter account gives us surgical and real-time insights into his mental state. President Trump had drawn a ''red line'' with respect to the special prosecutor in a New York Times interview where he had said 'probing his business and his family’s financial dealings would be a “violation.” Last week, we learnt this red line has been crossed.

Any financial expert will tell you that President Trump's financial affairs are a ''smoking gun.'' Deutsche Bank loans were surely ''mirror'' transactions, where Deutsche Bank was a commission agent interposed between Trump and the real lender. All those sales where Trump proclaimed himself a ''genius'' because they were so off-market, we would all be incredulous, were essentially just that ''incredible''. There is a prima facie case here and its in plain sight. President Trump knows it and that's why he has been demanding Al Pacino [a la Martin Scorsese's godfather] style demands of loyalty from the likes of the now dispensed with FBI director James Comey.

What was interesting last week is that the dollar picked itself of the floor and we witnessed a rebound into the end of the week. Its nascent but it was noteworthy. It was as if the FX markets had reached the conclusions that it is all in the price now, maybe not an impeachment but pretty much everything else is baked into the price of the dollar.

The dollar is the elephant in the room [financial markets]. This week we will need to study it closely for the signals that it emits.

I think the rebound will gather strength because just about everyone has been lulled into a sense of security. And that the dollar which was deep in its end-zone has just thrown a hail-mary pass, which is set to make up a lot of ground.



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