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Predictable Men
by Tony Butcher
Issue 13
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If you read information about financial markets you won't be able to get through many paragraphs without someone saying, "Markets don't like uncertainty". Well from our point of view, this is not strictly true. If everyone in the market knows what is going to happen, i.e. certainty, how can anyone make any money? Let's be clear, we are all looking at these markets with a view to making money, if you are looking for spiritual fulfilment then you've strolled into the wrong lobby.

Uncertainty creates volatility because it makes different traders take different views on events. In essence, it gives traders chances to make money. The problem at the moment is that in the debt / bond markets there is not a great deal of uncertainty on the macro-scale. All the major central banks of the world do a fantastic job of 'signalling' interest rate expectations to the financial markets. In truth, what markets don't like is unexpected shocks.

The last European central bank meeting was a guaranteed quarter point rise, in the same way they are guaranteed not to do anything at the next meeting. How do we know this? Jean Claude Trichet has developed a language whereby in coded sentences he allows the markets to know what he is thinking without actually giving straight answers.

By using the term 'monitor closely' instead of 'vigilance' we are led to believe that key European Interest Rates will be left on hold, when he changes the language back that will be the signal for another rate rise. It is widely expected there will be another rate rise of one quarter of one percent in one of the months between April and June.

A similar situation has occurred in the United States with former Chairman Greenspan developing his own language with the help of contacts in the media who translate what he says. The only interesting point will be how the new man in charge, Ben Bernanke, tackles this situation. However, after serving several years under 'Big Al' he may become even more transparent for the benefit of the markets.

Other global events that continue to bubble away are bird flu and the Iranian Nuclear situations, both of which have monumental consequences for the globe if we get anywhere near the worse case scenarios. Bird flu is gradually making its way across Europe, and currently France seems to be the worst hit. This could possibly cripple a country that is so dependant on its agricultural industry - I just can't help but form a wry smile.

Ironically, Europe is in the final process of lifting a ten-year export ban on British Beef and it may not be long before France suffers a similar situation with its poultry exports. The Iran situation continues to be a far more pressing and serious issue with countries from all corners of the world posturing over the rhetoric.

Iran has been giving veiled threats towards the United States if it continues to refer them to the United Nations Security Council, but somehow I cannot see Mr Bush backing down on this issue. I would not be surprised to see Israel take a more pro-active and destructive approach to any building plans the Iranians have.
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