The Euro/Dollar is likely to go nowhere much today

Today the calendar is light. We get some data from Canada and in the US, the Chicago national survey and consumer confidence. These are not FX market movers.

More powerful for us is the Wednesday holiday for Christmas, Markets will close early tomorrow, although a turnaround can happen anyway. Thursday and Friday, then Monday and Tuesday just before New Year’s Day next week, could well be little more than end-of-year positioning by the big names. Alas for dollar bulls, all four days could be a reduction in long dollar positions. Every once in a blue moon we get a big move at year-end or the first few days of a new year, as we saw in 2020. So don’t be complacent! 

Forecast: The euro/dollar is likely to go nowhere much today, although we always have to worry about a turnaround Tuesday. We guess upside resistance lies at around 1.0466 with support around 1.0303, but you never know when a surprise might come along and punch you in the face. Complacency at year-end is not wise.

Geopolitical: In Canada, some politicians are coming together to try to oust PM Trudeau, although some reports have it there is no actual formal process to do that. He would have to resign, as did his FinMin Freeland last week.

Political Tidbit: Remember that government shutdown story on Friday? With one hour to go to the shutdown, Congress defied Musk/Trump and passed a spending bill. It did makes some minor cuts (unless your kid has cancer).  It was a political disaster for Musk/Trump and perhaps a tiny victory for the Constitutional separation of powers. But only perhaps.

A total of 38 Republicans defied Musk/Trump by rejecting their attempt to control the House. On the vote that passed the midnight bill, 170 Republicans voted yes and only 34 voted with the oligarchs. It’s too soon to say if they are growing a spine. The WSJ calls it a “GOP spending rebellion.” Musk/Trump did not get an increase in the spending limit (shades of the Tea Party) and what they demonstrated was “power to tear apart legislation but didn’t necessarily demonstrate a way to put it back together.”

“The episode is an ominous sign for next year’s all-Republican government, when GOP lawmakers will try to push Trump’s border, energy, defense, tax and spending priorities into law through narrow majorities while keeping the government open and legally able to borrow.” The bond market is watching.

We also have Trump threatening to “take back” the Panama Canal and still wanting to buy Greenland. The markets ignore stupid stuff like this.

Tidbit: We claim no expertise in equities but recently saw a chart of the S&P price-to-book ratio. It’s scary. But now see the table—that’s not a strange number—we have seen giant gains like that before.

The question is whether price should  be such a high multiple of book. Well, that involves judgment, or at the least, looking at other measures, like price to sales and price/earnings, where the Case-Shiller version is the preferred one. See the “excess” price on the Case-Shiller basis, a mere 1.5% “too high” (same source). The fine print states the Shiller P/E is 39.9% higher than the recent 20-year average of 26.7.

Some folks call it a bubble (and we haven’t even touched the Nasdaq). Yes, it’s certainly bubbly. On the standard (non-Shiller) basis, the P/E is 29.6, more than the 20-year average of 24.8. But bubbly doesn’t mean a crash is coming, not in the absence of a Shock. One good thing can be said about Trump—he is fully aware that he has to avoid initiatives that would tank the stock market, which would seriously annoy his contributors.

When you see a gloomster warning of a crash, take it with a grain of salt. Maybe a cupful. And remember that mainstream Wall Street equity market forecasters never predict a fall. All the big names forecast gains. But 2022 brought -19.4% and in the 2008 financial crisis, the S&P fell 38.5%. They missed this year, too, as usual. For 2024, the consensus was a gain of 3%. Instead we have 24%+ year-to-date. For 2023, the forecast was 6.2% but we got 24.2%.

Tidbit: The Economist magazine has just named its “country of the year.” Last year it was Greece, “for dragging itself out of a long financial crisis and re-electing a sensible centrist government.” This year the candidates were Poland, South Africa, Argentina, Syria—and Bangladesh.

We would have picked Argentina for the most radical (and so far successful) change. But The Economist picked Bangladesh. The magazine criteria include countries ridding themselves of dictatorship and generally improving itself the most, if not the richest, happiest or most virtuous.

Which is the richest? The US. Who is the happiest? Finns.

Why Bangladesh? The judgment might have come from a second-year college student: “Bangladesh has a history of vengeful violence when power changes hands. The main opposition party, the BNP, is venal. Islamic extremism is a threat. Yet the transition has so far been encouraging. A temporary technocratic government, led by Muhammad Yunus, a Nobel peace prizewinner, is backed by students, the army, business and civil society. It has restored order and stabilised the economy. In 2025 it will need to repair ties with India and decide when to hold elections—first ensuring that the courts are neutral and the opposition has time to organise. None of this will be easy. But for toppling a despot and taking strides towards a more liberal government, Bangladesh is our country of the year.” 

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