Market Extremes

April 22, 2008

Greenspan said it first. He entitled his memoir, “Age of Turbulence,” and that was well before August 2007, when most markets seemingly went haywire. The euro broke above $1.60 for the first time today, just 55 days after it initially climbed above $1.50 on February 27th. The euro’s initial parity at end-1998 was $1.1720, and it came near to $1.20 in its first day of trading, touching $1.1877 on January 4, 1999. But it would take 1,793 days from its birth to November 28, 2003 before the $1.20 level would be attained. Another 348 days lapsed before $1.30 was hit on November 10, 2004, and then a long 1,044-day interval passed before $1.40 was penetrated on September 20, 2007. Just 160 days later, less than a half-year, the next milestone of $1.50 was taken out. As I noted at the outset, that was just 55 days ago. Currency market movement is intensifying. This is not a case of pure volatility. When dollar/mark was the key currency relationship, the pair had some daily movements that surpassed 4%. As Casey would say, you can look it up. But increasingly one-way relentless advancement in the euro poses a problem for economies. It’s hard to adjust to rapid price movements.

Oil fits the definition of pure volatility better than the dollar. Today’s peak in oil of $119.86 is twice as high as the average price of $59.45/barrel in February 2007. Even more amazingly, that price lies just 32 cents shy of being $100/barrel greater than the average price sustained over the 14 years from end-1986 until the inauguration of George W. Bush on January 20, 2001. Elect a person president who was an oil company owner with a Vice President who was the CEO of the largest oil service company, and it stands to reason that oil prices would climb. But nobody could have predicted this kind of quantum leap. To call this an age of market turbulence is an understatement. We live in an era of market extremes.



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