The Grand Chessboard

S&P futures had a healthy bounce from yesterday afternoon's lows, reclaiming 61.8% of the downdraft from yesterday's highs. Now it's a toss up as to where it goes next. As a trader who seeks wholesale prices at market extremes, I have no real interest here. As today's title is taken from arch-globalist Zbigniew Brzezinski, I have zero desire to be a pawn in the game of pre-expiration positioning by much larger players.

This is one of those times when I'm using a futures price level as opposed to a cash price level as an area of interest. I called for 1295 to get tested. The e-mini got to 1302.25 yesterday. I still think 1295 gets hit this week. On the upside, I'll be interested in anything over 1322 on the futures, for shorts.

In Currency Land, I'm not liking the action in USDJPY of late. There are new lows in USDCHF with possibly more to come (below .80 is a possibility).

Realize the Swiss franc has been steadily strengthening since 1985. Euro Crisis In Uncharted Territory Menaces Eastern States hints at what I see coming soon for the franc: the mass realization that its banking system is over exposed to Eastern Europe.

I remain confident in USDSEK, but took profits at 6.4 from 6.26 only to see it kite higher toward 6.7. Looking for it to correct for a bit.

Bernanke opened the door to QE3 in his testimony yesterday. The US dollar got smacked, but the stock markets reversed hard. Everyone is thinking that this automatically means the same thing will happen now that happened after his infamous Jackson Hole speech and the sailing of QE2. Don't be so sure. If the dollar can stay above the July lows (I'm showing 74.405 on 7/3), there is a huge chance that it will blow up in his face. Any asset inversely correlated to the dollar could be vulnerable.

Take note of how the markets reacted yesterday. 3-month Treasury Bills went NEGATIVE. The bond market, I believe, has had it right all along: it's not the time to seek return on capital, but to seek the return of capital.

I fully realize that people may think I'm high on mercury vapors when I talk about deflation, but Ben mentioned it 5 times yesterday. Deflation is a word that Greenspan wouldn't even utter. He'd say "an unwelcome fall in the rate of inflation." The entire goal of a central bank is to profit through inflation (and to earn money from "providing" money to government that the government already has the power to do itself). Deflation is way, way beyond its control. It's a psychological beast. And it doesn't respond to push buttons, levers, or models.

Here's Ben's biggest statement of the day, in my opinion:

On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support. Even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further.

He flat out doesn't realize he's already in a classic Keynesian liquidity trap. "Even with the federal funds rate close to zero" the velocity of money is not growing.

Check mate.