It’s no fun to trade boring old data such as the Chicago Purchasing Managers Index or retail sales. Even top-tier data such as the Consumer Price Index can be tedious. With reserve diversification, it’s a thrill to imagine you are trading on a partly glimpsed piece of global capital flows. Only about 20 people in the world know the real-money reserve flows — 10 central banks and their commercial bank traders — and they are not talking. It feels glamorous and sophisticated to be part of the process.
But it’s an illusion. You don’t really know. Hundreds and maybe thousands traded on the reservediversification story last year and now we find out they were deluding themselves.
It’s certainly acceptable to trade with the market that’s how to make profits and avoid losses. But it’s important to know a hawk from a handsaw. The reserve diversification story was, in the end, a hoax, nourished by pure fantasy. If you had detected the story was probably untrue, you might have been better prepared for the dollar rally that started immediately after the start of the new year.
So here’s the question: What do we believe today that will turn out to be untrue tomorrow?
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