s best interest precipitated, at one point, a 2.3 pfennigrally in the mark against the dollar in European trading. On the sameday, Mr. Eisuke Sakakibara, Japanese Vice Minister of Finance forInternational Affairs, also roiled the foreign exchange market. Mr.Sakakibara, commonly known as “Mr. Yen” for the impact his comments have on the yen, sparked a 3-yen slide in the dollar duringTokyo trading after he indicated that the G-7 was serious about halting the rise in the value of the dollar. The dollar recovered some of itsearlier losses against the yen and Deutsche mark during New Yorktrading hours.16The preceding episode illustrates how the comments of policymakers can impact exchange rates in the direction that policymakersdesire. It also illustrates how signals to the market can sometimes belost in translation. The question naturally arises as to why the comments of Messrs, Tietmeyer, and Sakakibara impacted currency markets in the direction that they desired, whereas the comments ofPrime Minister Mahathir did not. One explanation for the differentialimpact is the greater resources that both the Bank of Japan and theDeutsche Bundesbank had at their disposal. Another explanation is
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that the seemingly bizarre charges against currency trading undercutPrime Minister Mahathir’s credibility.
Speech Is SilverOn October 1, 1997, Prime Minister Mahathir Mohamad repeatedsome of his comments about negative effects of currency tradingtogether with his call to “regulate or outlaw currency trading.” Thistime, the financial markets reacted sharply to his comments prompting both Malaysian stocks and the foreign exchange value of the ringgit to fall. The markets reacted even though the comments werereally not news—the prime minister’s views on the origin of the AsianFinancial Crisis and his advocacy of a prohibition on currency speculation had already been widely disseminated weeks earlier. Nevertheless, the market reacted to his comments. The impact of hiscomments on market prices is reflected in the following news storyReuters reported on October 1, 1997.Malaysian Premier Mahathir Mohamad’s renewed call for aban on currency trading pulled the floor out from under analready battered ringgit on Wednesday and fuelled heftydrops in other Southeast Asian currencies. Dealers saidregional currencies…were hit by a fresh crisis of nerves asplayers piled into the dollar, triggering stop-loss orders in thintrade…The ringgit dropped dramatically. It fell more thanfour percent in less than two hours to a low of 3.4080 to thedollar. It recovered slightly to 3.3540/3605 at 0440 GMTagainst 3.1915/65 late on Tuesday…The Kuala Lumpur stockmarket was also hit, the key index falling 2.19 percent to796.75.17Rather than calming the foreign exchange market for ringgit, theeffect of the prime minister’s comments was perverse. Both Malaysian equity prices and the ringgit fell. Once again, the comments hadthe perverse effect of driving Malaysian stock prices lower and theringgit fell more against the dollar. Moreover, selloff in the ringgit and
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Malaysian equities induced by the prime minister’s comments actedas a trading catalyst for other currencies in the region. Notice thatwhile Prime Minister Mahathir’s comments acted as the trading catalyst in this instance, market conditions and sentiment bias increasedthe strength of the market’s reaction. The impact of the prime minister’s remarks was huge—(the preceding excerpt notes that the ringgit“fell more than 4 percent in less than two hours”). Perhaps surprisingly, the prime minister predicted that his comments would roil thecurrency markets and affect adversely the foreign exchange value ofthe ringgit, yet he still chose to make them.18 Not surprisingly, a number of market observers suggested that the prime minister shouldkeep future such comments left unspoken.19 Ironically, the commentsof his deputy, Anwar Ibrahim, were credited with calming the foreignexchange market and, on one occasion, sparking a 5% rise in the ringgit against the dollar.20Believers in conspiracy theories might argue that the subsequentdecline in the foreign exchange value of the ringgit and the Malaysianequity market was simply more evidence that the Malaysian economywas being victimized by outside speculators. However, the more plausible scenario is simply that Malaysian nationals were trying to gettheir wealth out of a declining market and a declining currency.Indeed, a firm that had borrowed in dollars was seeing the real valueof its debt increase and the dollar value of its ringgit-denominatedassets decrease as the ringgit declined. One way to stem the increasein real liabilities was to sell ringgit immediately. The selling pressureon the ringgit led to declines in its value against the U.S. dollar andincreased the pressure to exit ringgit-denominated assets. Alternatively stated, the market decline fed on itself and exacerbated thedecline in the ringgit independent of foreign speculative activity.The extent of the comment-induced decline in Malaysian equityvalues and the exchange rate against the dollar were substantial. Thefull brunt of the declines was primarily borne by Malaysian investors.The duration lasted longer, and the magnitude was certainly longerlived. The question naturally arises as to whether it is fair to blame
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the prime minister for the declines as other nations in the region suffered as well. Put simply, did the prime minister’s comments have anyeffect on the market that would not have occurred anyway? Theanswer to that question is impossible to ascertain. However, one caninfer from the substantial declines in market prices on days where theprime minister’s comments were the trading catalyst that his comments exacerbated the crisis. It may well have been the case that theduration would have been shorter without them.In retrospect, it may seem that the decline in the dollar value ofmany Asian currencies was swift and deep immediately after thedevaluation of the Thai baht. That was not the case. Rather, the initialdecline in the dollar value of various Asian currencies was fairly modest relative to the eventual decline. Put differently, the Asian Financial Crisis continued to worsen, and with it the foreign exchange valueof many Asian currencies and the associated Asian stock markets.
Mr. YenNo discussion of the impact of policymaker comments on financialmarket prices would be complete without mention of Mr. EisukeSakakibara. Mr. Sakakibara, the former Vice Minister of Finance forInternational Affairs in Japan, is probably the quintessential example ofa policymaker whose comments often exerted a substantial impact onmarket prices. Indeed, during his tenure as Vice Minister of Finance,Mr. Sakakibara was known as “Mr. Yen” for the sharp impact that hiscomments frequently had on the dollar/yen exchange rate.21 Mr. Sakakibara’s influence owed much to his willingness to make unambiguouscomments for the record in a society where much is left unsaid.One example of the powerful influence of Mr. Sakakibara exertedon the currency market occurred on Thursday, May 8, 1997 when Mr.Sakakibara stated that the dollar could conceivably fall as much as 23yen during the year. The comments were made at a Finance Committee meeting in the House of Councillors—a branch of the Japanese
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Diet, or parliament—and were based on past average annual variations in the dollar against the yen. The dollar fell almost 2 yen fromthe previous day to about 123.72.22A larger move came the next day when the dollar fell almost 4yen. Contemporary news reports that comments by Japanese FinanceMinister Hiroshi Mitsuzuka supporting a stronger yen and commentsby U.S. Fed Chairman Alan Greenspan that the Fed was unlikely tocontinue to raise U.S. short-term interest rates reinforced the bearishmood on the dollar against the yen created by Mr. Sakakibara’s comments on May 8, 1997.23 The dramatic drop in the value of the dollaragainst the Japanese yen on May 9, 1997 is depicted in Figure 3.3.Note that the impact of Mr. Sakakibara’s comments on the yenextended over two days and helped to change market sentiment frombearish on the yen to bullish.24During spring 1998, the dollar advanced against the yen. Mr.Sakakibara would periodically talk up the yen, often indicating that arise in the dollar beyond a certain level was “excessive.” Mr. Sakakibara’s comments had the effect of temporarily halting the dollar’srise.25In general, a policymaker who rarely makes potentially marketmoving comments has more impact on financial markets when hemakes comments than a policymaker who frequently makes suchcomments. Mr. Sakakibara may be an exception to that rule. Nevertheless, there are many instances where comments by Mr. Sakakibaraor other government officials were ignored by the market. Wordsalone do not drive financial markets. It is the potential for government action that gives weight to the comments. Interestingly, theBank of Japan intervened massively to support the yen less than 10days later. The intervention managed to cause the dollar to fall asmuch as 4 yen in a single day and is discussed in more detail in Chapter 6, “Market Interventions.”26
128.005/9/1997Sakakibara’s comments
126.00124.00
5/9/1997date.open 123.73date.high 123.73date.low 119.15date.close 120.05
122.00120.00118.00116.00
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130.00
114.00112.00110.002/3/97
3/3/97
4/3/97
5/3/97
6/3/97
7/3/97
Reaction of the Japanese yen to comments by Japanese Ministry of Finance official Eisuke Sakakibara on May 9, 1997. Daily trading range of the yenfrom February 1, 1997 to July 31, 1997.
FIGURE 3.3
Sakakibara’s comments lift the yen.
81
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Lost in TranslationNot surprisingly, foreign policymakers and politicians often makecomments in a language other than English. This creates the potential for their comments to get garbled in translation and cause marketparticipants to react to things they did not say. Mistranslations probably result in greater market overreactions and subsequent correctionsthan would have otherwise occurred if the comment were translatedcorrectly. Even the allegation that foreign language comments weremistranslated can impact market prices as the Tietmeyer example discussed earlier demonstrates. Similarly, even the English languagecomments of some foreign politicians and policymakers can bemisinterpreted. Of course, the meaning of the statements of somenonnative English-language-speaking policymakers (such as Mr.Sakakibara) is often exceedingly clear.On Monday, June 23, 1997, a comment by Prime MinisterRyutaro Hashimoto suggesting that Japan might sell some of its massive holdings of U.S. Treasury securities triggered a 1/2 point declinein the long bond, caused a decline in the value of the dollar against theyen, and exacerbated the slide of an already declining U.S. stock market. The essential reasoning was that the Japanese would no longerwillingly finance their portion of the U.S. trade deficit, thus drivingdown the value of the dollar, Treasury bonds, and U.S. equity prices.One relevant question is whether the prime minister was simply bluffing. Would the Japanese really sell their Treasury holdings? The comment came late in the trading day and exacted a heavy price on U.S.equities and Treasury bonds. The precise quote that sparked the market actions was somewhat puzzling as reported by the radio news program Marketplace that same day: “So we will not succumb to thetemptation to sell off Treasury bills and switch our funds to gold.”27The impact of the prime minister’s comments was dramatic butshort-lived. On Tuesday, June 24, 1997, Japanese officials said thatthe prime minister’s comments were misconstrued. That comment
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was credited at the time for sparking rallies in the stock and bondmarkets.28On Thursday, May 19, 2005, South Korean Central Bank Governor Park Seung was quoted as saying that South Korea would nolonger intervene in the currency market. The comment precipitated aselloff in the U.S. dollar against the South Korean won. A short timelater, the South Korean government indicated that Governor Parkhad been misunderstood, which precipitated a rally in the dollar.29The preceding examples illustrate what might be called translation risk—the risk that the market has inappropriately reacted to thetranslated comments of a policymaker and is likely to correct itself ifthere is a new and better translation. Inappropriate market reactionsmay also occur when a nonnative English-language-speaking foreigngovernment official makes a comment in English that is misunderstood. There are several lessons for traders. First, a trader acquiring aposition in a security moving as the result of a foreign policymaker’snon-English language comment may want to take a smaller position.Second, a trader may want to hold the position for a shorter time thanshe otherwise might do. Third, the trader may want to employ tighterstop-loss orders. Fourth, the risk that the market-moving commentsof foreign policymakers may have been mistranslated creates anopportunity to play the rebound.
Trading LessonsAs was shown earlier, the comments of politicians and policymakerscan substantially affect market prices, even when they are not accompanied by policy actions. Sometimes, the comments are intended topush prices in a desired direction to achieve a certain policy objectiveand they succeed. Sometimes, the comments are intended to pushprices in a desired direction to achieve a certain policy objective andthey fail to move the market—or they backfire and do the opposite.
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Sometimes, policymakers and politicians simply choose the wrongwords and the comments have an inadvertent impact on marketprices.Whether or not they are intended to impact financial markets, thespeed, magnitude, timing, and duration of market-moving commentsby policymakers vary. In most cases, the market is very quick torespond and prices move sharply. However, sometimes there is aseemingly delayed response to policymaker comments. As always, themagnitude of the response in prices also depends upon market conditions and sentiment bias. A policymaker’s comment may have a farstronger impact on market prices in an environment where the marketis currently trending in a given direction or in periods when liquidity islimited, such as holidays. Similarly, comments that are likely to pushprices enough to set off stop-loss orders or trigger other types of positive feedback trading exacerbate the eventual price move. Policymakers have shown that they understand these relationships and oftencarefully time their comments for periods when trading volumes arelight and liquidity is limited. Indeed, Mr. Sakakibara has stated thatintervention is most effective when market sentiment is changing.30The duration of the effect of policymaker comments on marketprices is usually relatively short-lived and confined to a part of a singletrading day. Sometimes, the effect is transitory with prices returningto where they stood before the comments were made. Other times,the duration of the effect may last longer. Note, however, that government action need not accompany or immediately follow a policymaker’s comments.Ultimately, it is not the words of policymakers and politicians perse, but rather the prospect of action that influences market prices.For instance, the Bank of Japan has repeatedly intervened in the currency market in an attempt to influence the value of the dollar/yenexchange rate. Consequently, when Mr. Sakakibara spoke, currencytraders had to assess whether Mr. Sakakibara’s comments signaledlikely central bank intervention.
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Sometimes, comments are not intended to impact market pricesbut do—usually adversely. These are frequently off-the-cuff comments that often show a profound ignorance of market behavior.Unfortunately, there are numerous examples in this regard. Forinstance, the euro was under pressure soon after it was introduced inJanuary 1999. On Thursday, May 31, 1999, then European CentralBank (ECB) President Wim Duisenberg indicated that the ECB wasunlikely to intervene in support of the euro. The subsequent sell-offof the euro against the dollar was attributed to his remarks.What lessons can one learn from the impact that the remarks ofpolicymakers and politicians sometimes have on financial markets?1. The principal consequence of policymaker comments on financial markets is to create excess volatility. Such volatility harmstraders and investors who happen to be on the wrong side ofthe market. For them, policymaker talk isn’t cheap.2. Although it is difficult to trade off of many policymakerremarks because they are unscheduled, it may be possible totrade off of any anticipated correction. It may also be possibleto bet on the likely market impact of policymaker commentsfor certain scheduled events such as congressional testimony bythe chairman of the Federal Reserve.3. The duration of market impact is often shorter for inadvertentpolicymaker comments than comments intended to communicate current policy views to market participants.4. Traders need to assess the likelihood that the words spoken willbe backed up by policy actions. If the remarks are unlikely tobe backed up by policy actions, the impact should be smallerand the duration much shorter.5. The deliberate comments of policymakers may reverse a trendas occurred with the Japanese yen in May 1997 following thecomments of Mr. Eisuke Sakakibara on May 8, 1997.
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The market is larger than any single individual, including government officials and central bankers. The danger for policymakers is toconfuse the short-term impact on financial market prices precipitatedby the remarks of public officials with long-term control of marketprices. Policymakers should carefully weigh potentially marketmoving comments before making them. There is a consequence forimpacting market prices. Such talk isn’t cheap.
ReferencesAssociated Press and Dow Jones Newswire. “Malaysia Ringgit/Late-2Central Bks Powerless, Says Dealer.” July 24, 1997.Brancaccio, David. Marketplace. Monday, June 24, 1997.Brancaccio, David. Marketplace. Monday, June 23, 1997.
Bransten, Lisa. “Markets Expect Calm to Follow Friday PriceScare.” Financial Times, December 9, 1996, p. 1.Desai, Sonali. “FOCUS-Asian Currencies Pare Losses on RinggitRise.” Reuters Friday, December 5, 1997.Dow Jones Newswire. “Malaysia Mahathir Scolds U.S. AllowingSoros’s Speculation.” August 22, 1997.Greenspan, Alan. “Economic and Budgetary Outlook.” Testimonybefore the Committee on the Budget, U.S. House of Representatives, October 8, 1997 (http://www.federalreserve.gov/boarddocs/testimony/1997/19971008.htm).Greenspan, Alan. “The Challenge of Central Banking in a DemocraticSociety.” Remarks at the Annual Dinner and Francis Boyer Lectureof The American Enterprise Institute for Public Policy Research,Washington, DC, December 5, 1996 (http://www.federalreserve.gov/BoardDocs/speeches/1996/19961205.htm).
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Ip, Greg, and Thomas Sims. “Bond Yields Plunge amid Falling RatesWorld-Wide.” The Wall Street Journal, June 2, 2005.Jiji Press English News Service. “Intervention Effective at Shift inMarket Sentiment.” September 1, 1998.Jiji Press English News Service. “Sakakibara Comment Sends DlrBelow 124 Yen in Tokyo.” May 8, 1997.Karmen, Craig. “More ‘Distorted’ Comments Roil Markets.” TheWall Street Journal, May 20, 2005.Kazmin, Amy. “Thai Ex-Banker Told to Repay Pounds 2.5bn.” Financial Times, June 1, 2005.Mainichi Daily News. “Dollar Likely to Remain Bearish.” May 11,1997.Reuters News. “Ringgit Plunges After Fresh Remarks by Mahathir.”October 1, 1997.Reuters. “Dollar Capped in Tokyo by Sakakibara’s Remarks.” April 1,1998.Reuters. “Asian Exotics—Mahathir Pulls Plug on Regionals.” October 1, 1997.Reuters. “Focus-PM Comments Shake Malaysia Ringgit, Stocks.”October 1, 1997.Reuters. “Ringgit Remains Weak after Selloff.” August 11, 1997.Reuters. “Malaysia’s Mahathir Attacks Currency Traders Again.”September 30, 1997.Reuters. “German, Japanese Comments Blast Dollar Lower.”September 24, 1997.Reuters. “U.S. Defends Soros, Unaware of Conspiracy on Currency.”July 27, 1997.Zielenziger, Michael. “Currency War: The Moron vs. the Menace.”The Advertiser, September 23, 1997.
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Endnotes1
Lisa Bransten. “Markets Expect Calm to Follow Friday Price Scare.” FinancialTimes, December 9, 1996, p. 1.
2
Shorting refers to selling a security that one does not own. Essentially, one borrows a security, sells it, and hopes to be able to profit by buying back the securityat a lower price before repaying the security.
3
The relevant text of Greenspan’s comments follow:Clearly, sustained low inflation implies less uncertainty about the future,and lower risk premiums imply higher prices of stocks and other earningassets. We can see that in the inverse relationship exhibited byprice/earnings ratios and the rate of inflation in the past. But how do weknow when irrational exuberance has unduly escalated asset values,which then become subject to unexpected and prolonged contractionsas they have in Japan over the past decade? And how do we factor thatassessment into monetary policy? We as central bankers need not beconcerned if a collapsing financial asset bubble does not threaten toimpair the real economy, its production, jobs, and price stability. Indeed,the sharp stock market break of 1987 had few negative consequences forthe economy. But we should not underestimate or become complacentabout the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in assetprices particularly, must be an integral part of the development of monetary policy.Alan Greenspan. “The Challenge of Central Banking in a Democratic Society.”Remarks at the Annual Dinner and Francis Boyer Lecture of The AmericanEnterprise Institute for Public Policy Research, Washington, D.C. (http://www.federalreserve.gov/BoardDocs/speeches/1996/19961205.htm), December 5, 1996.
4
Delta is a measure of how the price of an option changes as the price of theunderlying security changes. The value of delta can range from 0 to 1 in the caseof calls (options to buy) or between 0 and -1 in the case of puts (options to sell).The absolute value of delta is akin to the probability that the option would beexercised. The delta is sometimes referred to as the hedge ratio.
5
Alan Greenspan. “Economic and Budgetary Outlook.” Testimony Before theCommittee on the Budget, U.S. House of Representatives (http://www.federalreserve.gov/boarddocs/testimony/1997/19971008.htm), October 8, 1997.
6
David Brancaccio. Marketplace. October 8, 1997.
7
Greg Ip and G. Thomas Sims. “Bond Yields Plunge Amid Falling Rates WorldWide.” The Wall Street Journal, June 2, 2005.
8
Central bank attempts to defend indefensible exchange rates are akin to speculation. The June 1, 2005 issue of the Financial Times reported that Mr.Marakanond Rerngchai, the former governor of the central bank of Thailand wasordered by a Thai court to repay 186 billion baht expended in the failed effort todefend the fixed exchange rate of the baht prior to the Asian Financial Crisis.
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Amy Kazmin. “Thai Ex-Banker Told to Repay Pounds 2.5bn.” Financial Times,June 1, 2005, p. 9.9
On July 24, 1997, the Associated Press and Dow Jones News reported MalaysianPrime Minister Mahathir Mohamad as contending that there was a “wellplanned effort to undermine the economies of all Asian countries by destabilizing their currencies…Our economic fundamentals are good, yet anyone with afew billion dollars can destroy all the progress that we have made.” AssociatedPress and Dow Jones Newswire. “Malaysia Ringgit/Late-2 Central Bks Powerless, Says Dealer.” July 24, 1997.
10
Associated Press and Dow Jones Newswire. “Malaysia Ringgit/Late-2 CentralBks Powerless, Says Dealer.” July 24, 1997.
11
Reuters reported the following on July 27, 1997: “…On Saturday, after a week ofcalling currency speculators ‘rogues,’ ‘robbers’ and ‘brigands,’ Mahathir said:‘Today I am confirming that George Soros was the man that I was talking about.’Mahathir also accused Soros of using his financial clout to try to block Burma’sadmission to ASEAN.” It should be noted here that George Soros is probablymost famous as the man who broke the Bank of England during the currency crisis of 1992. What is less well-known is that the Malaysian central bank, BankNegara, lost several billion dollars during this same period when it bet on thepound against George Soros.
12
Michael Zielenziger. “Currency War: The Moron vs. the Menace.” The Advertiser, September 23, 1997.
13
Dow Jones Newswire. “Malaysia Mahathir Scolds U.S. Allowing Soros’s Speculation.” August 22, 1997.
14
Reuters, “Ringgit Remains Weak After Selloff.” Monday, August 11, 1997.
15
It is also possible that the threat of the prohibition of currency trading may haveaccelerated the decline of the ringgit as those with long ringgit positions fearedincreased difficulty in getting out of ringgit-denominated positions.
16
Reuters. “German, Japanese Comments Blast Dollar Lower.” September 24,1997. The article also notes that Hans Tietmeyer’s comments may have beenmistranslated from German into English.
17
Reuters. “Focus-PM Comments Shake Malaysia Ringgit, Stocks.” October 1,1997.
18
Reuters. “Malaysia’s Mahathir Attacks Currency Traders Again.” September 30,1997.
19
Reuters News. “Ringgit Plunges After Fresh Remarks by Mahathir.” October 1,1997.
20
Sonali Desai. “FOCUS-Asian Currencies Pare Losses on Ringgit Rise.” Friday,December 5, 1997.
21
Mr. Sakakibara left the position of vice minister on Thursday, July 8, 1999 andwas replaced by Mr. Haruhiko Kuroda.
22
Jiji Press English News Service. “Sakakibara Comment Sends Dlr Below 124Yen in Tokyo.” May 8, 1997.
TRADING CATALYSTS
9023
Mainichi Daily News. “Dollar Likely to Remain Bearish.” May 11, 1997.
24
The Mainichi Daily News reported on May 11, 1997:The U.S. dollar is likely to remain bearish against the yen in Tokyo thisweek as the recent Japanese government stance in favor of a strongeryen is expected to continue affecting the market. Speculation that a gapin interest rates between Japan and the United States could narrow isalso expected to step up dollar-selling moves on the market. With a rapiddepreciation of the dollar in New York on Friday, currency dealers [said]the trend of the strong dollar may have ended.
25
Reuters. “Dollar Capped in Tokyo by Sakakibara’s Remarks.” April 1, 1998.
26
Reuters. “Dollar Battered by Aggressive BOJ Action in Tokyo.” April 10, 1998.
27
David Brancaccio. Marketplace. June 23, 1997.
28
David Brancaccio. Marketplace. June 24, 1997.
29
Craig Karmen. “More ‘Distorted’ Comments Roil Markets.” The Wall StreetJournal, May 20, 2005.
30
Jiji Press English News Service. “Intervention Effective at Shift in Market Sentiment.” September 1, 1998.
4GEOPOLITICAL EVENTS
“In the field of observation, chance favors only the preparedmind.”—Louis Pasteur
War with IraqAt approximately, 5:30 A.M. Baghdad time, on Thursday, March 20,2003, Operation Iraqi Freedom began when coalition forces invadedIraq.1 The invasion occurred approximately 90 minutes after a 48hour ultimatum expired from U.S. President George W. Bush thatIraqi President Saddam Hussein and his sons Uday and Qusay leaveIraq.2 Saddam Hussein did not leave Iraq. The resultant war was relatively brief. The U.S.-led coalition easily dominated Iraqi armedforces on the battlefield, suffered minimal casualties, and achieved91
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most of its military objectives in a matter of days and total victorywithin three weeks.3Although the invasion began on March 20, financial markets hadstarted to deliver their assessment of the outcome before hostilitiesbegan. On Thursday, March 13, 2003, almost a week before hostilitiesbegan and days before President Bush issued his ultimatum to Saddam Hussein, U.S. stock prices and the U.S. dollar suddenly surgedwhile gold and bond prices fell. The sudden rally in stock prices andthe foreign exchange value of the dollar was made even moredramatic coming, as it did, against a backdrop of bearish market sentiment. The Dow Jones Industrial Average rose 269.68 points, or3.57%, whereas the Nasdaq rose almost 4.8%. Some observers dismissed the rally in stock prices as a dead cat bounce in a bear market.It was not.The sharp moves in commodity and financial markets aredepicted in