QuandaryFX

Short-term horizon, currencies, commodities, long/short equity
QuandaryFX
Short-term horizon, currencies, commodities, long/short equity
Contributor since: 2012
Company: Freelance
I believe that there are very few "this time is different" situations - in other words, I think the correlation is legit even though the U.S. economy continues to shift...the economy in 2001, 2007, and today are all fundamentally different yet the comprehensive manufacturing index continues to correlate with changes in the S&P 500.
I'd encourage you to read this - http://seekingalpha.co...
Economic theory and reality can be quite different. This examines that past 42 years of rate history to show the decline in dollar strength:
http://seekingalpha.co...
Look at the data - the data strongly indicates that rate increases following prolonged periods of low interest rates lead to a weaker dollar.
Potentially - Treasury purchases were a driver of dollar strength during the financial crisis. However, I believe that the Treasury market is pretty saturated now and the world is not in the same level of crisis experienced in 2008, so I don't see too much dollar strength coming from the rate rise.
Thanks - the rate did increase, but I was only looking at long periods of duration of consistent rate and at a relative trough vs. what came before and after. Those were my key assumptions for analysis.
Entirely possible, my general view is that this "time is never different", however.
Can't really give specific advice as to how you should time your investments, but I believe in general it is good advice to determine exactly what you're trying to accomplish in your investments and craft a strategy that meets your objectives.
I have not found convincing evidence that these drive stock market changes on the time periods I evaluate.
If the past is to be even a rough guide to the future, then stock market pullbacks last anywhere from 3 months to over a year. The current pullback of 2 weeks hasn't fully run its course I believe.
I'm looking at a percent change on a year-over-year basis. It is increasing on a month over month basis but still down on a year-over-year basis.
Always a potential - the numbers indicate that changes in manufacturing do drive significant changes in the market regardless of unemployment.
Thanks for the feedback!
Definitely a great reminder - it's always important to be careful in counter currencies chosen.
Thank you for the feedback, I definitely do believe there is some uncertainty surrounding the government figures.
Interesting thoughts - I believe we will see the Bank act in a way to devalue the pound. Whether that is through rates or a form of QE, I don't know - but the numbers indicate that unemployment may well rise and to obey its mandate, the BOE must do something.
There is not a fixed relationship between oil and the economy. The economic strength can be measured by simple metrics such as GDP and unemployment. At a high level, lower oil prices tends to help consumers in that gasoline prices generally are correlated to oil.
Posted a reply to another comment, I'll copy it here:

When you think about refining costs, you need to think through the potential full ramifications. As energy costs drop, sure the input costs to Alcoa's processes drop. But what about energy companies that use steel that are slashing spending by billions? Will steel sales decrease as consumption of steel decreases? What about the slow in GDP that will arise from thousands who have already been laid off from exploration and production companies? The possibilities are limitless in terms of how crude prices can impact the security.

I'd keep an open mind to the possibilities.
Posted a reply to another comment, I'll copy it here:
When you think about refining costs, you need to think through the potential full ramifications. As energy costs drop, sure the input costs to Alcoa's processes drop. But what about energy companies that use steel that are slashing spending by billions? Will steel sales decrease as consumption decreases? What about the slow in GDP that will arise from thousands who have already been laid off from exploration and production companies? The possibilities are limitless in terms of how crude prices can impact the security.
I'd keep an open mind to the possibilities.
Perhaps in future articles I'll work more on fully explaining the statistical background. It's basically saying "XYZ has happened, historically of the times this has happened, Alcoa has increase/decreased by Y". Just a simple, statistical test of the current market environment.
When you think about refining costs, you need to think through the potential full ramifications. As energy costs drop, sure the input costs to their processes drop. But what about energy companies that use steel that are slashing spending by billions? Will steel sales decrease as consumption decreases? What about the slow in GDP that will arise from thousands who have already been laid off from exploration and production companies? The possibilities are limitless in terms of how crude prices can impact the security.
Thanks for the feedback!
That's been said for years and yet statistics continue to play out, time and time again.
Using your argument - Alcoa is different today than yesteryear - then your solution to buy and hold makes no sense. Why would you hold an unknown company into an unknown future? Maybe you're relying on past trends a little more than you're willing to admit? :p
I believe there is still a higher probability of decrease than increase. The mathematical expectancy of the trade will be subject to each traders' time horizon and other factors.
Speculative money flow can be key in many trades, thanks for the reminder.
That's essentially what I'm getting at - I think the market is overestimating the supply and demand situation and we've got some further downside in store.
Best of luck - that certainly is a possibility.
That is always a possibility. In which case, I believe the natural laws of supply and demand will lead to a collapse in the currency similar to what was seen during the Euro melt-down. My stop-loss is essentially a play that the rate will be held.
I've found that the perception of when an event will occur is significantly more impacting on the market than the actual event.
The way I see it, as more capital floods into the economy, the currency will strengthen. CPI is a good metric for measuring the flow of this capital into the economy in my opinion. So under this view of the metric, as CPI increases, the currency may increase as well.
Great points - these factors you point to will certainly play a role as well.
Thanks for your feedback, I appreciate your comment.
QuandaryFX
My personal favorite: Devil Take the Hindmost
http://amzn.to/VoB0No
Thanks for your feedback
Thanks for your feedback. Fortunately, I am not relying on luck but rather a tested system which has proven to beat the market consistently for 62 years.
Best of luck with your trades.
That is entirely possible. This is why I advocate only participating when technical analysis confirms the breakdown. This will protect investors in the event that price continues its upward climb.
QE3 actually had a depressive effect on gold in that price is down 5% from the announcement. If you study historic QE announcements, you'll probably find a decreasing marginal benefit to risk assets from each announcement. QE4 very well may lead to price declines.