talld's  Instablog

The dollar is highly related to gold, oil, emerging markets, real estate, finance, energy, the Euro, ..  you name it, the dollar is probably traveling opposite it.  For a while the dollar appeared to be cut loose from these various influences, but now, the pattern is stronger than ever.

And it is causing problems for our markets, as our markets are not meant to be fluctuating more on the underlying substrates gyrations, than on the stocks management, product, numbers, or analysts ratings.  Who can properly value invest if the market can tank fifty percent in a few months?  Who cares about value investing when the market is gaining the same in a few months?  (I believe that crazily, value investing still is applicable)

I find it ironic that a real estate bubble, (something that was really nothing more than mass escapism) is being repeated with the market as the new "investment."  Last I checked the Price to earnings ratio of the sp500 was over a hundred. 

The problem with virtually everything being at least partially related to the dollar is threefold.  But the first one is so overwhelming that the other two, big deal that they are, do not really matter.  Clearly if  almost everything is at least somewhat related to the dollar this means the market, worldwide, is unstable.

I am currently invested in the market, including the areas mentioned above, and my current strategy is to trade the market on the way down, once it starts going.

The dollar continues to be partially detached from those things it is usually attached to, allowing it to move a lot, without creating an equal but opposite reaction in the markets.  The market will still react, but not as much. 

If you go to Yahoo and compare any one of these 107 stocks to the SP500 on Yahoo graphs, you will see there is a very strong similarity between them.   For the stocks listed below, check them out at one day, five days and one month compared to the SP500, as that is nearest what I was calculating for.  However, it is also interesting to view them at other time intervals too, such as three months, one year etc.

  SSO BGU IVV VWO EEM EFA XLI IYF FAS IWF IWB DIA DDM UYM XLF XLB EWH QLD FXI EPP IWS QQQQ IWM IWP EWA EDC RSP IWD IWN MDY VNQ UYG TNA OEF IJH CAT VTI L MWV XLY RS VEA BBL EWZ UWM IYR IJR URE RSX ABB XLK ILF PPG PCL PBR A TOT IWO BBV DD XLE XME CVX BHP FCX IYM PSA SIAL ERX EMN CLF BP IYG EWC MT X TIE HON KBE IVW AXP ATI BTU DIG GGB RTH SMH IP STLD TXT JCI KLAC RRC AA ECA EPI EWS XHB EWG GE CHL PCU MET MEE ING UBS PX

And this much shorter list is those stocks which are very alike to the SP500 but opposite.  Compare them as well, to the SP500.  In my scoring system, all of these stocks above are so correlated as to score better than 80, except for the ones below which score less than -80.
  SDS BGZ SH SKF DXD EEV FAZ QID SMN TZA SRS FXP
 

The dollar has had a fairly high inverse correlation to any indicator generally synchronized with the markets, and now suddenly, this is changing.  Although the pattern by which they correlate is still there, it is much reduced.  

This means the dollar is breaking free of the markets, and if I add that to the story I read about UUP running out of shares due to high demand, it seems obvious that a big move in the dollar is coming.  It wont move the market with it like it usually does, according to my software, and it also appears to be less (inversely) correlated to gold than usual.  

I am guessing the value of the dollar is going to go up dramatically, and the market will not fall as much as many expected would happen in a dollar rally, and neither will gold.  

I do not have any interest in such funds as might be mentioned above.

Here is a graph that depicts the typical correlation of a few tickers, mostly ETFs, each compared against VXX.   Notice how they all move together in a sort of braided rope, including BNI.  (UUP is directly correlated instead of inversely correlated, so it is not in the braid.)  It seems a bit questionable as to just where BNI fell out of trading with the others.  I marked a point 1, as my first guess as to where it changed, and point 2 as to where it dramatically and obviously changed.  Perhaps it was Buffet buying it, but that seems unlikely as he would want to keep the price down.

So, according to my graph people may have known about the deal and traded on that knowledge, as soon as 10/15 but no later than 10/26 when the correlation plummets to near zero.  There were two investment banks involved, Evercore and Goldman Sachs.    

The period in question was also the lowest period there was for price.  If someone bought a few million shares,  they would have made many millions in return.


I believe the second chart where BNI is compared to another railroad makes it obvious that someone was heavily trading BNI (enough to pull it out of its trading range in these graphs, which would have required that significant price pressure was put on BNI) beginning on 10/23 and stopping the day the deal was announced.  

(There was also unusual activity near the first part of September which stopped on 9/14 .)

The following graph from my home developed software depicts the way that large funds synchronize their trading of VXX with UUP, SPY, XLY, AUY and IYR.   The graphs show correlations.  

Rather amazing how it is as if one large computer program is doing all the trading.

(What is depicted is each stocks correlation to the VXX across about six months of time.)  
Only UUP is related, everything else is inversely related.  (Also, AUY may not technically be an ETF, but it seems to represent gold better than GLD does so I use it.