Wednesday, October 17, 2007
Regular readers of the comments section of this blog may have observed that for the past few weeks, Macro Man has been engaged in a debate with friend-of-the-blog Cassandra over the nature of certain capital flows. To wit, how much of the recent capital exportation from the US and Japan represents a reduction in home bias (e.g., the preference of investors to remain overweight domestic assets relative to the optimal allocation per modern portfolio theory), and how much of it represents the herd mentality of momentum investors who buy what goes up and sell what goes down?
It seems clear that both of these effects are at work; where Macro Man and Cassandra differ is the relative importance of the two factors. And there's nothing necessarily wrong with that; it is eminently possible for two people of reasonable intelligence and goodwill to observe the same set of data and reach different conclusions. Moreover, there seems litle near-term prospect of either of us being "proved" right; indeed, one could probably argue that we won't know the truth for another decade.
But what hasn't been clear is whether anyone else, other than the Brad Setsers of the world, really care too much about the issue of international capital flows. This is where the benefit of blogging rears its head. An ancillary feature of writing a blog is that one can gauge interest in a market environment or a subject by the amount of traffic the site generates. The more interesting a market environment, post, or discussion, the more visitors and/or links will flow to the site.
And what is remarkable about yesterday's TIC data, and the off-the-cuff post that Macro Man wrote about it, is the amount of traffic it generated. To be clear, this site is small potatoes compared to many of the financial blogs out there, but then again Macro Man is just some random anonymous guy spouting off. He is frankly surprised and flattered that anyone chooses to visit. But he can still distill interest in a particular subject by looking at relative changes in traffic patterns. And somewhat to his surprise, yesterday saw far and away the highest ste traffic since the week of the last Fed meeting, which itself was a record for the site's traffic.
Now, that the issue of the TIC data generated loads of interest doesn't provide any support for either Macro Man's or Cassandra's point of view. But what it does suggest is that this is an issue that is interesting to both market professionals and retail investors; and that, Macro Man believes, is useful information to know. He'd suggest that the level of interest in the subject indicates that, all else being equal, the trends of capital exportation from the US and Japan are likely to remain in place for some time, whether they are based on momentum or a more secular asset allocation. In the event of a benign US CPI figure, that could start half an hour from the publication of this post.
For some reason, Blogger didn't like the P/L sheet today.