Wednesday, May 20, 2009
And now, the answers. Yesterday's little quiz was a pretty fascinating exercise. Although a few commenters noted (some more politely than others) that in normal conditions, it is actually quite tricky to distinguish market price action from random walk, this ignores two factors.
First, most of the past eighteen months have not been normal conditions, with many markets exhibiting strong trending characteristics. Second, it is in fact possible to recognize a particular pattern as belonging to a particular market price, which of course renders the question of which charts are fabricated moot.
In any event, the real charts were A, B, and C. In the comments section Macro Man noted that no one had gotten the question right; this wasn't entirely true, as one chap had identified these three. But he then went on to try and name the underlying asset, and while he got the first two right, he whiffed on the third.
In any event, without further ado:
These are normally three pretty well-known charts to macro punters; indeed, more than a few readers correctly identified A and/or B. But the fact that no one correctly identified all three, and that only one guy (and a salesman to boot!) identified the 'real' markets is rather telling.
What's reasonably interesting is that the charts all capture various USD crosses in the two months after the Fed formally embraced QE. For all the talk of the dollar entering a death spiral, it's interesting to note that the buck only went down in one of the three charts posted above- and that against the currency with worse fundamentals than the dollar!
While Macro Man can certainly see the growing drumbeat of dollar bearishness in certain circles, he can't help but think that the bark is worse than the bite. Oh, sure, the press is making hay out of things like Brazil and China deciding to trade in...err...their own currencies, rather than somebody else's. But to Macro Man, that's little more than the economic equivalent of taking the training wheels off of one's bicycle.
He wonders what China's reaction would be if the US inquired about gaining the capability of purchasing RMB on the open market to settle their import bills in yuan. He suspects that that answer would rhyme strongly with "thanks, but no thanks." As such, he continues to have a hard time getting excited about the 'death of the dollar' theme so beloved in certain circles....