Hmmm, still a lot of risk aversion (bears) lurking around. Could this just be a short term fake-out? Pulls the bears back into the market before one final big push higher?
Switching from V to L... finally. I agree, it is worth a try. Note that Prechter noted that the DSI was at 3% (extreme pessimism) at end of feb when he advised to buy back shorts, now the market seems to be clear with DSI at 85% (full of bulls) a few days ago. Plus technically there are a quantity of DeMark sell signals on every assets. And we have had poor chinese exports, disapointing retail sales and continuing claims. Green shoot believers must surely have second thoughts.
Nobody thinks the economy will v-bottom (well, some do, but they're idiots). That doesn't mean the equity market can't push higher in the face of L-bottom economic data(viz today's action).
Me, I am mostly off the beta-exposure merrygoround, back down to dollar-market-neutral (I have some implicit exposure, though) from .7 as recently as a week or so back. I wouldn't be shocked if I were giving up a blowup top, but I'll do just fine in the ensuing denouement.
FT alphaville has done the best job of covering the shapes of recovery- V's , L's, U's, W's, upwarding slanting w's, square root shaped...might as well add a J to this
the msg is clear..."analysts get paid to be creative..."
everything that seems to happen defies all logic. I am once again amazed at the daily market activity, but of course, I am not a seasoned trader like most here.
I had a question though. do the currencies dictate the market action. It seems so in most cases. If so, is it possible for mega players (like CBs) to manipulate currencies to guide the market and for whatever other purposes they might have?
I think the ones that have benefitted from the latest rally have been the insiders, the seasoned traders, and the blind. The average joe or inexperienced trader who recently has lost his job or whatever, probably has sustained the greatest losses. I guess gambling is addicting, and sure to make many a loser.
Heather, currencies are playing an interesting role. As MacroMan has been very good at pointing out, up until a year ago, it was profitable to borrow in currencies that had low interest rates and invest in higher-yielding investments. This was a game played on a large scale by investment banks and on a small scale by, for example, the Japanese (who were able to borrow in the low-yielding yen). For most small investors, it was not feasible to engage in this so-called "carry trade."
The game got broken up by the drop in interest rates and the urgent need of banks for capital to shore up their balance sheets. As they did that, and the market started to crash, investors pulled their money out of the markets. There was a huge flush of cash through the system. A lot of the turbulence between October and March was mirrored in the currency markets. In July, the Euro began a long crash, possibly reversed in March, and the yen strengthened through February.
But now we are in a somewhat different situation. The balance sheets are in better condition, though some banks need to raise capital. There are huge amounts of cash waiting to be invested. Some of it is going into and out of equities and currencies, but not for long term investment, only as a trade.
Central banks can't effectively manipulate currencies directly (though they can push them up or down in the short term). This is especially true for smaller countries. The larger countries can manipulate currencies indirectly, through currency controls and interest rates. What we are seeing in the currency markets (and mirrored in the equity markets) is more likely to be a side effect of money positioning itself for reinvestment, doing short-term trades, temporizing. That makes the markets dangerous... they are moving not because of facts but because of emotions, and therefore almost randomly.
All this in IMHO.
--Charles of MercuryRising www.phoenixwoman.wordpress.com
18 comments
Click here for commentsIs "this" it or is "that" it?
ReplyFinally! I'm sure many worldwide have produced a sigh of relief. Back to mega-trends..
ReplyCome forth ye bears out of hibernation ... well perhaps, ermm we will see etc.
ReplyMM - couldn't agree more. Impossible to have a V-shaped recovery after so many changes in the markets.
ReplyChris
Hmmm, still a lot of risk aversion (bears) lurking around. Could this just be a short term fake-out? Pulls the bears back into the market before one final big push higher?
ReplyIts the same thing in oil as well. When it is so obvious, isn't it sometimes a little scary? My 2 cents worth
Replyhttp://sfot-otb.blogspot.com/2009/05/sustainable-down-move-or-just-breather.html
HG1 = copper, JPY = Yen, what's the first one?
ReplyEurostoxx
ReplyEurostoxx
Replythink its the beginning of 'it'
ReplySwitching from V to L... finally. I agree, it is worth a try.
ReplyNote that Prechter noted that the DSI was at 3% (extreme pessimism) at end of feb when he advised to buy back shorts, now the market seems to be clear with DSI at 85% (full of bulls) a few days ago. Plus technically there are a quantity of DeMark sell signals on every assets.
And we have had poor chinese exports, disapointing retail sales and continuing claims. Green shoot believers must surely have second thoughts.
MacroMan -
ReplyMore evidence of government data massaging:
http://www.ritholtz.com/blog/2009/05/is-us-government-reported-economic-data-being-massaged/
Nobody thinks the economy will v-bottom (well, some do, but they're idiots). That doesn't mean the equity market can't push higher in the face of L-bottom economic data(viz today's action).
ReplyMe, I am mostly off the beta-exposure merrygoround, back down to dollar-market-neutral (I have some implicit exposure, though) from .7 as recently as a week or so back. I wouldn't be shocked if I were giving up a blowup top, but I'll do just fine in the ensuing denouement.
FT alphaville has done the best job of covering the shapes of recovery- V's , L's, U's, W's, upwarding slanting w's, square root shaped...might as well add a J to this
Replythe msg is clear..."analysts get paid to be creative..."
and so they are
everything that seems to happen defies all logic. I am once again amazed at the daily market activity, but of course, I am not a seasoned trader like most here.
ReplyI had a question though. do the currencies dictate the market action. It seems so in most cases. If so, is it possible for mega players (like CBs) to manipulate currencies to guide the market and for whatever other purposes they might have?
I think the ones that have benefitted from the latest rally have been the insiders, the seasoned traders, and the blind. The average joe or inexperienced trader who recently has lost his job or whatever, probably has sustained the greatest losses. I guess gambling is addicting, and sure to make many a loser.
hello... hapi blogging... have a nice day! just visiting here....
ReplyThe wild cards in all this are the SWFs.
ReplyHeather, currencies are playing an interesting role. As MacroMan has been very good at pointing out, up until a year ago, it was profitable to borrow in currencies that had low interest rates and invest in higher-yielding investments. This was a game played on a large scale by investment banks and on a small scale by, for example, the Japanese (who were able to borrow in the low-yielding yen). For most small investors, it was not feasible to engage in this so-called "carry trade."
ReplyThe game got broken up by the drop in interest rates and the urgent need of banks for capital to shore up their balance sheets. As they did that, and the market started to crash, investors pulled their money out of the markets. There was a huge flush of cash through the system. A lot of the turbulence between October and March was mirrored in the currency markets. In July, the Euro began a long crash, possibly reversed in March, and the yen strengthened through February.
But now we are in a somewhat different situation. The balance sheets are in better condition, though some banks need to raise capital. There are huge amounts of cash waiting to be invested. Some of it is going into and out of equities and currencies, but not for long term investment, only as a trade.
Central banks can't effectively manipulate currencies directly (though they can push them up or down in the short term). This is especially true for smaller countries. The larger countries can manipulate currencies indirectly, through currency controls and interest rates. What we are seeing in the currency markets (and mirrored in the equity markets) is more likely to be a side effect of money positioning itself for reinvestment, doing short-term trades, temporizing. That makes the markets dangerous... they are moving not because of facts but because of emotions, and therefore almost randomly.
All this in IMHO.
--Charles of MercuryRising
www.phoenixwoman.wordpress.com