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Now What: How Should One Trade In A World Where "Most Indicators Have Lost Their Informational Value"
A market which trades day to day on historic "whiplashes", record short squeezes, broken trendlines, and of course, $13 trillion in excess liquidity, got you shaking your head (and burning old Finance 101 textbooks)? Don't despair: here is Macquarie with a guide of how to trade in world where "most leading indicators have lost their informational value."
From Equities - Irrational Exuberance, by Victor Shvets of Macquarie
In our latest commentary we ask whether equities are appropriately assessing risks or whether higher FICC volatilities are more rational. Both cannot be right. Are equities reflecting fundamentals? Most leading and trade indicators seem to be highlighting that despite aggressive monetary easing by 20+ central banks, deflationary pressures remain strong and growth rates in both DMs and EMs are rapidly slowing. In response, FICC are signalling an elevated level of risk. However, equity investors seem to be assuming maintenance of ‘goldilocks’: low rates & ample liquidity; slow (but steady) growth and low (but positive) inflation.
Who is right? We argued here that most leading indicators have lost their informational value as private sector no longer has any LT visibility, and hence survey-based responses frequently send misleading signals. Given that FICC investors tend to be intensive macro data users, they are highly susceptible to whiplashes of false signals. As long as public sector continues to dominate macro outcomes, FICC investors are at the mercy of unpredictable shifts, driven by CBs rather than fundamental drivers. Therefore, our traditional assumption— that whenever there is a conflict between FICC and equities, the former is almost always right— might no longer hold, as FICC investors are now just as ‘blind’ as equity investors. Hence, equities just might be right.
However, we are concerned on two counts: (a) global economy continues to reside on a de-facto US$ standard and the US is not generating enough US$ to enable continuing global leveraging (absent strong recovery or QE4, supply of US$ is falling at ~5% clip); and (b) efficacy of conventional monetary policies seem to be largely exhausted. As global velocity of money declines, incremental QEs required to grow liquidity are on an ever increasing scale (~US$1.5tr+ in ’16 and escalating to infinity). Hence, there is a need to re-assess nature of QEs. We doubt that the alternative of CBs abandoning desire to regulate and ‘smooth cycles” and letting deflationary business cycle to reset itself is on the cards.
If conventional QEs lost potency and aggravate global deflationary pressures, why do equities assume that lack of tightening and further QEs would guide economies towards ‘goldilocks’? We believe that it is a simple ‘Pavlovian reflex’. In the past, this relationship worked because QEs were generally successful in temporarily reducing deflationary pressures. However, short of massive rise in monetary stimulus, it seems that incremental changes would no longer be able to achieve such an outcome. Are we ready for more extreme policies? The next stage is likely to be CBs directly funding fiscal spending, investment and consumption. However, to accept such a radical shift requires ‘accidents’ and a severe slowdown. Over 12-18 months, chances of both are high but low over ST.
Hence in the ST (3-6 months) we anticipate neither aggressive QEs (with at best limited efficacy) nor extreme unconventional policies. Therefore, as investors progress into ’16, supply of US$ is likely to continue contracting, deflating global demand and constraining liquidity. This would lead to regular bouts of volatility rather than goldilocks and could easily reverse current equity euphoria. Hence, we are reluctant to back weaker EMs, and continue to play ‘safe’ by emphasizing countries with trapped local liquidity, some flexibility of monetary & fiscal policies and countries that do not excessively rely on commodities.
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Don't trade... hoard.
and why not hoard the thing that is the basis of global wealth.
The Most Valuable Thing in the World
Sozan, a Chinese Zen master, was asked by a student: "What is the most valuable thing in the world?"
The master replied: "The head of a dead cat."
"Why is the head of a dead cat the most valuable thing in the world?" inquired the student.
Sozan replied: "Because no one can name its price."
http://www.ashidakim.com/zenkoans/70themostvaluablethingintheworld.html
the *other* thing to hoard:
http://www.nytimes.com/2015/10/11/opinion/sunday/should-we-bank-our-own-...
a votre sante!
Thanks.
Stupid article still bothering with manipulated paper products.
Here is how to trade for real -- trade expenses for assets.
Get rid of:
iCrap and phone bill
cable bill
auto loan
mortgage
cig habit
Trade for:
pile of cash, junk silver, long term food/water supply, older car owned free and clear
Kinda ruins the ol' "Eat shit and die" insult.
Well, then try this one:
Eat shit! 10trillion flies can't be wrong!
safelyGraze
<<<<The *other* thing to hoard: http://www.nytimes.com/2015/10/11/opinion/sunday/should-we-bank-our-own-...>>>>>
They have recently discovered that the appendix is actually another form of "autologous fecal transplant" as when the system detects imbalance of the microbe communities, it shuts down entry to appendix thus preserving the original mix and once the external threats are no longer there, it opens up and the repopulation helps the rebalancing. No shit! (Pun intended) No sarcasm.
http://www.webmd.com/digestive-disorders/picture-of-the-appendix
Inscrutable.
Put the cat head on eBay and let the price decline until you get a bid. Sozen the zen master did not have eBay.
Main reason why no economic indicators work:
Because of the debt laden constantly manipulated QE driven illiquid HFT & algo driven Western markets....
Did I miss anything?
Buy things that have intrinsic value and take possession of them. Purchase land and things that allow you to become self-sufficient.
I think that gold has some bullish momentum for the short term. Especially now that gold broke out of the declining trend-channel that it has been in. Furthermore when gold is able to close above the previous top of $1,158.50 it will add to the bullish momentum. However, I myself am not a profound believer that gold will soar up a whole lot from this point onward, especially with potential negative revearsal on the RSI, and an expected wave down on the Elliott Wave in the near future.
tripstrading.com/2015/10/12/gold-brea...
go long on dartboards.....
You mean, stand further back?
i got your point
>How Should One Trade In A World Where
>"Most Indicators Have Lost Their Informational Value"
Carefully.
Actually it may be easier, charts are more self-fulfilling than ever before, since they are being implemented by Fed spreadsheets.
Or, just BTFD and BTFATH.
Go long MIC. They are gonna make some killings.
The private central bankers and financiers are sucking all the life out of the real economy to feed their insatiable debt slave, rentier mentality. Nobody serious I ever met gave fucko about some doing/having better than others - hell, they'd like to do better themselves - but this is not what we have. A slavish crony debt system has been screwed down over the middle and working classes sucking the life blood out of the people.
William Dudley, NY Fed head , is in control of the stocks.
One of the 12 capatis of the RMS Titanic economy.
''On our way to the land of 'mark to fantasy' we crossed the RubiCON of 'iindicators of informational value' a long time ago.
"countries with trapped local liquidity" ... those where tears flow freely
Everything I learned about market fundamentals at University means diddly. Cash, gold, ammo, food is my new mantra. I'm also long Monkeys and Dartboards and have options on Goat Entrails.
Ouija board for investing.
Read and learn....1. raising rates will bring the cards down, so many think that the feds wont raise the rates. This is a correct assumption except for the fact that the final goal is to bring the cards down. They will raise rates when they are ready to bring the cards down. They are not ready yet. In fact, they were going to do it in Septemeber 2015 but human varibales keep setting their timeline back. Then they have putin messing with their plans in ukraine and syria. Then again, some say putin is part of NWO and this is all a matrix..That is possible I suppose. Then we have China.....My assumption is that China was not ready yet for the global reset. So, the west said ok, we are behind in taking ukraine and syria anyway, we will wait until next year. My point is, they will raise rates when they are prepared to raise rates...If helicopter money comes, it will come to whatever they think will keep things calm until they are ready. ie: middle east toakeover/negotiations, police state in the U.S. to calm the riots, etc. 2. investing in the stock market right now is not a bad idea. I am not going to do it, but for those who understand and have time, you might make some money short term. If you have a 401k for future, or retirement, I would get out now and buy precious metals. Take the hit and just do it. Your stocks will be dead anyway, so taking the small loss and buy precious metals...Silver is best IF YOU CAN EVEN FIND PHYSICAL SILVER!!
Buy firearms, ammo, security system for your abode, long term food and most important have water. You still have plenty of time if something werid doesnt happen such as RAF shooting down and russian jet etc. Their plan is to bring the system down, but doing it in a fashion where they get everything...They are not quite their yet...I was hoping it was this year so we could get it over with, but we have another 3-12 months. If not longer.
"We doubt that the alternative of CBs abandoning desire to regulate and ‘smooth cycles” and letting deflationary business cycle to reset itself is on the cards."
Perfect. That explains "hubris". Instead of being there to smooth out cycles, they are there to play the superhero who comes in and rescues the failing minions. Their job is not to rescue anything, it's to even out the bumps. But when the pathway is leading to recession because of stupid business and political decisions that were made, you MUST let those who made the decision suffer for their stupidity, otherwise they don't learn anything from it. This whole TBTF nonsense is what causes cycles to be way deeper and longer than they should be. So we keep the idiots in power and control of the system by enabling them with more and more fiat to play with. Great plan. I'm sure it will work out just fine.
It's only hoarding when there's a full-on crisis in play. Beforehand, it's just prepping. At some point your home becomes a compound in the eyes of th supposed authorities. I suppose that's when they want whatever's inside. Game of Thugs.
H igh F requency T hievery has made much, much bigger the money cost of the slippage in order execution. HFT is a license to steal - period.
for those ignoramuses who havent a clue what FICC means
FICC (film festival) the Mexico City International Film Festival
i looked it up on GOOGLE. All clear now?
The only way to win is not to play the game. - WOPR
Duplicate post.
I'm wondering how so many Central Banks that are manipulating every market now can coordinate ther skulduggery?Is it the job of The Treasury's trading desk to coordinate the orders from The Fed,The ECB and Bank of Japan just to name a few?It must be like a traffic control tower.
The wisdom you seek lies in two organizations:
BIS
IMF
history is best indicator anyway
just print moar liquidity.... I AM YELLEN!
Try deep meditation.
"If conventional QEs lost potency and aggravate global deflationary pressures, why do equities assume that lack of tightening and further QEs would guide economies towards ‘goldilocks’?"
Well, the choice for most asset managers is between equities, bonds or cash. You have to choose one, and cash really isn't an option for institutional guys, unless they want to get fired for underperforming. That leaves stocks or bonds. Most guys, I suspect, are holding their noses, investing and hoping it all works out. You know, like most of the rest of us.
Or rather skewed err screwed by shyphilis eaten brains of homosexuals