One of the basic precepts of investing is to follow the trend. Huge returns are obtained when we can follow a trend either entering midway into it or even at the later stages of it.
The ability to recognize a trend and follow it sounds more simple then it is. The human mind tends to question evident moves in various derivatives. We tend to counter and try to buy low and sell high. Some advocate to buy high and sell low. The latter is using momentum of the derivative to ride the trend to ecclipse.
In the model portfolios, my:
Ten year note futures : short - is losing money.
S&P500 futures : short - is making money(recently).
Oil futures : long - is making money(recently).
USDCAD long - is losing money.
USDJPY long - is making money.
So from this we have established, a preemptive trend. As time passes, these preemptive trends can reinforce themselves are reverse. The key is to cut loses and let the winners ride.
In terms of a macroview, USD has rallied substantially against most pairs or the major currencies.
USDCAD has not rallied much and usually its inversely correlated lately, to the dollar index.
T- bond futures/ten year notes have rallied substantially.
SP futures have rallied substantially. Nikkei Futures have rallied substantially. World equities in general have.
Oil has dropped down from its highs, and seems to be reversing its trend. But still early to tell.
So looking at the US economy everyone is trying to gauge the degree of slowing from the collapse of the housing boom. That is why bonds have rallied substantially, they are forecasting a recession. While equities have rallied substantially, counter to what the bond market is indicating. Both markets cant be right. One has to give. Equities are betting on a soft landing and taking advantage of huge preemptive short interest to rally. Whenever a large market as housing collapses, the economy does not fare well. So it is my view that equities will collapse in the future. The question is will I fade the move early:? or let the market tell me first? It is always prudent to let the market determine itself before, jumping on board.
Oil seems to have reversed to some degree from latest OPEC statements. It might just be a deadcat bounce but time will tell. Gold is in a seasonally adjusted bullish time period. Whether is will come to fruition is a toss up secondary to the technical damage done. The latest Barrons article, the editorial by Alan Abelson, the last part is what I agree with in terms of the future. That we will enter a hard landing phase next year. And the FED will be forced to cut interest rates, taking out the legs from the dollar.
In the early phase of FED easing, equity markets collapse, and only when interest rate easing seems to be stimulating the economy to equity markets rebound. So bonds basically have the macro economic scenario in their favor. While equities have a limited time left in their bull run.
Again its always prudent to let the trends establish before jumping on board. The goal of these model portfolios is to find the trend earlier then the others. So we can enter at the first third of the move and ride it for 2/3 of the move. Hedge Fund managers cant even manage to beat the SP500, yet with prudent strategies we can out play them.
Some strategies are extremely short term in nature, I would advise against the ones that take advantage of changes in price over seconds for the public at large even though the returns are substantial. I would be extremely conservative with 90% of respective portfolios in these troubled times.
Iran is still waiting to be antagonized, which Oil and Gold should benefit. The USD has run up to a great degree and it might be at its later stages of the trend and only Iran to buffett its move down.
Japan is artificially is dumping cheap goods by devaluing its currency. European politicians have taken notice of this and are griping here and there. Eventually it might come to bear in the market. EURJPY GBPJPY USDJPY, with the yen at 21 year lows against a basket of currencies, it is ripe for a rally. The Japanese economy is being painted as if it is recovering. How can a exporting nation like Japan recover while a consuming nation like the USA is about to enter a recession. The answer might be that they have benefitted from the housing boom globally. And we are only seeing the later stages of it. The Asian economies which are mainly exporting should succumb with the USA. Japan has yet to tighten interest rates from artificially low levels, which they speak tough, but always fail to act when it comes to it. Behind the scenes they may be worried too, that their economy will succumb to USA downturn.
Paulson recent trip to Asia, might be more to secure a line of credit then anything else. That is why the bond market and the USD have rallied substantially. With the first signs of a easing FED, the dollar should succumb too. These are just some thoughts sorry for grammatical and spelling errors.
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In response to post by Krishna Mukkamala of 10/01/06 (13:10)
One of the basic precepts of investing is to follow the trend. Huge returns are obtained when we can follow a trend either entering midway into it or even at the later stages of it....
USDJPY everyone and their grandmother can see the obvious trend up, Tankan report is coming out tonight. Some volatility will be present tonight.
Equities Vix indicator is indicating complacency.
Crude Oil, with China's GDP forecasts, the demand should be high still, not to say we wont play around with the 60-65 range to hit stops on both sides.
Credit, Ten Year Note Futures, Bond market moves extremely technical adhering to chart points, usually double tops and double bottoms form at trend reversals in this market. We will be looking for those.
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