trotsky (heavy metal, 10:51) ID#248269:
everything that's known 'right now' is already factored into prices.
Date: Tue Aug 09 2005 11:48
trotsky (traderneal@ski) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
a link explaining ski's system is available at his slot at 321gold.com.
and the many exasperated confessions of failing to understand it notwithstanding, it's actually a quite simple system, based on comparing current prices with past prices. although this sounds unreasonable at first blush ( i.e., why should it matter to the market what prices obtained 92 days ago for example? ) , all t/a practitioners are well aware of the market's 'elephant memory'. often prices touched by a market years, even decades ago, can matter greatly ( look e.g. what happened after crude oil finally broke through 24 year old resistance ) .
Date: Tue Aug 09 2005 11:13
trotsky (@expectations) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
"Although economists once expected the Fed to pause for awhile in its rate hikes, many now believe the central bank will keep pushing rates higher at each of the remaining three meetings this year, leaving the funds rate at 4.25 percent by year's end."
as a rule, the collective expectations of mainstream economists are ALWAYS wrong. as in 'no known exceptions'. the trick is in finding out what they're wrong about ( is the 4.25% target way too low? or is the 'pause' imminent? ) .
we can make an educated guess. the rate hike cycle has peaked in the UK and Australia, both of which have cycles LEADING that of the US ( UK lead time approx. 6 months ) . in the UK, the expansion of the housing bubble has come to a screeching halt - and although it hasn't collapsed, prices have begun to soften ( house prices rarely 'crash' in a short period of time, usually you first see transaction velocities decline sharply, and only after some time prices begin to accelerate down ) . this mere softening of the UK housing bubble has already resulted in a remarkable slowdown in consumer spending - retail sales have come under pressure exhibiting dramatic declines, personal bankruptcies are soaring and prices have begun to decline as well ( i.e., it's beginning to look like price deflation in consumer-land ) .
at the same time, the much talked about Baltic Dry index of commodity freight rates has plunged over 70% from its highs. now that's actually a crash, since it happened within a few months. in part a big expansion in the world's carrier fleet capacity is to blame, but there are also definitive signs of a sharp slowdown in Chinese raw materials imports - presumably importers are holding off on purchases because their margins got squeezed too much. also, the expansion of the bulk freighter fleet itself is a contrarian negative signal for world trade growth ( it often marks the peak of the cycle ) .
in short, assuming the K-winter began in 1998 ( the year in which bond prices began to decouple from equity prices ) , we probably are just witnessing the final chapter of the so-called 'false spring' ( after the onset of the K-winter, fiscal and monetary interventionism combine with the inventory cycle to create the false impression that deflationary pressures are easing and economic expansion is back on track ) .
in conclusion, we are probably closer to the end of the FOMC's rate hike cycle than both economists and the markets currently believe. there's only one fly in the ointment, and that's the markets themselves. as long as neither stock nor commodity markets break down significantly , the FOMC will probably assume that it's safe to keep pushing rates up. note though that all these market could break down very quickly. there's a lot of speculative enthusiasm and complacency in evidence at the moment, and while the market action itself ( including the data derived from that action ) doesn't yet suggest an imminent change in fortunes, the probability is high that once a change in fortunes DOES eventuate, it will be a large one ( see e.g. Hussman on the options volatility skew - the current distribution of volatility premia indicates a that there's a big probility of the stock market rising slightly, balanced by a smaller probability of the market falling a lot. i.e., although the probability of further gains exceeds the probability of a decline, the probability of the potential decline being much bigger than the potential gains is also greater. i hope that's not too confusing... ) . |
