Stocks, Bonds and Currency’s remain on the Ropes
Today certainly didn’t give much hope to the Bull’s in the market (are there any left?). Things started out pretty good. European stocks were up, Emerging Market currency’s were stronger and there were a few people looking to put on receiver positions. Then “poof” it all vanished. This market is unable to hold a bid. There is no denying that. Any flow that I have seen is to buy Dollars and liquidity continues to be thin. We are just in one of those periods of time were any news (or lack of news) is perceived as bad news. There is no sense in fighting it (although I try).
For rates I see very little that I find interesting. I spent a good part of my afternoon looking at curves trying to figure out a strategy with little luck. The curves are pretty flat (currency against Dollar), which doesn’t really suit me and if Brazil raises rates in April like I think it should flatten more. In Mexico I think rates will rise latter rather the sooner. As such the curve should steepen out a little. Neither of these views are strong enough to entice me take a position.
I went home tonight Short Usd/Clp and Usd/Cop, I am confident these markets will open up under water tomorrow morning. It just hasn’t been my Day/Week/Month/Year. Oh well as a former co-worker of mine used to say, It’s only money and it’s not mine!
As for my Super Bowl prediction, If you had been looking at my P/L lately you would have known that the Saints were bound to win.
Good Luck and Good Forex Trading
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Super Bowl’s as a predictor of markets
Since the 1980’s there have been studies on the “predictive” powers that the winner of the Super Bowl has on the market’s.
Recently there was a new study conducted by a finance professor in Virginia found that 77% of the time the stock markets performance can be predicted based on the winner of the Super Bowl.
If the team that wins the Super Bowl has its roots in the original National Football League, the market will increase, according to the so-called Super Bowl Stock Market Predictor. If the winning team is originally from the old American Football League, the market declines.
According to that methodology then the markets will be up in 2010 as both teams, the New Orleans Saints and the Indianapolis Colts can both trace their roots back to the original NFL. So go out and bet the farm on stocks, right? Well not so fast, remember in 2008 the New York Giants, an original NFL team, won the Super Bowl (in dramatic fashion!) and stocks proceeded to have one of the worst performances ever.
I think this is more of an interesting side note rather then an out right predictor. Remember in trading having the correct position is only part of the equation. You need to have timing right also. Saying the market is going up, buying into the market then getting squeezed out on a retrace, only to watch it rally (without you participating) again does you no good. The market did what you said but you did not have a position. That is why Paper Trading although useful is not the same as having the actual position.
Quick story, we have a trainee in our office. He knew I was a big fan of quantitative trading and as such designed a trading system. It was based off simple moving averages to give him signals on the markets. I encouraged the development of the system, had him “paper trade” it and back test it. He produced results for it showing solid,steady gains. I told him when he was ready to let me know and I would let him do actual trades, using my limits and my books. January 2010 started and so did the “live” trading of the model. Things did not go exactly as planned, first on three occasions the market hit our entry points but did not go offered or bid at the level and therefore we did not actually enter the position. In all cases it would have resulted in a substatial percentage gain. Second on two occasions we were stopped out “prematurely” only to watch it move dramatically in our favor. Why? Because “it looked like it was going to continue to go against us”. These were very modest positions and the P/L was of no impact. What I was trying to teach the trainee was that there is a big difference between real trading and paper trading. I knew we needed to have a sit down when he came to me one day and cut the position size in half because he wasn’t sure the “model was producing good signals”.
To be fair the markets have changed since the end of 2009. They are more volatile and certainly more nervous. But I think he got the message. Currently he is “retooling” the model and using more accurate entry and exit points (stop losses are not done at the level). No matter whet happens it is a useful exercise for the development of any trader.
Good Luck and Good Forex Trading.
SUPER BOWL PREDICTION
Inndianpolis 31
New Orleans 28
Also Click Here to read the article I referenced about the Super Bowl.
Prosper.com
Let me start by saying that Prosper did not pay me for this post. Prosper is a peer to peer lending site. Investors can open an account and place funds into it. People looking to borrow money can open an account and place an ad requesting a loan. Prosper does the due diligence and grades the prospective borrower. The borrowers set the maximum rate they are willing to pay and then wait for the offers to come rolling in. If more people want to lend money to the borrower then they need a “bidding war” ensues and the rate could fall. I opened an account a few years ago because I was fascinated by the process but never funded it. When the market crashed in 2007-08 I was quite glad that I didn’t. In November 2009 as my optimism grew about the economy I placed a small amount of money into the account and evenly split it among the three auto investment category’s, Aggressive, Moderate and Balanced. I then allowed Prosper to bid on loans within those category’s. The amount per loan was extremely small as to allow for greater diversification. After two months 100% of my money has been lent out. The theory behind the site is solid (I think). People in debt or looking to borrow some money can get a better rate by not going to a bank. Instead go to individuals with some extra cash, looking to get a better return on their money and it is a win/win for everyone. In these difficult economic times, good people looking to cut down on interest payments can consolidate loans at a lower rate by taking advantage of this program.
Back to my story, of the 60 active notes that I have (again I lent a tiny amount to each borrower) 42 have come up for their initial interest/principal payment. To my surprise 2 have already failed. Clearly the theory behind the process is to lend to a broad base of people at varying rates. Some will pay off in full, some will pay for a time before failing and some will never pay. Back in the Early 1990’s I read a book called Den of Thieves
I guess time will tell if this account and the strategy that I am using will work (I will keep you updated) but I also think it could give me a good read on the economy. We all lose perspective on how life is across the country and this could give me a “read” on that.
DISCLAIMER, I in no way am endorsing Prosper. I am not paid by them (they do have an affiliate program that I am not a part of) and am just writing about the site to describe a personal situation. Invest at your own risk and never by what I say. I am not an expert but rather a guy with a lot of opinions! I do however recommend Den of Thieves
Good Luck and Good Forex Trading.
And the Hits just keep on coming!
Well for anyone who was wondering things didn’t get any better today. Today definitely felt like the market was going to blow up. Let’s start with the Euro. Just as Greece was gaining support from the EU for tackling is budget deficit by announcing additional measures to reduce its shortfall, Portugal was thrust into the spot light as the next country to face a significant budget deficit. The yield on their 10 year note rose significantly today as the Euro got hit hard. It is clear to me that attacking the Euro from the short side is the way to play it. With all the bad news coming out of the region and Emerging Markets under pressure traders will look to the Dollar as a safe(r) haven.
Latin America:
The Chilean Peso was under a lot of pressure once again today as pension funds were scrambling for Dollars at all costs. Local traders would not even take my calls as Dollars were at such a premium. Buy Dollars on any type of dip (if there is one)! I think we are looking at a minimum of 555.00. In Brazil also be long Dollars. This currency pair felt like it was set to pop today. REALLY POP! I traded from the long side all day and actually made a little money here. I will continue to do so. Colombia, this currency pair has really lagged the market. I would not sell it right now as it has shown only limited signs of life. I think it would be safe to put a small long Dollar position on, with a stop below 1950.00.
Asia:
I read today that China downgraded to of its Banks. Also that credit has severely slowed. This is exactly what the authority’s want. Now the question is, How long before the currency starts to strengthen? I think not long!
These markets are certainly loaded with fear. In the past two crisis (Asia 1996-99 and Credit 2007-09) markets moved quite violently. I have not seen this reaction yet, although it has certainly felt ready to pop many times. Will it happen, I am not sure, but right now I am not willing to bet against it.
Good Luck (to me too) and Good Forex Trading
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