I don’t want to stir up trouble….however

I sometimes fear that we worry about the wrong things when it comes to the financial markets. There are always swags of things to think about and it can cover any timeframe that you care to name from where the Aussie will be trading in 10 minutes time to the long-term trends in employment and the technological factors that will be impacting them in the next decade and beyond. I was doing some reading last night though and a troubling thought occurred and I realised (as many had before me) that from an economic standpoint the damage that we do in the short-term may not be visible for some time. Often we see lagging impacts like the standard impact of moves in monetary policy taking 18 to 36 months to be felt. By some time in this case though I mean years and years but the impact will no doubt be devastating.

In the SMH last year, this was published:

“The emergency manager appointed to put Detroit’s troubled public school system on a firmer financial footing said on Thursday he was sending lay-off notices to all of the US district’s 5466 unionised employees.

In a statement posted on the website of Detroit Public Schools, Robert Bobb, the district’s temporary head, said notices were being sent to every member of the Detroit Federation of Teachers “in anticipation of a workforce reduction to match the district’s declining student enrolment”.

You could look at this and say that it’s a problem in an isolated area of the US which is suffering due to a specialist workforce and lower demand. As I understand it though, since the GFC in the US the number of teachers sent packing has totalled into the hundreds of thousands. My point here is the short-term benefit (fiscal saving) is going to be so greatly outweighed maybe decades into the future by a less educated workforce. It appears that the line in Gladiator is correct – what de do in life does indeed echo in eternity. I think that this is a particularly nasty example but the takeaway from it is that even though we spend our time looking at charts and headlines we must all make the effort to look at what the impact of fiscal decisions made today will have on the immediate, mid and long-term future of the country.

If you think of examples like this it makes the amount of bluster that we see all around the world focused on things like pro or anti Keynesian policy seem that much more ridiculous. Don’t get me wrong, I think that is one of the most interesting economic arguments around (not that that is saying much) but rather than blindly picking sides I think you get a lot more out of economics if you are more discerning with your choice of which policy is good and bad – not just politically irritating or politically agreeable.

Now back to the short-term.

Depending on which market you were watching last night the volatility flood gates were opened wide – at least for a few hours.

In my post yesterday I discussed to broad downtrend in the EURUSD but noted that there as some room to move upwards without threatening the prevailing bear trend. You can see in the chart above the Euro did indeed break the descending triangle to the upside but didn’t make any real ground before getting crunched once again. The S/R level drawn in at 1.2444 is basically the level to watch now. It has been a good support level and so I would expect to be the near-term resistance for the immediate future. Also note that the 1.25 SD level of the 200 period moving average is once again on the price so you would want to see a break of that level before thinking about a shift in short-term direction.

You would imagine that the session tonight could get pretty sporty again for markets – there are roughly equal quantities of impatience, boredom and anxiety in the mix at the latest Euro summit. Again I would suggest that the market has invested a huge amount of negative into the area so there could be a big response if good news is released but banking on that would be a bridge too far for most people.

This entry was posted in Forex, Market, Trading and tagged , , , , , , , , , , , , , , , , , . Bookmark the permalink.

4 Responses to I don’t want to stir up trouble….however

  1. DV4 says:

    Although I partially agree with your cause and effect note above, I still believe news just gets in the way of good trading… trying to guess (rationally as it may seem) how others will perceive news and react to it is extremely difficult.. If you have solid strategies/ edges that you have battle tested… news doesn’t matter – because you will only act if your edge is present… news or not….Speculating on market participant reactions to unknowns is an admirable challenge, but best left to reporters…(reporting what happened after the fact…tomorrow…. !!) not technical traders acting in the now…

    • David Land says:

      It’s certainly a valid point that you make. In the case of impacts from fiscal policy like the one I mentioned I think you would be very keen to take a 3 day view on a 3 decade cause and effect – but it’s the ideology that concerns me a lot more than the trading impact. I agree that the charts show the vast majority of what the trader needs to know and having a short term strategy around news interpretation will be difficult to generate an edge with. Hopefully as market participants though (even for interest sake) we can get thinking about the impact of apparently sound economic policy.

      • dv34 says:

        You are right David, I also believe fundamentals create trends (although I personally trade what some consider counter trend)… which leads to cause and effect, however I also think ‘sound economic policy’ is an oxymoron… there will always be booms, bust, irrationality and reason in the markets… it has happened throughout economic history! because we are all human! I think ‘sound’ translates directly to the system with the least flaws in it… No matter how robust you make something if the environment where it operates changes enough then it will eventually lose its effectiveness – one thing is for certain, things will change… hopefully our policymakers are wise enough to make changes with it…

  2. dv34 says:

    This interesting discussion reminds me of a book I read years ago called “The worldly philosophers : the lives, times, and ideas of the great economic thinkers” by Robert L. Heilbroner. 1919. Very interesting book if you like understanding the foundations of modern economic theory

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s