Indices

[dmedin]

Wall Street is looking ominous

[Caseynotes]

yes but not bad considering the inevitable killer zombie apocalypse we are heading into, Dax doesn't seem to mind 😧

  

[Caseynotes]

Have you ever wanted to be a sell-side economist? Here's 10 rules (tricks of the trade) you need to to master.

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21 Jan 2020 - Dario Perkins

1) Economic forecasts: Forecasting GDP is basically a waste of time - no investor actually cares what this backward-looking gauge of the economy is doing. But getting it "right" is one of the few (though dubious) ways you can signal your value as a sellside economist. In the old days you would pretend GDP reverted to some sort of trend but today you can just assume it stays close to whatever the current level is (usually 2% for the US). If you get your forecast wrong, you should blame “unseasonal” weather.

2) Game of two halves: Every year must be divided into two. If the economy is weak in the first half of the year, you should assume a recovery in the second half. If it is strong, assume a slowdown. Whatever makes the average of the two halves - there are always two halves - close to 2%.

3) Economic shocks: Whenever something unexpected happens, like extreme weather or a government shutdown, industrial action or trade tariffs, a financial journalist will always want to know what this means for the macro economy. You need an estimate that is high enough to matter, but not so large that it would force you to change your forecast or look obviously wrong within a few weeks. A good rule is that the event will add or subtract 0.3%pts from GDP. After all, this is invariably the answer you get from sophisticated econometric models (the economists who created these models obviously caught onto this idea long before anyone else).

4) Recession watch: History shows nobody can forecast recessions. Even those that do typically benefit from the ‘stopped-clock’ effect and usually get the causes of the recession totally wrong (see Dr Doom circa 2006). But you can’t admit this to investors and you certainly don’t want to get caught out by a downturn, especially when a lot of time has elapsed since the last recession. So the best approach is to emphasise the dangers of recession but claim this is at least 18 months away. If it happens sooner, you can say you correctly warned about the dangers. If there is no recession you can simply postpone your forecast and hope nobody remembers.

5) How to get attention: If you want to get famous for making big non-consensus calls, without the danger of looking like a muppet, you should adopt ‘the 40% rule’. Basically you can forecast whatever you want with a probability of 40%. Greece to quit the euro? Maybe! Trump to fire Powell and hire his daughter as the new Fed chair? Never say never! 40% means the odds will be greater than anyone else is saying, which is why your clients need to listen to your warning, but also that they shouldn’t be too surprised if, you know, the extreme event doesn’t actually happen.

6) Central-bank watching. For the most part central banks will tell you exactly what they are going to do. But you don’t want to regurgitate this "transparency" because people will accuse you of being *too consensus*. So you must choose to be either slightly more hawkish or slightly more dovish. But as with recession forecasts, you don’t want to make strong near-term off forecasts because market pricing could influence policymakers - they try to avoid shocks. So maybe choose a 6-12 month window. If you still get your CB forecast wrong you have two potential excuses a) you can say officials are making a horrendous "policy mistake", or b) you can say their "reaction function has changed", which is a posh way of saying they are behaving erratically. Just because the central bank employs 10,000 people and has more resources than you can possibly imagine, doesn’t mean they have better information that a sell-side economist armed with Excel and a few Bloomberg headlines.

7) Market forecasts. This is really hard and it's best to avoid this altogether if you can. If you can’t, perhaps because you are an interest rate "strategist", your best option is to choose a forecast slightly higher of lower than the current spot price and then vary it in sync with the latest market trends. If the yields are falling, lower your 12-month forecast slightly. If you look on Bloomberg, you will see that this is exactly what the consensus does. The same approach works for oil prices.

8) Forecasting the stock market. Most of the time the equity market goes up so, to quote a former equity strategist colleague "you need a **** good reason" to forecast it not going up. But you should also think about the response you will get from clients, especially if you work at an investment bank. If you forecast a bear market and it goes up, everyone will think you’re moron. If it goes down, everyone will hate you. But if you forecast a bull market and prices rise, you will become a hero (and if it goes down, nobody will remember because everyone will have got it wrong).

9) Mastering Chartism: It is possible to show a relationship between almost any two variables in macroeconomics as long as you can display them on two axes and are willing to spend enough time manipulating the second axis, experimenting with data lags, inversions or various moving averages. If you still can’t make the relationship work, extend your history to cover the Global Financial Crisis; everything looks correlated during the GFC.

10) And if all else fails, blame "liquidity". Liquidity can explain *everything*, it’s basically a residual. And since nobody can measure it, you can just infer its presence (or not) from whatever is happening to market prices. It's the equivalent of "confidence effects" in macroeconomics. The political right particularly like the term "liquidity" because it is a convenient way to accuse policymakers of ‘distorting’ markets without any actual evidence.

[dmedin]

Boeing sinking probably did it for Wall Street ...

I predict a pullback to 23.6% before resumption of uptrend

 

[Caseynotes]

8 hours ago, dmedin said:

Boeing sinking probably did it for Wall Street ...

I predict a pullback to 23.6% before resumption of uptrend

Predictions and opinions, oh dear. 😳

[Caseynotes]

Markets shrugged the forth coming zombie apocalypse (has it already got them?). Dax and S&P into new highs, Dow heading that way and Ftse looking upward to monthly chart resistance (purple).

I read a report from China on Monday that said this new virus was not as bad as the SARs of a while back stats wise.

[Caseynotes]

8 hours ago, dmedin said:

I predict a pullback to 23.6% before resumption of uptrend

[Caseynotes]

May have seen our early morning test of support completed and the search for resistance begin.

[Caseynotes]

Squeeze on Dax at R1, Dow not giving a clue as to which way it might go.

[dmedin]

U.S. Tech 100 and S&P 500 both look positive.  Also, Russell 2000 looking great!

Edited January 22, 2020 by dmedin

[Caseynotes]

[Caseynotes]

It makes you weep, it really does. 😭

[Caseynotes]

imagine spending 3 months trying to short that chart 😭🚑🛌

[dmedin]

Not looking good right now.

[HPbrand]

The time may have come for a proper correction. Those spending weeks or even months shorting the US markets may finally triumph for once.

[Caseynotes]

2 hours ago, HPbrand said:

The time may have come for a proper correction. Those spending weeks or even months shorting the US markets may finally triumph for once.

true, pullbacks and corrections are part of the natural market cycle but in a strong uptrend they should really be viewed as an opportunity to get long or add on long and keep doing that until it stops working which will be the first sign the trend may well be over.

[Caseynotes]

3 hours ago, dmedin said:

Not looking good right now.

lol, are you really sure you're cut out for 'buy and hold'?

[Caseynotes]

Indices pulled back further on speculation that China had engaged in a covered up of the dates and numbers of cases of the virus which was the reason behind the seemingly very fast spread internationally. China has now imposed a travel lock down on the city of 11 million.

The Dow chart looks like a normal type pullback while Dax so far not willing to give up on the earlier break of the red weekly chart resistance line. S&P starting today up with a couple of clear support levels below at 3306 and 3296.

[Caseynotes]

 

Looking for Dow to break above 29175 or below 29098 and for Dax to follow.

H1 charts;

[dmedin]

13 hours ago, Caseynotes said:

lol, are you really sure you're cut out for 'buy and hold'?

 

It's the opposite, I don't think I'm cut out for day trading.  I still would have been better off keeping a position open from Christmas, even now.  I zoomed out to the day chart and the overall picture was so much clearer than when looking at the hourly.  (Although you could argue that the up-and-down nature of the hourly was actually evidence of a correction taking place - so always best to start longer-term and 'zoom in' if you're so inclined.)

[dmedin]

13 hours ago, Caseynotes said:

they should really be viewed as an opportunity to get long or add on long

I agree, but I would also add that if you have put on a position and the price has gone really far away (e.g. a long before Christmas) then you should really be holding on to it, adjusting your stops and adding positions and not trading 'in and out' on a daily basis.

[Caseynotes]

10 minutes ago, dmedin said:

 

It's the opposite, I don't think I'm cut out for day trading.  I still would have been better off keeping a position open from Christmas, even now.  I zoomed out to the day chart and the overall picture was so much clearer than when looking at the hourly.  (Although you could argue that the up-and-down nature of the hourly was actually evidence of a correction taking place - so always best to start longer-term and 'zoom in' if you're so inclined.)

yes, if you are staying in for the longer term there is no point in fretting over every red bar or even a normal cycle pullback. the key is to have confidence in your trailing stop to keep you in through normal corrections but will get you out when an actual downturn occurs. so best not to listen to the majority who are trying to early pick the top.

[Caseynotes]

Dax looked lower for a test of support both now heading up to test near term resistance.

H1 charts;

[dmedin]

BUY THE DIPS! 🥳🐮

[Caseynotes]

 

4 minutes ago, dmedin said:

BUY THE DIPS! 🥳🐮

US open test of support and a nice bounce off S2 for Dow and a corresponding bounce off S1 for Dax.

M15 charts;

[dmedin]

🤓

[Caseynotes]

S&P straight back up to the highs again this morning, the others following except Ftse but that's been the exception since late 2016.

Early score PMIs across the board today should be interesting.

 

[Caseynotes]

Dax and Dow looking to overcome near term resistance on the London open.

M15 charts;

Edited January 24, 2020 by Caseynotes

[Caseynotes]

French and Ger beat on PMIs so likely EU beat as well, Dax pops above R1.

 

[Caseynotes]

3 minutes ago, Caseynotes said:

French and Ger beat on PMIs so likely EU beat as well, Dax pops above R1.