Main Questions to Answer

[TWI]

The following questions concern the medium term investor. Thought it would be interesting to compile a list. Are any major points missed out here?

1.) When are interest rates going to begin to rise and what will the catalyst be? Will the short end rise first due to FED tightening or will the long end rise first as a reaction to the dollar slide or perceived economic strength?

2.) Who is going to win the US election in November? Depending on the outcome, how will that affect the economic and geopolitical environment and investor psychology?

3.) Is it going to be as simple as Soros said a month or so ago...a liquidity induced boom in 2004 followed by a bust in 2005? If not, what?

4.) If we do have a "bust" in 2005, what will it look like? Are we going to see that deflationary collapse everyone is so worried about, or are we going to see more stagflation?

5.) Where are we with the consumer debt load and is it sustainable?

6.) What's in store with the Federal budget deficit?

7.) What impact will terrorism have on the economy and the markets?

8.) What's going to happen with the real estate bubble?

9.) Where are we going with the current account deficit? What is going to cause a sustainable equilibrium to develop and what will the impact be?

10.) Are there any investments that could work out well given a variety of the most likely scenarios? If so, what are they?

 

[TBS]

11. Ignore 1-10 and trade from the chart as you will never be able to assimilate that information, never mind come to a half sensible trading decision from it.

 

[TWI]

Good point. Thanks for saving me a lot of wasted time, I always aspired to be an ostrich anyway.

 

[TBS]

My view:

In terms of trading (no matter what time frame) you cannot have an 'opinion', you cannot have a 'view', what is said by others - whether supposed experts or not - is irrelevant. The only thing that makes you money is the price action, nothing else.

Each of your questions above are valid - so valid that you could probably write a PhD on each and every one. More to the point nearly all of them can be argued from both a bull and bear scenario and almost any single one could over-ride the 'expected' affects of the others.

To have even thought of these questions means that you must have an opinion or view on each and every one of them already - which is fine, but are you willing to trade off that view?

If you are then why ask the questions as you must already have answers?

If you get an opposing view are you willing to change your mind? - 99% of people don't.

Knowing the questions and having an opinion or being willing to listen to others is one thing. Taking it and trading against it is something very different. After all, your opinions may well be correct, but you can still pick the wrong stock/commodity/currency/bond etc...

How wrong (financially) are you preparedto be to prove your opinion? - look at those that still hold tech shares, they may well still come good, but for how long are you prepared to sit on positions that are 90%+ out of the money, and how long before a 'short/medium term' play becomes a 'long term for the great great great grandkids' play

Spending the time understanding the price action and acting on that seems - to me - to be a much more profitable use of time and energy - which doesn't mean be an ostrich, just don't let your opinions interfere with the trading. - IMHO

 

[mully]

I can only repeat

Trade what you see, not what you think.

As Livermore said:

"You watch the market with one object: to determine the direction...prices, like everything else, move along the line of least resistance."

re your thoughts, as Stanley Kroll said:

"more often the price makes the news, rather than vice versa."

All your thoughts are interesting but are only useful for people to justify price moves after the event so they appear in control to themselves and most importantly their peers!

 

[TWI]

I think it is very important to have an understanding of both Technical and Fundamental analysis. If you are all technical or all fundamental you are effectively cutting yourself off from information which would otherwise allow you to make a more informed trading decision.
Once a trade is entered the same risk management rules should apply no matter what the reasons for the trade. There is no increase in risk because you have a fundamental opinion rather than a technical signal. Indeed if the price action agrees with what you percieve to be your fundamental opinion then you can be all the more confident in your trade.

TBS All the points you make are just as valid for technical analysis as they are for fundamental analysis, don't tell me that technical analysts will not look at the same price action and come to different long/short conclusions.


The questions I posted are highly relevant for the current time and I certainly do not have answers to them, I wish I did. I posted it merely to stimulate some economic debate. Did not anticipate i would be arguing the merits of fundamental vs. technical analysis.

I was originally trained as a pure fundamental analyst in the commodity markets. A lot of the large commercial traders and specs have never studied a chart in their lives but they still make good returns. I am sure I could dig out a lot of examples in the markets where a lack of understanding of either technical or fundamental analysis has lead to unecessary losses. Today I largely scalp and so price action is king but for any trend follwing I would not be comfortable with technicals alone, people who still hold OTM techs were probably buying the uptrend in 1999 with no appreciation that p/e's at those stratospheric levels were fundamental b/s.

 

[BBB]

I thought we were 'experts' at reading a price chart? How come some of us can't even read a question?

Quote:
The following questions concern the medium term investor. Thought it would be interesting to compile a list. Are any major points missed out here?

INVESTING in the medium term is very different from trading. Im looking at such issues/methods myself at the moment as somewhere else to keep my rupees rather than my margin account.

Sorry I cant help with the answers, but I think they are worthy points.

 

[BBB]

If it is of any use what so ever though, I do think we are heading for trouble on the horizon.

The housing market must soon be on the verge of collapse - in London anyway. I mean who wants to live in a crowded, filthy city where it takes 1 hour to go down the road, and with a collapsing transport infrastructure? Will this mean a fall in London property, but a rise outside?

Also believe that there is too much cheap credit floating round. How many times have you been at the bar only to see half the 20-30 year olds paying for drinks on their plastic? They dont even have cash for a round of drinks!!, so they put it on the never never!

What goes up.....

I do think that one can gauge the economy from ones own observations, rather than relying on statistics manipulated by Tony bLIAR.

 

[TWI]

"more often the price makes the news, rather than vice versa."

Yeah Soros said
"Markets influence events they anticipate"

Think Big Al Greenspan and the boyz are using this to its full effect right now.

With the above replies in mind, I am starting to understand why stocks will always go up.

 

[BBB]

Has anyone looked at sector rotation? Seems to tread a fine line between fundamental info/market theory and TA.

Could be usful for medium time horizons (3 months - year?)

Some people tell me it's uncanny in timing sector moves, allowing the investor to focus any fundamental screening to a more focused basket of 'prospects'. Technology however should be avoided in sector rotation models due to the speculative nature of the participants and impact of this on the individual issues.

 

[TWI]

BBB, Totally concur with your credit observations. It is amazing how many credit card applications I get through the post offering 0%(outrageous APR) on balance transfers etc. How many offers of loans come through too..If I needed to borrow I suspect I might have already overdone it. I think this is exactly what the US has done on a large scale and even now continues to have little regard for the consequence.
As for London transport, I think scooter shops still have a lot of upside.
As for fundamentals here is one that even if partly true may influence price action.
http://www.guardian.co.uk/climatechange/story/0,12374,1153530,00.html

 

[BBB]

Thanks - that really put a smile on my face! Tomorrow is a new day (if we make it that far!).

So, do we think the writing is on the wall for USA? Looking at WTO meetings, it seems no one really gives a damn for the US anymore - especially developing countries as they have been done over by them too many times. Look at Brazil. Very hard to find a bank their that will exchange dollars as they simply refuse to deal with the US where ever possible.

Will we start to see countries boycotting US goods before long, especially as India and China start getting their act together providing alternative produce, services and markets?? Will we be so dependant on the US in 5 years? I dont think so.

 

[chump]

I am no economist,but there again I don't think you need to be to see where the underlying problems are..in essence we are creating less wealth than we are consuming.

Our ability to even sustain that level of wealth creation is seriously threatened by our lack of (how shall I put it) procreation..I am eagerly awaiting the new Blair initiative for radical reform which should see Viagra given away completely free of charge to rectify our population problem.
If you under 40 and sneering see me in 20 years to apologise.

On a more serious note this is why I have no objection, indeed, welcome the possibility that we will continue to attract ever inceasing numbers of people from other countries who wish to come here to live and to work (emphasise WORK). Ultimately they create demand and supply which equals the magic word GROWTH.

I sincerely hope that countries like Germany/France etc do put up the barriers and keep them up,because in doing so they give us a competitive edge.For once (spit) I am in agreement with govt policy .

Cheers

 

[BBB]

Hmmm. Interesting points.

So what will become of the call centres in the developing parts of the world when all their workers come over here? We we get our jobs back!

Who thinks we will have to privatise the NHS as there simply isn't enough money to support UK citizens and the European destitute?

(Correction: there IS enough money in the NHS, it just isn't managed properly)

Off subject, sorry.

 

[chump]

NHS...LOL ..here we go...my personal view is if you want health treatment ..pay for it in a way that guarantees the funds paid go towards exactly that and nothing else. At the moment we pay for various things via taxation and clearly their is a collective opinion forming that we do not get value back.Increasing privatisation appears to me to be inevitable.

I just know someone's going to shout what about those that cannot afford to pay..how about a body swap..they go to India where they can work in a call centre to generate the revenue they need to get medical treatment and it's cheaper over there...there we go ..problems solved.


Cheers

 

[TWI]

Despite a general lack of interest in discussing this thread I am persisting with further questions. I think together with the first 10 these are key to understanding the bigger picture.

11.) The USD is currently the worlds reserve currency. Under what conditions would that change and what would the impact of that status shift be?

12.) When, if ever, will longer term issues like "peak oil" and global warming begin to affect the commodity markets?

12.A) Given the ideas of peak oil and the current geopolitical climate, where is the price of oil going and how will that effect the dollar, the balance of trade and interest rates?"

13.) When, if ever, will the FED lose it's ability to cloak the large real increases in the cost of living?

14.) When, if ever will the FED lose the war it is fighting to suppress the price of key inflation sensitive commodities?

14.A) Some argue the US is moving from a free market economy to a financially engineered economy. If correct, what will the evolution of this look like?

15.) along the same lines, will the doublespeak the FED has been engaging in as a financial engineering tool ever cause a credibility problem for the FED?

16.) What is going to happen regarding the pre emptive doctrine and the US foray into IRAQ?

16.A) Will the oil ever begin to flow as Cheney had hoped prior to the invasion?

16.B) Will the United States be able to recover it's role model status to the rest of the world?

16.C) Is the US Neocon movement over as some have recently speculated?

17.) Of the list of questions, which are the most critical...the most important to your investing?

17.A) Which of these questions have quality of life implications?

O.K. that's me about done.

 

[TBS]

I thought we were 'experts' at reading a price chart? How come some of us can't even read a question?

Quote:
The following questions concern the medium term investor. Thought it would be interesting to compile a list. Are any major points missed out here?

INVESTING in the medium term is very different from trading. Im looking at such issues/methods myself at the moment as somewhere else to keep my rupees rather than my margin account.

Sorry I cant help with the answers, but I think they are worthy points.

If you pull the trigger - whether you are trading on a 1 min chart or a 5 year chart, then you are trading.

The only investors out there are those that took the original risk on floatation as their cash went to the company.

I agree that they are worthy questions - and worthy of debate, I don't agree that the answers would help very much in reaching a medium term trading decision.

 

[TBS]

Here's one to spark a few more questions:


Bloomberg Article

24 (Bloomberg) -- Hundreds of U.S. exporters from Tiffany & Co., the nation's largest luxury jewelry retailer, to Weyerhaeuser Co., the world's biggest lumber company, will be required to begin paying $200 million in European Union tariffs unless the U.S. ends an export-tax credit by March 1.

 

[mully]

While I find all these thoughts interesting/entertaining
I keep on being reminded of Soros's discovery that his "financial success stands in stark contrast with my ability to forecast events."
"but all my forecasts are extremely tentative and subject to constant revision in the light of market developments"

 

[TWI]

TBS I am sure your trading style has worked well for you.
But you must appreciate that I know that what I do has worked very well for me. My descision making process for any medium/long term trade is often made not only by looking at charts but also assessing the political and economic reality and trying to understanding what is actually going on in the World.
Apart from providing a real longer term outlook it is also extremely interesting and makes one far more aware of the issues that effect the quality of all our lives.

Lion must eat
Bird must fly
Man must ask himself why, why, why

Lion must sleep
Bird must land
Man must tell himself he understands