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hardnox604008
Advisor

Some academic backup on the All One Market theory

http://www.zerohedge.com/news/hft-has-disconnected-commodities-fundamentals

 "Markets are more exposed to 'sudden and sharp' corrections, and as Reuters notes "The strategy of those involved in high-frequency trading tends to reinforce the correlation between equities and commodities". In a somewhat stunning conclusion from an academic treatise, the authors find "We are not saying that it's all about speculators and (that) fundamentals don't matter. But we are saying that they tend to matter less, except in extreme cases,"."

 

 

 

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13 Replies
hardnox604008
Advisor

Re: Some academic backup on the All One Market theory

PS.

 

The wee bit of spunk in the risk on trade today seems to trace back to a squash down in the rising rates on Italian sovereign debt which were rising and probably behind some of the hint of risk off this week.

 

So presumably the ECB came in and bought their bonds. On any given day you can guess what central bank is going to do what and good luck on that.

 

Or like the "smart money" you can bet that while markets ebb and flow, when there is any threat, someone will intervene so keep to the risk on profile.

 

Until, like spring 2010 or 2011, all the sudden they don't. But it is an election year, so make your own guess.

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Palouser
Senior Advisor

Good luck with that!

There is actually negative correlation between the $ index and some grains, and as much showing dramatic counter correlation from year to year as any overall correlation.

 

http://www.dtnprogressivefarmer.com/dtnag/view/blog/relatedImage.do?blogHandle=agfundamental&blogEnt...

 

If that doesn't work, then try this and click on chart.

 

http://www.dtnprogressivefarmer.com/dtnag/common/link.do;jsessionid=698F9654EE6C7E9E4DB49318A8562DAA...

 

If you want to use the $ index in your overall marketing then be prepared to be broadsided on any position you take based on financial policy that is supposed to be the driver for the $$ and grain prices.

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hardnox604008
Advisor

Re: Good luck with that!

I'm not suggesting that.

 

What I'm saying is that even if you believe you know the fundamentals market action is further complicated by financial flows.

 

If I ever thought that anyone can pinpoint sales points I sure as shootin' don't think you can today.  I think it comes a lot more a very personalized case of risk management and in this environment risk management also very much entails margin exposure management.

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bruce MN
Advisor

Re: Good luck with that!

Nox...I've been making apoint of reading the frequent columns of this contributor at the Australian based MacroBuxiness site who goes by the handle "Sells on News..  I've linked up a few of his columns over at the Forum page. 

 

Thought of this most recent one while reading this thread:

 

http://www.macrobusiness.com.au/2012/03/the-economy-as-machine/

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Palouser
Senior Advisor

Re: Good luck with that!

So, define finiancial flows? 

 

If one can quantify and follow 'financial flows', and IF they have a bearing on commodities (which I think is doubtful at best) then it might be a useful metric. Just because the Fed takes certain policy actions does not warrant the assumption that anything important at all takes place in the way of 'financial flows'. In fact I believe the major problem with our economy is the restriction of currency circulation due to the lack of credit and the destruction of assets through depreciation, job losses, debt, etc. The Fed would love to see some money flows. It's happening incrementally at best. 

 

This is a zero sum game on the ledgers. Just because the Fed has an easy money policy doesn't mean money is easy to get. Farmers are probably the one sector that has benefitted through this entire (avoidable) situation. That doesn't mean everyone else can. And I don't buy then idea that insitutions are borrowing money from the gov and pouring it into markets and playing Russian roulette. The wheel always stops. But that concept should be easy to demonstrate by summing up all the money flowing into contracts as compared to prior.

 

We already understand I'm skeptical. It's mainly because the explanation comes before establishing the facts. Zerohedge is definitely an ideologically slanted source.

 

 

 

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Artifice
Senior Contributor

Re: Good luck with that!

ttaht i nuts IMO, you are going  forcast the $THEN GRAINS AND BE WRONG 4xS??

fanatism with out side mkts and grains probably does harm. Does someone wake up and trade corn j based on the italian lira??

look at 2009 - 2012 you worry about GREECE, us debt downgrades, banks bad  s urities, 100 things

 

what happened  ?nothing, the economy stablilized,corp profits

itook off,corop cash is anall ime high.

 

mt is near an all time hgh

 

wwweellll?

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Palouser
Senior Advisor

Re: Good luck with that!

There's no question that markets are a measure of human behavior. How else to explain some of the shorter term gyrations that are often completely conrtarian to, say, a 'report' that has little consequence some days later (which is why I stay with longer term trends and try to forsee the developing circumstances that will tend to change those trends if they intensity or accumulate). So far I've not had to resort to looking at monetary policy to determine physical trends and the market's eventual reaction.

 

Nevertheless, something like 'meta-money' either does or does not have a quantitative figure attached to it or a definite correlation to market behavior. Otherwise it is simply hypothesis or speculation - or even ideological expectation. Right now, possible ending stocks and crop progress around the globe coupled with demand from movers  and producers like China do a pretty good job of telegraphing possible moves in the market, as late as they might come.

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Artifice
Senior Contributor

Re: Some academic backup on the All One Market theory

""""" How else to explain some of the shorter term gyrations that are often completely contrarian to, say, a 'report' that has little consequence some days later """"       I don't follow you, markets weigh all factors and further need to find common ground where a buyer and seller meet at the same price.' It isn't one side to a trade!!!

A "report" is but "a" factor, there may be more important factors that day or factors you don't know about, or on the horizon you can’t see or you may be misinterpreting them. Wheat peaked, what 14 months ago, it sees improving world S&D, someone deeply biased bullish, isn’t objective and  isn’t harvesting spec premium.

 

Good luck to us all.  

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hardnox604008
Advisor

Re: Some academic backup on the All One Market theory

I think the concluding paragraph covers it fairly well.

 

"This result is important for at least two reasons. First, it questions the diversification strategy and portfolio allocation in commodities pursued by financial investors.Second, it shows that, as commodity markets become financialized, they are moreprone to external destabilizing effects. In addition, their tendency to deviate fromtheir fundamentals exposed them to sudden and sharp corrections."

 

             

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