Suppose the dollar is way down today but foreign markets are also down. The result is a wash FOR TODAY. What does it mean for tomorrow??? If the dollar is down substantially, doesn't this mean that our purchasing power is down? If we were buying foreign stocks directly, the decline in the dollar today would mean that I could buy fewer shares of foreign stocks tonight. How does this work when filtered through the EAFE index and filtered again through the I-fund that partially tracks it?
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Or you can now use TapaTalk again!Playing the I fund
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sugarandspice
Well-known member
At this point it looks like the dollar took a drop against the Euro after the markets closed overseas. Will there be a FV in the future to exploit?
Wimpy
Member
Pilgrim said:
Certainly the best days for the I-Fund are when the dollar is down and the foreign (Asian) markets are up. Many times, however, the fair valuation tends to skew things a bit and makes it harder to see causal relationships. That is the very reason many recommend not trying to day trade the I-Fund. The key to the understanding the I-Fund, on a mid-term to long-term basis, is the dollar. The dollar is in a long-term bear market which makes the I-Fund bullish because of the currency components within that fund. Just as nothing usually goes straight up in a bull market, likewise, nothing usually goes straight down in a bear market. By studying the dollar charts you can learn where key resistance and support lines are and make your trades in the I-Fund accordingly by attempting to anticipate where the dollar might bounce a bit off either support or resistance. Once a key support has been taken out, to the down side, the support line automatically becomes a future resistance line should the dollar begin showing strength. If a person is not serious about drawing trend lines and channels on the dollar chart and identifying support and resistance, they would be much better off buying and holding the I-Fund for the long-term.
The C-Fund is a dog looking for a kennel. The S-Fund is a disaster in the making. The G-Fund is getting mangled with inflation. The F-Fund does the best when interest rates are declining. Interest rates will be trending up for quite some time which means the F-Fund will be struggling. The chasm between the I-Fund and the rest of the funds will be widening and is readily apparent when looking at their comparative pricing.
Some, like my schmuck buddy, look at the C-Fund as a value play. In other words, buy what is out of favor. There can be a good argument made for taking in strays in a common equity bull market, but not so in a bear market. Common equity stocks are in a bear market and will be for quite some time. I plan on picking up a boatload of pound puppies in about 6 years. In the meantime I’ll let my schmuck buddy pay for the feed and vet care.
A lot of people are betting that if the dollar falls it will make U.S. common equities more attractive because of the cheaper dollar. There are far more liabilities to common equities than the dollar factor. U.S. labor is a biggie…and with declining REAL wages determined by REAL CPI numbers instead of the fraudulent core CPI numbers, we will no doubt see some pressure for higher wages impacting the final product price and negate away any perceived gains by the dollar’s plummet. The Asian economy will continue to expand its internal markets and will be able to sustain them because of their high savings rate.
In 1987, right before the market crash, the U.S. savings rate was running around 7% and Americans were much better able to withstand market shocks. Our savings rate today is most likely in the negative numbers and the average Joe is getting squeezed on all fronts.
In the 80’s, the U.S. was able to talk the Japanese into economic suicide by pressuring them into raising the Yen’s value, but the Chinese are not so gullible. The free ride is over. It is up to the U.S. to save itself by pulling itself up by its bootstraps. As long as the U.S. continues to blame others for our woes you can bet there won’t be any action being taken to correct what is actually wrong. Once U.S. leadership and the American people reach that point of understanding that the word ‘denial’ ain’t just some river in Egypt, it will be a new dawn. In other words, once U.S. leadership begins making those hard policy decisions to reign in the triple deficits, then it will be time to reallocate our investments accordingly. But that will be a few years down the road with a whole lot more pain.
U.S. leadership and the American people don’t want to hear the ugly truth that money DOES NOT GROW ON TREES.
The_Technician
Active member
I'm still expecting the dollar the strengthen some....that would make the I fund drop some.....
Wimpy
Member
The_Technician said:
Yes, the dollar will go up and down, but what is the trend? The dollar trend is clearly down and has been for some time. I would shy away from playing the counter trend bounces.
What we will see from here on out is increasing volitility. Volitility will be misconstrued, by some, as a trend reversal because of its severity. This volitility is caused by 'black box' trading. In other words, fund managers have taken a 'holiday' and left the machines (proprietary computer trading schemes) in charge. These software programs are designed to pick up on momentum in the markets and they jump on or off the financial bandwagon without any regard to fundamentals. Not to worry, however, the overall trend won't be affected, but if one has their nose pressed to closely to the financial chalk boards, they may 'see' a trend change that doesn't actually exist.sugarandspice
Well-known member
MSCI EAFE says down .426 so that would be about -.09 cents?
pointman72
Member
Maybe, but to compound the problem the US Dollar Index was at -.23 % at noontime and is currently at -.53%.sugarandspice
Well-known member
I saw that so I'm thinking maybe FV will make it a push?
Master
Member
I guess we split the difference....
Near the EST noon trading deadline, it looked like a 12-14 cent day loss for the I-fund, but as the day closed there was some strength. We didn't get the 5 cent gain or the 14 cent loss, but an 8 cent loss (20.04 ---> 19.96).
I agree with several of you that the best long-term fund currently is the I-fund. Beating the I-fund performance, thus, should be our goal for those of us who trade often.
For me, I bought back the I fund at the same price that I sold, but I got ahead of the I fund performance by 1.76 cents (0.088%), as my TSP assets grew 1 cent in the G fund (one buys more shares at 11.31/share than at 19.96/share) during that period of time.
LA_Guy
Member
According to bloomberg and other sources, dollars is rebouncing today.
http://www.bloomberg.com/news/markets/currencies.htmlLast edited:sugarandspice
Well-known member
+.06
teknobucks
Active member
blog stuff
Mish's Global Economic Trend Analysis
Thoughts on the great inflation/deflation/stagflation debate as well as discussions on commodities, currencies, interest rates, and policy decisions that affect the global markets.
Monday, April 24, 2006
Canaries at the Periphery
Please consider the following chart.
Mish note: I can not read what the text says but if you can please send me a translation. Regardless of what the text says, however, the universal language of the chart makes it quite clear that whatever is happening is not pretty.
Enquiring minds may be interested to discover that the above chart happens to be a graph of the Saudi stock market.
The Financial Times is reporting the Saudi market plunges 8% more.
The Saudi stock market plunged another 8 per cent on Tuesday, taking its fall over the past nine days to 26 per cent. The Tadawul All Share index was trading at 12,994 late Tuesday, compared with 17,557 at the close of trading on April 9. It has fallen 37 per cent from its February peak to its lowest level for eight months.
Analysts said it was a dramatic reversal after the oil-fuelled boom that led to spectacular share price gains in 2004 and 2005 and saw up to 3m retail investors piling into the market in search of quick wealth.
Oliver Bell, senior investment manager at Pictet Asset Management in London, said the market still appeared to be over-valued.
“We estimate the Saudi market is trading on a forward multiple of nearly 30 times 2006 earnings. Despite the correction, valuations are still at extreme levels compared to other emerging market opportunities,” he said.
Reuters is reporting Saudis go online to vent anger over stock crash.
Normally submissive Saudis turned to the Internet on Tuesday to voice their anger about slumping share prices. A 37 percent tumble in the Arab world's largest bourse since late February has transformed the Web from a popular source of trading tips to a forum for small-time investors to vent their spleen.
"The market has become a burial ground for Muslim money and slaughtered ambition," said an Internet user on one site, who identified himself as "the Living Conscience".
The Saudi market began to tumble in February when the regulator tried to narrow the trading bands allowed each day, angering speculators.
The regulator's decision to suspend dealers for market manipulation earlier this month only exacerbated the slide and shares plunged more than 8 percent to new eight-month lows on Tuesday.
"The index has been bleeding for more than 45 days. All we can do is watch and shed tears, tears and more tears," said Mohammed9009.
Perhaps the most interesting thing in the above report was that attempts to stop the slide by narrowing trading bands suspending those accused of market manipulation seemed to exacerbate the slide.
An Active Role
Interestingly enough, Reuters recently reported Central banks should be active in a crisis.
Financial markets suffer destructive gridlock in a crisis as investors bolt for safer investments, but central bank intervention can keep the system up and running, according to a study presented at the Atlanta Federal Reserve on Monday.
The paper, written by economists Ricardo Caballero and Arvind Krishnamurthy, studied a flight to quality as market players protected themselves from worst-case assessments of the risks, even though the danger in their own market was small.
It was delivered at a conference on financial markets and systemic risk chaired by Fed Vice Chairman Roger Ferguson.
"Agents respond to uncertainty regarding other markets by requiring financial intermediaries to lock up some capital to devote to their own market's shocks, regardless of what happens in other markets," the paper said.
"While each Knightian agent covers himself against an extreme shock, collectively these actions prevent intermediaries from moving capital across markets to expediently offset shocks as they arrive," the authors said.
Knightian uncertainty -- based on the work of Chicago University economist Frank Knight -- is a theory in economics describing risks that are impossible to measure, which is why market participants overreact in seeking capital protection.
"This inflexibility leaves the economy overexposed to (moderate) aggregate shocks that are manageable by the private sector in the absence of flight to quality," they said.
With that paragraph, the Mish telepathic thought lines were flooded with questions.
The typical question was something like this: "OK Mish what does any of the above have to do with 'Canaries at the Periphery'?"
Canaries
The answer of course is that problems start at the periphery then work their way towards the nucleus. That is simply the nature of the beast. Please consider Canaries in the Coal Mine.
Against a backdrop of strong global growth, two small Western economies have hit upon hard times: Iceland and New Zealand. Their experiences, in the context of their geography and financial characteristics, could be heralding the onset of a fresh global financial crisis.
But regardless of whether the Kiwi/Icelandic break was due to speculation or spending, there are certainly some broad financial discrepancies that are showing at least some signs of rectifying themselves. And as the Asians discovered in 1997-1998, such "rectifications" are rarely pleasant processes.
The Hindenburg Omen
Closer to home John Hussman is writing about Market Action and Information.
In a richly valued market with upward interest rate pressures, it's a particularly unfavorable sign when within just a few days of new highs in the major indices, leadership “flips” so that the number of individual stocks achieving new 52-week lows actually exceeds the number achieving new 52-week highs. That's exactly what happened last week. The S&P 500 achieved a fresh bull market high on April 5th, at 1311.56, yet new lows have already flipped above new highs.
Hindenburgs
I've noted often that a great deal of the information conveyed by markets is contained in “divergences” between securities. While investors shouldn't read too much into any indicator, there's an interesting signal that has enough validity as a measure of divergence that it's worth mentioning here. Think of it as slightly more than entertainment value but far less than a reliable guide to investment.
The signal is based on new highs and new lows, and is cheerfully called a Hindenburg (the actual name given to it by Kennedy Gammage is the “Hindenburg Omen” but that strikes me as far too, well, ominous, because it's certainly not a sufficient condition for a market decline). It's a relatively unusual event that has often preceded fairly substantial market declines with a fairly short lead time (usually within 30-60 days, including declines in 1987, 1990, 1998, 2000 and 2001), but has sometimes proved to be meaningless or insignificant as well (such as a cluster of signals in September 2005, among others).
The basic elements are 1) the market is in a rising trend, defined as the NYSE Composite being above its 10-week average, 2) both daily new highs and new lows exceed 2.2% of issues traded, and 3) the McClellan Oscillator is negative – meaning that market breadth as measured by advances and declines is relatively weak (there's some dispute, which I will not join, as to whether the Oscillator has to be negative that day or turn negative later). Peter Eliades added a couple of other conditions to eliminate signals occurring in clearly strong markets: 4) new highs can't exceed new lows by more than 2-to-1, and 5) 2 or more signals occur within about a month (he uses 36 days) of each other.
As it happens, we observed a Hindenburg on April 7th (just 2 days after the market high) and another one on April 10, so those elements seem to be in place here. We'll see whether anything comes of it this time around.
When a well respected fund manager like Hussman is watching Hindenburgs and other technical divergences, perhaps you should too. I do know that Brian and I are carefully watching those divergences at the Survival Report.
Our view is that the longer this grind up occurs in the face of rising interest rates, deteriorating fundamentals, and huge divergences, the deeper the resultant plunge. Rot is now chewing its way at the periphery. It's only a matter of time before rot works its way to the core.
Mike Shedlock / MishSimilar threads
