I read an interesting quote from Allan Feldstein. He's an economics professor at Harvard and the head of the National Bureau of Economic Research. Back in August, he was an attendee and presenter at the Jackson Hole Meeting, as he is every year.
It was he who called for an immediate 50 basis point reduction in the overnight rate and eventual 100 basis point decline-meaning that he's recommending the fed move another 50. Maybe it was a coincidence that the fed voted for the 50 on September 18th, or maybe it wasn't.
The NBER is the arbiter of recessions. They have a defination and it's they who basically call when the economy is in recession according to their definition. But that isn't what I found to be so important.
During the interview, Feldstein said that the "normal state of the economy is expansion". Obviously if something is "normal" it's probably in that state for the large majority of the time and if you look at the US economy over a long period, it's obvioulsy true. The depression, the few recessions and more frequesnt corrections have all represented the same thing: buying opputunities. The more I thought about this statement, the more profound I realized it is. The implications of it are really astounding and you can apply it to trading very easily. And unless the US goes into a prolonged depression, you're gonna thank me in 10 years or so, because you are going to be much richer at that time then you are now.
In case you haven't noticed, carry trade pairs like GBP/JPY, EUR/JPY are attached at the hip to the US equity markets and equity indexes have been expanding every quarter since the last recession in 2001. There have been a few corrections, most notably in February 2007 and again in August, but overall, the economy has existed in its "normal state" for around 6 years now and GBP/JPY has appreciated right along with them.
Even if you look at GBP/JPY this year alone it's interesting. Let's say you deposited $5000 at the beginning of the year and traded a 2.5 lot position 2.5 standard lots). Right now, you're up 100 pips on the year and around 3600 on the interest. That's $6000 for your $5000 deposit (125%). So far.
Forget about what the money would be if you would have started back at the end of 2001. You'd have around 7000 pips plus all that interest. And that's if you had done nothing but leave it alone.
Woulda, coulda shoulda you're probably saying but if you are, you're missing my point. Remember, the "normal state of the economy is expansion". That means that the normal state of GBP/JPY is appreciation. That means that unless the US goes into a multiyear depression, the economy is going to exist in its normal state-expansion. Some times will be fast, other times will be slow and corrections will inevitably occur. All that doesn't matter, because the normal state of the economy-and therefore GBP/JPY-is expansion.
I'm going to expand on Dr. Feldstein's normal state of the economy by saying that the normal state of the economy is expansion with intermittant bouts of brief recessions and even briefer corrections that have represented nothing more then buying oppurtunities each time they have occurred-and that defination includes the great depression.
So what i'm suggesting is to take some lots on GBP/JPY and leave them there no matter what happens for a very long time. Years. Don't even sell on the corrections, just buy more and hold that too. It's workied very well before.
It was he who called for an immediate 50 basis point reduction in the overnight rate and eventual 100 basis point decline-meaning that he's recommending the fed move another 50. Maybe it was a coincidence that the fed voted for the 50 on September 18th, or maybe it wasn't.
The NBER is the arbiter of recessions. They have a defination and it's they who basically call when the economy is in recession according to their definition. But that isn't what I found to be so important.
During the interview, Feldstein said that the "normal state of the economy is expansion". Obviously if something is "normal" it's probably in that state for the large majority of the time and if you look at the US economy over a long period, it's obvioulsy true. The depression, the few recessions and more frequesnt corrections have all represented the same thing: buying opputunities. The more I thought about this statement, the more profound I realized it is. The implications of it are really astounding and you can apply it to trading very easily. And unless the US goes into a prolonged depression, you're gonna thank me in 10 years or so, because you are going to be much richer at that time then you are now.
In case you haven't noticed, carry trade pairs like GBP/JPY, EUR/JPY are attached at the hip to the US equity markets and equity indexes have been expanding every quarter since the last recession in 2001. There have been a few corrections, most notably in February 2007 and again in August, but overall, the economy has existed in its "normal state" for around 6 years now and GBP/JPY has appreciated right along with them.
Even if you look at GBP/JPY this year alone it's interesting. Let's say you deposited $5000 at the beginning of the year and traded a 2.5 lot position 2.5 standard lots). Right now, you're up 100 pips on the year and around 3600 on the interest. That's $6000 for your $5000 deposit (125%). So far.
Forget about what the money would be if you would have started back at the end of 2001. You'd have around 7000 pips plus all that interest. And that's if you had done nothing but leave it alone.
Woulda, coulda shoulda you're probably saying but if you are, you're missing my point. Remember, the "normal state of the economy is expansion". That means that the normal state of GBP/JPY is appreciation. That means that unless the US goes into a multiyear depression, the economy is going to exist in its normal state-expansion. Some times will be fast, other times will be slow and corrections will inevitably occur. All that doesn't matter, because the normal state of the economy-and therefore GBP/JPY-is expansion.
I'm going to expand on Dr. Feldstein's normal state of the economy by saying that the normal state of the economy is expansion with intermittant bouts of brief recessions and even briefer corrections that have represented nothing more then buying oppurtunities each time they have occurred-and that defination includes the great depression.
So what i'm suggesting is to take some lots on GBP/JPY and leave them there no matter what happens for a very long time. Years. Don't even sell on the corrections, just buy more and hold that too. It's workied very well before.
- I just don't see any buy-and-hold as being worth the risk. My own inclination is just to go for simple applications of tech analysis for the next few years - buy on dips to intermediate trendlines/resistances, sell on breaks, that sort of thing, and generally stay out of consolidations that are oscillating on tmeframes shorter than one's natural trading period until the direction becomes clear.