Why do you spend so much time writing about the economy? Why don’t you talk more about how to trade?
Writing a daily column on the market means I face myriad topic choices. These days, I look to what I think should matter most to novice or intermediate level traders and investors – the economy. As the economy goes, so goes the market. In my opinion, before one can trade or invest successfully over the long haul, one needs to understand the current economic picture, and the current economic picture is muddy at best.
For example, how does one set up for trading or investing if one follows, say, the economist Nouriel Roubini? If you just listen to his economic picture, here is what you would know today.
Roubini suggests a perfect economic storm might be coming (Bloomberg news). His stormy elements are the weak U.S. economy (he uses the term “basket-case”), the U.S. budget deficit, a potential slowdown in China, European debt restructuring, and stagnation in Japan.
Well, it is hard to argue with the issues, but I have a problem when Roubini says, “there’s a one-in-three chance that these factors will clobber growth in 2013.” Now how do you move forward on such a flimsy statement as that? Consider that his “prediction” means there are also two chances in three that the economy will not fall apart. Consider further that he suggests if it does not collapse, the economy will have “anemic growth” or “accelerating growth.” Wow! How do you beat that for specificity?
No, I am not a follower of celebrity economists. They talk because they are paid or expected to say something every time new economic data comes out. I would rather do my own work and try to understand the factors affecting the economy in the short and long term. In the Synergistic Trading e-newsletter today, Dr. Tharp says something that fits right into what I am saying.
You are totally responsible for your performance as a trader; therefore, you should devote significant time to working on yourself in order to be successful.
In my mind, one meaning of “working on yourself” is spending time learning to “read” the economy. Now, no one can know for certain where things will go, as so many things can influence economic movement, but one can have a better idea than, say, listening solely to Roubini who says it can collapse, remain anemic, or it can have accelerated growth.
In the past three months C&I loans are up 20 percent for big banks (for all banks, the rate is 11%), $2 trillion in cash sits in corporate coffers, pressure on corporate margins from commodity prices has lessened, oil prices seem in check, inflation seems in check, bond yields are down, and the overall market seems fairly valued. Given these factors (and others), in the near term, one could reasonably expect some short covering in an oversold market or not, or …
Trade in the day – Invest in your life …
