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“…the risk continuum in this environment extends beyond normal distribution; i.e. – those looking at mean reversion strategies, either from an oversold price or sentiment perspective – may find themselves in a barrel cascading over the edge.“ The Cascades 3/2/2013
– they have taken separate tributary falls to get to their current position. With respect to the great commodity unwind, this relative destructive interference of flows and lack of correlation even within the commodity sector itself has been received by the equity markets as net positive – rather than concern of a more disorderly tone. This likely explains why the equity markets since making their lows last November, have diverged considerably from the silver:gold ratio it has trended with since after the initial banking crisis in 1990 – and to a large degree – have discounted our concerns of disinflation and the ever present specter of deflation. The bottom line and where the rubber meets the road; in this environment, finding yourself on the right side of the currency and commodity markets has yielded little insight towards the equity markets.
Although our reflexes are to wince at reading, “Things are different this time“, the context and reality still rings true. Considering the legendary source, we would all be the wiser to take note.
“Things are different this time. We have been studying markets for more than 50 years and have found certain consistencies and patterns repeat themselves. While most of these simple approaches to market analysis worked quite well in the first three years of this cycle (aggressive leadership, sentiment extremes, regular periods of correction, breadth and momentum divergences, overbought and oversold extremes, six month seasonality, FRB variation in stimulus, etc.” since last November the picture has been different. ” Money Makes the World Go Round – Robert Farrell, May 5, 2013