Last spring, the early 1980's drew my
attention - primarily because of the comparative price structures of
the secular low made in the U.S. dollar and the secular tops made in the
precious metals markets. Further comparisons can be made to today of the
impact a strengthening U.S. currency had during the 1980-1981 time period
that structurally broke the CRB Index from its cycle high and had a negative
impact on the equity markets for the better part of 1981 and 1982. This
was also the time period where the interest rate cycle peaked.
In essence, the equity markets were range bound for more than two years
while very large secular shifts were made in the currency, commodity and
interest rate environments.
Sound familiar?
Look familiar?
And while we are currently on the flip side of the interest rate cycle, a
similar reflexive impact will be felt as market participants grapple with
what a change in the longer term interest rate paradigm will mean for asset
prices going forward. History shows us that tops in the rate cycle are much
swifter pivots, while lows have been more of a trough transition from low
to higher yields. It would appear to me that it is not as clear cut as rising
interest rates are necessarily bad for equities while declining rates are
good - in as much as it is the change itself.
Clearly, this early 1980's transitional period had a strong influence on the
movie Top Secret - which
came out directly after these shifts. I believe they explain the anxiety well:
"Things change, people change - hairstyles change...interest rates fluctuate
- who knows?"
Although I am an active trader, I have always taken a broad perspective when
approaching the markets. I respect the Big Picture and attempt to place each
piece of information within its appropriate context and timeframe. I have found
that without this approach, there is very little understanding of ones expectations
in the market and an endless potential for risk.
I am not a stock picker - but trade the broader market itself in varying timeframes.
I want to know which way the prevailing wind is blowing, where the doldrums
can be expected and where the shoals will likely rise. I will not claim to
know which vessel is the fastest or most comfortable for passage - but I can
read the charts and know the risks.
I am not a salesperson for the market and its many wares. I observe it, contextualize
its moving parts - both visible and discrete - and interpret.
I practice Market Anthropology - Welcome to my notes.
Erik Swarts is not a registered investment advisor. Under no circumstances
should any content be used or interpreted as a recommendation for any investment,
trade or approach to the markets. Trading and investing can be hazardous to
your wealth. Any investment decisions must in all cases be made by the reader
or by his or her registered investment advisor. This is strictly for educational
and informational purposes only. All opinions expressed by Mr. Swarts are subject
to change without notice, and the reader should always obtain current information
and perform their own due diligence before making any investment or trading
decision.
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