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 in the Jackson Hole Meeting, as he is every year.
It was he who called for an immediate 50 basis point decrease in the overnight rate and eventual 100 basis point decline-meaning that he's advocating the fed move another 50. Perhaps it was a coincidence that the fed voted for the 50 on September 18th, or perhaps it was not.
The NBER is the arbiter of recessions. They've a defination and it is they who basically call when the market is in recession in accordance with their definition. But that isn't what I found to be so significant.
During the interview, Feldstein said that the regular state of this market is expansion. Obviously if something is normal it is probably in that state for the huge majority of time and if you have a look at the US market during a lengthy period, it is obvioulsy true. The melancholy, the couple recessions and much more frequesnt corrections have represented the same thing: buying opputunities. The longer I thought about this statement, the more profound I realized it is. The impliions of it are really astonishing and you can apply it to trading very readily. And unless the US goes to a prolonged depression, you are gonna thank me 10 years or so, since you're going to be much richer at that point then you are now.
If you have not discovered, carry trade pairs like GBP/JPY, EUR/JPY are connected 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 alterations, most notably in February 2007 and again in August, but overall, the market has been around in its usual state for approximately 6 years now and GBP/JPY has appreciated right along with them.
Even in the event that you have a look at GBP/JPY this year it's interesting. Let's say you deposited $5000 in the start of the year and exchanged a 2.5 lot standing 2.5 standard lots). At the moment, you are up 100 pips over the year and about 3600 about the interest. That's $6000 to your own $5000 deposit (125 percent ). So far.
Forget about what the money would be if you would have started back at the end of 2001. You would have about 7000 pips and all that curiosity. And that's if you'd done nothing but leave it alone.
Woulda, coulda shoulda you are probably saying but if you're, you are missing my point. Bear in mind, this economy's normal state is expansion. Meaning that the normal state of GBP/JPY is appreciation. Meaning that unless the US goes to a multiyear melancholy, the market will exist in its regular state-expansion. Some instances will be fast, other times will likely be slow and corrections will inevitably happen. All that doesn't matter, since the usual state of this economy-and therefore GBP/JPY-is expansion.
I'm going to expand on Dr. Feldstein's normal state of this market by stating that the normal state of this market is expansion with intermittant bouts of short recessions and even briefer corrections which have represented nothing more then buying oppurtunities whenever they've occurred-and which defination includes the great depression.
So what I am suggesting is to take some lots on GBP/JPY and leave them there no matter what occurs for a lengthy time. Years. Don't even market on the corrections, just buy more and hold this also. It's workied well before.