USD/JPY on FOMC gave me this slight feeling of past times: it has been an interest of this blog whether keeping interest rates low for a prolonged period of time helps a company led recovery. It has been an interest as well whether QE1 and QE2 and QE3 helps this.
Now, the question might be asked when growth processes begin, is it better to stimulate as early as possible. If one examines how these processes work in markets, it seems that the best time is before the total collapse of values, in this case assets values of companies. This did not exactly happen, but maybe it would not have made a difference here.
The problem is that these assets were valued in relation to some basis of what may have been problematic related valuations. Does that matter - well, yes because it means there is less basis on which to rebound, for starters. This is presumably a useful condition of a market turn, that values find incorrect valuations. But the problem is that the crisis made assets find possibly correct valuations (with bounce inducing depth issues as well).
Post crisis we have perhaps seen an encouraging of the market to rebound, in a way extended over time, but repricing assets with the vast availability of money, pure money flow. The way the market rebounded looks a bit like a too low re-pricing rebound in a trading day.
But is the growth actually occurring going to help this process, because that growth is perhaps unconnected with this asset re-pricing, except in as much as money flows into these companies as well. Perhaps, because in each new market rise, the winners are not known at the beginning.
That is a difference between equities and forex views, one is seeing money flow, however much it may be structured by optimization or growth. But in equities one is seeing equity growth. Except now in equities one is seeing in general money flow in equities.
Money flow may bid assets up and down without regard for intrinsic value, it is like the way big money could force a currency up or down. Yet that tends to result in a-directional reactions by the market, and it seems huge reversals sometimes, the more it is applied.
The implicit possibility, from the standpoint of the market is that money flow interacts with a directionality in the market, what I might term a growth process (in certain circumstances this can be linear), or an optimization given linear directionality (this may be a random event).
That said I do not believe that linearity is that important, traders implicitly structure market processes to give them a temporary linearity within the market. However this temporary linearization may distort directionality within the market.
The same in equities, over longer terms, that is yes, parallel company revolutions are important, as they provide a basis for investors to linearize this market, in terms of the market itself, that is a view of the market that is functionally relevant to them and may or may not have an effect on the market.
The problem with stimulus is the effects flow over time, after the initial boost. However that initial boost may be what is important, not the later movements. In theory this could be cumulative, catching something partly by repeated efforts, thus in effect the flow over time becomes important.
Put it this way, it is a different way of doing things, but what is happening may be similar in some extent to what went before. But this time, the money is there to attract to assets by unrelated means, if this can happen. Thus we could argue that what has been created is something more like an enabling free market, it may tend towards this rather than is.
Forex seems to me to be like a very extreme example of this, as patterns and differentials provide the basis for this attraction with perhaps extreme temporal limitations to it, before repulsion occurs. To trade on it otherwise is to look for either those longer term processes themselves or shadows or flickers of them.
One wonders to what extent those longer term processes are impaired or changed functionally by this market reality. Flickers of past flickers, because there are no new flickers, if one might put it like that. A de-referenced market. However as always I feel that the vitality, which existed after the crisis and is happening now in tech and it seems even new media, is something that provides present and most importantly future valuation stability.
What I meant by past times at the beginning of this post was that the structure of the reaction of USD/JPY reminded me of its behavior around 2008, yet something also seemed to have changed. To me that was possibly either an instability or an enhancement of something unstable.
