One Reader Asked A Question. Here’s The Answer

Note to self: self-righteous article titles are a recipe for disaster.

A couple of weeks ago, I got the not-so-bright idea to post something called “I’m Tired Of Regular Investors Getting Hung Out To Dry (Thoughts On A Monday).

Turns out, some people would have preferred I kept those Monday “thoughts” to myself.

But although the title was, in retrospect, not a great idea, the post itself was well-intentioned.

The point was to kind of reinforce the notion that US equity markets (NYSEARCA:SPY) are being driven almost tick-for-tick by FX (specifically, USDJPY) and rates (Treasury yields). And further, that retail investors are fed a steady stream of largely meaningless macro content masquerading as “analysis” as opposed to content that explains how the market really works.

That’s true. And all I was really asking anyone to do was pull up a chart of USDJPY (NYSEARCA:FXY) and 10Y yields (NYSEARCA:TLT), plot them against S&P futs and keep an eye on it throughout the day to get an idea of what the pros watch and in turn, what the pros trade on. One commenter had the following question for Heisenberg:

…why not stop talking the FX foreign language of interest rates to which you are overwhelmingly committed, and tell people specifically what to buy, what to sell, and when to do it?

So, a couple of things there. First, I was trying to do exactly that, which is what makes that comment so amusing. Second, if you asked the “why not stop talking about FX and rates” bit on a trading floor, you’d get the following question back: “are you feeling ok today?”

When I used to trade, my colleagues and I had a running joke every time stocks would inexplicably ramp during the middle of the day when it looked like things were starting to fall apart. We’d say the following:

This is all USDJPY!

The thing about that joke is that it wasn’t really a joke. It was the truth. Let me share with you a meme created earlier this week by Kevin Muir, a former derivatives trader on Bay Street:

Not to put too fine a point on it, but that’s basically Kevin having a little fun at the expense of people who don’t understand how this works (although he seems to be a more polite guy than me, so he probably wouldn’t put it that way).

The post that’s from is called “We’re All Yen Traders Now,” and it’s a fantastic read. Have a look at this chart from that piece:

(BBG, Kevin Muir)

See what we’re trying to tell you? That’s not a coincidence. And neither is this:

(BBG, Kevin Muir)

So to answer the above cited reader’s question (i.e. “why not stop talking the FX foreign language of interest rates?”), well, that’s why.

And to answer the other part of the same question (i.e. “why not tell people specifically what to buy, what to sell, and when to do it?”) well, first, I don’t do that and neither should anyone else without knowing readers’ specific circumstances, but more to the point, that commenter seemed to completely miss what I was trying to say. Namely, that if you watch USDJPY and…

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