Monday, March 14, 2011

An exogenous event

According to a blog post at The Traders' Trader, Bill Cara, (I don’t know this guy) at: “random noise was the helter-skelter spin of all the Talking Heads on Financial Entertainment TV leading up to and in post mortem discussions re the FOMC announcement. My point on this is consistent: turn the TV off. (and) If there are 5, 10, 100, or 1,000 Talking Heads, or whatever number of clowns make it onto the stage, you are not going to learn anything. These people are not there to make you money; they are simply walking billboards for financial services industry companies like Ameritrade, PIMCO, Merrill Lynch, or whatever. The more they talk, pointing you in different directions, the greater is the random noise.” (and) “An exogenous event in capital markets is a one-off variable that is not resultant from any of the usual market drivers. It is, however, an external event that is large enough to affect markets.”

OK – I’m back. The Japan earthquake was an exogenous event that was unforeseen and will interfere with normal junctures and trends in the capital markets. In other words there will be capital winners and losers as a result of the massive re-build. As investors we must avoid the losers and make sure some of the beneficiaries are in our portfolio. The obvious sector winner is the lumber exporters such as Weyerhaeuser and Int’l Forest Products – just to name a few. Out chart displays a surprising pattern – both of these names were in up trends before the Japan crisis. Strange that in the midst of a crisis the stocks that were advancing before – continue to advance and the stocks that were declining before, continue to decline. When you look back at the 911 crisis the same thing happened with up and down trends uninterrupted. The fundamental guys will never get it – the trend is your friend

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