I was talking to a friend yesterday who is extremely clued into the capital markets. We discussed on how the shape of things appear to be on the global front.
During our talks, I realized that though we as a market participants have our views on the economy and the macro trends, however the real long term macro economic trends (often relating to countries, myopic monetary policies followed by policy makers and central banks and the relative impact on currencies) are usually not visible in the course of day to day markets or even a short span of time.
Actually, it is difficult to justify much of the imbalances empirically since most of the parameters when start to manifest, are already too late to act upon. Also, if there is a gradual shift in the currencies itself, the whole method of measurement becomes flawed. Hence, at times the very best an analyst can do is to arrive at logical conclusions intuitively.
Also, once an anomaly is identified, shorting an asset class is risky as the chances of the anomalies / mismatch manifesting itself in the short run are usually remote.
One remembers the adage”Markets can remain irrational longer than you can remain solvent.”
Meanwhile, one of my ideas has played itself out nicely. I was positive on gold as way back as Sep-08 (read http://lalitabh.blogspot.com/2008/09/looking-forward-us-fiancial-quagmire.html). The encircled area in the chart given below shows the movement of gold since that time. An investment in Gold at sep-08 would have given a CAGR return of 21% till Jun-10, much thanks to Greece, Spain etc. and the ghost of Mr. Greenspan.
Not bad, eh?