Punditry is about having instant opinions on everything. In an age when information can be accessed immediately, people are looking for an instant reaction to news and data as well. Sometimes, however, a considered response is far more useful.
The simple phrase “I don’t know” is anathema to most who write for the internet but is, at times, the only honest response to a question. It was my response this morning when I asked myself what was going on with the dollar, and my immediate thought was that if I wanted to write on that subject I had better take a stance one way or another.
However, I was taught may years ago that “I don’t know” is a legitimate answer when asked what is causing a move and at times like that, square is a position too.
When I started my market career back in the 1980s traders had an even worse reputation than today, if you can imagine that. Those were the days of Gordon Gekko, the days on which the excesses of The Wolf of Wall Street were based. These days, even those that believe that the movie image of traders is reality will often grudgingly accept that, for all their faults, most Wall Street types are at least smart.
Back then, even that was missing.
The popular image was of selfish gamblers who used the massive credit available at the institutions where they worked to push markets around. That didn’t need any smarts, just arrogance. Many of us played up to that perception, consuming conspicuously while being loud and obnoxious, but the arrogance that it suggested was noticeably absent when it came to making trading decisions.
We quickly learned that an arrogant attitude to markets was an almost certain path to losing your job. Confidence in your abilities was one thing, but the most important of those was the ability to know when you were wrong, accept it, and move on. We learned to value the cuts for small losses that avoided disaster more than the trades that made money.
Making money was what we were supposed to do, and with the advantages we had, almost anybody could have done that. What separated the winners from the losers were the rapid reactions to adversity and the willingness to sometimes look at the market, say to yourself “This makes no sense, and I have no clue where it is going from here.” and sit out a move.
Knowing when not to trade was a much more respected skill than trading itself.
Memories of that came flooding back this morning when I looked, as I do every day, at what was going on with the dollar. The U.S. currency has been in a gradual decline for six months, but it would be reasonable to expect that the news last night that North Korea had fired a missile directly over Japan would have reversed the dollar’s fortunes, even if only temporarily. The dollar is traditionally seen as a safe-haven currency, somewhere that money goes at times of trouble even if America is involved. That, however was not the case last night.
In fact, as the initial reports of the missile were confirmed, the dollar index moved in the exact opposite direction, heading sharply downwards. That was confusing enough, but a large part of that move came from the place you would least expect it, USD/JPY.
As the news broke that a missile was headed from North Korea to Japan, dollar/yen fell. Think about that for a minute. Not only was that a time of crisis when you might expect to see a flight to safety and dollar strength as a result, but the currency of the country that appeared at the time to be under attack, possibly nuclear attack, strengthened!
Other markets reacted as you might expect: gold jumped and U.S. stock futures dropped, but the market that you would think would have the most obvious and straightforward response refused to conform. I am sure that if you search around this morning you will find articles that attempt to explain this, but I suspect most if not all of them will be somewhat implausible guesses.
It could be that the dollar’s long-term downward trend was more powerful than the short-term boost you would have expected from the news, or that traders were confident that Kim Jung Un would not be so stupid as to launch an actual attack, any one of a host of other things, or a combination of all of them I guess.
The problem is that none of them make any real sense to me, individually or collectively.
Sometimes a cigar is just a cigar, and sometimes a market move that makes no sense makes no sense. As a trader, there is nothing wrong with admitting that, and understanding that that is the case and avoiding the temptation to react to something that you don’t understand is an important skill to learn.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.