“We are just plagued today with the lack of long-term trends, and it’s because of people reacting to the issues of the day. You get long-term investors trying to anticipate what hedge funds are going to do—and not do— so they don’t get caught on the train tracks.”

-Jim Sarni, managing principal, Payden & Rygel.


Today’s Ahead of the Tape column discusses the return of the correlation trade:

“Across financial markets, trading patterns more commonly seen in 2010 are returning. Stocks and the dollar are consistently moving in opposite directions, as are stocks and Treasury securities.

It is a trading pattern that was common for much of 2010 as investors swung in and out of markets en masse–buying “risk on” investments like stocks when they felt brave, and “risk off” assets such as Treasurys and the dollar when they wanted safety.

That pattern broke down earlier this year, in what some had seen as a return to normalcy. But the tensions in the Middle East and nuclear crisis in Japan have seen it return, frustrating investors who are seeking to trade on fundamental factors instead of headlines. The U.S. and coalition military strikes in Libya that began this weekend could become yet another flashpoint for worry.”



Markets Back in Lockstep as Risk Bets Return
WSJ, MARCH 21, 2011

Category: Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

7 Responses to “Risk On/Risk Off Trade Returns”

  1. dead hobo says:

    So much for ‘investing science’ and the rarified knowledge of wall street pros who live at the top of lofty pedestals. All I read are a couple of ‘pros’ trying to figure out the best way to follow the herd and decide which herd to follow.

  2. budhak0n says:

    Eh the game is to make money, not lose money. How that’s achieved is ultimately irrelevant.

  3. budhak0n says:

    By the way love Krugman’s quote. If only quantum physics could truly explain human behavior… lol.

  4. Ted Kavadas says:

    RE: “Stocks and the dollar are consistently moving in opposite directions…”

    Although the falling U.S. Dollar appears to be “helping” the stock market, and few seem concerned about its drop, I believe that this declining U.S. Dollar is of great concern.

    At current levels of around 75.5, the U.S. Dollar isn’t too far away from critical support levels, and the price action seems very weak.

    For those interested, I have been writing about the vulnerability of the U.S. Dollar to a substantial decline and how such a decline would be very damaging to the U.S. economy and markets. Here is my latest post on the topic:


  5. curbyourrisk says:

    Long term trend……

    define it… 10 years??? uh…yeh that has worked well for investors. Poured money into 401K’s, yet they are right where they were.

    Until this market is fundamentally sound, and not primed by the Government I ain’t buying it. For every 1% you amke the dollar goes down by the same……running in mud if you ask me.

    SICK AND TIRED OF PEOPLE MAKING EXCUSES AS TO WHY THE MARKET NEEDS TO BE BOUGHT. Pay your debts off and you are ahead of the game, permanently….. Stop buying the bullshit spewed by pundits.

  6. Bill in SF says:

    “There is a fine line between fishing and ….just standing on the shore like an idiot”

    – Steven Wright

  7. theta77 says:

    REALLY getting tired of this new (already worn out) catch phrase, “Risk On -Risk off.” Markets up for the day – “Risk On”, – Markets down for the day – “Risk off”. I guess EVERYBODY is a day trader now.

    How about this (so we don’t have hear this nonsense everyday) – Equity markets above some arbitrary
    moving average (100 day, 200 day – take your pick, it doesn’t matter) – risk is ON – below – risk is OFF. This phrase is almost as annoying as, “Booo – yaaa”