Risk On/Risk Off Trade Returns

“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.

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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.”

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Source:
Markets Back in Lockstep as Risk Bets Return
MARK GONGLOFF
WSJ, MARCH 21, 2011
http://online.wsj.com/article/SB10001424052748703292304576212290218939526.html

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