The Yield Curve and the Global Macro Investor
There are many global macro investing strategies that make use of the yield curve. While primarily used to trade bonds, there are also several good uses for trading stocks and currencies as well. In fact as powerful as the yield curve is, there is likely a few yield curve strategies for every asset class out there.
So what is the Treasury yield curve? It is the curve you get when you plot out the yields on different maturities of Treasury securities. For instance if you take the ninety day Treasury bill, the two year Treasury bill, five year Treasury note, ten year Treasury bond, and the thirty year Treasury bond you will get a curve. Usually sloping upwards from the bottom left to the upper right of the plot area, it can also take several other shapes. It can be very inverted with the far right down at the bottom and the far left at the top, it can have seemingly random lumps, and it can shift anywhere on the plot area. Each of these shapes and slopes of the yield curve tell the global macro investor something differently about the economy and the different trading instruments available to you.
This is great but how do you use it to make money? Well the global macro investor knows that if the curve is sloped from the lower left to the upper right that things are looking good for the economy. If on the other hand it is sloping downwards the Fed has tightened and the economy is or will be slowing.
So why does it work? Why does it matter what direction the yield curve is? Well if the yield curve is steep, going form the lower left to the upper right it means that banks are highly incentivized to lend money and therefore spur growth in the economy by helping businesses and individuals spend money on expansions as well as spending in general. This happens because when the curve is upwards sloping banks can borrow short term at low rates from the government and lend at higher rates for longer periods of time to the public.
If the curve is inverted however business is usually about to slow down, rates will be lowered, and bonds will climb. This is because with the incentive of the banks to lend now gone they will throttle back and the spigots of available money run dry. In turn this forces the Fed to lower short term rates, the Fed Fund rate, in order to spur business growth once again. When they lower rates bonds inevitably go up.
Think of bonds and interest rates as a teeter totter where yields are on one side and bonds are on the other. If bonds go down, rates go up. If rates go down, bonds are going up. In a regular inflationary environment this is always the case unless there is a severe credit quality issue.
If this is the case then anytime you can forecast the yield curve to show when the Fed will be lowering rates you can jump on it and go long bonds, typically with little risk. At the same time whenever you see rates being lowered you can wait a while and then go long stocks.
Of course as with all things in the market nothing works every time. In fact the quote history never repeats itself, but it often rhymes is a very appropriate statement. Used along with proper risk controls the yield curve can become one of the global macro investors best timing tools and economic gauges.
Deciding Where To Invest
There are several different kinds of investments, and there are many factors in determining where you should place your funds.
Naturally, deciding where you will place your money starts with checking out the different kinds of investment on the market, determining your risk aversion, and determining your investment style and your financial goals.
If you wanted to purchase a new car, for instance, you would do quite a bit of research before making a final decision and a purchase. You would not consider buying a car that you had not fully looked over and taken for a test drive. Investing your money works in very much the same way.
You will, of course, learn as much about the prospective investment as you could, and you would want to see how previous investors have done too. It’s just common sense, isn’t it?
Does researching the stock market and investments take lots of time? Yes, but it is definitely time well spent. There are numerous of books and websites on the topic, and you can also take college level courses on the subject, which is what stock brokers do. If you have access to the Internet, you can actually play the stock market with pretend money in order to get a feel for how it all works.
You can make pretend investments in a pretend portfolio, and see how they perform. Do a search with any search engine for ‘Stock Market Games’ or ‘Stock Market Simulations’, although almost every online stock broker provides these services. This is a great way to commence learning about investing in the stock market.
Other sorts of investments external to the stock market do not always have simulators, so you will have to learn about those types of investments by reading about them.
As a potential investor, you should study any you can possibly get your mits on about investing, but make sure you start at the very beginning of investment books and websites, or, you will soon discover that you are are hopelessly lost.
Finally, speak to a financial adviser. Tell him your aims and ask them for their proposition. This is what they do for a living! A good financial adviser can easily help you determine where to invest your funds, and help you set up a plan to reach all of your financial goals. Many advisor will even teach you about investing along the way, so make sure to pay close attention to what they are saying to you!
How to find good signals for free – ForexManuals.com
There are very few forex trading signals providers that are genuinely consistently profitable month after month. There are many that claim to be and have impressive looking performance records but very often it transpires that they massage their numbers, and use hypothetical figures in their calculations, rather than trade their signals themselves.
I’ve come across many different forex signals providers in my time. It’s hard not to as the internet’s full of them. Nearly all of them have turned out to be a waste of time. I thought I’d found a great site a while back in the shape of Forex Live Pro, but after having several highly profitable months, even they ended up going on a losing streak and have since closed down.
That’s why there’s only one company that I’m more than happy to recommend and that’s ForexManuals.com
It’s basically a managed forex trading account where you’re in complete control over which signal providers you use, and all trading is completely automated.
I’m not sure how common the Smoothed Repulse indicator actually is but it’s one that I’ve recently discovered hidden away in ProRealTime, the excellent charting software, and I have to say I’m quite impressed by it so far.
Free Signals for the forex market
There are very few forex trading signals providers that are genuinely consistently profitable month after month. There are many that claim to be and have impressive looking performance records but very often it transpires that they massage their numbers, and use hypothetical figures in their calculations, rather than trade their signals themselves.
I’ve come across many different forex signals providers in my time. It’s hard not to as the internet’s full of them. Nearly all of them have turned out to be a waste of time. I thought I’d found a great site a while back in the shape of Forex Live Pro, but after having several highly profitable months, even they ended up going on a losing streak and have since closed down.
That’s why there’s only one company that I’m more than happy to recommend and that’s ForexManuals.com
It’s basically a managed forex trading account where you’re in complete control over which signal providers you use, and all trading is completely automated.
I’m not sure how common the Smoothed Repulse indicator actually is but it’s one that I’ve recently discovered hidden away in ProRealTime, the excellent charting software, and I have to say I’m quite impressed by it so far.
Making Money by Online Stock Trading
The invention of the Internet has changed the manner we conduct our lives and our personal business. We can take care of our bills online, go shopping online, go banking online, and even make a date online!
One can even buy and participate in online stock trading. Online stock investors like having the facility of looking at their stock investment accounts whenever they want to, and online stock brokers like having the facility to take stock orders over the Internet, as opposed to using the telephone.
Most stock brokers and brokerage houses now offer online stock trading to their clients. Another great thing about online stock trading is that fees and commissions are often lower. While online stock trading is good news, there are some drawbacks too.
If you are very to trading, having the ability to actually speak with a stock broker can be very beneficial, if you aren’t stock market aware, online stock trading may be a rather dangerous thing for you to do, although advice from a stock market trader is expensive. If this is the case, make sure that you learn as much as you can about trading stocks before you start online stock trading.
You ought also to be aware that not everyone has a computer with Internet access on them, although many mobile phones can get online, so you may not always have the ability to go online to make a trade. You will need to be sure that you can call and talk with a broker if you use an online stock broker. This is the case whether you are an experienced|advanced stock market trader or a novice.
It is also a good idea to go with an online stock brokerage company that has been around for a while. You won’t find one that has been in online business for fifty years of course, but you can find a company that has been in business that long and that now offers online stock trading.
Again, online stock trading is a wonderful thing – but be sure that it isn’t for everyone. Think carefully before you decide to opt for online stock trading, and make sure that you really know what you are letting yourself in for!