Why Trade Long Term?

[colin]

Originally Posted by rhodytrader

Inflation is definitely a fair point. My impression, though, had been that you were talking about the relative value of the USD against other currencies, not the buying power of the USD.

For me the buying power of any currency is inextricably linked to any valuation of that currency against other currencies. This is probably why I didn't break it out so obviously in my list of big list of fundamentals.

With fractional reserve banking and fiat currencies all the rage, the buying powers of other major currencies such as the euro and yuan have only one direction to head in too. How well inflation is managed by the various central banks feeds back into changing the relative value of that nation's currency against others.

[rhodytrader]

Originally Posted by colin

For me the buying power of any currency is inextricably linked to any valuation of that currency against other currencies. This is probably why I didn't break it out so obviously in my list of big list of fundamentals.

With fractional reserve banking and fiat currencies all the rage, the buying powers of other major currencies such as the euro and yuan have only one direction to head in too. How well inflation is managed by the various central banks feeds back into changing the relative value of that nation's currency against others.

For me buying power can be broken out from exchange rates for one simple reason. As you've noted, other countries have inflation too. If they are basically the same in those terms (and most of the industrial countries are pretty close to each other), then it's a non-factor in the exchange rates. That doesn't mean inflation isn't still eroding buying power. Just means it's doing so for everyone in all currencies, which really it is.

That's why I think you can seperate buying power from exchange rates.

[The Lonely Trader]

Originally Posted by rhodytrader

I think you mean that the other way around. In the short term the market is mostly technically driven, not fundamentally so. It's about order flow. Fundamentals have a longer-term influence.

If you are referring to data releases, interest rate announcements, etc. I wouldn't necessarily refer to those things as fundamentals. What the market does in reaction to that stuff is more psychological than anything else.

Agreed. Lots of pet theories here. Thanks Rhody for keeping everyone honest. Have enjoyed the point-counterpoint b/n you and Colin. Keep the fires burning gents.