These past years, hedge funds and banks have had analysts who were quantitative experts. They were maths grads and number men/girls. These people were the masters of the universe of financial prediction. And they were all wrong, almost entirely, swept away by the mistakes in their own algorithms (there is worthwhile comparison piece to be done here with Global Warming algorithmic predictions, but that is for another day).
Instead, perhaps those rubbished political economists should have had more of a say. Certainly the G20 is a gathering of the world's leaders and will point the market direction for some months to come.
In this situation it is therefore perhaps best to think of the likely political outcomes and develop a market strategy around that. Here is what I will do:
- Short Gold (ETF) - Yup, Gold falls on Dollar strength and economic recovery in other commodity assets like copper etc. My assumption is that the G20 will spin as a big success at least until the weekend. As such there will be continuing pressure on Gold which will see it drop below $900 an ounce.
- Buy Banks and Insurers - Stability as promoted by the G20 will push a further small recovery in these bombed out shares
- Buy Shipping (there is even a UK ETF now) - G20 will push for a resumption and completion of the Doha trade negotiations, this will boost the prospects for world trade and shipping in the short term.
All these trades have a very short time horizon as the events are this week and will probably unravel as countries start to spin success in different ways when the leaders are back home next week. I don't plan to stay in them beyond Friday. I wonder how the quants are modelling this?
UPDATE: Ok, closed out my positions this morning, SBUL, bought at 45.8, currently 47 (not selling yet, Gold might drop further if it closes under $900). LLOY, bought at 67.7, sold at 75, ETFS shipping, bought at 1140, sold at 1171. Aviva, bought 220, sold 245. Everything in the black, but I guess was a good week for the markets anyway. Still satisfaying though.