From the Census Bureau: More than one-third of the adult population in the United States has a bachelor’s degree or higher
More than one-third of the adult population in the United States has a bachelor’s degree or higher marking the first time in decades of data.
“The percentage rose to 33.4 percent in 2016, a significant milestone since the Current Population Survey began collecting educational attainment in 1940,” said Kurt Bauman, Chief of the Education and Social Stratification Branch. “In 1940, only 4.6 percent had reached that level of education.”
In 2010, less than 30 percent of those 25 and older had completed a bachelor’s degree or higher, and in 2006, 28 percent had reached that level of education. emphasis added
This graph shows the percent of adults, 25 years and older, with a bachelor’s degree or higher.
More education is one of the reasons I’ve argued the Future is Bright!
As we discussed in last month’s Advanced Training, there is a great correlation between Market Psychology and Trading. Since trading is attached to money, many emotions are in play. In particular, emotions such as Greed and Fear associated with trading. Not only does fear affect individual traders, but it also has a profound impact on the market as a whole. Since traders drive the market, this market psychology drives the patterns of the candles (“footprints of money”.)
As prices rise, they draw attention to themselves. More people notice the rise and want to be a part of that (greed.) They imagine how much money they could be making so they jump right on the train and, in doing so, cause the train to accelerate, drawing more attention and so on. Those who got on the train late, start imagining how far it’s “going” to go.
However, those who were in the move early are starting to think that the ride can’t last much longer and are starting to sell out – to the new people jumping on the train. The risk of entry here is much greater because they are buying at a much higher price – from people who are getting out of the move. Fewer and fewer buyers in the market cause the prices to start to slip. This is the point at which fear starts to guide the market.
Fear Impact on Market Psychology
When prices start to fall, fear, and it’s extreme companion, panic, take over. Fear, being a primal emotion, typically causes prices to fall much faster than they rise. Those who have been holding a long time for more profit start to realize their profit is eroding. Those who were late getting on the train are rethinking their grand design on making tons of cash. Everyone starts to dump the positions to whomever will take them, but buyers are few and far between. Short sellers enter the market making it more difficult to sell bad positions. Prices drop and drop until the smart buyers start to get interested, but the late adopters take pretty large losses.
These emotions manifest on the charts as support/resistance levels and other chart and candle patterns that we regularly use to identify probable market turns and follows-through.
If a resistance level (above the current price) breaks you can be sure there are more “bulls” in the market (buyers) which suggests more demand and higher pricing. If the level holds and price bounces from the resistance, you can be sure there are more “bears” or sellers and the supply will increase, causing lower prices. Support levels (below the market) work the opposite way.
About a year and a half ago, I wrote an article at Winner’s Edge about the 123 Reversal. I included a few paragraphs from that article about the psychology behind the 123 reversal. If you would like, I think you might find the article interesting as it includes a bit of my story.
The article details the 123 reversal pattern and how to trade it. I’m including the part of the story that discusses the operation of traders’ emotions on the actual 123 reversal pattern.
123 Point 1
The number 1 point occurs at a place where traders who were long in the market decide they need to secure the profits they made during the trend up. That’s why the initial trend is very important. It’s also why you should watch for this point at a place of strong resistance. It’s the place where traders will feel that the market may stall or turn. In other words, they fear they may lose the profits they’ve got in place. The surge in volume is due to the “not so smart” money finally recognizing the trend and jumping on the bandwagon (euphoria – “this trend could last forever, I gotta get me some”.) That surge in volume usually happens when a move has reached exhaustion. The volume is a signal that the smart money is passing on their holdings to the latecomers, leaving them “holding the bag”. This is the number one point.
123 Point 2
Of course, after there are no more traders to buy up the positions the latecomers entered, the price starts to drop. As the price drops, the smart money sees an opportunity to possibly make a little profit on another pop to the number 1 high, but they are less committed because most of the longer term momentum indicators are still giving overbought indications and the market has just made a big up move. Eventually, all the latecomers that bought while the market was at the peak are experiencing fear. As the market continues to drop, they unload those positions to the smart money – who are more willing to buy as the price drops lower. Until there are no more folks wanting to sell. That’s the number 2 point.
123 Point 3
Now that the latecomer sellers are gone, prices will start to move up again. The smart money folks bought from the latecomers, so now as it starts to go up again, the latecomers figure they got out too soon and start buying again, but since they were burned before, they are a little more wary, so fewer of them get involved this time. And of course, the smart money folks are more than willing to take their profits as the market goes up. But since there are fewer willing to buy this time, when the price peaks, it often doesn’t get as high as the number one point before it starts dropping again. This is the number 3 point.
As the market starts to drop from the number 3 point, the more educated, smart money traders recognize that this could be a reversal or the beginning of a trading range, but at the very least, they are willing to sell down to the number 2 point again – which is exactly what we will do. This causes prices to drop back to the number 2 point – often breaching the number 2 point by a few pips.
The “Smart Money” Traders Market Psychology
The “smart money” traders in our story are the ones that “get it”. They are the ones that get in the early momentum of the trade and take profit earlier. They are the ones that have mastered their emotions and don’t chase trades. The “not so smart money” traders are the ones that get excited when they see a big move in progress and jump in too late – just as the momentum is flagging. They’re the ones that end up losing.
The chart patterns that we often discuss in the room are primarily based on trader’s emotions. That makes them fairly consistent, since emotional reactions don’t change. Each pattern is different because each time they occur, the group of traders responsible for them is different. Each group has a different emotional make-up. Some traders experience extreme emotions during trading, others experience less. So each pattern, while still following the general shape, will be somewhat different.
Our Momentum Strategy is designed to take advantage of the Market Psychology of emotions of a Support/Resistance level break. We anticipate that a break of that level will cause momentum acceleration of price for a period of time. The reason we avoid the “news effect” (the effect of news and data releases that happen periodically during the month) is that it changes the emotional makeup of price movement for the duration of that effect.
When we trade stocks…we look that the market is healthy….that is rather uncertain after 8 years plus….we look for strongest financials and technical setups. With VEEV we have multiple trend following setups. Setups are only part of the game. We need trailing stops…we need risk per trade and total risk on the portfolio….However VEEV shows multiple entries and is on my canslim watchlist.
First we had a W bottom…as shown by the arrows….Then we had a Cup break out…and a cup with handle break out. These patterns repeat all the time. However they do not work all the time. That is why we trade with stops.
It was a phenomenal rise. Geert Wilders, a complete nothing a decade ago, came out of the blue to make a challenge for the top spot in Dutch politics. In doing so he scared the willies out of the ruling elite across Europe.
In the dying minutes of the game, Wilders failed to clinch the required votes to ascend him to the throne.
What’s fascinating was how this all went down. As Jan and Marijke were gearing up to head to the polls all hell broke loose.
Some Background First
The last thing that Mark Rutte, the incumbent, needed in the dying minutes of the game was anything that could potentially add fuel to the anti-islamic populist fire. That would play directly into Wilders’ hand. What kind of thing?
Oh, say something like a political rally held for a Middle Eastern European dictator politician campaigning… on Dutch soil. These campaigns have been going on for some time across Europe and have an odd habit of turning violent.
Foreign politics is increasingly embedded in Europe. With millions of Turkish immigrants now living in Europe, Erdogan can’t afford to ignore this electorate and so his political campaigns need to be brought onto European soil.
Europeans, for their part, have for years been quietly tucking their tails between their legs and saying to one another: “Oh, you know, we need to accept the differences of opinion – it’s the European way“.
That was all working dandily until Fleur got stabbed on the train ride home by a nutter yelling at her for wearing a short skirt and upsetting Allah and Hans’ daughter was raped at the local swimming pool by a group of immigrants who believe she was “asking for it” by wearing a bikini.
It all sounds good in theory but behind closed doors people like it as much as they like a good dose of venereal warts.
Jan and Marijke have been leaning towards Geert despite his looking suspiciously like a masculine incarnation of Barbie.
Why? In large part because they’re none to happy with what they see as the islamisation of their country.
Mark Rutte, the incumbent, favouring the politically correct approach of his European counterparts was fast losing ground to Wilders on these issues.
Violence at these political rallies has become fairly common and Rutte, no doubt fearing any such event would simply fuel the sentiment that had already driven Wilders into a contesting position, decided to ban Turkey’s foreign minister from holding a public rally in the country. And to make sure that this was implemented revoked his flight permit to even land.
Rutte was most likely expecting stern words through the usual diplomatic channels but most importantly nothing that would upset Jan and Marijke as they were preparing themselves for the big day at the voting booths.
And Then All Hell Broke Loose…
Instead of a quiet tiff between diplomats far from the media’s eye this immediately burst into the wide open.
Erdogan promptly called the Europeans Nazis which is pretty damn funny given the following:
Turks, perhaps a little confused as to which country they are actually guests in, became incensed that they couldn’t promote their chosen dictator in a foreign country and promptly lost the plot.
Europeans, increasingly concerned that Europe might just start looking a bit like Turkey, are no doubt a bit confused as to why it is that political problems from “other” countries have to become their problems. Ah, but therein lies the beauty of a “union”. One for all and all for one.
In any event, Rutte now had two choices:
Placate Erdogan and risk looking like a wimp to his electorate. The very thing that he so didn’t want was now happening and at a scale that was almost certainly far grander than any skirmish at a pro-Erdogan rally would have been. The idea of ensuring there was no violence by Muslims on Dutch soil just ahead of elections had now backfired spectacularly and so there wasn’t much chance to reverse course now.
Stand by the decision and understand that by doing so he was putting at risk all of Europe. I say this because Europe is beholden to Turkey who hold the key to the immigrant floodgates. Turkey can (as they’ve threatened) simply open the floodgates and not only would Europe be flooded with far more immigrants than they can cope with but the near certainty of Jihadist “Allahu Akbar” folks pouring into Europe via Turkey would be left wide open. Europe know this. It is why they’ve been negotiating with Turkey on this whole EU membership thing.
And this is where Rutte won the election – in the dying minutes of the game.
Jan and Marijke, concerned that Wilders might take the country a little too far “right”, had been searching for a sign of strength, of resolve, and of firm beliefs. They don’t understand the complexity of Turkish negotiations mentioned above. They only care about what they see day to day on the streets. In Rutte now they saw what they were looking for. Rutte, for his part, stood firm.
In stark contrast to Merkel, who is making a habit of doing her best to mimic a deer in headlights, Rutte escalated the conflict firing back at Erdogan, squashing protests with riot police, and having the Minister of Families escorted out of the country.
As he did so we have to ask ourselves the question: how many of those undecided voters who were leaning right came back into the party fold?
Obviously we don’t know. And while the media is spinning this as a European rejection of populism, if we think through what took place it may just be that Erdogan just handed Rutte the Dutch elections – not because Dutchies voted for a rejection of nationalism and populism but actually as a firm vote FOR it.
What we do know, however, is that the European shift towards nationalism isn’t going away despite what the pretty dolly birds on mainstream media are currently yapping on about. This event (the Turkish event) will likely become the defining point of Rutte’s premiership, and unless he continues to follow through with a similar “tough” stance Wilders will simply continue to gather more followers.
The truth is that no matter what Brussels podium donuts or anyone else may want to believe we can’t expect this visible clash of both cultures and religions to don its stripy pyjamas, down its milk and cookies, and go peacefully into the night. It’s not going to happen. There is no middle ground here.
Despite European leaders’ previous attempts to legitimise and ignore the onslaught this latest tiff between the Netherlands and Turkey is likely to act as a drawing of lines in the sand. For his part, Erdogan is pulling no punches.
“If Europe continues this way, no European in any part of the world can walk safely on the streets.” – Turkish President Erdogan
Those are fighting words and the fact that they came just days before yet another terror attack on European soil – this time in London – will add, not detract from the shifting zeitgeist I’ve been discussing at length in these pages.
In exactly a month’s time, our croissant eating friends go to the polls. The Dutch outcome, now fresh in the minds of all, may prove to be nothing at all like what I think is coming to France.
Right now perhaps as a result of the Dutch elections, journalists and market pundits alike have swung in favour of Macron over Le Pen. The futures market for its part doesn’t seem enthralled with either.
Grab your popcorn. This ought to be at least as much fun as Brexit was.
“History is filled with the sound of silken slippers going downstairs and wooden shoes coming up.” ―Voltaire
Forecasting the dollar has been infinitely complicated by all the crazy stuff going on in U.S. politics, other populist movements, and changing policies. In theory, current economic conditions and their projected trends ought to be front and center in this process, but that’s far easier said than done. To simplify things when constructing predictive models, economists employ a device known as ceteris paribus, which in Latin means treating every conceivable factor not directly considered in the model to be unchanging and not pertinent to the result. For the sake of this note, let’s basically just consider a few very basic U.S. economic variables.
GDP Growth: The U.S. economy is said to be in a new normal, but the truth is that the transition from previous norms to a new equilibrium does not appear to be yet completed. The sequence of calendar year rates of average growth in the current upswing shows real GDP advancing 2.5% in 2010, 1.6% in 2011, 2.2% in 2012, 1.7% in 2013, 2.4% in 2014, 2.6% in 2016 and 1.6% last year. That works out to seven years of 2.1% average growth, including three years of 1.7% or slower expansion and none with growth of more than 2.6%. We’ve already got one more calendar year in this upswing than the previous one, but that expansion had a marginally faster average pace and included four consecutive years that saw GDP rise more quickly than in any of the years of this expansionary business cycle. An even more impressive cycle of expansion in the 1990s endured over nine consecutive calendar years of 2.7% or faster growth, including seven years when GDP climbed at least 3.6%. And for seven years starting in 1983, U.S. real GDP increased 3.5% or more.
Labor Productivity: Long-term non-inflationary economic growth is government by the trends in hours worked and output produced per hour. U.S. labor productivity has imploded during the recovery from the Great Recession. Productivity grew 2.8% per year on average from 1947 until 1973, the last year before the first oil price shock. In the ensuing period of elevated inflation from 1973 to 1990, productivity was halved to 1.4% per year, but it revived back to a 2.4% per annum pace in 1990-2007. Since the financial crisis, productivity has risen just 1.1% a year on average, and the last five full calendar years have been even worse. In no year from 2012 through 2016 did productivity expand as much as 1.0%, and the average increase was only 0.6%. Not only has the growth of real GDP slowed progressively over the last four business cycles, but the essential prerequisite for long-term expansion and halting the decelerating momentum is non-existent.
Inflation: Measured by the core personal consumption price deflator, inflation has been positive, not especially volatile, and unexpectedly low, with calendar year increases of 1.2% in 2009, 1.3% in 2010, 1.5% in 2011, 1.9% in 2012, 1.5% in 2013, 1.6% in 2014, 1.4% in 2015, and 1.7% last year. The Federal Reserve considers 2.0% as most ideal, neither deflation-prone nor inflation-prone and providing the best support to economic growth, ceteris paribus.
Current Account Deficit: The U.S. deficit, a principal focus of Trumpenomics, has been stable and manageable during the present upswing. In past expansions of this length, this has not been the case. As a percent of GDP, the deficit amounted to 2.7% in 2009, 3.0% in both 2010 and 2011, 2.8% in 2012, 2.2% in 2013, 2.3% in 2014, and 2.6% in both 2015 and 2016. Based on precedent, shortfalls of this relative size do not pose a singular problem for the dollar in most circumstances.
Long-Term Interest Rate Differentials: Currencies tend to be affected more sensitively by interest rate spreads on longer maturities than shorter ones. The 10-year Treasury yield is 2.41% now, up from 1.84% on average in 2016 and a mean of 2.21% in 2015. Relative to German bunds, the Treasury’s 203-basis point premium is up from calendar year means of 170 basis points in 2016 and 167 bps in 2015. Compared to 10-year Japanese JGBs, the current spread is 236 basis points versus means of 189 basis points last year and 185 bps in 2015. In the past two years, long-term sovereign yields moved together in greater tandem than has been the case this year. So while the U.S. economy has become less dynamic from the standpoint of real and nominal GDP growth as well as labor productivity, the interest rate factor is lending the dollar more theoretical support especially since the current account gap isn’t widening unduly.
The trade-weighted dollar has not posted meaningful cumulative movement. One measure compiled by the Fed printed last Friday at 93.67, which was down from 96.50 at the 2017 high on January 3 but still above the 92.08 level on November’s Election Day and 88.71 last August 18. The euro at $1.0807 today is very close to its average levels of $1.1097 in 2015 and $1.1069 in 2016. In contrast, the dollar has trended higher against sterling which is now at $1.2452 versus calendar year means of $1.5284 in 2015 and $1.3547 in 2016. The dollar fell considerably from a mean of JPY 121.04 in 2015 to JPY 108.72 in 2016 and, at JPY 111.1 at present, has recovered only a small part of that loss. So the dollar has been pulled differently depending on the currency against which one chooses to measure it.
There’s no ceteris paribus in the real world. We’re navigating through times when political leadership is unpopular and responsive to the corrupting force of money. Nationalism is rising, and technology is pushing the envelope in ways that depress, rather than enhance, productivity and competition. It is reasonable to wonder if democracy can retain credibility in a cyber-dominated world so prone to fake information. A U.S. government like none before it, unchecked climate change, Brexit’s challenge to the European Union, and the continuing possibility that China’s economy may yet tip over into a hard landing within the next year or two pose enormous uncertainties for investors seeking predictability.
When the task of forecasting the dollar seems overwhelming, the truth that may be most useful to grasp is that a political leadership that views all matters through a protectionist lens will be most pleased with a currency that is not become less competitive. In protectionist times, currencies of countries with current account deficits generally do not fair well in the long run.
Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: U.S. dollar, U.S. dollar outlook
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After big overnight falls, the U.S. dollar managed to bounce back a little shortly after the New York open, the Dow was well over 100 points off its earlier lows and the VIX had declined more than 10% from its earlier highs. It wasn’t exactly risk-on, but the situation certainly looked a lot calmer than at the European open. The S&P 500 had completely eradicated the gap it had left behind after the closing bell on Friday at 2344. Thus, with the gap closed, the sellers may step back in after this bounce. With the dollar also testing significant long-term support levels, it was unclear whether the next move would be a much-needed bounce for the buck and stocks or if they would come under pressure again. Given that nothing has fundamentally changed since last week, I wouldn’t rule out the possibility of further losses for the stock markets.
Given this uncertainty, it may be best to take the U.S. dollar out of the equation and instead concentrate on a currency cross – for example, the Australian/New Zealand dollar (AUD/NZD) currency pair, which is fast approaching a key technical area. As can be seen, the area between 1.0740 and 1.0770 had been significant resistance since May 2016, until it was finally cleared earlier this month. Once resistance, it could turn into new support upon re-test. We are of the view that if the cross were to get there, a bounce to at least the first trouble area around 1.0860 could be the outcome, possibly higher. However, if support gives way then this month’s breakout could be considered a false move, in which case we could see a deeper retracement, perhaps towards the 200-day moving average at 1.0545 or horizontal support at 1.0520, before price decides on its next move.
About the Author
Fawad Razaqzada is market analyst at FOREX.com and City Index brands of Gain Capital.