“It ain’t necessarily so.”
Sportin’ Life, Porgy and Bess by George and Ira Gershwin
TV announcers, securities analysts and the man on the street all glibly assert that the dollar is up because oil is down, or oil is down because the dollar is up. They also say the stock market and the dollar have an inverse correlation, or that asset classes follow a cycle of boom and bust that starts with commodities, then equities, then bonds and then currencies, or maybe it’s the other way around. Data doesn’t confirm? Gee, there must be a lag. We do not mean to say intermarket analysis doesn’t have usefulness, but much of it is nonsense.
In this chapter, we propose that risk appetite and risk aversion, as the vector or ...