Articles

Home  >  Articles  >  General Articles  >  The Canary Correction - Part 1
Printer Friendly Version

The Canary Correction - Part 1

Page: 1 2 3 4
by Matt Blackman -  Jul 10, 2006
8.4 (from 15 ratings)

Figure 5 – The annual percent change in the flow of funds into interest rate swaps and currency derivatives is trending down (red line). A significant drop in the flow of funds preceded the bear market of 2000 and subsequent recession in 2001-02.  Ditto for the Thai baht melt and Asian flu (1997),  Mexican peso crisis (1994) and 1993 bear market. Take? Whenever funds flowing into these derivatives hit a relative low, it means smart investors are getting cautious. <br />Chart provided by <a href=

In Part 2
Part 2 will explain how this slowdown corresponds with periods of narrow yield premiums between a basket of emerging market bond yields and U.S. Treasury bond yields indicating periods of investor complacency. Here are some other major points we will cover in part 2.

  • We will examine an index that has been uncannily accurate in providing advance warning of emerging market trouble and what it is saying now.
  • What does the yield curve inversion in the United States for the third time in the last six months mean, and how accurate has it been in the past in prognosticating bear markets. 
  • Global property market trouble spots. Based on the importance that real estate and related construction activities have taken on in global economies, what does a real estate correction mean for the economy?
  • As the traditional driver of consumer spending, real wage growth is essential to long-term economic strength. We will take a look at the trend in wage growth after inflation and what it means.
  • All markets and economies are cyclical. What are the most important cycles currently at play, and what do they mean for markets going forward?
  • Finally, we will tie these factors together to provide an overall snapshot from 30,000 feet and what it means for markets in the coming months and years.


Page: 1 2 3 4



Comment on this Article

Recent Comments:
Part 2 was posted on Aug 14-06 at http://www.trade2win.com/knowledge/articles/general_articles/canary-correction-two/page1
mattblackman   23-08-2006 12:00:23
Where's Part 2 ??? did the canary die ?
Trdr   06-08-2006 18:44:59
I have two concerns about derivatives. 1) The speed at which funds have flowed into them in the last few years. Normally this rate of inflow has been followed by a major correction in other markets that have experienced this rapid an increase. 2) The rate of change of inflows is now declining and this has been associated with corrections or at least emerging market meltdowns in the past. I don't believe that derivates will end the world. They are here to stay. But as they are relatively...
mattblackman   12-07-2006 15:03:47
Interesting article. However, not sure about the part on derivatives. The article refers to "value" of these derivatives but it is not clear to me exactly what this is. However, I suspect it is value of the underlying based on volume traded. If this is the case the exponential growth does not represent large capital movements as suggested but is mostly due to the rapid increase in high frequency algo trading. Seen lots of "derivatives will end the world" stories but most of it is...
jmreeve   10-07-2006 08:46:21
Well written, provides a very approachable analysis of complex issues that even a numpty like me can follow.
peto   10-07-2006 07:58:19

View the comment thread

Sorry, you are not allowed to add comments. Please login or register first.




Copyright © 2001-2008 Trade2Win Ltd.