Such background oscillations are at a sufficiently gross level that I’m skeptical personally that week by week asset pricing movements correlate with them at more than a trivial level. Month by month patterns may well be more discernable in time. The results may not be any better than competent technical analysis as presently performed, frankly. The advantage is that long term comparisons could be much more substantively modeled, which in turn would give a better foundation for assessing short term price differentials.

There is some published work on long term cyclical processes, but the only papers I would say actually capture substantive underlying movements are not directly related to price data, and so of no real use for this discussion. My own work on this isn’t in publishible form, so until and unless it is I’m only kicking up dust and signifying something.

But I do think I can state with confidence the point I made in the comment above, that multiple oscillating inputs of different phasing will impact price fluctuations, and so the neatness of the signature posited by the Elliot wave approach is significantly inaccurate for anything I understand of such functions, even before considerations of its substantive accuracy (or really inaccuracy). Taking the instance of quantum mechanics, one can in fact construct a methodology which is predictive without being explanatory or even explainable, but the E-wave just isn’t such a tool.

The point I was making with this post is that the monetarist’s insistence on using primitive mathematical models that assume that exogenous shocks are distributed over a Gaussian space is absurd and needs to be discarded.

Fortunately our modeling has improved to a point where we use Cauchy spaces to model more closely who feels what shock and how.

Although still inadequate, such models are a vast improvement over the stupid assumptions that those Friedman types stranded in the 1960s shout that we must use in formulating monetary policy.

Fortunately these yo yos are not in control of the Fed anymore.

Unfortunately, they get the most attention in the illiterate financial media.

Matt Dubuque

You stated the existence of “better models”. Is there a quick reference?

Thanks for the flattery re:my abilities; I have to tell you these days I seriously doubt that I have any and most importantly that my judgement remains clear and unbiased.

Re: Prechter I do not follow him nor abide by his philosophies either. The only reason that I brought him up is that the “cash+bond” scenario that you seem to advocate coincides with his position as well.

That tone is not warranted. While I very much appreciate the substance of your comments, I have been considering saying something for some time.

You may not be aware of it, but your tone is often presumptuous and condescending. That is really not called for.

Second, and more important, you are taking up more space in comments, both in number and length, than anyone else, by far. As much as what you say is often interesting, this is not your personal soapbox. Please be more respectful of others.

But if it WERE a customer repo, that WOULD be noteworthy at this size and would merit exploring.

By contrast, if it were a SYSTEM repo, it COULD have policy implications, depending on a few factors.

But as a general rule, you should ALWAYS view open market operations on Wednesday with a grain of salt.

You can discuss them, but there is ALWAYS the caveat that this comes from a Wednesday.

This is because Wednesday is settlement day and I’ve seen Fed Funds spike by up to 30 bp over the decades for settlement issues completely unrelated to policy direction.

And keep in mind we just had the enormous GSE bailout and several parties positioned themselves ahead of time and Wednesday is the day they need to settle up.

But that ONLY holds true if these were SYSTEM repos.

Asking us to make a judgment on these RP operations WITHOUT knowing whether they are system or customer repos is the same as a doctor making a diagnosis on a patient with a persistent, troubling cough, without an X-Ray.

No competent doctor would do so and NO competent Fed watcher would dare comment without knowing what type of RPs these were.

Matt Dubuque

I’m not calling Bernanke an ass. Don’t put words in my mouth. That’s extremely insulting.

I’m convinced I have read HUNDREDS more internal Federal Reserve working papers on monetary policy than you.

Of course I recall Bernanke’s statement.

What he claimed at that time is not directly helpful today.

Quite a bit has changed.

Get back to me in about 3 years with your rebuttal please.

You need to learn some lessons about the relative influence of the Federal Reserve that I am unwilling at this time to teach you.

Matt Dubuque

Yu realize you are calling Ben Bernanke an ass. he laid out his plan to make inflation go up by simply printing money and buying assets in 2002. Do you think he has changed his mind yet?

I’m not prepared to get knotted up in a long discussion of this issue, but just for the record we can and should wave bye-bye to Elliot’s model in favor of different tools.