Currency Currents - December 9, 2009
Key News
• Greek Finance Minister George Papaconstantinou said there is “absolutely” no risk that the country will default on its debt (Financial Times)
• German consumer prices remained weak in November and manufacturing activity declined in October. (AP)
Black Swan Live Webinar Event Today
Courtesy of Tom Busby’s DTI, Black Swan will be presenting a 30-minute live PowerPoint presentation today…
Topic: 10 Reasons Why the US Dollar Has Bottomed
Time: 12:00 noon EST; 11:00 a.m. CT
Register to attend: Please Click Here
Quotable
“We can make four obvious replies to Mr Wen [complaining about demands China hike its currency]. First, whatever the Chinese may feel, the degree of protectionism directed at their exports has been astonishingly small, given the depth of the recession. Second, the policy of keeping the exchange rate down is equivalent to an export subsidy and tariff, at a uniform rate – in other words, to protectionism. Third, having accumulated $2,273bn in foreign currency reserves by September, China has kept its exchange rate down, to a degree unmatched in world economic history. Finally, China has, as a result, distorted its own economy and that of the rest of the world. Its real exchange rate is, for example, no higher than in early 1998 and has depreciated by 12 per cent over the past seven months, even though China has the world’s fastest-growing economy and largest current account surplus.”
FX Trading – Uht oh—Euro!
ECB fiddles while Athens riots. It just doesn’t work as well as “…Rome burns.” But I think you get the picture:
“Greece’s case could present the European Central Bank and the European Union with a dilemma: whether to bail out the country or possibly see a euro-zone member face a debt crisis. The first course could reduce the pressure for fiscal discipline, while the second could damage the credibility of Europe’s great single-currency experiment,” according to a story today from The Wall Street Journal.
Below are some excerpts from Black Swan Capital’s June ’09 special report, Preparing for a Breakup in the European Monetary Union:
Despite significant concern being raised about the US dollar’s world reserve currency status, and for good reason, we believe there are major structural changes taking place within the global economy. We call it global rebalancing. Some of these changes, we believe, will lead to many years of subpar growth in the major industrialized economies of the world. And this is threatening the status of the euro to a much greater degree than the US dollar and its reserve currency status. In fact, we believe the structural change in the global economy will lead to a relatively sustained period of risk aversion* which will ultimately lead to a surprising degree of support for the dollar. It is precisely this risk aversion that we believe is now exposing, and will continue to expose, the major underlying flaws within the European Monetary Union effectively representing the euro.
… Thus, we are now in the midst of the euro’s first real test. So far the currency has weathered the storm, but there’s blood in the water and sharks are circling.
One of our favorite economists, Milton Friedman, was never a fan of the euro or the idea of Europe ever being a good place for a common currency. In 1999, Mr. Friedman said the following:
“It seems to me that Europe, especially with the addition of more countries, is becoming ever-more susceptible to any asymmetric shock. Sooner or later, when the global economy hits a real bump, Europe’s internal contradictions will tear it apart.”
Milton Friedman
Well, the global economy has hit a real bump; it’s been dubbed the credit crunch. We think the credit crunch has already begin to usher in multi-year structural changes to the global economy … changes that will continue to threaten the euro in particular because they go right to the heart and soul of multi-nation economy– Germany.
The globe is in the process of rebalancing the excess production of the big trade surplus countries against the overconsumption of the big deficit countries. In short, those countries and regions where growth is primarily dependent on rising global demand for their exports will be hit the hardest. The world’s consumers are permanently hiking up their savings rates instead of spending beyond their means. Germany is the engine of growth for Europe and the world’s largest exporter. They are in the cross-hairs of global rebalancing.
… Core requirements for success of any common currency:
1) Common culture and political unity
2) Synchronized business cycles
3) Harmonized fiscal discipline
The euro fails the test on all three counts to date. And the by the way, no common currency used by different countries that has lasted even a handful of years was ever based upon pure fiat currency, i.e. paper money. Those that did have staying power historically had a metallic backing—gold and/or silver.
The EMU is lacking in each of these areas:
(1) Common Culture and Political Unity. Despite much power being shifted to Brussels and the Union, member countries to the EMU still retain a great deal of sovereignty in areas of financial regulation and ability to issue bonds, among a host of other non-financial areas. And because business cycles among members are not synchronized (the next topic below), countries will do what is best for them first, rather than the Union as a whole. National politics trump ties to the Union when push comes to shove. And because of the local sovereignty of each member, there is no single, cohesive, cross-border mechanism available to the European Central Bank (ECB) to handle a crisis when one arises.
As financial pressure grows and rising unemployment leads to increasingly austere measures across the Eurozone; it has already sparked social unrest (Greece, France, and Ireland, for example). Here is how The Independent newspaper described the vicious riots in Greece in December 2008 [our emphasis]:
“After firing 4,600 tear-gas canisters in the past week, the Greek police have nearly exhausted their stock. As they seek emergency supplies from Israel and Germany, still the petrol bombs and stones of the protesters rain down, with clashes again outside parliament yesterday.
“Bringing together youths in their early twenties struggling to survive amid mass youth unemployment and schoolchildren swotting for highly competitive university exams that may not ultimately help them in a treacherous jobs market, the events of the past week could be called the first credit-crunch riots. There have been smaller-scale sympathy attacks from Moscow to Copenhagen, and economists say countries with similarly high youth unemployment problems such as Spain and Italy should prepare for unrest.”
Interesting terminology used by The Independent, the first “credit crunch riots.”
The issues of individual country sovereignty are now front and center. Citizens look to local politicians to solve real problems associated with the inherent problems of the European Union, highly inflexible labor markets and concerns sparked by the credit crunch.
And recent news on the employment front isn’t going to make your average protestor very happy: “The 16-country euro zone lost a record 1.22 million jobs in the first quarter of 2009, highlighting the depth of recession and boding ill for any quick turnaround,” Reuters reported.
Increasingly the blame for the economic troubles of individual states, by both citizens and local politicians, is being cast at the edicts flowing from central power wielded in Brussels and the policies of the European Central Bank. Political pressure is growing, as evidenced by the recent European Union elections.
… (3) Harmonize fiscal positions. Despite treaty obligations and plenty of money distributed to the fiscally challenged countries affectionately known as the PIGS (Portugal, Italy, Greece, and Spain), there has never been fiscal harmonization. And in the midst of the very nasty downturn in the business cycle, the fiscal position of the PIGS is deteriorating rapidly and now represents the biggest single threat to the EMU.
“Past experience therefore tends to suggest that asymmetric fiscal problems—often, but not necessarily generated by war—quickly cause monetary unions between politically independent states to dissolve. In the case of present-day Europe, it seems quite possible that the strains caused by unaffordable social security and pension systems could have a similar centrifugal effect: the Hasburg scenario, with welfare substituting for war as the fatal solvent.”
Niall Ferguson, Cash Nexus
Welfare state guarantees coupled with a rising demographic pension nightmare for several key EMU countries is the ticking time bomb to a euro breakup. This is precisely why we are seeing the bickering among member states within the European Central Bank for the first time in history; the fiscally weak states within the EMU, and those with massive exposure to the rising banking crisis (Austria in particular) within the Eurozone are in desperate need of liquidity; they have no other way out.
“The fact remains that history offers few examples of democratically agreed budget adjustments on the scale necessary in certain European between sovereign states disintegrating when the exigencies of national fiscal policy became incompatible with the constraint imposed by a single international currency.”
Niall Ferguson, Cash Nexus
What’s interesting to keep in mind is the fact that the PIGS were given ample opportunity to get their fiscal house in order. As part of the prize for initial entry into the EMU the PIGS were able to issue government bonds, denominated in euro, at about the same interest rate as Germany. Think of that: these fiscal basket-cases borrowing at German rates simply because of the EMU backing. This provided a massive tailwind of liquidity for many countries—part and parcel to the powerful last upswing in the cycle. Designed this way in order to buy time for the PIGS to use these funds to reform, but they didn’t.
The budget of the PIGS is expected to well exceed the 3% of GDP Maastricht Treaty requirement for EMU membership. And now the “emergency wiggle room” provided by the Union will come into play. The current account deficit for these countries is soaring, with Greece leading the charge approaching a whopping 15% of GDP!
… The risks of default are rising. Latvia, a small country in Eastern Europe, but one that was riding high on western bank loans during the boom, is on the edge of devaluing its currency relative to the euro in order to avoid draconian austerity measures and sovereign bankruptcy. Swedish banks were big lenders to Latvia, and this latest news is hitting Swedish banks very hard. This we believe is the canary in the coal mine for many of the Eastern and Central European countries that relied so heavily on western lending that has dried up.
The ECB has made available emergency lending to try to stem this crisis, as they understand the danger and possible domino-effect across the region.
But what the ECB will not be able to contend with is the reality of one of the core EMU countries deciding they want to leave the EMU—and most have handicapped Italy as the first country that may decide to say goodbye.
… We leave you with one last quote and one basic idea for the average investor to utilize as the euro is held to the fire. The quote comes from Criton Zoakos, a man who has an incredible depth and understanding of global macro economics and history, and is a true independent thinker — all characteristics we worship at Black Swan Capital.
He recently wrote:
“The Eurozone will thus continue to drift in ad hoc policy responses, moving from one piecemeal bailout to the next, from one piecemeal tax revenue hike to the next, from one anti-popular austerity measure to the next. Piecemeal ‘death-by-a-thousand-cuts’ is what lies ahead for the Eurozone economy—until drastic political changes topple the decision-making mechanism of the modern European Union and replace it with something else.”
We think that “something else” is inching closer by the day.
Hmmm…..
Euro – US$ Weekly:
Jack Crooks
Black Swan Capital LLC
www.blackswantrading.com
Long-term trends, major global economic issues, interviews with top traders, book reviews…
We do it all in our Currency Investor newsletter that’s geared toward newcomers and experienced investors who are looking for a conservative approach to the foreign exchange market.
In plain language we deliver global macroeconomic analysis and actionable ideas geared toward exchange rate fluctuations.
Our analysis is comprehensible and our recommendations consist of ETFs, so don’t get turned off by buzz words like “exchange rates” or “foreign exchange” – this investing strategy is as easy to implement as buying and selling stocks.
Plus, at $39 per year it’s a deal you’d be hard-pressed to find anywhere else.
Thorough global analysis plus complete investment guidance … and all for only $39 per year? You can’t beat that with a stick. Click here to read more …
Currency Currents - December 08, 2009
Key News
• German Industrial Production Unexpectedly Fell in October, Dropping 1.8% (Bloomberg)
• The Next Bubble: The Looming Crisis in Books About the Financial Crisis (Infectious Greed)
• Buying and selling castles in the sand (Financial Times)
Quotable
“The westerners who thought they knew what they were doing could use many such lessons in how the world works.
“For example, I was recently told by an investment dealer how the whole mess could have been avoided if only the ruler of Dubai had agreed to offer a state guarantee for all the Dubai World paper. Regrettably, he apparently had a better understanding of the value of empty buildings in the desert than they did.”
John Dizard
FX Trading – Contributing thoughts …
I’ve included a link at the end of this article where Jack is talking to HoweStreet.com … discussing the expectations for the US dollar and its counterparts, as well as our perspective on Japan, UK, Eurozone and the potential for global market fallout from Greece. Be sure to listen in. But first …
A friend of ours passed along his thoughts after the US dollar had a huge up-day on Friday … following the much, much better than expected US Nonfarm Payrolls report. He is also a currency market analyst and seems to take a similar view, as we do, to the US dollar and market behavior:
“See if we can get past the 24 hour-rule of torture…all dollar rallies must completely retrace in 24-hours.”
And as he put it last night:
“Well…24-hours and no complete reversal…that’s a feat.”
And another friend of Black Swan who also has an eye on currencies, among several other markets, sent us a chart yesterday that he thought we’d find interesting. We do, and we thought you might too:
The chart simply shows that the short position against the US dollar — betting it will continue to go lower — is as large as it’s been since the US dollar index was setting records lows last year.
Now, that chart does not reflect positioning since the release of US Nonfarm Payrolls on Friday. We may be witnessing some short covering in the wake of Friday’s action. But at this point that is still only a minor development.
In other words, traders and investors who believe the US dollar will continue to suffer from horrible monetary and fiscal positions have not been phased. And Ben Bernanke recently did his part to affirm this view. He said:
LONDON, Dec 8 (Reuters) - Global share markets were becalmed on Tuesday and the dollar struggled after Federal Reserve Chairman Ben Bernanke gave a cautious assessment of the world’s biggest economy, driving investors towards government debt.
European Central Bank President Jean-Claude Trichet was similarly cautious, saying the euro zone economy faced a bumpy road to recovery and the prospect of modest growth ahead.
Bernanke dampened speculation of an early U.S. interest rate rise, saying the economic recovery still faced “formidable headwinds” and the central bank was sticking to its pledge to hold benchmark rates at exceptionally low levels for an “extended period”.
So should we heed our friend’s advice about the 24-hour rule? Now that the dollar didn’t totally reverse all its gains from Friday within the following 24-hours of trading, is it safe to say the US dollar can strengthen from here?
Or does that analysis even matter to the players who seem comfortable on top of the dollar rather than underneath it?
The fading expectations surrounding the Federal Reserve raising rates “sooner rather than later” are allowing the crowd mentality to drift right back to what they know: short the US dollar.
It looks like a very familiar pattern shaping up … one that doesn’t bode well for the buck. But there are some key technical levels that will be the focus in the short-term to help determine if in fact we are moving right back to business as usual.
But of course, it’s never that easy, right? Click here to listen in on Jack’s interview with HoweStreet.com and get an idea of some reasons why we actually might not resort back to business as usual for the buck.
As we get further into the US trading session the dollar is gaining momentum. The pound is getting clobbered; the euro is falling fast and emerging European currencies are getting slammed.
John Ross Crooks III
Black Swan Capital LLC
www.blackswantrading.com
Long-term trends, major global economic issues, interviews with top traders, book reviews…
We do it all in our Currency Investor newsletter that’s geared toward newcomers and experienced investors who are looking for a conservative approach to the foreign exchange market.
In plain language we deliver global macroeconomic analysis and actionable ideas geared toward exchange rate fluctuations.
Our analysis is comprehensible and our recommendations consist of ETFs, so don’t get turned off by buzz words like “exchange rates” or “foreign exchange” – this investing strategy is as easy to implement as buying and selling stocks.
Plus, at $39 per year it’s a deal you’d be hard-pressed to find anywhere else.
Thorough global analysis plus complete investment guidance … and all for only $39 per year? You can’t beat that with a stick. Click here to read more …
Currency Currents - December 07, 2009
Key News
• German industrial orders declined by 2.1 percent during October, due mostly to weaker demand from other European countries, preliminary official data showed Monday. (AP)
• Dubai World may sell assets in the United Arab Emirates and abroad to repay its borrowings, a government official said. (Bloomberg)
Quotable
“Gold’s best year in three decades has yet to match the returns of an interest-bearing checking account for anyone who bought the most malleable of metals coveted for at least 5,000 years during the last peak in January, 1980.
Investors who paid $850 an ounce back then earned 44 percent as gold reached a record $1,226.56 on Dec. 3 in London. The Standard & Poor’s 500 stock index produced a 22-fold return with dividends reinvested, Treasuries rose 11-fold and cash in the average U.S. checking account rose at least 92 percent. On an inflation-adjusted basis, gold investors are still 79 percent away from getting their money back.
“You give up a lot of return for the privilege of sleeping well at night,” said James Paulsen, who oversees about $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “If the world falls into an abyss, gold could be a store of value. There is some merit in that, but you can end up holding too much gold waiting for the world to end. From my experience, the world has not ended yet.”
FX Trading – Is Bob right?
I spoke to my father-in-law this weekend; he called to tell me he is digging through his walls now to see exactly how much inventory of gold he has on hand; his yard sale may begin soon if we see a couple more days like last Friday. Gold’s down about $25 bucks this morning; I’ll keep you posted.
Gold has taken it on the chin the last couple of days. But, as dad says—to be expected given the move we’ve witnessed (one might call it parabolic; though bulls wouldn’t likely use that term). He has been right about gold, along with many others. Given our ugly gold track record, we are always cautious about our own comments. But we are thinking if a new environment emerges, my Friday comment that gold could see $700 before it sees $2,000 could gain plausibility quickly.
As unlikely as it might seem, the world may actually be on the mend. The US consumer has been at the core of our concerns. Friday’s non-farm payroll number, if not a major mistake, tells us Mr. Consumer has a chance of rebounding sooner than we expected. But we don’t really even need a major rebound from Mr. Consumer. In the words of Barton Biggs (that’s where I first saw this phrase many years ago) we only need see things get less bad.
I told you that I don’t watch much TV. But I do tune into CNBC on non-farm payroll days. It is always entertaining to watch Santelli’s frustration with the economist of the day, especially on those Fridays. But one economist Santelli never seems able to fluster is Bob Barbera (Bob was not on last Friday—too bad). He of Lehman Brothers fame (his “Cash is Trash” call in 1990, i.e. expecting rates to plummet, when I was a lowly … and lousy … stock broker there at the time, was right on the money). Bob is very good and has made some excellent calls for many years.
Bob attributes much of his success in forecasting to his mentor Hyman Minsky and to free market Austrian School economist Joseph Schumpeter (he of creative destruction fame). Merging these two views has allowed him to see things some economists haven’t, Bob says in his new book, The Cost of Capitalism.
Over the past few months, even in the midst of some very ugly jobs numbers, Bob stayed cool while on CNBC, suggesting everything is on track—all we are seeing is in line with a standard recovery from recession; especially considering how severe the last one was. Bob was also quite happy with the performance of the Fed and Treasury, saying their actions were needed to stave off global depression as no one else could do it. Of course, that view is 180-degrees opposite of mine, but Bob may have had it exactly right again.
And here is the rub for gold: If Bob got it right we are in the process of a normal cyclical type of recovery (albeit below capacity growth given the public debt overhang). Jobs will eventually return, interest rates will go up, and the world won’t end.
Why bad for gold: 1) If sentiment shifts toward recovery mode, away from a financial system collapse mode, gold loses is fear premium, 2) If the central banks remove stimulus, the liquidity move in all financial assets will likely be in for adjustment, 3) If gold has to compete with interest rates for a change (part and parcel to central banks reining in credit), it may look less attractive as an investment class compared to cash.
What if anything does this have to do with currencies?
If this environmental transition does take place, we could possibly get back to a world where currencies are judged increasingly on their underlying fundamental values, instead of just pure liquidity ebbs and flows, i.e. risk appetite versus risk aversion. That would mean the exceedingly tight correlation of the last several years would start to breakdown. I would like that because it would mean not all people with overlay chart programs can be good currency analysts anymore.
One correlation has been tight for many cycles; gold and the dollar. Over the longer term time frame (going back to 1971 when major currencies began to float) a bull market in the dollar has coincided bear market in gold, and vice versa.
Gold (black) versus US$ Index (red) monthly:
Is Bob right? Stay tuned.
Jack Crooks
Black Swan Capital LLC
www.blackswantrading.com
Update: When you can pocket 274 PIPs in a day’s work, something’s going right.
Yeah, we did alright to finish off last week. Friday’s FX trading activity looked a little something like this:
USDCAD: Closed +27 pips
USDCHF: Closed +87 pips
EURUSD: Closed +120 pips
GBPJPY: Closed +13 pips
EURJPY: Closed +7 pips
GBPUSD: Closed +41 pips
GBPJPY: Closed -4 pips
USDJPY: Closed -17 pips
Total: Closed +274 pips
Our members have been at this for two weeks now. And this opportunity was only rolled out to non-members the middle of last week. Luckily for you, the door’s still open to …
A brand new FX signal service … The results will IMPRE$$ you!
The phrase “hook, line and sinker” is pretty much used to say someone or something took the bait without hesitation. But it almost always carries a connotation that the bait actually was NOT worth taking.
Truth be told: I’m going to try to reel you in today hook, line and sinker.
But in this case, you’d be crazy not to take the bait because, as I hopefully I can convey to you today …
It’s worth it … and then some.
HOOK
We’ve come to realize how important it is to define your trading time frames and stick to them.
In the short-term, the volatility in the FX market can make you crazy. If you’re taking short-term positions based on the latest news or fundamentals, you’re probably fighting just to keep your account barely in the black.
We can relate.
And that’s why we’ve worked to develop a signal service that’s based entirely off of short-term technical analysis. We’re offering this brand new signal service not just to fill a void, but to meet a need … and to meet it handily.
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If you like action, this is right up your alley.
If you like profits, there’s no reason to ignore this.
If you’re looking for a kicker to your longer-term investments, keep on reading …
LINE
We’re calling it SwingTrader FX. And it boils down to a system that analyzes overbought and oversold levels in intraday time frames.
Most notable: it’s produced winning signals during periods when the market has shown no clear-cut direction. Typically it generates a couple new signals each day, signals that we deliver immediately to you.
After arriving at the latest running iteration of our system, we spent almost a month testing its signals. And in that short amount of time we were extremely impressed. In not even a month –October 20th through November 15th – this system generated more than 1,500 PIPs of overall profit.
Click here to view the trade-by-trade track record during the testing phase. (Keep in mind that these are entirely hypothetical trades as they were not published or delivered; these are simply our in-house results.)
Breaking those results down to show the dollar-profit potential of these signals, based upon various lot sizes, the success of this system looks a little something like this:
Lot Size 100k 50k 25k
Profit(loss) based on hypothetical $25k account* $15,440.86 $7,720.43 $3,860.21
Return based on hypothetical $25k account* 61.8% 30.9% 15.4%
*Assumes all trades executed exactly as signaled — no slippage, no commissions and no spread; using 100:1 leverage
SINKER
At the end of our testing period we decided to roll out this signal service to some of our current members … to see how they liked it. You can click here to see the trade-by-trade track record during their trial phase, through November 30. But the feedback from some of these “beta-testers” speaks for itself …
“Great alerts! Great system! Thanx”
“Well done for your new service.”
“I was exposed to Black Swan Capital when my futures broker … put on a webinar featuring Jack. I only very recently started using Swing Trader FX Alert via email. I think that the SMS text alerts will be a valuable addition to a list of outstanding products.”
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Or if you’re a little unsure whether something like this fits your personal investment situation, then I have good news:
You can give this a try 100% risk-free for 30 days. If within your first 30 days you decide this isn’t for you, we’ll refund every penny of your money – no questions asked.
You don’t have to take all the trades; in fact, you don’t have to take any of the trades. But you can monitor the frequency and results within that risk-free period to see if something like this actually DOES make sense for you.
As they say, past results do not guarantee future profits … but I don’t see how more than 1,500 PIPs of profit per month couldn’t make sense for you.
Keep in mind …
We don’t guarantee profits. But even if the system performs only fractionally as well as recent testing shows, you hopefully will have no problem earning enough money during your risk-free period to pay for the $995 yearly membership price … much less the $99 monthly cost to become a member.
Thanks for reading. We look forward to your decision to join us!
Regards,
David Newman
Futures, Forex and Option trading involves substantial risk, and may not be suitable for everyone. Trading should only be done with true risk capital. Past performance either actual or hypothetical is not indicative of future performance. Black Swan Capital services are strictly informational publications and do not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer
Currency Currents - December 04, 2009
Key News
• If you missed JR’s Quotable yesterday, and didn’t follow the story, I suggest you do. Johann Hari, The Independent, penned a powerful piece on Dubai yesterday. It is a slave labor camp designed to appear as an Adult Disneyworld, as he puts it. Anyone who doesn’t think this will end badly is kidding themselves.
Quotable
“But if thought corrupts language, language can also corrupt thought. A bad usage can spread by tradition and imitation even among people who should and do know better.”
George Orwell
FX Trading – Surprise!
“Houston this morning broke a record with the earliest snowfall ever recorded in the city’s history,” the Houston Chronicle reported. Sure is good timing for the “global warming” nut-jobs who have made Orwell proud by changing the name of their movement to “climate change.” Now “climate change” kooks everywhere can tell us “I told you so” every time we see new records during the global cooling phase we are likely now entering. You just gotta love poly-science; it is so useful when molding a ridiculous world view so that lemmings everywhere can unite. You know who you are!
But there was another surprise today; it came from a most unlikely place called the US economy. US non-farm payrolls were down only 11,000 compared to an expectation of 130,000—that was a huge surprise? What was interesting is that we finally are seeing a day when after a question is asked, the answer isn’t, “Oh that’s easy, sell the dollar.”
Mr. Market did his thing again dishing out asset class surprises on the news. Today’s action and our brief comments to suggest this could be sustained…
Gold crushed – If scenario #3 emerges, our least likely but one we have expounding upon, which represents a US growth surprise, gold goes to $700 before it sees $2,000.
Euro slammed – Given the mess the Eurozone still has in front of them, they would love to see the euro fall against the dollar so Germany might be more willing to continue to subsidize Athens.
Yen mashed – The US growth scenario means the Fed will raise rates at some point before the Bank of Japan does; thus the yen moves back into its rightful role of key global carry trade currency.
Bonds battered – Yields look very low in a US growth surprise scenario—adjustment time.
Stocks stung? – Thinking about the idea that as the real economy recovers the stock market gets whacked. The logic is money flowing from the financial economy back into the real one. Sweet justice for sugar high Wall Street “free-market” types who never met government subsidized money they didn’t like.
Maybe this is just another one-day wonder. We can never underestimate the ability of the dollar to disappoint. But, if the “climate change” crowd can hang their hats on such flimsy and biased research, so can we.
Have a great weekend.
Jack Crooks
Black Swan Capital LLC
www.blackswantrading.com
A brand new FX signal service … The results will IMPRE$$ you!
The phrase “hook, line and sinker” is pretty much used to say someone or something took the bait without hesitation. But it almost always carries a connotation that the bait actually was NOT worth taking.
Truth be told: I’m going to try to reel you in today hook, line and sinker.
But in this case, you’d be crazy not to take the bait because, as I hopefully I can convey to you today …
It’s worth it … and then some.
HOOK
We’ve come to realize how important it is to define your trading time frames and stick to them.
In the short-term, the volatility in the FX market can make you crazy. If you’re taking short-term positions based on the latest news or fundamentals, you’re probably fighting just to keep your account barely in the black.
We can relate.
And that’s why we’ve worked to develop a signal service that’s based entirely off of short-term technical analysis. We’re offering this brand new signal service not just to fill a void, but to meet a need … and to meet it handily.
The system we’re offering is simple, and it produces a whole bunch of signals.
If you like action, this is right up your alley.
If you like profits, there’s no reason to ignore this.
If you’re looking for a kicker to your longer-term investments, keep on reading …
LINE
We’re calling it SwingTrader FX. And it boils down to a system that analyzes overbought and oversold levels in intraday time frames.
Most notable: it’s produced winning signals during periods when the market has shown no clear-cut direction. Typically it generates a couple new signals each day, signals that we deliver immediately to you.
After arriving at the latest running iteration of our system, we spent almost a month testing its signals. And in that short amount of time we were extremely impressed. In not even a month –October 20th through November 15th – this system generated more than 1,500 PIPs of overall profit.
Click here to view the trade-by-trade track record during the testing phase. (Keep in mind that these are entirely hypothetical trades as they were not published or delivered; these are simply our in-house results.)
Breaking those results down to show the dollar-profit potential of these signals, based upon various lot sizes, the success of this system looks a little something like this:
Lot Size 100k 50k 25k
Profit(loss) based on hypothetical $25k account* $15,440.86 $7,720.43 $3,860.21
Return based on hypothetical $25k account* 61.8% 30.9% 15.4%
*Assumes all trades executed exactly as signaled — no slippage, no commissions and no spread; using 100:1 leverage
SINKER
At the end of our testing period we decided to roll out this signal service to some of our current members … to see how they liked it. You can click here to see the trade-by-trade track record during their trial phase, through November 30. But the feedback from some of these “beta-testers” speaks for itself …
“Great alerts! Great system! Thanx”
“Well done for your new service.”
“I was exposed to Black Swan Capital when my futures broker … put on a webinar featuring Jack. I only very recently started using Swing Trader FX Alert via email. I think that the SMS text alerts will be a valuable addition to a list of outstanding products.”
“Hello, I LOVE the new swing trade stuff!”
“Please keep sending me via email AND include text messaging alerts … This service is the best one for me so far.”
And now’s your chance to experience what they’re all raving about!
As I mentioned, this service is active and based entirely around technical analysis; fundamental analysis and news events play no direct factor in generating trading signals.
This service gets right down to business. No extras, no frills; we give you the trades and you either take them or you don’t. We also provide a daily recap of all the day’s trading activity to make sure you never miss a beat.
So if you’re not frightened off by the short-term, highly-active nature of this signal service, what are you waiting for? Get started immediately; sign up today.
Or if you’re a little unsure whether something like this fits your personal investment situation, then I have good news:
You can give this a try 100% risk-free for 30 days. If within your first 30 days you decide this isn’t for you, we’ll refund every penny of your money – no questions asked.
You don’t have to take all the trades; in fact, you don’t have to take any of the trades. But you can monitor the frequency and results within that risk-free period to see if something like this actually DOES make sense for you.
As they say, past results do not guarantee future profits … but I don’t see how more than 1,500 PIPs of profit per month couldn’t make sense for you.
Keep in mind …
We don’t guarantee profits. But even if the system performs only fractionally as well as recent testing shows, you hopefully will have no problem earning enough money during your risk-free period to pay for the $995 yearly membership price … much less the $99 monthly cost to become a member.
Thanks for reading. We look forward to your decision to join us!
Regards,
David Newman
Futures, Forex and Option trading involves substantial risk, and may not be suitable for everyone. Trading should only be done with true risk capital. Past performance either actual or hypothetical is not indicative of future performance. Black Swan Capital services are strictly informational publications and do not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer
Currency Currents - December 03, 2009
Key News
• ECB Keeps Key Interest Rate at 1%; Trichet May Unveil Stimulus Exit Plan (Bloomberg)
• Australian Professor in Japan makes case for protectionism against China (Credit Writedowns)
Quotable
“Once the manic burst of building has stopped and the whirlwind has slowed, the secrets of Dubai are slowly seeping out. This is a city built from nothing in just a few wild decades on credit and ecocide, suppression and slavery. Dubai is a living metal metaphor for the neo-liberal globalised world that may be crashing – at last – into history.”
Johann Hari, The Independent
FX Trading –Eurozone Recession: Over!
It’s confirmed – the Eurozone has pulled out of recession in the third quarter.
A second look at third-quarter GDP today showed the countries that collectively make up the Eurozone escaped that dastardly negative growth thing. Or maybe it’s more accurate to say they collectively escaped recession. Yeah?
A friend passed this little research tidbit our way yesterday:
Apart from the Greek debt, European banks have to contend with about $1 trillion loans to impaired borrowers that come due in the next twelve months (Romania $36 billion, Hungary $27.5 billion, Estonia $6 billion, Latvia $6.8 billion, Lithuania $7.1 billion, Poland $26.8 billion, Turkey $54 billion, Russia $81 billion, Ireland $347 billion, Spain $313 billion, Italy $349 billion, Portugal $55 billion, etc.).
Consider the phrase: a team is only as strong as its worst player.
Now forget that phrase and replace it with this one: a team is as strong as its best player. Remember that and you should be in good shape when it comes to Europe and its related markets … cough, cough … euro …
We look at the markets everyday with the intent on delivering content and commentary that supplements what’s dished out by mainstream market news sources. Our hope is that our readers are never caught completely off guard to any major trend changes or sentiment shifts.
What we’ve been wondering lately is if much of the market is setting up to be caught off guard. It actually seemed as though many analysts were feeling a bit the same when Dubai shook things up last week.
But the usual crowd seems content to brush that event off as insignificant — no canary in the coal mine here. No way, unh unh, not gonna happen.
So is it back to complacency? We’ll have to go with yes.
Little Red Riding Hood has taken the Big Bad Wolf out to the woodshed … and for the psychological well-being of everyone. The notorious fear index (VIX) seems to say “Thanks again Red, there’s really nothing to be afraid of …”
That was quick – a sizeable Dubai-bounce in the VIX after testing big-time daily support. But almost as quickly, volatility (fear) is returning to pre-Dubai levels. Broadening our view, current levels fall right in the weekly range prior to the global financial crisis that broke at the end of 2008.
It seems like everything is hunky dory. It seems like stocks are ready to break sharply higher above resistance after a recent phase of consolidation.
It seems like there’s complete confidence in the Federal Reserve to keep the best interests of the economy (and Wall Street) in mind. Errrr, well, you know what I mean.
It seems like no one really has any problem dumping on the US dollar … even at current levels.
And unless ECB front-man Jean-Claude Trichet wakes up with a sovereign default under his pillow, it seems as though a test of all-time US dollar lows is in the cards.
John Ross Crooks III
Black Swan Capital LLC
www.blackswantrading.com
A brand new FX signal service …
The results will IMPRE$$ you!
The phrase “hook, line and sinker” is pretty much used to say someone or something took the bait without hesitation. But it almost always carries a connotation that the bait actually was NOT worth taking.
Truth be told: I’m going to try to reel you in today hook, line and sinker.
But in this case, you’d be crazy not to take the bait because, as I hopefully I can convey to you today …
It’s worth it … and then some.
HOOK
We’ve come to realize how important it is to define your trading time frames and stick to them.
In the short-term, the volatility in the FX market can make you crazy. If you’re taking short-term positions based on the latest news or fundamentals, you’re probably fighting just to keep your account barely in the black.
We can relate.
And that’s why we’ve worked to develop a signal service that’s based entirely off of short-term technical analysis. We’re offering this brand new signal service not just to fill a void, but to meet a need … and to meet it handily.
The system we’re offering is simple, and it produces a whole bunch of signals.
If you like action, this is right up your alley.
If you like profits, there’s no reason to ignore this.
If you’re looking for a kicker to your longer-term investments, keep on reading …
LINE
We’re calling it SwingTrader FX. And it boils down to a system that analyzes overbought and oversold levels in intraday time frames.
Most notable: it’s produced winning signals during periods when the market has shown no clear-cut direction. Typically it generates a couple new signals each day, signals that we deliver immediately to you.
After arriving at the latest running iteration of our system, we spent almost a month testing its signals. And in that short amount of time we were extremely impressed. In not even a month –October 20th through November 15th – this system generated more than 1,500 PIPs of overall profit.
Click here to view the trade-by-trade track record during the testing phase. (Keep in mind that these are entirely hypothetical trades as they were not published or delivered; these are simply our in-house results.)
Breaking those results down to show the dollar-profit potential of these signals, based upon various lot sizes, the success of this system looks a little something like this:
Lot Size 100k 50k 25k
Profit(loss) based on hypothetical $25k account* $15,440.86 $7,720.43 $3,860.21
Return based on hypothetical $25k account* 61.8% 30.9% 15.4%
*Assumes all trades executed exactly as signaled — no slippage, no commissions and no spread; using 100:1 leverage
SINKER
At the end of our testing period we decided to roll out this signal service to some of our current members … to see how they liked it. You can click here to see the trade-by-trade track record during their trial phase, through November 30. But the feedback from some of these “beta-testers” speaks for itself …
“Great alerts! Great system! Thanx”
“Well done for your new service.”
“I was exposed to Black Swan Capital when my futures broker … put on a webinar featuring Jack. I only very recently started using Swing Trader FX Alert via email. I think that the SMS text alerts will be a valuable addition to a list of outstanding products.”
“Hello, I LOVE the new swing trade stuff!”
“Please keep sending me via email AND include text messaging alerts … This service is the best one for me so far.”
And now’s your chance to experience what they’re all raving about!
As I mentioned, this service is active and based entirely around technical analysis; fundamental analysis and news events play no direct factor in generating trading signals.
This service gets right down to business. No extras, no frills; we give you the trades and you either take them or you don’t. We also provide a daily recap of all the day’s trading activity to make sure you never miss a beat.
So if you’re not frightened off by the short-term, highly-active nature of this signal service, what are you waiting for? Get started immediately; sign up today.
Or if you’re a little unsure whether something like this fits your personal investment situation, then I have good news:
You can give this a try 100% risk-free for 30 days. If within your first 30 days you decide this isn’t for you, we’ll refund every penny of your money – no questions asked.
You don’t have to take all the trades; in fact, you don’t have to take any of the trades. But you can monitor the frequency and results within that risk-free period to see if something like this actually DOES make sense for you.
As they say, past results do not guarantee future profits … but I don’t see how more than 1,500 PIPs of profit per month couldn’t make sense for you.
Keep in mind …
We don’t guarantee profits. But even if the system performs only fractionally as well as recent testing shows, you hopefully will have no problem earning enough money during your risk-free period to pay for the $995 yearly membership price … much less the $99 monthly cost to become a member.
Thanks for reading. We look forward to your decision to join us!
Regards,
David Newman
Futures, Forex and Option trading involves substantial risk, and may not be suitable for everyone. Trading should only be done with true risk capital. Past performance either actual or hypothetical is not indicative of future performance. Black Swan Capital services are strictly informational publications and do not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer
Currency Currents - December 02, 2009
Key News
• European banks are emerging from the credit crisis bigger than before, posing more risk to their national economies. (Bloomberg)
• German machinery and factory equipment orders posted their 13th consecutive drop for October, but improved on past months. (AP)
Quotable
“Vietnam’s decision to devalue its currency by 5 per cent last week to protect itself from undervaluation of the Chinese renminbi, and the worried response from Thailand and other Asian countries, suggests the move towards global trade conflict may already be unstoppable. As one group of countries seeks to gain or maintain trade advantage by manipulating their currencies, the historical precedent suggests that countries that are not able to devalue will respond with trade protection, especially tariffs and other barriers, and global trade will suffer.”
Michael Pettis
FX Trading – Is gold hinting at a global economic earthquake – Protectionism!
Gold may be telling us a story. That story likely goes far beyond the run of the mill US dollar weakness we hear daily; otherwise the US dollar based on pure correlation would be well into all-time new low territory and free fall (not to suggest it can’t get there still).
Gold (black) vs. US$ Index (purple) Weekly:
We recently saw this kind of divergence between the dollar and another major asset—oil. Back in March 2008 oil prices rose from about $104 dollar per barrel to around $147 per barrel in July 2008. The dollar stopped going down (which was in an extremely tight negative correlation with oil at the time) in March 2008 and went sideways and up slightly (2%) to July, when oil peaked. Then the buck surged on the credit crunch realization. We know the rest of the story.
I am not saying gold will fall now, but I am saying the change in correlation is interesting. Gold in fact was one commodity that held up quite well during the credit crunch as the US dollar rallied; the premier risk aversion event of our time it was. I contend there are plenty other ticking time bombs in the global economy. Any explosions could lead to gold and the dollar rising at the same time.
Yesterday, during a radio interview I was asked about whether we would see more events like Dubai, I said absolutely. I may have been wrong on Dubai contagion, as John Ross pointed out yesterday, but Dubai I think is a clear sign there are still lots of problems in the world financial system directly related to debt and global rebalancing. Or put another way, the continued write-down of private leverage, counteracting the public debt our “leaders” are pumping into the system, is feeding into the real economy in the form of lower demand and adding to sovereign credit risk. But rebalancing is the key, as western consumers continue to reduce spending, no matter what the non-farm payroll report says on Friday.
Therefore, I think the key macro event i.e. major sustained risk event, will likely flow from protectionism. Rebalancing is the trigger for protectionism in a world when the major player, China, suppresses its currency.
That is the point of Michael Pettis’ Quotable above. Beggar they neighbor policies through currency suppression is the new policy. I think this is reflected in gold rising against all paper currencies from two perspectives: 1) a valuation perspective, and 2) rising systemic risk flowing from said policies.
Below is an excerpt from yet another brilliant Michael Pettis piece that appeared in the Jan/Fed 2009 issue of Far Eastern Economic Review (a great publication being shuttered by Dow Jones likely because it shared the naked truth about China; it lost advertisers because of its integrity, I think. No surprise since most of our multinational companies are run by gutless wonders who rarely stand on principle, but instead want to be sure they aren’t blackballed from manufacturing or access the Chinese market; my personal opinion only of course).
This summary suggests that China is in a very similar position as the US in 1929. China’s desperate need to export in an attempt to force its domestic readjustment on the rest of the world, just as the US did in 1929, is extremely dangerous for the global economy.
Excerpt – Far Eastern Economic Review, by Michael Pettis, Jan/Feb 2009
It’s 1929 Again
Although there are great differences between 1929 and 2008, the global payments imbalances that led up to the current crisis were nonetheless similar in many ways to the imbalances of the 1920s. A few countries, dominated by one very large one, ran massive current-account surpluses and in the process rapidly accumulated reserves. In the 1920s it was the U.S. that played the role that China is playing today. The U.S. economy was plagued in the 1920s with overcapacity caused by substantial increases in U.S. labor productivity. This in turn was a consequence of significant investment in the agricultural and industrial sectors and mass migration from the countryside to the cities.
Although U.S. capacity surged in the 1920s, domestic demand did not rise nearly as quickly. As a consequence, the U.S. ran large annual trade surpluses ranging from 1% to 3% of GDP during the 1920s, or 0.4% of global GDP (China, although only 6% of world GDP, has run trade surpluses of roughly the same magnitude). U.S. overcapacity didn’t matter when there was sufficient foreign demand. It could be exported, mostly to Europe, while foreign bond issues floated by foreign countries in New York permitted deficit countries to finance their net purchases.
But as the U.S. continued investing in and increasing capacity, without increasing domestic demand quickly enough, it was inevitable that something eventually had to adjust. The financial crisis of 1929-31 was part of that adjustment process. When bond markets collapsed as part of the crash, bonds issued by foreign borrowers were among those that fell the most. This, of course, made it impossible for most foreign borrowers to continue raising money, and by effectively cutting off funding for the trade-deficit countries, it eliminated their ability to absorb excess U.S. capacity.
The drop in foreign demand required a countervailing U.S. adjustment. Either the U.S. had to increase domestic consumption, or it had to cut back domestic production, but there was unfortunately more to the crisis than simply the drop in foreign demand. With the collapse of parts of the domestic U.S. banking system, domestic private consumption also fell. The slack in demand should have been taken up by U.S. fiscal expansion, but instead of expanding aggressively, as John Maynard Keynes advised, President Roosevelt expanded cautiously. When the credit crunch came and the world was awash in American-made goods that no one was willing or able to buy, it was unreasonable, as Keynes argued bitterly, to expect the rest of the world to continue purchasing U.S. goods, especially since the financing of their consumption had been interrupted.
Since U.S. production exceeded consumption, the need for demand creation, according to Keynes, most logically resided in the U.S. But Washington had other ideas. In 1927 and 1928 there were already unemployment pressures, and the 1929 collapse in demand exacerbated those pressures. This prompted U.S. senators to respond in 1930 with the notorious Smoot-Hawley Tariff Act aimed at boosting demand for domestic production. They attempted to divert demand for foreign goods to U.S. goods–basically to export their overcapacity–and in so doing force the brunt of the adjustment onto their trading partners. Their trading partners, not surprisingly, retaliated by closing their own borders to trade, causing international trade to decline by nearly 70% in three years, thereby shifting the brunt of the adjustment back onto the U.S.
The trade tariff made things worse not just because impediments to trade are costly to the global economy, but rather because it set off a trade war in which other countries forced the U.S. broadly into balance. In two years, U.S. merchandise exports declined 53%, while the trade surplus declined by 63%. Excess production over consumption had to be resolved largely within the U.S., and since much domestic investment had been aimed at the export sector, the collapse in exports brought a concomitant decline in domestic investment. The U.S. either had to engineer a substantial increase in domestic demand by fiscal means, as Keynes demanded, or adjust via a drop in production and employment. It did the latter.
Today China is facing a similar problem. With the collapse of bank intermediation, U.S. households and businesses are cutting consumption and raising savings. This is a necessary adjustment. Most analysts, perhaps thinking they are echoing Keynes’s analysis of the problem in the 1930s, call on the U.S. government to engage in massive fiscal expansion to replace lost private demand. But this is not what Keynes would have recommended. If declining U.S. private consumption is met with increasing public consumption, the world will simply continue playing the game that has already led into so much trouble. The only difference would be that instead of having one side of the global imbalance accommodated by private over-consumption and rising debt, it would be accommodated by public overconsumption and rising debt. Demand must be created by the trade-surplus countries that have, to date, relied on net exports to protect themselves from their overcapacity. They must force demand up quickly in order to close the gap, and since expecting private consumption to rise quickly enough is unrealistic, it has to be public consumption–a large fiscal deficit.
Might China and smaller Asian countries repeat the U.S. mistake of the 1930s? Perhaps. Beijing already seems to be in the process of defending its ability to export overcapacity. Although there has been an attempt to boost fiscal spending, most analysts argue that this so far has been too feeble to matter much. On the other hand it has tried to protect and strengthen its export sector by lowering export taxes and reducing interest costs, which lower the financing cost for producers and have little impact on consumers.
This cannot work for long. The proper place for new demand to originate is, as in the 1930s, in trade-surplus countries. They should be engaged in expanding demand, not expanding supply. If they try to export their way out of a slowdown, there will almost certainly be another trade backlash, in which case the full force of the adjustment will be borne by the trade-surplus countries, again as in the 1930s—with the proviso that although China’s trade surplus as a share of global GDP is comparable to the U.S. trade surplus in the 1920s, China is a much smaller economy, and so its trade surplus represents a much higher share of its GDP.
In order to make the transition workable and avoid trade friction, the world’s major economies must engineer a joint program of fiscal expansion. The trade-deficit countries should expand moderately so as to slow down the adjustment period and to give maximum traction to fiscal expansion on the part of the trade-surplus countries. China must be given at least three or four years to make concerted efforts to boost domestic demand to the point where global imbalances are more manageable.
The problem is that U.S. (and European) demand contraction is occurring at a shockingly rapid pace. There is a real risk that the adjustment process in China will careen out of control. In order to manage this risk, U.S., European, Japanese and Chinese policy makers must quickly come to a firm understanding of how significant the global adjustment is and how dangerous the process will be for China, and design a multiyear plan of demand expansion in which China is given time to adjust its overcapacity. If major economies focus only on domestic adjustment, China will almost certainly choose the path of defending its ability to export overcapacity onto the rest of the world, while the trade -deficit countries will discover the expansionary impact of trade constraints. In that case it is hard to imagine how China and the world can avoid disaster.
Michael Pettis is a finance professor at Peking University and the author of The Volatility Machine (Oxford University Press, 2001).
Jack Crooks
Black Swan Capital LLC
www.blackswantrading.com
Long-term trends, major global economic issues, interviews with top traders, book reviews…
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