For The Love Of Trading

You really do have to love it.

Getting in there and slugging it out day after day takes a considerable amount of mental energy,  the ability to remain disciplined, means to handle your emotions and undoubtedly a “love for the sport” – as you’d likely be crazy to consider doing it otherwise.

I had suggested in previous posts that 2013 was going to be extremely difficult to navigate, and that many would unlikely have the ability to trade it well – or even trade it at all. I myself have been challenged on numerous occasions so far this year, and it doesn’t appear that things are going to get much easier.

Perhaps today we will get our “bounce” in USD as well risk in general – as both USD and JPY have more or less been trading flat here, and the commodity currencies continue to struggle.

You want to see strong moves in both AUD as well NZD as solid confirmation that the world is buying risk. An “up day” in the U.S stock markets isn’t gonna cut it.

My feelings are that the larger money isn’t interested in any “realllocation” back into these currencies ( as both have taken a considerable beating over the past weeks ) – and are likely sitting on the sidelines (much like myself) looking for a touch higher prices to continue selling at.

U.S Bond Auctions – Part 2

Ok…let’s get back down to the auction hall for a minute, and quickly envision we are in attendance at an auction where everybody and their dog wants the bonds that are for sale. I’m picturing something like you see at those big American auto auctions with colored ribbons flying everywhere, thousands of spectators, the lights, the energy , the electricity in the air! woohoo! Ok now we are talking! Let’s get in there and buy ourselves some bonds! Woooohooo! I’m buying bonds!

We’ve got China…I see Japan, Brazil! There’s Switzerland! Canada’s here! Norway! France! Holy shit! The entire planet is going crazy for these bonds! I gotta get my bid in! I’ve gotta get noticed here – I need to get those bonds!

Ok I need to relax.

Obviously this is not the case – but you can appreciate that under “normal circumstances” the purchase of U.S bonds / debt has had much greater appeal in the past, and that a “bond auction” would include a host of other characters aside from a lone bearded man in a Radio Shack suit, loafers with a vinyl duffle bag. By way of  sheer competitive bidding, the prices of bonds stays high – the rate of interest needed to be paid stays low.

A healthy, attractive investment environment in a country that is flourishing – attracts sizeable interest in its bonds. The bondholders win with a secure investment, and the country issuing the bonds wins with its ability to raise money, with very low rates of interest needed to be paid.

Trouble is – when a country can’t attract interest in its bonds, they are then forced to “incentivize” these purchases by raising the rate of interest paid out! In order to get the inflow of foreign purchases in bonds…the price of the bond falls…and the rate of interest needed to be paid out increases. (For example at one point during their crisis – Greek bonds payout rate climbed as high as 27%! – which we all know is unsustainable)

As much as you may have heard of the Fed’s current strategy of “stimulating the economy” with its bond buying – nothing could be further from the truth. The Fed is printing dollars to buy bonds as to not let the planet at large see/realize what real trouble the U.S  is in. If the Fed stopped buying bonds ( like 80 some % of available bonds every month ) the rate of interest would rise so rapidly as to signal the entire planets investment community ( much like in Greece ) – My god! – Something is very wrong over there! Look at those bond rates! If a Government has to offer such a high rate of return on its debt – things must be going down! Big time!

Frankly,everyone already knows this but the point being – the Fed cannot possibly stop its bond buying purchases now, as there is no one else there to buy them.

Unless they are prepared for complete and total “meltdown” and are willing to just face the music – the can will be kicked along a little further, then further – until the rest of the world makes the decision for them.

And the bond hall is “closed for renevations or until further notice”.

U.S Bond Auctions – A Dark Empty Hall

In a general sense, when a government needs to raise money (outside the revenues gained from tax collection) it’s pretty common practice for that government to issue and sell bonds. In the case of the United States – The Treasury Department ( a branch of the U.S government ) prints up the paper bonds (which offer a small return of interest to potential buyers) and heads on down to the local “Bond Auction” hoping to sell the bonds to the highest bidder.

The higher the price paid for the bond equates to the lower the interest rate paid out on the bond  (this is just how the bond market is set up) so in general the Government wants to sell the bonds for the best price / lowest rate that it can, ensuring  revenue from the sale – but at the lowest possible interest needed to be paid back.

Straight up. Government needs more cash to spend. Treasury Dept  prints up bonds. Bonds are sold at auction to any and all who are interested in the purchase of the given countries debt.

In the case of the United States and the current “Quantitative Easing” strategies being employed – Mr. Bernanke and The Federal Reserve ( which is a private bank for profit  – holding a monopoly on the creation of money, and not a branch of government in any way shape of form) prints money directly out of thin air, packs up their suitcase of “funny money” and heads on down to the auction floor to slug it out with the rest of em.

Trouble is, you can hear a pin drop out there in the auction hall as Mr. Bernanke is the only one who showed up. Sitting alone on a rickety ol fold-out chair with his suit case full of freshly printed dollars………no one else has come to bid, as few (if any) are interested in the purchase of U.S Government debt.

The auction is a bust.

Totally embarrassed the “auctioneer” and Mr. Bernanke make a quick “verbal agreement” on price for virtually “all the bonds available ” – the janitor starts sweeping up and the auction is concluded. The Treasury guy heads back to Washington with a suitcase full of conterfeit money, and the Federal Reserve heads home with a duffle bag full of useless paper.

This is just another “Kong’ish explanation” fair enough – but I feel it important for you to understand (and will take a chance here this weekend in going another step further to explain) the implications and ramifications of this dark and and empty U.S bond auction hall.

ooooooooh! – U.S Bond Auction Part 2 

QE5 – The Puppet Show Continues

Come Wednesday markets get another chance to hear from Mr. Bernanke at the press conference following the June FOMC meeting.

It pains me deeply to consider how many individuals will be hanging on every word, with hopes of  reaching their financial / trading / investing goals – all wrapped up in a single man’s remarks.  It’s sad really. It’s almost as though the idea of markets actually trading based on the performance of the companies therein – has been completely and totally forgotten. I would even go as far as to suggest there are an entirely new group of “youthful traders” out there that may not know any different! All “fully invested” only on the premise that “Ben’s gonna watch their backs”. Oh my……

What also kills me is the suggestion that this recent “dip” has been manufactured in the media / by the Fed in an attempt to “gauge” the general investors community reaction to the idea of “less stimulus” – talk about a puppet show!

It really is a puppet show! Pull the strings up….see what happens..let the strings down….see what happens. Sick.

I’ll stick with the general “forecast” that with markets still practially at all time highs – there will be no further mention of stimulus on Wednesday..but likely comments suggesting ” we are ready when needed”. How the markets take it at this point  – again….perhaps that “final pop” bringing in the last of the retails before giving things a good flush.

I’m gonna play a bounce in USD, but keep things on a tight leash as I remain medium term about as bearish as a gorilla can be. Any strength in over all “risk appetite” in coming days can only be seen as even better areas to continue selling.

Carry Trade And Aussie – Explained

You’re learning about currencies….you’re seeing the impact in markets – you’re having some fun. Who knows? Perhaps a few of you are even getting in there and placing a trade or two – good for you.

An important distinction to make when trading currencies, is to understand what “role” they play in the global economy “aside” from their normal function as a “token of value” in the given country of origin.

We all use money – yes…..but big banks use money in entirely different ways. Ways that can affect global markets regardless of “who” or “where”. I’ve mentioned the Carry Trade many, many times and encouraged you to read up  – as it is the most basic and simple example of how banks use “your savings” behind the computers and digital printouts – in order to generate massive profits. You don’t honestly think the money is just sitting there in a vault do you?

Banks ( as well Kong) utilize cash on hand to fund ventures via many foreign exchange strategies in order to turn profit. You are happy to see the printout on your stub when you check the balance – while your actual money is likely being put to work….far, far away in some foreign land.

Simply put – If I can walk in a bank in Japan and borrow money at next to “zero” % interest – then take that money and invest it in Australia where even the base savings account rate is 2.75% – boom – Carry Trade on.

So….the Aussie. The Australian economy has flourished over past years and in turn has been able to offer a considerably higher rate of return on savings than many other countries. So in times of “risk on” money flows to the Aussie like the Ganges River! As big banks ( and Kong) borrow low yielding currencies ( JPY and USD ) and purchase those that offer better returns. Simple as that.

Unfortunately we’ve got a problem here though. Australia is currently in its own “easing period” and has plans to further lower its interest rates ( as Japan as well the U.S has ) in order to keep the economy moving. This puts pressure on Carry traders with the knowledge that the Aussie will continue to “cramp this trade” as it continues to lower its rates….closing the gab between 0% and 2.75% ( not long ago it was 4.50%!) smaller and smaller as the Carry Trade starts to lose its appeal (viability).

This is of incredible significance on a global scale ( and another contributing factor in my longer term view ) as to provide further pressure on an already fragile global banking system. When big banks (and Kong) have one of their largest revenue streams / cash cows producing smaller and smaller returns, in a global environment that is clearly slowing – all the money printing in the world can’t make that one go away.

The Australian Dollar has taken a huge hit already, and as much as I had originally been looking for a solid bounce before getting short ( which I am still going to do ) I am confident that what this really suggests is that the big money has already been backing out in preparation for much further losses to follow. Nothing short term will change my mind about this…as I do look for higher levels in AUD – to sell, sell , sell , sell , sell.

Stunned At The Bullishness – Risk Off

I am absolutely stunned!

I’ve been on and on about this for literally months now….watching TLT seeing the trouble ahead with bonds, and in turn the USD  – as equities are ALWAYS the last to go!

This should have served as a roadmap for your preparation – and at this point there really are no excuses.

This market has absolutely tonnes of room for correction. I can see several JPY pairs easily shaving -1000 pips and still maintaining there trends, and USD has got nothing but “air” underneath it here all the way down to like… 79.00

In any case – I don’t suggest taking this lightly as my “short U.S equities” has also been triggered.

Good luck all.

3% more overnight alone on Long JPY trades that equate to one thing…and one thing only.


Risk Currencies Not Participating

In the usual “risk on environment” the commodity related currencies are usually the big winners.

When investors feel that things are generally “safe” money moves from the safe haven’s into higher risk related assets and currencies in commodity related countries such as Australia, New Zealand and Canada.

This is not happening.

In fact (generally speaking) the commods (in particular AUD) are getting more or less hammered, and exhibiting extreme weakness in the face of equity markets still clinging near their highs.

When you see USD cratering as it has over recent days, but in turn see that the Australian Dollar is EVEN WEAKER – you know without question – Houston we have a problem.

With Australia’s economy so tied to its trade with China, there is little doubt that the global macro shift towards “risk aversion” is already very much in play as AUD has been completely obliterated with lots of room for further downside.

I’ve tried on several occasions to “trade a bounce” as we’ve seen surface evidence of “risk on” in equity markets but unfortunately – that’s all it is….. “surface”.

Clearly our friend “risk” is quietly sneaking out the back door.

Possible Hope For Gold

It’s been some long and grueling months for gold traders, and those watching PM’s and the miners in general. Week after week of potential bottoms or reversals – only to be followed by  selling, selling and more selling. The price of both silver and gold in the “paper markets” passed the point of “rational” some months ago with seemingly no end in sight – a real tough spot for those holding strong…for sure.

We touched on this some weeks ago in that the problem with todays “investing environment” is that it “isn’t rational” – not in the slightest bit! With the amount of global stimulus being pumped into markets / Central Bank intervention etc – this isn’t in any way the market that most of you may be accustomed to investing in. Looking for similar results as one has experienced in the past has likely been recipe for disaster.

The fundamental reasons for owning gold have not changed, and likely grow stronger by the day as “paper money” planet wide is printed like toilet paper with hopes of keeping the ship sailing in the right direction just a little while longer.

How do you keep your sanity as a trader of Gold?

I would advise dropping your expectations. As simple as that.

I find it pretty unlikely that anyone is going to “time the trade” and make some massive “get rich quick” type thing any time soon with the purchase of Gold – however…..if one can lower their short-term expectations and try not to “treat it like a trade” – there’s plenty to made…….. if you can remain patient.

With the US dollar moving considerably lower over the next few months – this may be a decent time to start building positions – but in all…..we could just as easily see Gold consolidate here for months, and months on end. One needs to realize the Fed’s agenda and how a blatant rise in the price of Gold seriously undermines the goal of crushing USD – so as long as Ben’s got his finger on the printing presses – It’s hard to imagine gold getting too too  far out of the gates.

Canada Update – TSX Rejection

I’m going to keep it short for the “non believers”.

The Canadian Index topped (in my view) back at 12, 800 on March …March something er rather.

As per the “normalcy bias” posts posted…then reposted…then reposted – it’s unlikely anyone up there gave the analysis a second thought as “this shit doesn’t happen in Canada!”

Here we can see a “retest” of the highs over the past few weeks…and the blatant rejection at “said levels” some weeks ago.

(you may need to click to enlarge this chart)



In any case…….it is what it is.

Isn’t it?

Why Markets Are Moving Lower

As much as the Fed would have you think otherwise ( as the current chatter of “QE tapering” leads headlines) markets are “selling off” for exactly the reasons that a market “should” sell off. We’ve been over this on several occasions as the SP 500 looks set to reverse at more or less the exact spot we’d looked at some weeks ago.

SP 500 Upper Level Resistance

What I find particularly amusing about this – is how the media and Fed are doing all they can to suggest the reason for this weakness is the Fed’s recent “whisper” that it may taper it’s QE programs, when in reality nothing could be further from the truth!

The market moves lower on poor guidance and “so so” earnings, weak global growth projections – and all the other “normal reasons” that markets move.

The Fed wants you to believe this “downturn” is due to the potential withdraw of stimulus – so you will applaud more stimulus! The Fed/media  is “aligning itself” with the current weakness as to look like ” the hero” when time comes for the announcement of FURTHER STIMULUS.

As the summer correction runs its course – markets will be “begging” for answers, begging for understanding as to “why it can’t go up forever! “why! why Ben why!?”

It can’t go up forever because at some point….some point – the fundamentals will indeed catch up with the QE freight train.

I remain short USD and long JPY against nearly everthing under then sun – as a “currency salad” I look to enjoy this summer. I may however put the bowl down at a moments notice as Central Bankers have been known to spoil the odd picnic.