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On FX and Notes from D.C.
On FX and Notes from D.C.
Three weeks ago (Link) I put on a short EURUSD position at 1.3115. It worked for a few hours, and then went south. I sucked wind and damn near got to where I had to cut it at a loss. Today the market got back to where I entered, so I dumped it. While I was at it, I cut half of my long USDYEN position that I’ve had on since the mid 77s. So I took a few bucks off the table.
This was a gutless decision as I am still a believer in the short side of the Euro. But I’m worried about event risk the next few days as the Greek deal goes to completion or disaster. My current thinking is that the deal gets inked, but it doesn’t matter, because the country will go bust by June.
I hope to reload a short Euro position at a better level. The market Gods don’t look kindly on that type of thinking; to punish me for being a wuss, the EURUSD could just as easily make a beeline for 1.25.
Folks have asked me about where I set stops. The answer is I don’t leave stops. They result in bad fills. I do set mental levels where I will take a gain or a loss and I almost always execute my original plans.
I try to play FX with a goal of making 5% or losing 2%. I try to ride winners; I’m good about taking losses. This is a winning strategy in a trending market. It’s a cold loser when markets trade sidewise. The hard part is to be disciplined and stay out of the markets when there is no action.
Note:
I’m not going to report on my FX trades any longer. When and if I have something to say about the FX market, I'll write about it. You can assume that I’m talking my book.
The Congressional Budget Office (CBO) is obligated to review and “score” the financial consequences of any proposed legislation. It came out with a report on H.R. 4105. The title page of the Bill:
This legislation is about tariffs on China. The CBO concluded that the US Treasury will collect $160 billion over the next ten years if the law is passed. That may sound good to some; I see it as a disaster in the making. If H.R. 4105 passes, it will cost the country Trillions. The history books say that is so.
H.R. 4105 “Applies the duty provisions of the Tariff Act of 1930.”
The 1930 legislation that H.R. 4105 is relying on has a different name in the history books. It is called the Smoot-Hawley legislation. It was the dumbest legislation that could have been passed. It insured that America would remain stuck in a depression for another four years.
Smoot-Hawley worked as intended. From 1930 to 1934 imports fell by 65%. But damn near every trading partner, including England and Canada, retaliated by putting up their own tariffs. The depression spun around the globe as a result.
This time around will be no different. China will retaliate. Too bad the guys in D.C. don’t read history books.
The Congressional Progressive Caucus (CPC) decided to try to get Edward DeMarco, the Acting Director of FHFA fired:
The CPC has a point. Edward DeMarco is preventing Fannie and Freddie (F/F) from entering into massive write-downs of mortgages. If it were not for DeMarco, Obama would have done this a year ago.
Fannie and Freddie are sitting on (at least) three million underwater mortgages. Assuming the average size is $250k, and being under water by 30%, the cost of the write-downs would be $250 billion. That’s massive. But we spent $900b on the banks, the Iraq – Afghanistan wars have cost $1.5 Trillion, spending of Social Security will top $700B this year. The one time charge on ~60% of all underwater mortgages is not so big compared to those other numbers.
But where is the “fairness” in this proposal? The $250b is just more borrowed money. This plan passes the buck to the next generation when the debt comes due. What about the 40% who don’t have a mortgage with F/F? What about renters? Have they no rights at all?
The CPC will fail. DeMarco is sticking around until December. But if Obama wins big, and the Senate turns a deeper Blue, then DeMarco will be sacked. A “more friendly” Director of the FHFA will be installed.
This is an emotive topic. I’m interested in your thoughts. So are the “watchers” in D.C.
These charts shows where the $24B of federal subsidies to energy projects went in 2011 and comparisons over the past 35 years:
With his focus on alternative energy, Obama has ramped this number up to levels not seen before.
This strategy is a payoff to environmentalists. Obama will tout his spending record this fall. This is a “positive” message; and will probably get him votes.
The flip side is that many of the alternative energy investments are connected to characters that are having swell parties to raise money for O. Think Solyndra.
When Obama does play the “I’m green” card, the Republican PACs will have a field day. The ads won't stop. We might see the “ugliest” election in history.
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- advertisements -







Might?
Beat me to it - with the advent of so called Super Pacs, it is absolutley guaranteed.
Because history is pretty clear - it works.
Sheeple anyone?
"You're a commie!"
"You're a Nazi!"
"You fuck sheep when nobody but the drones are watching!"
We see the ugliest election in history every four years.
As bad as the globalists are, protectionism is worse.
GMadScientists
Monopolies are only good for the controlling shareholders of the monopolies. The customers, employees, suppliers and tax payers that subsidize the monopolists' business model get screwed by this competition killing neo-feudal political system that has been created and exploited by the 'globalists', monopolists, oligarchs, whatever you want to call them. Only the blindest of Sheeple would fail to see how this idea of 'globalization' touted as 'freedom', promoted and marketed on the mainstream corporate media as 'good for humanity', is nothing but, and is, instead, a way for the monopolists to manufacture where they want, paying slave wages, sell where they want, charging what they want since the competition is other monopolists and prices can be fixed among friends, pay taxes where they want, setting up in off shore tax havens and housing their corporate headquarters wherever they want to avoid paying any taxes at all. Taxes are for serfs.
In this manner, the masses are enslaved, having to work for around the clock for survival. This situation makes them docile and easy to manipulate and manage. In this manner, the monopolists seize and centralize power and extract wealth without much resistance.
If you are into that, you are either a controlling shareholder in a monopolistic multinational business, or a fool.
why?
Mike Pettis (China Financial Markets) has pointed out that the big loser from tariffs is the big exporter. He thinks that would be China (just as it was the US in the '30's). However, the fact that the US has out of control deficits that can only be funded (painlessly) by recycling of our trade deficit by our trading partners complicates things.
Perhaps the "progressives" (really totalitarians) will cut their noses off to spite their face.
i've read that this is true. that tariffs helped trade deficit countries exit the depression earlier and prolonged the depression for trade surplus countries.
Ambrose Evans-Pritchard makes the same argument. He claims it is only known as the Great Depression in the US. I haven't researched it myself, but he says when the British Empire instituted Imperial Preference (trade within the empire) it pulled them out of decline. There has to be a limey on here that can comment....
I have another more complicated idea though. In the USofA we have many protections to take care of people without work. Does the free market analysis take this into account? My point being, do I as a consumer really save money getting trinkets from China for half price if I still have to pay tax money to the now unemployed US worker?
My point being, do I as a consumer really save money getting trinkets from China for half price if I still have to pay tax money to the now unemployed US worker?
Ok, the implication is that "saving of money" is the most important consideration here.
Perhaps a better consideration would be, "do I really have a BETTER LIFE" if I have cheap Chinese products and a huge welfare state?
That doesn't have to be an economic question, and the problem for people who love money more than god is that they *cannot* make the distinction.
right on blunderdog. I can also include cheap imported labor. I hear stories of how things got done in the 1950s in this country and it sounds rather agreeable to me...
Amazing what people will do for an (American) job these days.
Bruce your a breath of fresh air from some of the blowhard contributors that post on zerohedge. Always look forward to your posts.
My thoughts, Bruce?
Like most plans/laws/schemes excreted by DC these days, some special interest rents a lobbyist to pay-off a senator to buy the legislation to steal the money the special interest requires. And future generations foot the bill because, despite talking a good game, nobody really gives a shit how the world will look once they are gone.
[Maybe I woke up on the cynical side of the bed this morning]
"why should I care about future generations:what did they ever do for me?" by Groucho Marx.
Bruce: You probably are generally right about the bear case for the Euro (where does one start?) but vs. USD don't you think the US Fed will be compelled to muscle the dollar down with the EUR so that the exchange rate stays pretty close to where it is now?
A weak dollar means (at least) higher earnings on US exports, the illusion of higher commodity demand and higher nominal US equity prices which will (all else being equal) march upward with inflation - three shades of lipstick that Bernanke and Obama happen to be partial to.
And on a related note, consider the argument behind Tyler's balance sheet ratio/currency ratio compression trade:
http://www.zerohedge.com/news/700-billion-qe3-already-priced-who-will-blink-first
The Euro fiat experiment must die. If there is a God, it must die as a teenager. It has been a source of international financial mischief . Allowing it to live into adulthood will bring more pain than the unwind..much more.
Sorry to be OT...needed to get that off my chest....again.
A perfectly valid position...for the USD as well.
But my point was that the Fed will (likely) want to keep the USD about where it is vs. the EUR and not let the EUR "win" the race to the bottom.
When Smoot-Hawley went into effect originally the US economy was something like 70% manufacturing. Today it is somewhere between 8% and 12% manufacturing.
China has tarriffs and somehow they survive and thrive.
My belief is that the only reason that people are stuck to a paradigm belief that Smoot-Hawley legislation will be a disaster is because the ONLY thing they look at is that it failed before and not the conditions under which it failed or why it failed.
Do globalist international empire bankers want Smoot-Hawley type legislation? Most likely not!
... nuff said.
This is a spectacular argument against induction generally... however, the other question is that even if manufacturing in the U.S. has since been cratered, are we presently in a position to sustain ANY hit to the remainder? While it may not have the same aggregate impact, it remains to be seen whether it will marginally change our position sufficiently to materially kick us off into another leg down/finish us off.
Manufacturing always created the value added for which Service industries (including Government) were sustained.
Does anyone really believe taking in each others' laundry will sustain this nation ?
China has played their sly hand to the hilt. They get the jobs, America gets the shaft.
Completely agree, the Chinese have won the Cold War without firing a shot. Their central bankers all did time on dealing desks at the mega-banks, unlike the academics we send to the currency wars who have never had a real job. They took the long view and said "what do we really want"? The answer was factories, market share, jobs, then roads, bridges, airports, ports. They could care less whether they had to buy a towering pile of FRNs in order to get them. Now they have the factories, the jobs, and the IP. So they made 50 years of progress in 10 years. Well played.
Of course... they'll also need the resources to keep up that infrastructure after the bubble bursts... hopefully those ghost cities will still be standing...
Great thoughts as always Bruce, thanks for sharing.
While I was at it, I cut half of my long USDYEN position that I’ve had on since the mid 77s
When I first read this, I thought I'd read he'd had the position on since the mid '70s. Now, that's some carry you got going on there, Bruce...
Hopefully somebody will remind the good Senators considering Smoot exactly who is funding the US Gov't and what could happen if China chose to stop doing this. Whoops.
What a Frankenstein monster (China) the U.S. political and corporate monopolies have created.
Free trade is a concept in an Econ 101 textbook. The beast has never been found on this earth.
tariffs you hate so much, are the answer for any country with the raw materials and population to produce it's own damn electronics and capital goods. we do not need world markets but Apple, GE and CAT sure do..I call you out bruce you are a dupe of these international cartels.
Yes, it makes perfect sense to limit your customers to the 325 million or so people living in the U.S. and completely ignore the remaining 6.8 billion people in the rest of the world (which is what happens when our tariffs encourage retaliatory tariffs in other countries). It also makes sense to shut out producers in other countries so we can make all our own products and pay more for them.
Hey, why stop at tariffs on foreign goods? Why not apply them to out-of-state manufacturers? Or out-of-county? Or out-of-neighbourhood?
Try researching competitive advantage, and you'll see why free trade ultimately benefits everyone
http://www.scribd.com/doc/53333542/comparative-advantage-wrong
not so sure about that
"The flip side is that many of the alternative energy investments are connected to characters that are having swell parties to raise money for O. Think Solyndra."
lol...damned near all of them.
Fisker was going to make a one hundred thousand dollar electric car for the elites of Hollywood and the banking industry to tool around in...to show "their concern" for the enviroment one supposes.
Something called the Karma.
Well it got halted when the batteries (if I recall correctly) were found to be unstable. Why, we can't have Matt Damon spontaneously combusting popping down to the store for a loaf bread can we? Then Fisker announces layoffs in vice President Biden's state (Delaware) where one of these idiotic plants was set up.
Karma is indeed a bitch ;-)
boondoggle's galore. "the ultimate in other people's money." Wall Street has nothing on Federal largesse. Talk about "rich with irony" however. The modest background of the Obama's belies a truly staggering lack of common sense of "what the country can afford." The American people are en toto BROKE. We're watching public education on the verge of a total meltdown up here. Why? It has nothing to do with spending too much on police, firemen and teachers--the cost savings of which simply will not solve the problem. The problem is as with the rest of the nation "our poor hapless taxpayer" (where's TomtheTaxpayer been of late?) simply cannot afford their own home anymore. And it all comes down to a horrendous debt bomb that has gone off throughout the entirety of the American polity--something that cannot be cured by devaluing the dollar. (Devaluing the dollar does bring the end that much sooner however.) This is far from "financial rocket science" here. No banks=no money/HUGELY expensive debt. Name one nation with a healthy banking system on the planet right now? If you're answer is "pretty much zero" you're "totally spot on"!
Iceland, now, for one?
Congressional Progressive Caucus
"I've given up on the notion of progress, it's overrated!" -- Arthur Dent, Hitch Hikers Guide to the Galaxy
I am so happy to know that there will be more give aways in the mortgage space. When I pay mine each month, I can claim moral superiority. When they raise my taxes so that I can pay for those give aways I may apply for sainthood. Or I may begin to take political action. Both futile of course.
I am fairly convinced the Fed and Powers that Be target significant people who publish their trading positions. The world's largest hedge fund the Fed hates 'speculators'. Many thanks for your continuing tracking on Social Security - errr, make the "Social Security" - it's not social, there is no security, there is no trust and there is no fund - GW Bush said so
I am fairly convinced the Fed and Powers that Be target significant people who publish their trading positions. The world's largest hedge fund the Fed hates 'speculators'. Many thanks for your continuing tracking on Social Security - errr, make the "Social Security" - it's not social, there is no security, there is no trust and there is no fund - GW Bush said so