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On FX - Shit or go Blind?
Way back in the mid 70s I was a Snake trader for a bank. This was a period before the EURO was adopted. The European currencies had established trading bands of 2-3% against each other. This was pre computer days, so figuring out where markets where vis a vis the 7 currencies was disorderly. There were arbs all the time as things got mis-priced. Fertile land for FX types.
The front of the Snake was the old Deutche Mark. The back of the Snake was the Italian Lira. I traded the back end. It was a hoot.
I met a guy. He was connected. We traded info, took positions and everyone made money. There was one weekend where the rumors were rife that the Italian Lira would be suffering a big devaluation. The market chatter was for a 20% move.
But my guy and I had the inside story that this weekend was not going to bring a devaluation. The then Prime Minister and Finance Minister were digging in their heels, is what we were told. So we bet the other side. We went long the Lira for Friday delivery and planned to hold it over the weekend. By having the liquidity we were able to lend it out to all of those who were betting big on the short side. The weekend repo was worth an easy 5%. This is a 3 to 1 bet against you, so you have to be damn sure of the outcome. We thought we were.
In the NY afternoon the Italian Finance Minister said something that changed the picture. The guy we were counting on to hold the line for another few days was on the wire saying there was a crisis meeting that weekend.
So I called my pal (who also had big positions) and asked, “What should we do?” He says right back to me:
Mate, I don’t know if I should shit or go blind.
These words mean nothing by themselves. The implication was crystal clear. He no longer had a clue what would happen next. I hung up. Dumped the position at a loss.
****************************
I was looking at some EURUSD charts today. Some of the other big crosses as well. I’m of the view that there are some big currency moves in front of us. There is news twice a day that’s pushing size money around. Central Banks are involved in unprecedented ways. Volatility is way up. Interbank volume is big, futures too. These are the conditions that bring market breaks.
But I can’t decide what to bet on. The question “What should I do?” reminded me of that old story.
The last few trading days provide some directional signals. On Friday the thinking was that we would have Drachmas on Monday. That logic pushed the EURUSD to close on the lows. This morning we have a bid under the Euro against the crosses as the Greeks didn't move. Late in NY there is a silly story about China buying Italian bonds (They’re talking their book) and the Euro closes higher on the day.
Okay. That is the trade pattern the market is pointing to. If Europe is going to have a few peripherals walk out of the (monetary) clubhouse then the Euro is headed south for the fall and the winter too. "Ride this baby to 1.20 or better"; is the talk I keep hearing.
Really? I’m not so sure about that at all.
You would not want to be short the Euro if we woke up some morning and found that the Euro members were narrowed down to France, Germany, Italy, Netherlands (and Belgium too). That group of countries would trade to EUR1.5+ against the dollar. Forget those stop losses you think you have.
Keep in mind that the pendulum is going to swing against the USD at some point in the future. Things are not so hot in the USA these days. We probably will have a mini crisis by the end of the month over the Continuing Resolution.
To me, the short side of the Euro comes to play if there are more and more steps adopted that attempt to keep the bucket from leaking. More EFSF, CBs lending to banks, new austerity steps and the like. The “United Europe Uber Ales” outcome is the short EUR story IMHO. They will never succeed if that is the goal.
But that is not how the markets are trading this. The thinking is quite the other way around. So I’m left wondering if I should shit or go blind.
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Knowing when not to trade can be valuable.
I would suggest that you consider the possibility that Tyler was one week early in calling for a Greek default. It would appear that the agenda for the upcoming EU FinMin meeting this coming Friday is to attempt to control a Greek default. Which is why Geithner is unexpectedly attending on Friday to convince them otherwise.
Nice one. I know exactly how you feel. I'm looking even more short-term. What the hell is this Merkozy-Pappy conference call tomorrow? If Pappy didn't think it was good news, why would he announce it? That's how the market took it. But if Merkozy were ready to give more money to Greece, why would they want to personally both at the same time talk to Pappy? Sounds more like Pappy's lawyers told Merkozy's lawyers something Merkozy didn't like. What is Merkel hinting at, ruling out "disorderly" Greek default? Is this tranche off or on? I just don't feel confident calling this one
http://how-to-trade-armageddon.com/2011/09/04/playing-greek-chicken/
If I were trading currencies, and I am not directly involved in those markets, I would take a shit and keep my eyes open. But that's me.
These are the times that try men's souls.
This is also why god created option trading;)
Primates porking pigskin. You're going to have to be mighty good or mighty lucky...
Imagine if the States had never had the Constitutional Convention. So now each State has its own Army, Navy, Coast Guard, taxing system, retirement system, welfare system. There is no USA Dept of Defense, Energy, Transportation, Education, or Anything Else. But the States decide to get together and share a common currency, the Amero. How long do you think it will take, say, Florida and New York, to load the Amero up with so much debt that it is worthless? Three weeks? :^)
I think the Euro is doomed, for the reason that a money without a government held responsible for it is not really money, but can only pretend to be money.
And the Euro is unneeded, since, today, anyone with an ipod "cellphone" can get an exchange rate between any two currencies instantly, and have the ipod convert the price of any item in any currency, into any other currency, instantly.
Hahaha...he thinks he gets to choose one...hahaha.
That was exactly what I was thinking. Lots of folks will be forced into positions, this is how financial repression works.
Unless someone has a gun in your mouth there is no "force."
With a little luck, the Greeks will tell all those who bought Greek paper, "Caveat emptor" and life will go one while the phat cats splutter their indignation in to a few thousand hours of talking head set up for the next round of the game.
Bruce I've been murdering FX these days. EURUSD in particular. My experience is not to try to understand or grasp what's going on - it is no longer relevant. I'm big into neural networks and I've got a bunch of them on FX that are doing some crazy shit. I think since the swissie got pegged that a lot of people got burned bad and I feel sorry for them, but none of us can honestly say we didn't see the writing on the wall - we ignored the warning signs because they did not agree with our perceptions. And a lot more people and institutions will continue to burn since almost everybody is now blind. The key thing to remember is that now everything should be priced in gold for a true value assesment. That's really all there is to it.
Malikai's "experience (is) not to try to understand or grasp what is going on", as it's no longer relevant.
Yet, Malikai offers that people got burned with the Swissie because they "ignored the warning signs".
And in conclusion:
We need to remember--"while not trying to grasp what's going on"--that everything should be priced in gold, because..."that's really all there is to it." Oh yeah, and "neural network" too. Got to get the neural network to price in gold.
My question, then, is:
Should I "not try to grasp what's going on" with your trading advice?
I'm not quite sure what you're trying to get at Mr. Duncan. I left no advice, I conveyed observations. Nice deconstruction of my statements though. It's good to see someone actually try to comprehend what they are reading.
Shit FTW.
Gerald Celente got out of the swiissy about 2 weeks ago...He is all in Gold.
Optimum zone for European exporters is 1.20-1.30, so go ahead, knock yourselves out. Short the hell out of euro and help Germans and other Northerners. :)
EURSD 1.50 + is armageddon. Buys calls for armageddon. Short it for what it is. Should be trading lower by any stretch of the imagination other than central bank machinations and the endeavour to staunch the panic reflected in CDS and yields.
Bruce,
I like your analysis,, but before the final breakup you describe (possible), don't you think that the "authorities" will do EVERYTHING in their power to prevent it? That means EUR weak. If there is then a breakup, a lira, peseta, drachma etc weak. All good for a resident of Italy invested in U.S. and German government bonds. No breakup? No problem, EUR trash.
Might as well sh-t
There is plenty of paper to clean up with.Have been long on shit paper for years.
What made me about shit was, Gerald Celente many months back got into the Swiss franc,I about shit but laughed instead like,hearing of all these small businesses going to trade forex,laughed again.
Surely unless they are pros they will be killed...maybe some pros too obviously.Most people around here think the lotto is the answer.They spend tons on a dream and nothing on reality.
Cheers
Buy EC, E6 or EURUSD... every fuckwit on the planet thinks that shorting it is a slam-dunk (note: I was saying precisely the opposite when DX was at 74 and EURUSD was at 1.47 and AUDUSD was above 1.09).
When one side of the boat gets this crowded, it's time for the dumb money to get gutted. Sic transit gloria bitchez.
From http://www.telegraph.co.uk/finance/financialcrisis/8755881/Germany-and-G...
"Citigroup's Willem Buiter disputes the "federalism or bust" dichotomy, saying Anglo-Saxon commentators are trapped in the mental world of the Peace of Westaphalia in 1648, which established the sovereign state as pillar of international order. There is no recent, close analogue to the EU," he says. As a blend of national and supra-national, the EU resembles the Holy Roman Empire, which united central Europe from the 10th Century until Luther (technically until 1806)."
Ever since Fall of Rome the alliances and loose federations have been constantly changing in Europe, so EU probably will muddle through but with constantly shifting shape. Euro is here to stay because no crisis nation could afford to issue new currency that takes months to establish in the best case. It is not just merely printing new shiny notes, that is just minor details.
There is the technical side, thousands of legacy softwares must be reprogrammed like during the euro switch. It was a huge operation behind the curtains. Then there is the really messy law side, creditors, debtors, buyers, sellers all disputing how to lease/borrow/loan/buy/sell and in which currency both in the country and abroad. This would mean real chaos for months to come, maybe even years.
Imagine being small business owner in a crisis country. Bank runs into stronger currencies/countries would be inevitable. Then the whole country would shutdown and withdrawal limits would be established. Trying paying your expenses as business owner with 1000 dollar/euro monthly limit.
Yup. But recall how much useful but phony wealth moved around from Luther to 1806 on the "reality" of the HRE.
http://en.wikipedia.org/wiki/Free_City_of_Frankfurt
Et al.
Something that all the Objectivist quant-heads seem to be missing, on purpose, is that "truth" can only be back tested, as the narrative of the article demonstrates.
Shit in your hand and rub it in your eyes, kill two birds with one stone.
I will take the that bet that Bruce decries.
The $US is not going to tank until every other source of capital flight has exhausted itself, flowing in to prop it up, in th face of our own misbehavior. Until then it remains the leper with the most fingers (wish I had said that!)
The Euro, on the other hand, is going to hell. BUT, in the words of Ed Hart. it is going to Trade its way there!
So I AM short the Euro, and long the $US. No plans to exit either rposition soon.
Well personally, I'd rather shit. Nothing is worth getting thrown out of the game and having to work for a living.
"Would you like fries with that order?"
Let's face it, volatility is what saves us as traders. The wide swings are what we live for. Remember 2003, or 2004, when we had 30 pip ranges in the Euro for the day?
The central banksters have outsmarted themselves and created so much liquidity looking for a home, that ranges in everything have widened considerably. Hooray!
Unless you want to trade with the HFT's in the equity indices, something I abhor, then PM's and forex are the only game in town. The race to the bottom has created the necessary chaos I dream about as a trader.
Some simple folk prefer craps and roulette, but the smart prefer poker.
Keep rolling for them hard eights, V.
Just curious... when you win in a volatile market, who loses? Is it a zero sum game where there is some schmuck on the other end of the trade or are you the hedge for someone who sees their loss as a cost of doing business. Or, is money somehow created out of thin air?
Just curious.
Think I will keep my day job. It gives me at least a false sense that I am contributing something and am not simply a leech on the world.
Bartonist,
Yes, much of this is 0 sum. However it is the willingness of a few to play it that adds the lube and coolant to the machinery, hency the term "liquidity."
"or are you the hedge for someone who sees their loss as a cost of doing business"
Historically, it's the price of the opportunity to expand or streamline the business, distributed to a set of 0 sum players.
When the number of players exceeds a certain % of total activity, an operating rule of thumb, 85/15 , kicks in and a majority get slaughtered. They then start to complain about various "plots" and "politics" that are "bad" for no reason other than better players moved them to the wrong side of the arb.
The issue in the USA for right now is that these games are the day job of some people, by choice. And thence should be taxed as such.
After all, leeches have utility, just not very much.
Bartonist,
Yes, much of this is 0 sum. However it is the willingness of a few to play it that adds the lube and coolant to the machinery, hency the term "liquidity."
"or are you the hedge for someone who sees their loss as a cost of doing business"
Historically, it's the price of the opportunity to expand or streamline the business, distributed to a set of 0 sum players.
When the number of players exceeds a certain % of total activity, an operating rule of thumb, 85/15 , kicks in and a majority get slaughtered. They then start to complain about various "plots" and "politics" that are "bad" for no reason other than better players moved them to the wrong side of the arb.
The issue in the USA for right now is that these games are the day job of some people, by choice. And thence should be taxed as such.
After all, leeches have utility, just not very much.
Leeches are one the oldest surviving species on the planet. Think I'd rather their track record than work at 'contributing something' whatever that's supposed to mean.
Roaches have done much better, longer, by not being dependent on water resources.
Like traders, they are found in many places; like traders, they are also easily stepped on.
Leeches thrive in stagnancy, traders not so much. Therefore traders generate false turbulence, so that they can engage in mass self-destruction; each hoping to be the lemming that makes it across the river.
Hermaphroditic, reciprocal fertilization, and a lifespan less than 10 years. Yup, that's a trader alright.
Anytime, anyplace wherein a central authority is firmly established that controls any domain of activity, it will be subsumed and corrupted easily within 50 years, and more likely within 20.
Why?, you ask? Because the topmost circle consists of so few persons that unlimited amounts of intent and temptation, from favors and simple bribery thru murder of "loved ones", will be bent on capturing their actions.
A current corollary is known as "regulatory capture".
The Euro-concept, as currently administered, is a dream-come-true of those who specialize in "regulatory capture". It is a magnet for homo sharkus. It is no unfortunate coincidence.
You could say the same thing about the FED and fifty years of "exorbitant privilege" exercised by king dollar's "naked" run since 1971; by private sector banking (PDs eurodollars creation ) who also own the FED...and are at the source of the current world-wide ponzi. Don't blame this Euro crisis ONLY on the local governments, like the Greek shills who are criminals. The Euro sovereign debt is a private banking sector crisis more than a central banking crisis. Although the Euro construct in its current form, with no fiscal discipline, is fundamentally flawed, as is the desire to reconcile two different economic models within the EU who use the same money (Hi-tech Germany etc. and lo-tech club Med) but have different modus operendi.
The day the USD loses it "reserve" status we will see the same speculative plays against it.
There's nothing so overrated as your first fuck and nothing so underrated as a plain good shit.
With that in mind and knowing that many might have gone blind from ancillary activities whilst sitting upon the commode, I'd suggest pooping in peace and sleeping well by just owning Gold and Silver at times like this.
Oh, and dollars ... vis., the bonds and associated financial instruments one might still hold, considering that pork chops where I live are still denominated in GreenBenSchlocknicks.
Not in my experience. The first time, I can still remember it to this day. And it was everything I ever thought it would be and more. Became a very enjoyable habit after that.
As someone once said : "this thing is a magnificent obessession, we all have a magical number, that we don't know as we grow. If we go into over-drive early on we run out of bullets later on. If we stay hunkered in too long, we could end up dead without having used all our magical bullets."
Go figure it out why we don't what that magic number is from day one!
Oh....but if that first fuck was with a girl of moderate experience....her name was Josie....
Should have kept her :) But onwards goes the pointer.
Ha, that'll learn ya fer tradin' with an Aussie Bruce!!
It seems to me that the European story is basically a northern Hard Bloc vs. a club med Soft Zone. The Soft Zone is going down for sure. If the Hard Bloc continues bailing out the Soft Zone, eventually they all go down together, but the citizens of the Hard Bloc see the writing on the wall and their resistance is putting up insurmountable political obstacles to continued bailouts.
Like any couple breaking up due to irreconcilable differences, the ultimate question becomes who gets to keep the house. If the Soft Zone countries go back to their legacy currencies, the technical aspects of introducing a currency that no one wants strike me as absolutely horrendous. I mean, who in their right mind would want to buy drachma bonds when it's obvious that the Greek central bank is going to be printing like crazy. It's not hard to imagine Greece beccoming the new Zimbabwe. On the other hand, if Germany were to pull out and bring back the D-mark, it would be doing so from a position of strength -- no investor would object to having his Euros converted to Marks.
There is going to be a weekend soon when the finance ministers sit around a table and come to the conclusion that they are screwed, that they have presided over the most stupendous financial debacle of all time. And when that day comes, I think the Soft Zone members will politely ask the Hard Bloc members to give them the house as a gesture of good will. No need to convert bank deposits, no need to print new funny money, no need to make any changes to outstanding debt -- the ECB can just start printing and the Euro becomes the successor to the Lira. And the Germans will welcome back their beloved Deutschmark, the Bundesbank will once again be an arbiter of sound monetary policy, and Germany will deal with the complications of a hard money just like it has in the past.
I also believe that if the Euro forms into a North zone (who cares about the south), then there will first come a day when France becomes Italy and then another day when the entire Euro zone has the exact same troubles as the US. In a way, having strong and weak Euro partners masks the lack of value creation in Europe by collecing money from the weak countries and depositing it in the strong.
Great divorce analogy. EUR is a good short against USD, imho. Win both legs on that. Longer term, EUR is toast and I'm out before that. Welcome back DM, Drachma, Lira....
Grab yer popcorn, this will be quite a show. I can only hope for no war. Hope is a four letter word, ya know.....
Oh, and grab yer gold while you still can.
You could always puke and go deaf by giving up on the pair trades mentioned, and not listening to the ambiguous bulloney; trade pairs outside the fire.
Bruce, not so easy to walk away or even get kicked out of the euro.
the periphery woudl be left with Euro debt and a devalued local currency which would still end in a shit storm for Euro banks.
The only solution is a fiscal union to go with monetary and thats a stretch too. I am not sure of the legal behind it, but I am sure it woud require votes locally to get further into bed with each other.
With that said, something is afoot as Germany is really drawing a hard line against Greece from the w/e reports.
A 1.50 Core Euro would kill German exports and their economy, so back to the DM days which they wanted to get rid of via the Euro. made them competitve in Europe and all of a sudden everyone could by German engineering.
I wouldnt be surprised to see a devalaution of EUR to help with German exports and thus a ride to 1.20, while USD rallies in the near term as well as treasuries for safe haven depth and liquidity.
on a very short term basis, the Euro is oversold and due for a rally, but the trend is your friend and the trend is down.
do both! shit and go blind. it is growth verses protection.
growth has occurred at the cost of future indebtedness
speculated to be of integrity, fraud, in an infinitely expanding
and unlimited environment. ooh that hurts. so protection,
preservation, of value will be the repository. this is it.
it is not like it is a secret. the markets are, have been screaming
it, preservation !, growth has been cancerous ! fucking face it.
till the the scam of fraud has been erased and cleared growth and
investment in growth is dead, period. what does that mean?
precious metals is what that means; and wildly as 5% of investment
worldwide means exponential pm price evaluation.
i say, shit and go fucking blind for now !!!!!!!!
the race to the bottom is elevating exactly what?
hmmmm?
I think that long USD is, for now, the way to go. Long term is a different story. But right now the trend is definitely up for the USD. E/U @1.35 seems like a critical support...but I don't see it holding and when it goes, I'd expect a hard drop to 1.30 range.
As far as holding any open position over a weekend...no thanks. I like to try to enjoy my weekend.
If anything spooks the Euro shorts...look out cause that trade is about as one-sided as they get. Just sayin :-)
They will get spooked, the question is when? I don't really have to worry too much because my skin in this game ends on Friday. September calls on UUP that cost next to nothing two weeks ago and are just now in the money. I'm still working on the theory that the dollar rises hard to about 80, then turns around loses all it gained. At 80 or whenever the euro shorts get spooked there will be a stampede. But what do I know, I got the idea because I saw the chart in a dream and said "why not?".