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Trading The "Normal State"

  • #21
  • Oct 7, 2007 9:27am Oct 7, 2007 9:27am
Quoting NewstraderFX
Have a look
That tie is pretty well known; it just depends on the level of hot money available from Japan. China floats it's ccy (which would allow JPY to strengthen), or Japan raises rates, or any number of similar factors, that up trend will just go poof....
  • #22
  • Oct 7, 2007 9:55am Oct 7, 2007 9:55am
Quoting HalifaxCB
That tie is pretty well known; it just depends on the level of hot money available from Japan. China floats it's ccy (which would allow JPY to strengthen), or Japan raises rates, or any number of similar factors, that up trend will just go poof....
China likely will not float it's currency for a long time-and even if Japan ever gets to .75, that won't stop the carry trade anyway.

Besides, the Dems are jumping on this float thing as a campaign issue. It's nonsense. Global inflation would go thru the roof if that happened.

And if you're of the "China is taking our jobs theory"-point me towards the numbers that say jobs have decreased since China got into the global economy.
  • #23
  • Oct 7, 2007 11:04am Oct 7, 2007 11:04am
Quoting NewstraderFX
China likely will not float it's currency for a long time-and even if Japan ever gets to .75, that won't stop the carry trade anyway.
Well, here one should look at individual carrys. For example, the S&P/Dow could easily become less desirable ifthe CDO issue surfaces again - and given that a large number are held as supposedly cash reserves for businesses not normally involved in trading, it could easily do so. The WSJ recently had an article on Smucker's (for example) that was getting hurt by having placed a significant portion of their operating float into CDO's; how widespread the problem is is unknown. The ECB is pouring liquidity into the market to hide the problem, when will that come home to roost (and show up in Eur/Jpy); meanwhile housing in Britain is on the ropes...Like Lt. Hearn in Mailer's "The Naked & the Dead" I'm not in the business of predicting history, I just think these are potential problems anyone looking to benefit from the carry trade should bear in mind.

As for China, what will happen if the USD falls another 20 or 30% against oil? China buys a lot, and requires lots of other commodity imports. Right now they can cope with the fall of the USD - and in fact it helps with their opening markets in Europe & Japan, but who knows how long the pain of import inflation is going to be offset by increasing exports? Bloombergs also brought up an interesting point re USD interest rates fueling the Shanghai mkt; how long will China allow that to continue via the dirty float? I just don't know. A couple of years ago China went from a peg to a dirty float - and while it was expected, it was still a surprise to the markets...

Quote
Besides, the Dems are jumping on this float thing as a campaign issue. It's nonsense. Global inflation would go thru the roof if that happened.

And if you're of the "China is taking our jobs theory"-point me towards the numbers that say jobs have decreased since China got into the global economy.

I would expect US protectionism to continue to heat up over the election period - not because the practice is right or wrong, but because people always prefer to lay the blame for their problems on others, and successful politicians by definition are adept at exploiting human weakness. Smoot-Hartley was helpful in turning what should have been a significant recession into a worldwide depression 70 years ago; I don't think politicians have learned much in the intervening decades.

FWIW, I don't think China is 'taking' anything; but I do think the US is throwing away a lot, with its addiction to debt and excess consumerism. Perhaps people should ask themselves why US personal debt continues to grow, why so many people have to hold multiple jobs, and why so many families can no longer afford to have one parent staying at home, whenever they think the jobs numbers indicate a healthy economy. It's also useful to look at exactly which sectors are providing the job growth - currently food services, health care, and local gov'ts. I don't think that's particularly healthy....
  • #24
  • Oct 7, 2007 2:45pm Oct 7, 2007 2:45pm
Quoting HalifaxCB
Well, here one should look at individual carrys. For example, the S&P/Dow could easily become less desirable ifthe CDO issue surfaces again - and given that a large number are held as supposedly cash reserves for businesses not normally involved in trading, it could easily do so. The WSJ recently had an article on Smucker's (for example) that was getting hurt by having placed a significant portion of their operating float into CDO's; how widespread the problem is is unknown. The ECB is pouring liquidity into the market to hide the problem, when will that come home to roost (and show up in Eur/Jpy); meanwhile housing in Britain is on the ropes...Like Lt. Hearn in Mailer's "The Naked & the Dead" I'm not in the business of predicting history, I just think these are potential problems anyone looking to benefit from the carry trade should bear in mind.

As for China, what will happen if the USD falls another 20 or 30% against oil? China buys a lot, and requires lots of other commodity imports. Right now they can cope with the fall of the USD - and in fact it helps with their opening markets in Europe & Japan, but who knows how long the pain of import inflation is going to be offset by increasing exports? Bloombergs also brought up an interesting point re USD interest rates fueling the Shanghai mkt; how long will China allow that to continue via the dirty float? I just don't know. A couple of years ago China went from a peg to a dirty float - and while it was expected, it was still a surprise to the markets...



I would expect US protectionism to continue to heat up over the election period - not because the practice is right or wrong, but because people always prefer to lay the blame for their problems on others, and successful politicians by definition are adept at exploiting human weakness. Smoot-Hartley was helpful in turning what should have been a significant recession into a worldwide depression 70 years ago; I don't think politicians have learned much in the intervening decades.

FWIW, I don't think China is 'taking' anything; but I do think the US is throwing away a lot, with its addiction to debt and excess consumerism. Perhaps people should ask themselves why US personal debt continues to grow, why so many people have to hold multiple jobs, and why so many families can no longer afford to have one parent staying at home, whenever they think the jobs numbers indicate a healthy economy. It's also useful to look at exactly which sectors are providing the job growth - currently food services, health care, and local gov'ts. I don't think that's particularly healthy....
You have some very good ideas there-and there's nothing more that I would like to see then a good discussion regarding these issues. As far as the CDO issue affecting equity markets in the future-let's take a look at what happened this past week. Citibank took write-downs because of this issue and what happened-the stock actually rose. The reason is two-fold:

1. The market was expecting to see the write-downs and is happy the banks are getting this out of the way now

2. Citi indicated the worst of the situation was behind them

So what that means, if history repeats itself, is that the market expects to see further losses related to these problems and doesn't figure to take a big hit from information like this. They actually could rise. Sub prime losses are old news and the world isn't ending from the sub prime issues.

I don't see that the ECB is trying to "hide" anything-the problems are well known. What is interesting is that British banks are borrowing Euro's here and those loans can be hidden. That's why no British banks-except for Northern Rock-has borrowed for the BoE. What's also interesting is that EUR/GPY fel. No big surprise there as Euro depreciation vs Sterling makes those loans less expensive.

Oil gets more expensive as the dollar depreciates because oil sales are all denominated in dollars. Oil gets cheaper if your currency is appreciating vs the Dollar.

And the reason why the Shang Hai (and other EM's) are having a rapid appreciation is because for the most part-their currencies are pegged to the dollar. Therefore, the fed's rate reduction is a de facto reduction for these already overheated markets. That could get dangerous for them in the future because inflation is likely to be stoked.

Still, I would imagine that estimating what level of growth in China is likely to inflate an unsustainable bubble would be very difficult to model. For example, it's been estimated that China needs to create about 20 million jobs a year.

While i'm not a big fan of the current crop of US politicians-it's well established that free trade has been a huge boon. I tend to doubt that anything will change in that area whether a Democrat or Reblican becomes President.
  • #25
  • Oct 7, 2007 3:52pm Oct 7, 2007 3:52pm
Quoting NewstraderFX
Obviously if something is "normal" it's probably in that state for the large majority of the time and if you look at the US economy over a long period, it's obvioulsy true.

So what i'm suggesting is to take some lots on GBP/JPY and leave them there no matter what happens for a very long time. Years. Don't even sell on the corrections, just buy more and hold that too. It's workied very well before.



Reading all of this reminds me of "fooled by randomness", curve fitting backtests and the last bit smells to be of death, peril and burnt flesh. Or accounts. Either works.

It reads a bit akin to saying "I know the future", if one wanted to be mean(simply because there's been a pattern x in the past does not imply it's limitless continuation into the future, this includes the sunrise etc pp. See also "the idea of necessary connection" at Hume and similiar/related ;p).

Also:

Quote
you're gonna thank me in 10 years or so, because you are going to be much richer at that time then you are now.

what i'm suggesting is to take some lots on GBP/JPY and leave them there no matter what happens for a very long time
If poster hadn't said "NewstraderFX" I could have sworn this was straight from a 5 post, freshly started "holy grail" forex trading discussion thread.

No offense. But, really.
Trust price. Know yourself.
  • #26
  • Oct 7, 2007 3:54pm Oct 7, 2007 3:54pm
Quoting NewstraderFX
if history repeats itself...

.. could rise....

...likely...
Not something I'd personally put money on. The timetable/size for it is just too big. This is years we're talking. Not my timeframe at all(=> contingency).

Interesting thoughts and musings, nonetheless.
Trust price. Know yourself.
  • #27
  • Edited 6:14pm Oct 7, 2007 6:02pm | Edited 6:14pm
Lol-down thru history, all the great thinkers have had their ideas met with resistance.

Obviously, there's no way to settle this now one way or the other so we'll just have to wait a few years.

But since you've taken a few quotes-i'll modify them-

Every economic downturn has been a buying oppurtunity.
Recessions have gotten less frequent and are shorter lived.
When the DOW and S&P go up-the JPY crosses go up.
You're making one simple bet here-you're betting that the world is not going into a very prolonged depression. Unless that happens-you can't lose.
  • #28
  • Edited 6:35pm Oct 7, 2007 6:21pm | Edited 6:35pm
Where have I seen this before??

Yen Falls as Gains in Stocks Spurs Confidence in Carry Trades

By Ron Harui and David McIntyre
http://bloomberg.com/apps/data?pid=a...d=ih0RnpvYAwgY
http://images.bloomberg.com/r06/news...ge_details.gif

Oct. 8 (Bloomberg) -- The yen fell to the lowest in two months against the euro as gains in global stocks gave traders confidence to increase holdings of higher-yielding assets funded with money borrowed in Japan.

The yen slid versus 15 of the 17 most-active currencies as investors increased so-called carry trades on bets Asian equities will follow U.S. stocks higher. It fell most against the New Zealand and Australian dollars after the Standard & Poor's 500 Index rose to a record last week as U.S. employment growth eased concern the world's largest economy will slip into recession.

SYDNEY (Thomson Financial) - The US dollar was trading higher against the yen but weaker against the euro in midmorning trade Monday as investors' risk appetite increased in response to positive economic data released in the US on Friday.

US non-farm payrolls for September rose 110,000 and the unemployment rate increased 0.1 percentage point to 4.7 percent, both in line with market expectations, extinguishing fears the world's biggest economy was sliding into recession.

'The easing in US recession fears saw a large jump in our risk-appetite index which climbed to 75.8 percent from 70.7 percent. This supported high-yielding currencies like the Australian dollar and weighed on the Japanese yen and Swiss franc,' National Australia Bank head of currency strategy John Kyriakopoulos said.

Do you get the implications of this? The dollar depreciates vs the high yielders and appreciates vs the Yen when equities are bought and vice versa. That means when equites move-you know exactly how currency price will change.

I can wait for DAYS until the right info tells me how equities will move. I NEVER trade on any technical indicators because they are all nonsense. If there was a technical indicator that really worked EVERYONE would trade with it.

But I can tell you with absolute certainty that a good move in equities will move currency price in specific directions. Can't fail-works every time.
  • #29
  • Oct 7, 2007 7:03pm Oct 7, 2007 7:03pm
Quoting SeekingLight
Not something I'd personally put money on. The timetable/size for it is just too big. This is years we're talking. Not my timeframe at all(=> contingency).

Interesting thoughts and musings, nonetheless.
to begin a historical position, just start with a small winning one,
start keeping few winning position with positive stop loss, and ignore it. keep doing it until one of them succesfully break a dip

actually it is fun to do, makes my hand itch like crazy
  • #30
  • Oct 7, 2007 8:09pm Oct 7, 2007 8:09pm
Quoting HalifaxCB
Well, here one should look at individual carrys. For example, the S&P/Dow could easily become less desirable ifthe CDO issue surfaces again - and given that a large number are held as supposedly cash reserves for businesses not normally involved in trading, it could easily do so.
We heard Merrill Lynch announced credit and mortgage woes will lead it to post a third-quarter loss, as it takes $5.5 billion in writedown in the wake of a credit crunch that paralyzed Wall Street this summer....Perhaps it's not such a big deal?

In addition, in Japan, now ruling party members also seem to intend to do away with preferential measures for tax levies on capital gains(and stock dividend) through stock dealings and intend to increase tax concerning stocks from 10% to 20% as if they promote shifts from investments to savings again. Currently, tax on bank deposit interest is 20% (Forex gains are included in progressive income tax, top tax rate is 50%). I'm worried that they give investors and rich persons a cold reception, the rich are quick at running away...
Peace and Happiness through Prosperity (by Konosuke Matsushita)
  • #31
  • Oct 8, 2007 1:23am Oct 8, 2007 1:23am
Quoting NewstraderFX
Lol-down thru history, all the great thinkers have had their ideas met with resistance.

Obviously, there's no way to settle this now one way or the other so we'll just have to wait a few years.
I don't want to be right or wrong on this so there's nothing to "settle".

I merely meant to say it's not something I view as favorable over what we're all here to do - trade actively. If it were I would have just bought a lot of ETFs (exchange traded funds - index trackers) or a similiar item with a small or no lever and placed all my funds in that, sat back and prayed - and then spent all of the 2-4 weeks of the mini-crash biting my nails and then cheering on the way up, like any know-the-markets-only-from-newspaper-reading-John-Doe fella out there.

As it is I instead actively traded during the meltdown and then on the way back up.

I am merely saying it's not my investment or risk profile...and therefore does not suit my beliefs or outlook / time horizon / whatever you wish to call it.

Quote
Every economic downturn has been a buying oppurtunity.
My counter-points remain valid no matter which the phrasing for me(contingency / causality / profile).

Quote
Recessions have gotten less frequent and are shorter lived.

When the DOW and S&P go up-the JPY crosses go up.
So why not buy stocks, stock based funds, index trackers..dividends will pay the equivalent to "interest" e.g.
Where is this anything new compared to the guy that said buy stocks,cash in 80 years later? Can't remember who it was, one of the big names anyhow.

Quote
You're making one simple bet here-you're betting that the world is not going into a very prolonged depression. Unless that happens-you can't lose.
Well either that, but that's for the stock markets really, or that there won't be a decorrelation, a "running off" in the Yuan and JPY therefore in turn and that the yield curve stays intact, and so on, and so forth.

Not my thing.
Trust price. Know yourself.
  • #32
  • Edited 11:40am Oct 8, 2007 8:54am | Edited 11:40am
You have seemed to put this in a mutually exclusive category-as if this might be the only strategy employed. It isn't meant to be an argument over whether to trade long or short term-it's an investment strategy-one investment strategy.

You could trade stocks, indexes etc but this is a forex forum so I didn't go into strategies there.

So let's look at a current strategy for trading this. As of now, the chance of recession has lessened although by no means has it completely diminished. We're going into 3rd quarter profit season and this quarter is the one that suffered thru the worst of the liquidity crisis. Alcoa is the first large corp that will report (Tues, after the market closes).

There was a very useful article on Bloomberg today:
U.S. Stock Market Stumble Presaged by S&P 500 Options
http://bloomberg.com/apps/news?pid=2...DPU&refer=home

Obviously a lot of positions have been taken as insurance against a loss in the indexes and that means that anxiety is still high. So if those profits really come in below expectations, you have to be ready to close out your trade here because recession is once again threatened.

And if they do surprise to the upside (entirely possible) you just stay in.

As far as a shorter term strategy is concerned, if recession is threatened the indexes will fall. In that case-this is exactly what will happen to currencies:

GBP, EUR, AUD, NZD/JPY will all fall.
The Dollar will appreciate against the above high yielders and depreciate vs the Yen.

Of course, if earnings surprise to the upside equity markets will likely finish out the year very well. The above JPY crosses will appreciate right along with them as the Dollar weakens vs the high yielders and gains on the Yen.

The questions are definately out there-and a lot of potential profits too.
  • #33
  • Oct 8, 2007 10:17pm Oct 8, 2007 10:17pm
Quote
Of course, if earnings surprise to the upside equity markets will likely finish out the year very well. The above JPY crosses will appreciate right along with them as the Dollar weakens vs the high yielders and gains on the Yen.

Well that basically sums it up, I don't know what you guys are arguing about for so long. The stock market lures foreign investment and changes the demand for certain currencies verses others. Pairs that are dominated by (or basically derived from) the dollar pairs will be influenced by the US stocks. No mystery there.

The mystery is in how someone can bet on a currency pair for months at a time, using leverage of credit, and pretend that he's going to make it out alive. Forex should never be traded ultra-short-term or uber-long-term. Forex should be traded sane-term, if you want to make full use of the benefits you have been provided with.
Virtue finds and chooses the mean. Aristotle, Ethica Nichomachea
  • #34
  • Oct 9, 2007 8:19am Oct 9, 2007 8:19am
The top economist at the NBER and the arbiter of recession says that the normal state of the economy is expansion. He presented at the Jackson Hole meeting and said that the fed needed to cut by an immediate 50 and that's what they did.

The GBP/JPY and other JPY crosses are attached to the economy via the equity markets, who's normal state is expansion. That means that you stay in GBP/JPY (and the other pairs too) because their normal state is expansion.

You get out of those trades when extreme economic conditions exist-like during the August liquidity squeeze. You get back in as the crisis passes. This time around, certainly 234 was a buy.

Since then, it reached a high of 239.17. It's now at 237.83. You might look at this and think u just lost 134 pips-but you haven't! You're still at a profit and you're still getting paid the interest everyday. The profit is the gravy. You're getting an 80% rate of interest!

Your making like 80% interest for the year on GBP/JPY.
  • #35
  • Oct 9, 2007 8:23am Oct 9, 2007 8:23am
Quoting NewstraderFX
The top economist at the arbiter of recession says that the normal state of the economy is expansion. He presented at the jackson Hole meeting and said that the fed needed to cut by an immediate 50 and that's what they did.

The GBP/JPY and other JPY crosses are attached to the economy via the equity markets, who's normal state is expansion. That means that you stay in GBP/JPY (and the other pairs too) because their normal state is expansion.

You get out of those trades when extreme economic conditions exist-like during the August liquidity squeeze. You get back in as the crisis passes.

Your making like 80% interest for the year on GBP/JPY.
Interesting. How many years have you been long the GBPJPY now? I know you're a news trader (or reporter) but could you show some math on how you arrived at 80% interest for the year?
  • #36
  • Oct 9, 2007 8:54am Oct 9, 2007 8:54am
Check with your broker and see what they pay per lot per day on the swap when you're long GBP/JPY
  • #37
  • Oct 9, 2007 8:56am Oct 9, 2007 8:56am
The mystery is in how someone can bet on a currency pair for months at a time, using leverage of credit, and pretend that he's going to make it out alive. Forex should never be traded ultra-short-term or uber-long-term. Forex should be traded sane-term, if you want to make full use of the benefits you have been provided with.

Show me the study that says you will only lose if you trade in an uber long term.
  • #38
  • Oct 9, 2007 9:52am Oct 9, 2007 9:52am
Quoting philmcgrew
That's your explanation? CO2 levels rose during the same time. Why don't we tie the rise in GBPJPY to that?

Care to throw up some 1999-2004 graphs?
lol. i had to laugh @ this one.
100% of traders are losers. Just that some win more than they lose!
  • #39
  • Oct 9, 2007 9:54am Oct 9, 2007 9:54am
The dollar should become a funding currency instead of a yielding one. That means that dollar should fall against high yielders?? no?
100% of traders are losers. Just that some win more than they lose!
  • #40
  • Oct 9, 2007 11:00am Oct 9, 2007 11:00am
Quoting NewstraderFX
Check with your broker and see what they pay per lot per day on the swap when you're long GBP/JPY
Let's assume it is 2 pips or you can insert a number if you have a better one. Now show me how I can make 80% so far this year.

I still didn't catch your answer on how many years you've been long GBPJPY. After all, we live in an expansionist nation right?
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