$5k to infinite

Good morning!

Review

What a ride! A return to the fundamentals? Good news for the US on Friday and the Dollar got bought like if there will be a 100bps rate hike tomorrow. Too pity my huge longs got stopped out before they reached my target at around 1.48. But that's traders' life, eh?


Analysis

A trend change? Not for me. The (next) support at 1.4625 did hold and now we will see if there is a sustained move into the Dollar. I don't believe that. The reasons are simple again: Don't fight against the printing press of the FED. So I used that huge dip to buy new longs. We all know that this good US news are fueled by this huge monetary program and we all know that huge expenses lead to more debts. And we all know that the US can't pay this back at the current rate, so again, either they hike their rates to double digit values or they let the Dollar devalue. It's a somewhat sure one way bet.


Plan

Hold on the current longs but watch the support at 1.4625 closely. A close below 1.46 would open some technical down potential.


Open trades

http://www.xaron.net/dl/fx/2009/aud/...ons_141209.png


Prices

AUD/USD 0.9100
EUR/GBP 0.9020
EUR/USD 1.4650
GBP/USD 1.6250
USD/CAD 1.0640
USD/CHF 1.0320
USD/JPY 88.50
USD/NOK 5.6300
Gold 1120
Silver 17.20
Oil 72.00
Dax 5800
Dow Jones 10530


Account Summary

Starting date: 03-Nov-09
Starting Balance: $5,000

http://www.xaron.net/dl/fx/2009/aud/account_141209.png

HI Xaron,

For what it's worth, I am long until a solid daily close below 4480. Below there, we must seriously evaluate trend change. While I don't see a new high above 5150 before year's end (but I hope so!), we could easily range between 4550 and 1.5000 for a while. Still a lot of money to be made in that range! Good luck with your trades!

Thanks and I agree. Calling for 1.52 (my target for this year) is actually not that realistic anymore. I think some very bad stuff has been priced in and many traders seem to expect a rate hike by the FED (which is partially priced in as well) which is of course a no go. A raising Dollar is of no interest for the US.

My(!) long term targets:

Q1 2010: ~1.60-1.65
Q2 2010: down to about 1.45 (max. 1.40)
Q3-Q4: stabilization above 1.55.

I don't see this pair drop below 1.40 anymore in the next 1-2 years.

Hello Xaron,

I am following your trading for a long time now, on myfxbook, I have read quite all the posts on your thread "10k to 1 M" and your previous account on myfxbook also. Overall great performances. But I have some thoughts to share

I consider your greatest losses have occured because of a sort of dogmatic ideas. You are so convinced that the US Dollar is going down! It is maybe true! But the problem is when will that happen? The overleverage you are talking about is just the fruit of that strong opinion you have. You keep adding and adding positions till find yourself overleveraged. Don't you think so, Xaron? Personally I don't consider that taking an important leverage is automatically leading to bankruptcy. I personally use a certain leverage without any trouble. My SL is my biggest shelter! But I don't have any idea of where the USD is going. And I don't care if tomorrow the EURUSD is at 1.45 or 1.49. That is the advantage of short-term trading, I think.

Please don't take offense of what I am saying. It is just an opinion!

Ah got it...

Something to think about:

A Run on the Dollar Starts Soon
By Porter Stansberry
Saturday, November 28, 2009

It's one of those numbers that's so unbelievable you have to actually think about it for a while...

Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion.

Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That's an amount equal to nearly 30% of our entire GDP. And we're the world's biggest economy. Where will the money come from?

How did we end up with so much short-term debt? Like most entities that have far too much debt – whether subprime borrowers, GM, Fannie, or GE – the U.S. Treasury has tried to minimize its interest burden by borrowing for short durations and then "rolling over" the loans when they come due. As they say on Wall Street, "a rolling debt collects no moss."

What they mean is, as long as you can extend the debt, you have no problem. Unfortunately, that leads folks to take on ever greater amounts of debt... at ever shorter durations... at ever lower interest rates. Sooner or later, the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that's when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over. Bankruptcy is next.

When governments go bankrupt, it's called a "default." Currency speculators figured out how to accurately predict when a country would default. Two well-known economists – Alan Greenspan and Pablo Guidotti – published the secret formula in a 1999 academic paper. The formula is called the Greenspan-Guidotti rule.

The rule states: To avoid a default, countries should maintain hard currency reserves equal to at least 100% of their short-term foreign debt maturities. The world's largest money-management firm, PIMCO, explains the rule this way: "The minimum benchmark of reserves equal to at least 100% of short-term external debt is known as the Greenspan-Guidotti rule. Greenspan-Guidotti is perhaps the single concept of reserve adequacy that has the most adherents and empirical support."

The principle behind the rule is simple. If you can't pay off all of your foreign debts in the next 12 months, you're a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.

So how does America rank on the Greenspan-Guidotti scale? It's a guaranteed default.

The U.S. holds gold, oil, and foreign currency in reserve. It has 8,133.5 metric tonnes of gold (it is the world's largest holder). At current dollar values, it's worth around $300 billion. The U.S. strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that's roughly $58 billion worth of oil. And according to the IMF, the U.S. has $136 billion in foreign currency reserves. So altogether... that's around $500 billion of reserves. Our short-term foreign debts are far bigger.

According to the U.S. Treasury, $2 trillion worth of debt will mature in the next 12 months. So looking only at short-term debt, we know the Treasury will have to finance at least $2 trillion worth of maturing debt in the next 12 months. That might not cause a crisis if we were still funding our national debt internally. But since 1985, we've been a net debtor to the world. Today, foreigners own 44% of all our debts, which means we owe foreign creditors at least $880 billion in the next 12 months – an amount far larger than our reserves.

Keep in mind, this only covers our existing debts. The Office of Management and Budget is predicting a $1.5 trillion budget deficit over the next year. That puts our total funding requirements on the order of $3.5 trillion over the next 12 months.

So... where will the money come from? Total domestic savings in the U.S. are only around $600 billion annually. Even if we all put every penny of our savings into U.S. Treasury debt, we're still going to come up nearly $3 trillion short. That's an annual funding requirement equal to roughly 40% of GDP.

Where is the money going to come from? From our foreign creditors? Not according to Greenspan-Guidotti. And not according to the Indian or Russian central banks, which have stopped buying Treasury bills and begun to buy enormous amounts of gold. The Indians bought 200 metric tonnes this month. Sources in Russia say the central bank there will double its gold reserves.

So where will the money come from? The printing press. The Federal Reserve has already monetized nearly $2 trillion worth of Treasury debt and mortgage debt. This weakens the value of the dollar and devalues our existing Treasury bonds. Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the value diminish slowly, or try to escape to gold and see the value of their U.S. bonds plummet.

One thing they're not going to do is buy more of our debt. Which central banks will abandon the dollar next? Brazil, Korea, and Chile. These are the three largest central banks that own the least amount of gold. None owns even 1% of its total reserves in gold.

All of this is going to lead to a severe devaluation of the U.S. dollar... Which I expect to happen within 18 months. I examined these issues in much greater detail in the most recent issue of my newsletter, Porter Stansberry's Investment Advisory, which was published last week. Coincidentally, America's paper of record – the New York Times – repeated our warnings (nearly word for word) last weekend. Word is getting out.

If you haven't taken steps to protect yourself from the coming devaluation – like owning gold and silver bullion, foreign real estate, and farmland – make sure you do it soon. The dollar rout is coming.

Good investing,

Porter Stansberry

I just take out that part because I often hear that the EU has much larger debts problems like the US. I agree that the EU has large debts problems but those debts are mostly domestic debts. That makes a big difference!

Hi Aaron....Still following your thread, and in wonder sometimes why you hang yourself out to dry.......Allowing those that will to throw darts or whatever at you as they might..........YOU'RE JUST A SPECIAL PERSON that wants to share his successes and failures with others so that we may all learn....................Remember Arron, Opinions are like assholes......everyone of us has one!!!!!!!!...........Keep up the good work and contined growing, both in knowledge and in wealth..........Howkra

US debts are in "domestic" currency (dollar), which makes it "domestic debts" too .

No and yes. The thing is that the US just can (and will continue to) print money until they have no debts anymore.

This is a win-win situation for the US. Weaker Dollar helps the exports and lower the debts. Only the foreign debts holders... well... might be a reason why they buy every dip in Gold and other currencies they can get.

Hi Xaron

So in this last drawdown, you are only up 20+ per cent since the account's inception 6 week's ago? And the first account finished up a mere 100+ per cent in less than a year?

All of our drawdown's should be so devastating.

Have a great holiday!

All the best
Bill

Good morning!

Review

The last 2 weeks were rather difficult for Dollar bears like me. To be honest I did not expect such a deep dip. But as usual Mr.Market is always right and will show you the way to go.
The better than expected US news lead to the assumption that the FED might be forced to hike their rate sooner than expected and more aggressivly than expected.
Due to that the Euro dropped hard 600 pips from its highs at 1.5130.


Analysis

Today is the most important day of the week and I am rather sure that it will be the turning point. The FED will tell us their rate decision and further outlook. And that might become a shock for the Dollar bulls. I said it once and repeat it here: The US does not want a strong Dollar due to the following simple reasons:

1. A weaker Dollar helps the US economy and their exports.
2. There is no way to pay back the debts ever so the only way is further slow(!) devaluation.

Look, the US has to refinance $2,000,000,000,000 within the next 12 months. Can you even imagine how much money that is? If you want to see how much one trillion looks like take a look: What does one trillion dollars look like

Man this reminds me on Mr.Burns and his one trillion dollar bill.

How do you think the US will refinance that huge amount of cash? Will there be enough foreign buyers for treasuries? So what other options are there? ... Yes! Just print the money and let the FED buy more treasuries!

So I think we might see a huge 200-300 pips upmove during the FOMC statement today as currently some kind of rate hikes are priced in. I say this will not happen anytime soon.

Then there is the Norge Bank with their rate decision today and I guess we could see a rate hike here even though it is not expected. The NOK is one of my favourite currencies out there and did bleed the last days as well.

So the FED will not hike before the ECB which will probably start the rate hike circle in march 2010 up to 1.25 percent end will continue till the rate is 2.00 at the end of 2010. That is rather sure as the ECB sticks to its stability goals.

Another more funny aspect is the similarity to December 07. That time the Euro dropped 650 pips from its high and started rallying from there into the next year. Those 650 pips drop would be now at 1.4480 (the high was at 1.5130) which is a strong support as well. Of course that does not mean anything...


Plan

Watch the support at 1.4480. I am very confident that this will hold and we have seen the lows but who knows what Heli-Ben likes to talk about? A daily close(!) below would technically invalidate the current up trend.


Open trades

http://www.xaron.net/dl/fx/2009/aud/...ons_161209.png


Prices

AUD/USD 0.8970
EUR/GBP 0.8940
EUR/USD 1.4530
GBP/USD 1.6260
USD/CAD 1.0610
USD/CHF 1.0410
USD/JPY 89.60
USD/NOK 5.8000
Gold 1125
Silver 17.40
Oil 72.80
Dax 5830
Dow Jones 10480


Account Summary

Starting date: 03-Nov-09
Starting Balance: $5,000

http://www.xaron.net/dl/fx/2009/aud/account_161209.png

So what does it mean when you said "daily close below would technically invalidate the current up trend?" I know you dont' use a technical stop, but do you have a "fundamental stop?" What i'm trying to understand is when do you part with your analysis and go the other way?

great analysis by the way! you seem to have good grips on econ

http://www.asianinvestor.net

Krugman got it wrong in September, says Faber
By Joseph Marsh | 8 December 2009

US Federal Reserve officials also seem to miss the fact that excessive credit growth and leverage have driven monetary and economic instability, says Marc Faber.

"Recently Paul Krugman wrote a 6,000-word article in the New York Times with the title 'How did economists get it so wrong?'. The title should have been 'How did I, Paul Krugman, get it so wrong?'." So says famed bear Marc Faber, also known as Dr Doom, at AsianInvestor's recent Southeast Asian Institutional Investor Forum in Bangkok last week.

The point Faber was making about the article published on September 9 by Nobel Prize-winning economist Krugman was that there "was not a single sentence about excessive credit growth or excessive leverage leading to monetary and economic instability".

Faber levels a similar accusation against the current chairman of the US Federal Reserve. "Ben Bernanke is a great expert on the Great Depression in 1929-1932," says Faber, "but he was not paying attention to the years of excessive credit growth leading up to it in the 1920s."

Whereas in 1929, global credit represented 186% of the global economy, he adds, that figure now stands at 375%. And that 375% does not even account for future liabilities that will arise from Medicare, Medicaid and Social Security, which are estimated in the US at between $59 and $110 trillion. "If those are included," says Faber, "we would have a total credit to GDP [ratio] of around 600%."

With this level of debt, the US can forget about tightening monetary policy and will go on printing money, with obvious implications for asset markets -- a point similar to the one Faber made at AsianInvestor's Korea Investment Forum in mid-2009.

"It's important to understand the philosophy of the Federal Reserve, which has structured its monetary policy around core inflation," Faber dryly notes. "That excludes energy and food, so as far as I'm concerned that doesn't apply to you [everyone in the audience], because you all eat, and you all fly and use air conditioners."

Making reference to how US expansionary monetary policies, with "artificially low interest rates", have created "the credit bubble, the housing boom, the refinancing boom and the other problems we have today", Faber argues that such policies have been highly destabilising for economic growth and for asset markets.

One of the examples he cites is that of commodity prices: "Had the Fed not slashed interest rates so dramatically after September 2007, we wouldn't have had the CRB [Commodity Index] going ballistic, and in particular oil prices [which rose steadily from around $75 a barrel in May 2006 to $147/bbl by July 2008, before plummeting to close to $30/bbl in the space of six months."

"The easy monetary policies have had a decided impact, because of higher costs for consumers and businesses due to higher oil prices," Faber says. "This crisis has not solved anything; we have less transparency than before."

Indeed, Faber envisages another, much larger crisis, in which not only does the banking system go bust, but several governments are unable to pay their obligations.

Good morning!

Review

Ouch... Dollar bulls are dancing on the street! The FED didn't change anything but that did not help the Euro actually. We saw some noticable move in the Asia session down to 1.4365. Lots of stops will have taken out, that's for sure... I had some stops in place as well at 1.4460.
Good news yesterday from the Norge Bank which hiked the rate by 25bps which was not expected. Unfortunately the NOK got hammered last night as well.


Analysis

Ok, technically we have now the first signs of a new short trend. But I would not like to go short after a 750 pips down move without any significant retracement. That was one straight move down and some big stop fishing last night again. There might had been some barrier options around 1.45 as well.
The fundamentals doesn't have changed so for me this is still a deeeep dip, much deeper than I've expected actually. But one has to ask himself who would go short now after such a dip? In the long run nothing has changed and those levels might be real bargain levels. I say that behind the background that Gold is still well up from the lows and the Aussie just scratching on his huge support at 0.89.
So for me this is a temporary Dollar strength like we've seen so many times before. The only question is how deep it will go before the underlying fundamentals come into play again?


Plan

I will use any signs of weakness to lower my gearing again even though this results in more losses.


Open trades

http://www.xaron.net/dl/fx/2009/aud/...ons_171209.png


Prices

AUD/USD 0.8900
EUR/GBP 0.8870
EUR/USD 1.4410
GBP/USD 1.6250
USD/CAD 1.0690
USD/CHF 1.0460
USD/JPY 90.10
USD/NOK 5.8100
Gold 1128
Silver 17.40
Oil 73.40
Dax 5890
Dow Jones 10410


Account Summary

Starting date: 03-Nov-09
Starting Balance: $5,000

http://www.xaron.net/dl/fx/2009/aud/account_171209.png

Good luck Aaron. At least you've got the balls to show your statement, even when it's not looking nice at the moment!

100% agreed! Good luck, keep to your plans, you'll be on the top soon again Xaron.

Hello Xaron.

Here is a quote of a message I sent you in the other thread "From 10k to 1 million..." in October 8.


The uptrend in EURUSD daily/weekly is still there, but the trend bent and we're in a pullback mode.

My previous message was about over complacency and it looks like you failled in that trap, like I did.

Imho, the 1.4827 swing point was the limit where EURUSD bulls should have thrown the towel, and re-evaluate, that's what I did.
1.4801 was the point where abnormal dip behavior kicked in, and should have all the longs jump out of the trend.

I don't understand your strategy, because cutting your position/gearing will eventually lead you to wipe most of your account value without the buying power left to come back later.

Haven't you got a defined hard stop point that will protect your account, or are you using margin call as the ultimate stop loss ?

I will finish with a motto, that I really believe in with my trading.

"He who lose best, wins"

It could be psychologically hard to talk about loses now, and I would understand if you don't want to talk about strategies to limit them.

Just to be clear, I'm still an EURUSD bull, and still believe in its potential, but imho, now the only thing that can be done is protecting the account to have the buying power intact to fight again next year...



P.S: I know you have enough trading experience to not take my remarks as sterile attacks, and I really would like to have a constructive discussion on what happened and what is the lesson (if any) for the future.

Yes. You are right. Observe dec 2008 data as well. Same thing happened last year- from dec 15 2008 to dec 21, 2008 there was a 1000 pips movement. From jan 2009, it started to reverse.

This type of volatility is possible in low thin volume year end markets.

I see once again it is going back to 1.48/1.50 levels in jan/feb just like opposite moves happened in 2007 and 2008.

Why I think the Dollar will continue to weaken in 2010:

Let's make some assumptions about the money flows for 2010 regarding the Dollar.

So we have on the Dollar demand side:

USD demand (which would support the Dollar) due to:
1) technical corrections within the primary down trend for the Dollar
2) interventions from central banks (more likely if the Euro reaches 1.55+ levels)
3) unwinding of carry trades

As I don't see any systemic risks like in 2008 I think that "safe haven" argument don't count as the Dollar can't be seen as safe haven any longer.

USD supply (which would support non dollar currencies like the Euro) due to:
1) appreciation in value on toxic US portfolios at european banks because of better economic condition and stabilization of the financial system.
2) interest rate differentials (I expect the ECB to hike in march 2010 and continue up to 2.00% till end of 2010 where the FED might hike in H2 earliest if they even hike 2010 at all)
3) a growing US trade and current account deficit
4) diversification from central banks into other currencies
5) the primary USD down trend (just technical again)

That's what I see. Have I forgot something?