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Long Term Trading, the Unwind and $

  • #1
  • First Post: Edited 2:31am Jul 4, 2011 12:34am | Edited 2:31am
It feels like this is one of the worst times to be making any long term decision.

It is easy to see on a monthly chart how polarized the market is towards
the Yen, Aud, Chf, and Cad, and how grim hopes are for the Eur, Usd, and Gbp. Now this would have been a good play, had I known about FX in 2008, and would have been holding out those same positions until now... but I didn't.

Historically, the largest opportunities occur for only a few people, when most other people are wrong.

If I were looking for some long term security, it seems like the reasonable thing to do would be to put my money in the Yen, Aud, Chf, and Cad, but the truth is that..

all bubbles pop.

Not to say that all of those currencies are bubbles, but this is a very important time in the future of the economic world, or at least that is the picture that has been painted by the financial world. It's not just ho-hum, things are up, and things are down... The US, Europe, and the UK are all in desperate situations financially which could respectively spell their ends. But I am going to guess that the western world financial system is not going to collapse..

so my point is... is anyone else considering progressively scaling into counter trend trades on these pairs and waiting for the massive unraveling that could potentially allow me to retire by 23/24? Not that I have taken any positions yet, but I find it psychologically hard to buy at a multi-year high or sell at the bottom..

Or am I wrong, and we will just watch the Eur, Usd, and Gbp sit at their lowest levels in years against the other majors and fart around for a few years. Or am I doubly wrong and an idiot for even betting against such blatant fundamental weakness / strength - Will we see a continued rush for another few years? I don't know. I try to keep in mind where my news comes from, and what is their objective. But if the Us starts hiking rates, and carry trades unwind, I think it could be a whole different ballpark..

This certainly isn't a "trend is your friend" philosophy, more like a "wish I saw the US housing market collapse before it did" philosophy.

Any feedback or thoughts are welcome!
  • #2
  • Jul 4, 2011 3:27am Jul 4, 2011 3:27am
Quoting RichFWebb
It feels like this is one of the worst times to be making any long term decision.

It is easy to see on a monthly chart how polarized the market is towards
the Yen, Aud, Chf, and Cad, and how grim hopes are for the Eur, Usd, and Gbp. Now this would have been a good play, had I known about FX in 2008, and would have been holding out those same positions until now... but I didn't.

Historically, the largest opportunities occur for only a few people, when most other people are wrong.

If I were looking for some long term security, it seems like the...
I wouldn't counter-trend without a key event happening. Right now you got so many unsolved issues. Biggest one in europe being greece. It is impossible to get off so much debt without restructuring or defaulting. The US also reached their self-imposed debt level. How will they be able to get off so much debt? Maybe if the republicans get into government, otherwise I can't imagine how it could happen. Economic recovery is also amazingly slow in the US. Couple that with the high resource prices due to the industrialization in china, and you got a recipy for years of slow recovery.

I can't see the end of this trend for now. A trigger event has to happen, so that the bias in currencies changes.
  • #3
  • Jul 4, 2011 3:57am Jul 4, 2011 3:57am
Quoting Custos
The US also reached their self-imposed debt level. How will they be able to get off so much debt? Maybe if the republicans get into government, otherwise I can't imagine how it could happen.
Really? Not to bring this to politics, but do you really think that's the answer? It seems they are the one's mostly responsible for it. A quick read...

republicans-have-to-tell-us-what-exactly-it-is-theyre-good-at/
  • #4
  • Jul 4, 2011 4:08am Jul 4, 2011 4:08am
Quoting Custos
The US also reached their self-imposed debt level. How will they be able to get off so much debt? Maybe if the republicans get into government, otherwise I can't imagine how it could happen.
I understand what you are saying in regards to change, but to expect the US's debt to be reduced by having a republican President in office is not likely. Historically, republican Presidents have been known to spend more than democratic Presidents.
  • #5
  • Jul 4, 2011 4:14am Jul 4, 2011 4:14am
Quoting Monroe
Really? Not to bring this to politics, but do you really think that's the answer? It seems they are the one's mostly responsible for it. A quick read...

republicans-have-to-tell-us-what-exactly-it-is-theyre-good-at/
dude, it was just a suggestion. Since democrats can't turn the debt around, and the US only has a two party system, the only party left are the republicans. (I personally also like democrats more than republicans).

Anyways, I think there is a major structural problem in the US economy. Too much consumption focused and not enough production focused.
  • #6
  • Jul 4, 2011 4:30am Jul 4, 2011 4:30am
Quoting Custos
dude, it was just a suggestion. Since democrats can't turn the debt around, and the US only has a two party system, the only party left are the republicans. (I personally also like democrats more than republicans).

Anyways, I think there is a major structural problem in the US economy. Too much consumption focused and not enough production focused.
alright dude, I guess you still didn't read the facts or know that much about the situation if you're going to follow up with that, but I'm not trying to start shit, I was just saying.
  • #7
  • Jul 4, 2011 4:36am Jul 4, 2011 4:36am
Quoting RichFWebb
It feels like this is one of the worst times to be making any long term decision.

It is easy to see on a monthly chart how polarized the market is towards
the Yen, Aud, Chf, and Cad, and how grim hopes are for the Eur, Usd, and Gbp. Now this would have been a good play, had I known about FX in 2008, and would have been holding out those same positions until now... but I didn't.

Historically, the largest opportunities occur for only a few people, when most other people are wrong.

If I were looking for some long term security, it seems...

I would say to think of starting to scale in right now might be a bit premature, though I think you have the right idea, and I could be wrong on the timing (I am not much of a long term trader at all) but I would wait for something that would give your trade a pretty good boost in your favor and cushion your risk to be on the brink of happening.
  • #8
  • Jul 4, 2011 4:39am Jul 4, 2011 4:39am
Quoting Monroe
alright dude, I guess you still didn't read the facts or know that much about the situation if you're going to follow up with that, but I'm not trying to start shit, I was just saying.
Man, don't get so worked up on that. I am sorry that I mentioned anything political.
  • #9
  • Jul 4, 2011 4:45am Jul 4, 2011 4:45am
Quoting Custos
Man, don't get so worked up on that. I am sorry that I mentioned anything political.
nah man, I didn't get worked up, don't take it the wrong way, I just wanted to share that this is probably not the best solution that's all. Your thinking seems logical to someone who wasn't up on the facts. I still don't know really what the hell I'm talking about, but the little I do see, I can only say that a Republican in office probably won't be the direct answer. I'm no political expert and don't much care for it, so no problems here. But this debt problem and economic situation had me looking into it a bit.
  • #10
  • Edited 11:36am Jul 4, 2011 5:09am | Edited 11:36am
Gotcha Rich
  • #11
  • Jul 4, 2011 11:13am Jul 4, 2011 11:13am
Yeah, my thoughts weren't so much chart motivated, they were more so influenced by rates.. how long can the Us keep rates low? You can say look at Japan, but the nature of our economy is vastly different then theirs.. if the Usd gets dumped as the funding currency for carry trade, then there will be massiveeeee appreciation..

I don't think anyone gives a shit about the debt, republicans or democrats. The western world is in debt to the east now.. and that is just how things will probably be for future decades. It is more about production and interest rates.. if the US growth keeps slipping / there is Qe3, I feel like they will have to do something to stimulate demand for the dollar..
  • #12
  • Edited 11:46am Jul 4, 2011 11:30am | Edited 11:46am
The way I see it is that risk vehicles will continue to rise as long as there is incentive to put your money in risk. The only thing that will change this is when the the FED decides to start selling off bonds in order to raise the fed fund rate. Even though QE2 is over the FED is still going to be reinvesting maturing debt meaning the money that pushed everyone out to begin with is still going to be there. The FED also has more tricks up their sleeve(e.g yield caps). They can continue to push people out if they please.
Cautiously optimistic. . .
  • #13
  • Jul 11, 2011 2:30pm Jul 11, 2011 2:30pm
I was just shooting the general idea out there to get some feedback, but the more I dig into how bad the fundamentals of risk-currencies are, the more I am thinking to long JPY, CHF, and possibly AUD and CAD indefinitely. No more wasting time on eur/usd...

the only thing I can think of to interrupt this larger trend would be CB intervention, and that would probably just end up being a speed-bump rather than a roadblock..
  • #14
  • Edited 4:09pm Jul 11, 2011 3:57pm | Edited 4:09pm
You can count on the $US going down long-term, interrupted by years-long Bear Rallies.

The major Equity Indexes are always going to go up long-term, interrupted by years-long Bull Corrections.

At this point in time, you can use CHF and Gold as barometers. They're going to continue up as long as there's this uncertainty. Buy pullbacks until risk appetite returns.

Yen will trend against USD again as soon as Japan recovers from the earthquake/tsunami and the US recovers economically. Also, a US recovery will help China which will help Australia, so as soon as the US is back on its feet (walking on the old tightrope) AUDUSD might also turn into a Carry Trade.

There are lots of great trends going on right now if you're willing to sit in a position for only 6 months to a year or two. The Carry Trade(s) will return once things settle down again.

Edit: Just read your last post. JPY is very dependent on the US economy. If the US returns to the 1982-2006 monster growth, JPY will probably be in a perpetual upward spiral; but if the US returns to a pre-credit/leverage-based economy things will be different. Also, Australia is largely dependent on China's growth, so a strong US as well as China economy will do likewise to AUD.

But at the moment I wouldn't look for any life-long investments in currencies.
  • #15
  • Jul 11, 2011 6:22pm Jul 11, 2011 6:22pm
Thanks for your thoughts rob,

Quoting Rob Mondave

Edit: Just read your last post. JPY is very dependent on the US economy. If the US returns to the 1982-2006 monster growth, JPY will probably be in a perpetual upward spiral; but if the US returns to a pre-credit/leverage-based economy things will be different. Also, Australia is largely dependent on China's growth, so a strong US as well as China economy will do likewise to AUD.
To me, it seems like the theme is risk aversion, and that will be a continued trend, which is all that JPY will need to continue appreciating. I don't think that it needs the dollar to do anything. Especially if we return to a credit / leveraged economy, the dollar will collapse again and everyone will rush to the yen.. At the same time, you can be bearish on the us/china and still remain bullish on australia.. but I don't know too much about australia

Quoting Rob Mondave

But at the moment I wouldn't look for any life-long investments in currencies.
Right, but that is how you have to think. If you had 100M, where would you want it?

In a debt laden, consumer driven, house of cards economy? Is it about growth or about safety? Safety, of course, and that significantly limits your options. Are you really going to put your money in the Vietnamese Dong, the Krona, or the Peso etc etc? Fear drives the market on not just the micro scale but also in macrocosm..
  • #16
  • Jul 11, 2011 8:13pm Jul 11, 2011 8:13pm
Quoting RichFWebb
Thanks for your thoughts rob,



To me, it seems like the theme is risk aversion, and that will be a continued trend, which is all that JPY will need to continue appreciating. I don't think that it needs the dollar to do anything. Especially if we return to a credit / leveraged economy, the dollar will collapse again and everyone will rush to the yen.. At the same time, you can be bearish on the us/china and still remain bullish on australia.. but I don't know too much about australia



Right, but that is how you...
Good conversation.

If I had 100M I'd diversify it to the hilt, and I'd also be ready to move it as long-term trends reverse. It would be in many asset classes, based in many countries, and denominated in many currencies. I would trust a country's currency as much as their Equity market and as much as their bond market, no more or less for any asset class.

Yeah, probably the Yen will continue to appreciate against the dollar in the future, but I think you're not giving enough significance to the US economy.

The US is the world's no. 1 consumer, and Japan's economy is primarily export-driven. As well, China's economy is largely based on manufacturing products for foreign countries, the US being one of the bigger (if not biggest, I'm not sure).

In both circumstances, those country's economies are largely dependent on the US economy for their strength. If the US ceases its recent degree of consumerism long-term, eventually markets will shift and adapt but until then both Japan and China will suffer; and it may take 20 years for things to straighten out, too long to sit through for any long-term investments.

As far as Australia goes, 80% of their trade is with China. If China's economy weakens because of their own missteps, or because of a slower US, that will negatively affect Australia significantly due to less Chinese demand for Australia's exports.

I suppose there are no absolutes, but I see more risk than reward in a Buy/Short-n-Hold investment strategy.
  • #17
  • Jul 12, 2011 12:40am Jul 12, 2011 12:40am
Quoting Rob Mondave

...denominated in many currencies.
oh. so i guess then you may have a look at the peso etc.. nvm

I think perhaps one of the underlying things that I was thinking about was manufacturing, production, and the ability to pay off your debt. We may see a return to countries having to become more self-sufficient, but likely everyone will just continue in debt.

Quoting Rob Mondave

I suppose there are no absolutes, but I see more risk than reward in a Buy/Short-n-Hold investment strategy.
You're absolutely right. That's why I'm intra-daily. I was just trying to pry into the mindset of large money.

I've only been working at FX for a year, and I can only see things a day or two in advance now, anything beyond that is a guess. So I'm just speculating whether long term plays are as obvious as they seem to be (in retrospect), since I have never actually lived through one and payed attention.
  • #18
  • Jul 12, 2011 6:04am Jul 12, 2011 6:04am
Quoting RichFWebb
oh. so i guess then you may have a look at the peso etc.. nvm
Sure, whatever currencies seem reasonably stable at the time. Right now I wouldn't consider the Mexico Peso, but things change.

Quote
I was just trying to pry into the mindset of large money.

As I understand it, part of Warren Buffet's strategy is to consider a company's likelihood of being around in 15-20 years - to that end you might rather consider some emerging currencies like the Brazil Real and China Yuan. You can't trade the Yuan in Forex, and you'd have to make a basket of Real pairs since not all will be bullish-Real, so buying the respective ETFs might be a good approach.

Putting it in a Jim Rogers perspective, a buy-n-hold AUD basket would make the most sense of the currencies you listed, simply because commodity prices will always go up long-term, and China will really be in good shape in the coming decades. JPY would be my second choice, but again, it's heavily dependent on exports to the US and other high consuming countries.

So, maybe a basket of long AUD and short USD pairs would make sense long-term.
  • #19
  • Jul 14, 2011 5:24pm Jul 14, 2011 5:24pm
solid advice, ive only traded one instrument before, but it's definitely worth checking out now that im comfortable with fx.
  • #20
  • Last Post: Aug 4, 2011 9:49pm Aug 4, 2011 9:49pm
Quoting RichFWebb
the only thing I can think of to interrupt this larger trend would be CB intervention, and that would probably just end up being a speed-bump rather than a roadblock..
hm.. speed bump or road block. after the boj yesterday and the performance by the dow today, i remain uncertain, but certainly risk-off.
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