Why forex traders tend to lose money...

Aug. 13, 2012, 12:17 p.m. EDT

Why forex traders tend to lose money

About Ramki Ramakrishnan
Ramki Ramakrishnan is an Elliott Wave specialist whose work is respected by many of the world’s best traders. He is an international banker and treasury manager with over 30 years experience, most of which has been directly associated with the financial markets. Ramki’s unique perspective on the markets and his penchant for identifying low-risk trades are what draws people to his blog at wavetimes.com.

Ramki has also written a book “Five Waves to Financial Freedom” which is fast becoming the new reference book on the subject of Elliott Waves, given it’s easy to understand style, and richly illustrated content from recent market movements.
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By Ramki Ramakrishnan

Let's face it. Most forex traders tend to lose money. Yet, these are smart people. They are confident people. They know the risks involved and most traders do a bit of homework. Despite this, only a few traders are able to avoid losses. What could we be doing wrong?

First of all, a majority of us like to daytrade. This is not a bad thing in itself. We all know that the forex market is a place which presents plenty of opportunities, so if we sit aside for a long time, we could miss some of them. But the trouble with us is we are often chasing the market, instead of letting it come to us. What I mean is we have a tendency to jump into a trade a bit too late, when we are convinced that about the direction. This often means our stop-loss level is farther than where we would really like it to be.

Second, we are often influenced by the heat of the moment, the excitement of an unfolding move, and the anxiety that we will miss a trade that looks like a sure winner.

Third, many of us have only a limited understanding of technicals. Sure, we have all heard of the various approaches to technical analysis of the forex market, for example, the Elliott Wave Principle. (By the way, I count myself as one of a more experienced Elliott Wave Traders around, and I too make some of the above mistakes every now and then. We are all human, after all.)

Let us take the EURUSD for example. In the recent days, this currency pair has been trading in a very choppy fashion. My first chart showing the Elliott Wave counts appears here in WaveTimes , my other blog that deals with using Elliott Waves to give ourself an edge. You can see that any trader who got in a bit late during a move would have become minced meat. The reason is simple. We are in the middle of what is known as a complex correction in Elliott Wave circles.
During a complex correction, the currency will trace out patterns that are unpredictable. Just when you are convinced of a certain direction, everything will change.

How can we know in advance when a complex correction is under way? This is where knowledge of Elliott Waves will help. There is a guideline that says that in a five-wave move, we will see corrections alternate in complexity. Thus, if the second wave was simple, the fourth wave will be complex. Most of the time, the fourth wave will be the complex correction because it comes after a third wave that travels far and quickly. If you are interested in learning more about Elliott Waves, do check out my book "Five Waves to Financial Freedom". The link is on the left of this article.

My suggestion to traders is when you spot a complex correction, you should stay on the sidelines until you spot a good resistance level in the next higher-period chart. I invite you to view the next Elliott Wave chart of the EURUSD here . As you can see, there is a key Fibonacci retracement level at 1.2596. If you are a low-risk trader, then you might be better off waiting for a recovery to near this resistance and sell there.

Of course, there are no guarantees that it will work. However, being careful to sidestep most of the complex moves gives you the wherewithal to take this risk. Trading is all about timing your entry carefully. This is how trading is different from investing. As forex traders, we really must learn to choose our battles carefully.

Good luck.

MORE QUESTIONS ON THE SUSTAINABILITY AND PROPAGATION OF FORWARD GROWTH
JUNE 16, 2014 by EDITORIAL TEAM LEAVE A COMMENT
Commodity Outlook
It would seem like US and global equity markets have finally come to grips with the less than anticipated rate of recovery, the fear of overvaluations and a rising measure of uncertainty toward the Middle East and oil prices. While the US, China and European outlooks still generally point to positive growth ahead, the data overall has offered up more questions than answers on the sustainability and propagation of forward growth. The only exception to the sluggish global growth track is the UK, where the economy is gaining momentum despite headwinds from other economies and from soaring energy prices. While we have consistently touted the strength of the UK economy and the prospect of a rising Pound over the past year, the Pound, like equities, has probably become overvalued. And while the ECB and PBOC have recently shown a track toward more supportive policies, soaring oil prices, a stubbornly hesitant US recovery and nagging deflationary fears in the Euro zone suggest a bias of lower physical commodity prices, an increased focus on safe-haven instruments, and ongoing interest in US Treasuries. In order to resurrect optimism toward the global economy, it might require a string of better than expected US data and or a broad, sweeping stimulus effort in China.
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Musical Chairs at the FOMC

John Mauldin | Jun 18, 2014


“You can’t tell the players without a program. Get your program here!” yelled the stadium vendors of my youth. In today’sOutside the Box I bring you an excellent piece of Fed watching by Nouriel Roubini and colleagues, a “program” of the new Fed members and where they rank on the hawk-dove scale. They point out that, with a new chairperson (Janet Yellen) and vice-chair (Stanley Fischer), and with higher than normal turnover on the Federal Open Market Committee (FOMC) – over the past year, 75% of the FOMC’s membership has changed – the Fed’s need for clear communications with regard to monetary policy and forward guidance is greater than ever.

And it’s not as though the Fed has wielded its powerful communication tool with perfect aplomb in recent years. Last year at about this time, you’ll recall, we were in the midst of a frightful hullabaloo when the Fed threatened to release upon the world the Dread Taper … and then changed its mind. And then this past March, just as everybody was learning to live with the Taper, Yellen went to the mike and attempted to explain the Fed’s statement that the federal funds rate would remain near zero for a “considerable time” after QE ended. That meant interest-rate hikes could happen “in about six months,” she allowed – and all hell broke loose. Again.

And then there’s this whole business of FOMC members speaking out of school. We didn’t see much of that during Greenspan’s reign, which our authors characterize as being “close to an absolute monarchy,” but Bernanke took things in the direction of a collegial democracy – and paid a price for being nice. Yellen is similarly inclined – indeed, as our authors note, she has been at pains to ensure that her expressed views are close to those of the FOMC majority (which is decidedly dovish, yet not so dovish as Janet herself). So we may be treated to further instances of regional Fed presidents popping their heads up here and there around to the country to share their innermost feelings in the wake of official FOMC statements.

I think you’ll agree that the following piece brings us up to speed about as painlessly as possible on all things FOMC – I enjoyed it, and I think you will too.

I have spent the last three days with Christian Menegatti, the managing director of Nouriel’s research firm. We have been in nonstop meetings and presentations (and dinners!) with a wide variety of businessmen, bankers, hedge fund managers, central bankers, government officials and ministers (even an off-the-record talk with a person from the Vatican Bank). Quite the whirlwind. I will readily admit that I’m surprised at what I have learned. I brought the expectations from my reading and my previous numerous trips to Italy, but I found out that things are now different here for the first time in a VERY long time. This week’s letter, which I will write in Dallas on Friday, will give you the details. For what it’s worth, Christian, who grew up in Italy but has been in New York for the last 14 years (or so), was also surprised. We spent a lot of time animatedly discussing what we learned and what it means for Europe and the world. You’ll want to read this one.

I spent nine hours on Sunday on a very aggressive walking tour of Rome. John Noronha is perhaps the most knowledgeable and enthusiastic guide I have ever had on any tour anywhere. He is a polymath with multiple technical and artistic and theological degrees, and he seemingly remembers everything he has ever read. In the process of seeing the major tour sites, we stopped at this or that church that happened to be “on the way” and that had a Raphael or a Caravaggio or two or three. The art I saw on the day was better than in all but a few museums I have ever visited. Billions of dollars’ worth of art and no guards. I was actually allowed to touch a Michelangelo sculpture (what museum will allow you to do that?), and I swear you could feel the bones and ligaments underneath the marble. I mean I could feel details that my eyes could not see. I was in awe for the rest of the trip. We must have toured nine churches (“We simply have to stop to see thi s one!”) and John knew every artifact in each of them. At a few points I actually tried to stump him with a question about some arcane object, but he assumed I was truly interested and launched into detail about the history of object after object. As good as he was, he could not organize the weather, and the rain came down in sheets at the Coliseum. But the double rainbow after was a perfect end to an exhausting but memorable day. (I think John doubles as a personal trainer.) If you are ever in Rome, you should get him to be your guide and make him bring his wife to dinner. She teaches communications at the Vatican. You can contact him at www.johnandashley.org.

And for those who asked, the website of the villa where we stayed in Tuscany is http://www.ifiordalisi.com/ . It was my fourth time to go there and spend a few weeks. It is a perfect base to tour Tuscany and the surrounding regions.

It is time to hit the send button. My flight back to Dallas will leave from Rome in a bit. Have a great week!
Your going to miss the food analyst,



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John Mauldin, Editor
Outside the Box
[email protected]

World’s Soundest Banks No Immunity for Risks in Canada
By Greg Quinn June 10, 2014

Even with the world’s soundest banks, Stephen Poloz is grabbing a microphone to warn about risks to Canada’s economy.
The Bank of Canada governor, along with new Senior Deputy Governor Carolyn Wilkins, is taking the unprecedented step of holding a press conference June 12 after publishing the Financial System Review, a previously low-profile report that documents threats to the country’s economy and banking system.

By boosting the report’s visibility, Canada’s central bank is aligning itself with counterparts such as the Bank of England and European Central Bank, which were affected more directly by the global financial crisis. The press conference gives Poloz the chance to talk about economic threats facing Canada, including the risk of low inflation he flagged in last week’s interest-rate announcement.

“It’s all about transparency these days and central banks have been under fire” for catching people off guard, said Randy LeClair, senior money manager at Manulife Asset Management in Toronto, who helps oversee C$17 billion ($15.6 billion) of assets. LeClair says the Bank of Canada has done “an outstanding job” of avoiding surprises.

In the last report, issued in December, the central bank named the build-up of consumer debt -- reflected in condominium markets in Vancouver and Toronto -- as the biggest domestic threat to Canada’s economy and its banks. While Poloz has predicted a “soft landing” in the housing market, realtors in Toronto reported the average home resale price rose 8.3 percent from a year earlier in May, while the country’s housing agency said yesterday that construction starts unexpectedly accelerated last month.

Inflation Risk

Economists and investors will also look for comments about the risk of low inflation, cited by the Bank of Canada in last week’s interest-rate announcement, when policy makers held the benchmark rate at 1 percent for the 30th consecutive meeting.

Even with inflation rising to the bank’s 2 percent target in April, last week’s statement reiterated that “the downside risks to the inflation outlook” are “as important as before.” Those topics will be tracked by investors including Scott Smith, senior foreign exchange trader and market analyst at Cambridge Mercantile Group in Calgary.

“From a market perspective it adds another layer of transparency on the Bank of Canada’s thought process,” Smith said in a telephone interview. The U.S. Federal Reserve still has a greater number of public appearances by policy makers including Chair Janet Yellen and members of the Federal Open Market Committee, he said, with Canada “pretty close to being on par.”

The press conference, scheduled for 45 minutes after the 10:30 a.m. Ottawa time publication of the report known as the FSR, will be Poloz’s first appearance since April 30, and also marks the public debut of Wilkins in her new role since taking over from Tiff Macklem.

‘Rough Read’

“Making the governor available to explain some of the concepts and answer questions will help Canadians better understand some of these issues,” said Derek Burleton, deputy chief economist at Toronto-Dominion Bank. “Even for economists, the FSR can be a bit of a rough read.”
The FSR features a four-level, color-coded assessment of the threats facing the economy as judged by the bank’s six-member Governing Council. The last report, on Dec. 10, reduced the risk level facing Canada one notch to “elevated,” the second-lowest level, from “high.”
Canada’s currency has depreciated 6.5 percent against the U.S. dollar over the past six months, the worst performer of 10 major currencies tracked by Bloomberg. The country’s benchmark Standard & Poor’s/TSX Composite Index has risen 6.6 percent so far this year in U.S. dollar terms, outperforming the 5.6 percent gain in the Standard & Poor’s 500 Index. Canadian government bonds have returned 3.4 percent so far this year through June 6, compared with a 2.7 percent gain for U.S. Treasuries, according to Bank of America Merrill Lynch Indexes.

Soundest Banks

With threats easing, and given the country’s status as having the world’s soundest banks for six straight years according to the World Economic Forum, the Geneva-based institution that promotes public-private cooperation and hosts an annual meeting in Davos, it may seem an odd time for Poloz to give the FSR such a high profile.

“The financial crisis highlighted the importance of constant vigilance with respect to financial stability,” central bank spokesman Alexandre Deslongchamps said in an e-mailed response to questions about the higher profile for the FSR. The measures represent an “additional step in helping Canadians better understand the forces at work in the economy.”

Risk Management

Poloz, 58, who took over as governor from Mark Carney a year ago, has repeatedly stressed his view of monetary policy as a “risk-management” exercise, devoting a speech to the topic in December. Setting interest rates isn’t just a matter of letting precise models dictate policy, he said. It’s more a matter of weighing risks to both the economy and the financial system.


“While we examine the two sets of risks from different perspectives, we take into consideration the interplay between them,” Poloz said at the time. “Pursuing economic stability without due regard for financial stability risks achieving neither.”
Those risks include potential spillovers from Europe’s debt crisis should it worsen, and the possibility that global investors could take on excessive risks given persistent low interest rates.

Today’s emphasis on risks stands in stark contrast to the bank’s first FSR, published in 2002. In that document, the bank took pains to separate discussions of interest rate and financial system policies.

Twelve years, two governors and a financial crisis later, the bank is drawing a much tighter link. “Economic stability and financial stability are interrelated, so any risks to either must be considered in an integrated fashion,” it said in the last FSR.

Ex-Goldman Trader Says Bonus Cut to $8.25 Million Unfair
By Michael J. Moore Jun 18, 2014 2:26 PM MT


Deeb Salem, a former Goldman Sachs Group Inc. (GS) trader who said he helped the bank earn more than $7 billion, wants to be paid the almost $5 million difference between his 2010 bonus and what he told his mother to expect.

Salem said in an arbitration hearing that he was led to believe that his 2010 bonus would be $13 million, down from a $15 million award for 2009 when he was paid more than Chief Executive Officer Lloyd C. Blankfein. Instead, Salem said his bonus was unfairly docked because of a written warning he received about his 2007 self-evaluation.

Salem, 35, said the $8.25 million bonus for 2010 didn’t reflect his contributions, while Goldman Sachs argued he was aware that the firm could pay him whatever it wished and that the company considered his conduct in determining compensation. Salem said promises from executives kept him around for another year before a $3 million bonus led him to jump to a hedge fund.

“Let’s be very clear: I was one of the most sought-after investment professionals in the mortgage industry,” Salem said during the Feb. 25 hearing. “I had the opportunity throughout the course of my career and throughout -- from that day, from almost every month that I was at Goldman, to leave for other opportunities.”

A transcript of Salem’s arbitration hearing before the Financial Industry Regulatory Authority was included as an exhibit to his petition filed last week in New York State Supreme Court. The document was no longer available on the court’s website today after Goldman Sachs filed a motion to seal the petition and parts of related exhibits.

‘Utterly Ridiculous’

A copy of the transcript was provided by Salem’s lawyer and couldn’t be immediately verified in court filings. Oral arguments on Goldman Sachs’s motion to seal the documents have been scheduled for September, court filings show.

“These claims are utterly ridiculous, which is why they were rejected by a Finra panel, and unworthy of any further response,” said Tiffany Galvin, a spokeswoman for New York-based Goldman Sachs.

Salem asked the court to throw out the arbitrators’ ruling against him in part because he said they showed bias and one member of the panel called his case “bulls---” during the hearing.

While Wall Street banks tout the flexibility that year-end bonuses gives to their expense line, employees often expect pay to closely track what they produce. Blankfein has said he would make discretionary bonuses 100 percent of compensation if he could.

Christmas Fire

Salem sought a total of more than $16 million in additional pay from Goldman Sachs in arbitration. That included almost $7 million in deferred stock that Salem said he was led to believe he would get as long as his exit from the company wasn’t akin to the departure of Greg Smith, who announced it in a New York Times op-ed that criticized how the firm treated clients.

In January 2011, Salem told his mother, who was staying with him because her house had burned down on Christmas, that he expected at least $13 million for 2010, according to the transcript. That was based on the fact that his mortgage-trading desk generated about the same amount of revenue in 2010 as it did the previous year and that Justin Gmelich, a credit trading executive, told him at a cocktail hour that he was a “steal” at $15 million, Salem said.

Salem received an $8.25 million bonus after getting the warning for “extremely poor judgment” in discussing a short squeeze in his self-evaluation. Goldman Sachs executives told him the firm would make it up to him and encouraged him to stay, he said. That came after President Gary Cohn persuaded him to remain in 2008 rather than leave with colleague Josh Birnbaum to start a hedge fund, Salem said.

Falcone’s Bet

No promises were made, Andrew Frackman, a lawyer at O’Melveny & Myers LLP who represented Goldman Sachs, said at the hearing. The company’spolicy clearly states that all bonuses are discretionary and Salem acknowledged as much when he signed the firm’s employment offer, Frackman said.

Salem said his group put on a large short bet against the housing market, reaping billions of dollars for Goldman Sachs and helping it weather the financial crisis better than peers. He said Blankfein told the desk to cover its bet in early 2007, forcing the group to sell almost $5 billion of positions to Harbinger Capital Partners LLC, the hedge-fund firm run by Phil Falconethat made billions betting against subprime mortgages.

Toaster Ovens

While the move cost the group profits, it once again went short in the middle of 2007, generating gains of $2 billion to $3 billion, Salem said. The group made almost $2 billion in 2008 and then changed its view of the market to positive in 2009 and 2010, reaping more than $1 billion in each of those years, he said.

Salem said he and other traders in his group didn’t mind getting paid a lower percentage of their produced revenue than other parts of the firm. Salem said he did find it “a little bit insulting” that Jeff Verschleiser, a trading executive who was hired from Bear Stearns Cos. in 2008, kept a box of toaster ovens at his desk that he would award to employees who made notable trades.

Verschleiser and Gmelich didn’t respond to phone messages seeking comment.

Frackman said that while “there is no dispute that he is very good at trading,” Salem was paid better than peers. He was awarded more than $35 million in pay over six years and was the second-best-paid managing director in the mortgage department in 2009 and 2010, and third-best in 2011, Frackman said.

Short Squeeze

“He made a ton of money,” Frackman said at the hearing. “He’s not entitled to more simply because he would like to have been paid more. If that were the case, you’d have traders and bankers in here every day of the week.”

In 2011, the U.S. Senate Permanent Subcommittee on Investigations said Salem and other Goldman Sachs traders tried to manipulate prices of derivatives linked to subprime home loans in 2007 for their own benefit. The subcommittee’s assertions were based in part on Salem’s self-evaluation, in which he wrote “we began to encourage the squeeze with plans of getting very short again after the short squeeze caused capitulation of these shorts.”
Goldman Sachs denied any attempted manipulation.

“The translation of that sentence is, you know -- is very different than it was, at times, made out to be,” Salem said at the hearing. “There’s no wrongdoing in that sentence.”

Trader Scapegoated

Salem’s lawyer, Jonathan Sack of Sack & Sack, said in an interview that his client was scapegoated as other executives who were criticized by the Senate went unpunished.

While Salem’s claim originally sought more than $20 million of unpaid compensation, Sack said in the hearing his client was now seeking $9.5 million plus 41,000 shares of deferred compensation, worth about $7 million at yesterday’s closing price. Frackman said the numbers were “pulled out of a hat.”

Salem left for hedge-fund firm GoldenTree Asset Management LP in 2012 after his 2011 bonus fell to $3 million. His group made $260 million in a difficult market that year, he said.

“Everyone at Goldman took a beating in 2011 because it was a terrible year for the firm,” Frackman said.
Salem said he expected to receive unvested shares from previous years’ bonuses after a conversation he had with Michael Swenson, a senior trader whom Salem described as a father figure. According to Salem’s account, Swenson told him that if he left the firm, there would be at least one positive consequence from Smith’s public resignation: “You are guaranteed, basically, to get your deferred compensation.”

Year Of The Geopolitical Surprise
by Jeff Goldblatt

THE year was 1906 and San Francisco suffered a devastating earthquake. To us, its just part of the history of the West Coast. San Francisco burned to the ground but was rebuilt into the incredible cosmopolitan haven it is today. I've written about it before. But the California economy was devastated and took the US economy down with it. The pain was felt all the way in Europe and within a year the Panic of 1907 materialized. It was every bit the drama we felt in 2008 and within another 7 years the world was at war. The takeaway here is that when you take up a serious study of socionomic theory, the degree of anger in social mood will be the equivalent of the size of the bear market that preceded it. By that token everything we are experiencing now in the Ukraine and the Middle East should not surprise anyone, yet it surprises mostly everyone! We are now 6 years removed from the financial crisis and close to the amount of time we've seen in previous depressions of this type. Right now we are as close to the Middle East truly going up in flames as we've seen at any time in our lives.

So when I see the pundits on television pontificate on and on about European QE/negative interest rates and business as usual I cringe when I hear these people talk about how the market gets a pass and they can't see anything that would get in the way of the continued party. Now for the 2nd time this year we've experienced a geopolitical crisis on a major time window. In case you don't know we are sitting right on the 610 week window from the 2002 bottom at the same time we are hitting the June seasonal change point. In case you didn't realize the ISIS breakout in Iraq came on June 10 (6.10). I was thinking we could get a pullback into the seasonal change point which would act as an inversion low but the 610 week window makes all of this more complex. I'm no military expert but I'm sure you can figure out for yourselves what kind of a catastrophe we'd have on our hands if Baghdad falls. It doesn't rate up there with the Fall of France but lets get real, Hitler didn't have the means to take out the Empire State Building but these guys do have the capacity to somehow get a dirty bomb into Times Square or someplace like it. On the way to Baghdad this group called ISIS has raided the Mosul central bank to the tune of $425 million which makes them the richest terrorist organization in the history of the world according to the NY Times. By contrast, when Osama Bin Laden was at the controls for 9/11 he only had a $30 million operating budget also according to the NY Times.

June is always an interesting pivot point in the year simply because of the Summer Solstice which hits over the weekend and is a key seasonal change point to the market. But its also interesting due to the dates involved from June 10-18 and I've seen major reversals across the board highlighted by a major turn in the Sugar market which led to a huge rally on June 17, 2009. Recall last year's major equity low on June 24. The market reacted typically to the Fed decision and its possible it could put in short term euphoria peak in the coming days. Of course not many are expecting it. Whether it happens or not risk is extremely high. So if you are wondering, as far as the macro situation is concerned I'm very concerned about the situation in the Middle East and while very few things surprise me anymore I find it very interesting how these geopolitical events keep manifesting on our time cycles. So that's the macro situation and for you to make money you need to take that into consideration and marry it to the micro which is your own personal trading opportunities.

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We spend a lot of time discussing trading strategy in this space. In addition to world class market timing we now teach people around the world how to not be intimidated by power wide range bars and how to capitalize on traps because after all this is a zero sum business and you get paid only when you are able to recognize when you have an edge and can pull the trigger on it. But are you familiar with the term 'convergence?' Its a technical term researchers use to describe what might be called your 'destiny.' Each one of us has what is called a sovereign beginning. Simply stated that is your family origin, environment where you grew up and the events that has shaped your life. Then you have a spiritual formation which suggests how you formed your spiritual values. Some of you believe there is a God, some of you don't and your environment has shaped that view. Then you have skills, gifts and maturing. What do you do best? What do you love to do? What are your passions? How have they developed over the years? Are you doing what you want to do with your life? Are you working on a job or profession because you want to? Is it a matter of convenience? Is it a matter of pleasing your parents? How has your perspective matured over the years?

What does this have to do with convergence? Convergence happens when your gifts, talents and skills empowers you into a role that empowers you to do achieve your destiny. Another way to look at convergence is self actualization. If you are working on a job you don't like odds are you are not at self actualization. Perhaps you'd really like to contribute enough that hundreds or thousands of kids in Africa do have access to clean water. Maybe you want to make a difference in stopping that slave trafficking trade we all hear so much about in Southeast Asia. Or perhaps you just want to have enough money to stay home to take care of a sick relative. When you are manifesting enough prosperity that you are able to do these things, you are coming close to convergence. Perhaps you just want to be able to get on a plane and go to the World Cup. That's convergence as well.

If you are not at convergence chances are you don't have the confidence to believe in your greater destiny. You've decided that trading could be that vehicle but you've been frustrated because you just haven't discovered the right information to get you to where you want to go. The truth of the matter is very stark. In this business less than 1 out of 10 ever get to convergence or actualization. Largely its due to a lack of confidence and knowledge. Its a shame because the knowledge is there but you need to make the decision to invest in yourself to get that knowledge. But many of you have already experienced convergence at least on some level. Think about what you had to do to get there. It could have been at school or some stage of your career. In my study of mastery convergence (which is also known as the zone) happened as a result of you engaging some activity for at least 10,000 hours. In those 10,000 hours you did enough left brain work to fill up the bucket so it filled over into your right brain and then intuition took over. You just knew what to do and you knew that you knew that you knew and you didn't necessarily know how it happened. It doesn't matter, that's how you get to the zone. When your own convergence is high that means as far as trading goes that all of the skills you've developed are in alignment with the goals, hopes and desires you've had when you developed the intention to get into this business.

That being said, lets take a look at a couple of examples to help your desire get in alignment with your destiny.


We do a lot of work with traps and many of you continue to wonder how and where is the best place to short a counter trend bounce in a bear trend. You are looking at the best of the best type of example because you not only trap the last leg up to the top group, you are trapping the next to last group as well. The people who bought late and held on didn't realize they were buying late or they wouldn't have done it. There's lots of people making mistakes in this business who are out of convergence. This chart proves it. The congestion on the right traps all of the people who got under water and hoping now to just break even. Some of them do, many don't but the smart money is right there at the horizontal line waiting to take them out. This type of thing manifests in many time frames all the time. So if you can replicate this you can have an edge in at least one situation. Now here's a chart from our recent Saturday updates on Cotton.


This was several weeks ago, our Futures Update of May 30. A great downtrend in Cotton, I told clients that if they wanted to hang on the stop loss for longer term players was right around that line at the low of the red power bar. That was the anticipated point of the bounce. If you've never been in this trade and wanted to find a short entry obviously that would be your point. So look what happened.


Nothing is perfect, this was slightly off but this chart comes from the very next week, our June 6 Futures Update. As you see it reversed right near our point of anticipation. I did not move that line. You aren't going to get much better than that. This is the kind of thing you see in our newsletters and the kind of thing you will learn to anticipate in our training program. Do you think this will help you? By understanding just how the territorial aspect of the power bars work, you get a tremendous edge. Remember, Wayne Gretzky was the Great One not because he was the fastest, biggest, baddest or strongest guy on the ice. The other guys chased the puck, he anticipated where it was going. You can learn to do the same thing on these charts. So I am opening up the Training Program for another week. Its starting to fill up because smart people are starting to realize this is the real deal, there is no such thing as a black box system and what we are doing is taking advantage of patterns that repeat because this is quantum physics and basic human psychology. So if you are serious about getting into convergence with your goals and dreams, here's your chance to align your destiny to it. We are starting to get busy and not sure how long we can keep these prices. But we'll open it up to you until next Wednesday night.

Financing is available we have lots of reports and bonuses. You'll learn world class market timing in addition to these cutting edge trading strategies. We cover Gann, Fibonacci, Andrews, psychology, zero sum, institutional support/resistance. Its a complete arsenal of methodologies to prepare you for any market in any time frame. We have different levels to start and if you have questions email at [email protected]. I'm willing to help you get to the destiny you know you deserve but you have to meet me halfway.

IMF warns again on emerging market corporate debt
By Ronald Fink

Companies in emerging markets have unsustainable debt loads, the International Monetary Fund warned in an article posted Tuesday on its website, IMF Direct.

The IMF said the companies faced a declining ability to service their debt as a result of weakening economies in the region, and that the debt they have taken on has made the companies "more vulnerable to shocks," such as large withdrawals of foreign capital, geopolitical uncertainties or a sharp rise in interest rates.

The warning was the second in a little over two months by the IMF but seems to have escaped attention by the business press, except for a brief mention in the Financial Times.

The companies loaded up on debt, the IMF Direct article observed, when interest rates were low. Debt levels weren't an issue when the economies were expanding, the IMF noted, but slowing growth prospects in the region are putting pressure on companies' profitability, reducing their ability to service their debt.

"In such situations, firms earnings could be severely dented, while borrowing costs could escalate," the article's authors, IMF researchers Julian Chow and Shamir Tanna, wrote.

The IMF estimated that the aforementioned shocks could reduce the earnings of the most highly leveraged and weakest of 15,000 companies in 15 countries it studied by 25 percent, which it said was a reasonable expectation based on similar declines in the wake of Lehman Brothers' bankruptcy. Such a decline, coupled with a 25 percent increase in borrowing costs, the IMF continued, would increase these companies' debts two-fold by $740 billion, rising to 35 percent of total corporate debt among the sample from 17 percent at present.

The organization expanded, saying that such firms may be further exposed to currency risk as well and that this, coupled with lower revenues and higher interest costs, could create "a triple whammy" for those whose debt is denominated in foreign currencies.

The fund's analysis estimated that a 30 percent depreciation in nominal exchange rates could erode 20 percent to 30 percent of such companies' earnings in some countries even after taking into account their natural hedges from overseas income.
Nonetheless, the fund said that corporate debt levels have yet to reach "precarious" levels, and that policymakers should take a number of steps to head off such a scenario. Those include limiting further borrowing by companies, particularly in foreign currencies; implementing stronger macro-prudential policies in countries where large capital inflows have fueled growth, and mandating better disclosure of foreign currency liabilities by corporations and better loan loss provisioning and higher capital reserves at banks.

But a similar warning about emerging market corporate debt issued by the IMF in April seems to have gone unheeded.

Euro/yen may be headed for 2014 low
By Matt Weller
June 11, 2014
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Back in May, we highlighted the technical evidence supporting a EUR/JPY bounce from the 138.00 area, concluding that, “The combination of a clear candlestick pattern, long-term MA support, and an oversold market is the textbook recipe for a short-term rally, though the downward trending MACD suggests the medium-term momentum remains with the bears.”

The anticipated bounce emerged last week, but the rally stalled out almost exactly at previous-support-turned-resistance near the 1.40 level, and rates have shed nearly 200 pips from that barrier thus far this week. With the unit once again testing key support around 1.3800, another bounce is possible, but if that floor gives way, a tumble down to the 2014 low near 136.20 would come into play.

Tackling the fundamental backdrop first, the euro has been on the back foot throughout this week as traders continue to digest last week’s landmark Europen Central Bank decision. Today’s bearish catalyst came in the form of comments from ECB member Hansson, who argued that the central bank should develop a plan for introducing quantitative easing (QE) in case its necessary. While the powerful German Bundesbank still opposes outright money printing, the other ECB members appear to support the notion, increasing the likelihood that the ECB could ease further in the months to come.

Looking to the chart, this news pushed the EUR/JPY to close below its 200-day moving average for the first time since November 2012. Meanwhile, the secondary indicators are also painting a bearish picture. The MACD is below the “0” level and about to cross back below its signal line, showing a shift to strongly bearish momentum. Meanwhile, despite last week’s bounce from oversold territory, the RSI remains well within bear territory (i.e. it continues to find resistance at 60).

As we noted above, the pair is testing previous support around 1.3800, but if the 78.6% Fibonacci retracement at 137.80 is broken, bears would turn their eyes toward the 2014 low at 136.20 next. On the other hand, only a rally back above key psychological resistance at 1.40 would shift the bias back to the neutral in our view.

http://media.futuresmag.com/futuresm...6/11/well1.jpg

<script type='text/javascript' src='http://demonstrations.wolfram.com/javascript/embed.js' ></script><script type='text/javascript'>var demoObj = new DEMOEMBED(); demoObj.run('MonetaryPolicyInKrugmansModelOfALiquidityTrap', '', '419', '545');</script><div id='DEMO_MonetaryPolicyInKrugmansModelOfALiquidityTrap'><a class='demonstrationHyperlink' href='http://demonstrations.wolfram.com/MonetaryPolicyInKrugmansModelOfALiquidityTrap/' target='_blank'>Monetary Policy in Krugman's Model of a Liquidity Trap</a> from the <a class='demonstrationHyperlink' href='http://demonstrations.wolfram.com/' target='_blank'>Wolfram Demonstrations Project</a> by Kevin W. Capehart</div><br />

New Score Algorithm Release

This paper has the potential to be so technical that a graduate math student won't understand it, so my promise is to try and make it easy enough for a Neanderthal like me to grasp.

To really understand what is going on we need to go back a few centuries (1733) to one of the great mathematical discoveries, and here I am referring to what has become known as the Central Limit Theorem and is the foundation for all statistical analysis. Simply put the mean of a large enough number of independent random variables with a finite mean and variance will produce a normal distribution.

Beneath this elegant math is a typical philosophy that permeates society and our subconscious and that is the need for closed-form expressions. Where solutions to every day problems can have infinite permutations we become uncomfortable and to alleviate this discomfort we devise brilliant solutions. The Central Limit Theorem or Gaussian or Normal distribution which ever name you prefer provides one such solution, the problem however, is that one size does not fit all.

One of my favourite subjects relates to the question of whether the stock market movements are random. The entire edifice of modern finance was built on the assumption of randomness, and I have to admit that in many cases it is very difficult to prove otherwise. I cannot even imagine how many tens of thousands of academic papers have proved it, but have they?

A famous mathematician Mandelbrot in the 1960's brought to our attention the fact that stock market returns were fractal displaying fat tail's, more recently Nassim Taleb has made the subject more widely known and understood. So what are these fat tails, I always picture a cat when someone refers to "fat tails".
http://rapacapintro.com/mail/tails.jpg
If you recall one of the key assumptions to the Central Limit Theorem was a finite variance, however fat tail distributions have "infinite sigma", technically meaning the variance does not exist. Most of the time in finance the distributions are mathematically well behaved, but every so often they encounter a trauma and when such a circumstance takes place the model housing the distribution becomes hopelessly inadequate.

I hope you have stayed with me until now, so that we can discuss the RAPA approach to these issues. There is a family of stable distribution models (including normal) that are able to deal with these issues, the one my brains trust have chosen as the superior one is the Levy process, an alpha-stable analog of the Brownian motion. To avoid getting too technical I will just highlight a key differentiating point, while the normal distribution formuale has two parameters, the alpha-stable formulae has 4 parameters which allow it to deal with beta and alpha which are typical features of manager/trader returns.

We are now ready to look at how this impacts on the new algorithm release.

1. We have created an algorithm that fits historic returns to the alpha-stable family. This was no trivial exercise. The computational requirement for calculating our RAPA score has increased many many times more than in the past, to this end you may encounter a temporary inconvenience with scores being updated only twice a day. The reason is that we need to run this algorithm on a super computer away from our existing server and update the profile score. We have a solution to make it all work seemlessly on our server but will take us a little longer to programme it.
2. We have researched our databases and found that accounts displaying low alpha (excess kurtosis) should be penalized. Alpha does not just measure kurtosis more importantly it shows the tail behaviour of the distribution. When alpha=2 the distribution is Gaussian showing no fat tails but when it is less than 2 the distribution will always have infinite variance and fat tails. There are two types of low alpha funds: The ones that change their trading style during the course of their track-record (Type I) and those that sell options and deploy martingale strategies (Type II). We can distinguish between Type I and Type II strategies and penalize Type II.
3. We developed further an algorithm that measures the divergence of a traders recent alpha-stable distributions with his historic alpha-stable distributions; when we witness divergence from the past we typically penalize such behaviour.

In conclusion we have significantly enhanced our ability to evaluate a managers performance using a model better calibrated to the reality of traders and investment managers performance. As always we do not look at our models in isolation but further calibrate our models for typical behaviour across a much larger database of returns than the RAPA one. This completes the first phase of the RAPA Score improvement, we will keep you posted with further enhancement releases.


Regards,



Michael Berman, Ph.D.

Hey Gregory, whats going on ?

I agree with you in part about why traders fail. The constant drive to day trade is perhaps the main reason why failure is the rule and not the exception in the currency market. Emotions are at their most dangerous level when this is combined with the volatility of the market that is at its peak on the smaller time frames that these traders use. However, I also believe that the use of indicators is also a big part of it because of their lagging nature.

Trying to find the correct combinations of parameters for a single or several indicators out of thousands of indicators that are by nature lagging and applying it to the smaller time frames that are already volatile, is a very difficult if not impossible task for most persons. If people were to allow the market to come to them as you stated on the larger time frames where there is greater stability and with the natural form of the market without indicators, then success is a lot more likely.

Take that example of the EURO USD you gave. The current indecision of this pair can be partly explained by the limited activity in the market in general - low liquidity, market investigations etc.- but there is also an explanation based on the natural Price Action movements of the market.


The chart below shows that the currency is actually at the Resistance of a large Pennant setup on the Weekly Chart that was formed after sharp gains for the USD during the Financial Crisis of 2008. As with all consolidations across all time frames, there is usually a period of a pause before the market either breaks out from the consolidation or reverses to go back to the other end of the formation.


EUR USD WEEKLY CHART




You can see that these pauses take the form of Pennants or Ranges. This latest Pennant that has now been formed can also be seen on the Daily Chart.


DAILY CHART





This is one of the many theories of the market that can be seen without the need to use indicators. It is also something that is often ignored when the focus is on the smaller time frames as well.


I really think that the 95% failure rate can be turned around by using the larger time frames, but with the revenue, profits and salaries of the Trading companies dependent on clients trading, it is in their benefit to promote day trading and all that goes with it. I would do the same.

This is why I am promoting a different way of trading based on the larger time frames and with Price Action patterns on the Daily & 4 Hour Charts. Unfortunately with the addictive nature of the Day Trading, its going to be hard for persons to convert, but let´s see.


Regards

DRFXTrading


http://static.lulu.com/images/servic...20140617080123

http://www.lulu.com/shop/duane-sheph...-21662385.html

The Four Horsemen of the Geopolitical Apocalypse
John Mauldin | Jun 25, 2014

Ian Bremmer, NYU professor and head of the geopolitical consulting powerhouse Eurasia Group, consults at the highest levels with both governments and companies because he brings to the table robust geopolitical analysis and a compelling thesis: that we are witnessing “the creative destruction of the old geopolitical order.” We live, as his last book told us, in a “G-0” world. In today’s Outside the Box, Ian spells out what that creative destruction means in terms of events on the ground today. As Ian notes, the most prominent feature of the international landscape this year has been the expansion of geopolitical conflict. That expansion is gaining momentum, he says, creating larger-scale crises and sharpening market volatility.

Hold on to the reins now as Ian take us for a ride with the “Four Horsemen of the Geopolitical Apocalypse.” (For more information about the Eurasia Group or to contact Ian Bremmer, please email Kim Tran at[email protected].)

We’ll follow up Ian’s piece with an excellent short analysis of the Iraq situation from a Middle East expert at a large hedge fund I correspond with. Pretty straightforward take on the situation with regard to ISIS. This quagmire has real implications for the world oil supply. (It appears that the Sunni rebel forces are now in complete control of the key Baiji Refinery, which produces a third of Iraq’s output.)

Back in Dallas, it’s a little hard to focus on geopolitical events when seemingly all the news is about ongoing domestic crises. But the outrageous IRS loss of emails doesn’t really affect our portfolios all that much. What happens in Iraq or with China does. There’s just not the emotional impact.

One domestic humanitarian crisis that is brewing just south of me is the massive influx of very young children across the US-Mexican border. When this was first brought to my attention a few weeks ago, I must admit that I questioned the credibility of the source. We have had young children walking across the Texas border for decades but always in rather small numbers. The first source I read said that 40,000 had already come over this year. I just found that to be non-credible, but then with a little reasonable research it not only became believable but could be a bit low – it looks as many as 90,000 children will cross the border this year.

What in the name of the Wide Wide World of Sports is going on? First of all, how do you cover up something of this magnitude until it is a true crisis? When the administration and other authorities clearly knew about it last year? (The evidence is irrefutable. They knew.)

I am the father of five adopted children. In an earlier phase of my life, I was somewhat involved with Child Protective Services here in Texas. It was an emotionally difficult and heartrending experience. (One of my children came out of that system and three from outside of the United States). I have no idea how you care for 90,000 children who don’t speak the language and have no connection to their new locale. Forget the dollar cost, which could run into the tens of billions over time. These are children, and they are on our doorstep and our watch. You simply can’t ignore them and say, “They are not supposed to be here, so it’s not our responsibility.” They are children. Someone, and that means here in the US, is going to have to figure out how to take care of them, even if it is only to learn why they try to come and figure out where to send them back to. And frankly, trying to to send them back is going to be a logistical and legal nightmare, not to mention psychologically traumatic to the children.

Maybe someone thought that waiting until there was a crisis to let this information slip out (and we found out about it because of photos posted anonymously of children packed together in holding cells) would create momentum for immigration reform. And they may be right. But I’m not certain it’s going to result in the type of immigration reform they were hoping to get.

I have to admit that I’ve been rather tolerant of illegal immigrants over the course of my life. There are a dozen or so key issues that I think this country should focus on, but I’ve just never gotten that worked up about illegal immigration. The simple fact is that everyone here in the US is either an immigrant or descended from immigrants. It may be, too, that I’ve hired a few undocumented workers here and there in my life. As an economist, I know that we should be trying to figure out how to get more capable immigrants here, not less. What you want are educated young people who are motivated to create and work, not children as young as four or five years old who are going to need housing, education, adult supervision, healthcare, and most of all a loving environment where they can grow up.

It is one thing for undocumented workers to come across the border looking for jobs or for families to come across together. It is a completely different matter when tens of thousands of preteen children come across the border without parents or supervision. They didn’t get across 1500 miles of desert without significant support and a great deal of planning. This couldn’t be happening without the awareness of authorities in Mexico and the Central American countries from which these children come, and if this is truly a surprise to Homeland Security, then there is a significant failure somewhere in the system.
And if it was not a surprise? That begs a whole different series of questions.

This is a major humanitarian crisis, and it is not in the Middle East or Africa. It is on our border, and we need to figure out what to do about it NOW!
I don’t care whether you think we need to build a 20-foot-high wall across the southern border of the United States or give amnesty to anyone who wants to come in (or both), something has to be done with these children. It is a staggering problem of enormous logistical proportions, and we have a simple human responsibility to take care of those who cannot take care of themselves.

And on that note I will go ahead and hit the send button, and let’s focus on the critical geopolitical events happening around the globe. Iraq is a disaster. Ukraine is a crisis. What’s happening in the China Sea is troubling. It just seems to come at you from everywhere. Even on a beautiful summer day.

Your stunned by the magnitude of it all at analyst,



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John Mauldin, Editor

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Ajay Jain
CEO

Ajay Jain is Chief Executive Officer at Astromoneyguru.com. Col Ajay is an internationally renowned Financial Astrologer and CEO of www.astromoneyguru.com and www.futurebazaronline.com. He was awarded master�s degree in Economic administrations and financial management from Rajasthan University. He has completed Jyotesh Visharad in three methods of astrology (Parashar, Gemani, & KP)

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CRUDE

Book profit in crude oil at USD 107/barrel: Astromoneyguru Crude oil has seen good upward move in Indian and international commodity market. It’s made high USD 106.91 per barrel. As per financial astrology any time profit booking expected at higher levels therefore crude oil bulls‘s need to careful, says Ajay Jain, CEO, Astromoneyguru. AJAY JAIN CEO, Astromoneyguru.com More about the Expert... 1 1 0Google +0 0 Leaked: Next Apple Gadget As per Col Ajay Jain, CEO, Astromoneyguru, 13th day of June month is represents by planet known as Rahu and year 2014 represented by planet known as Ketu. As per Ajay market theory combination of North and south node of moon may bring profit booking in crude oil around USD 107 per barrel. Crude oil has seen good upward move in Indian and international commodity market. It’s made high USD 106.91 per barrel. As per financial astrology any time profit booking expected at higher levels therefore crude oil bulls‘s need to careful. Short traders may keep eyes on following stocks for short term trading. Timely profit booking is also recommended for intraday trading in (1) Cairn India (2) Aban Offshore . Disclaimer: The views and investment tips expressed by investment experts/astrologers on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read more at: http://www.moneycontrol.com/news/ast...ce=ref_article



GOLD

Gold may cross USD 1270/oz: Astromoneyguru "Gold may cross USD 1270 in seven to 10 days’ time period. Right now gold is trading round USD 1252 an ounce in international commodity market, says Ajay Jain of Astromoneyguru. AJAY JAIN CEO, Astromoneyguru.com More about the Expert... 1 74 0Google +0 0Comments (1) NEW $14 TRILLION INDUSTRY - 1 Stock to own. As per Col Ajay Jain, CEO, Astromoneyguru, 9th day of June month is represents by planet known as Mars and year 2014 represented by planet known as Ketu. As per financial astrology Mars and Ketu are known for positive movement in precious metals. Positive move in gold is expected in Indian and international market. Gold may cross USD 1270 in seven to 10 days’ time period. Right now gold is trading round USD 1252 an ounce in international commodity market. This is multi month’s lowest levels for gold. As per financial astrology combination of Mars and Ketu may boost up gold in commodity market. Disclaimer: The views and investment tips expressed by investment experts/astrologers on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read more at: http://www.moneycontrol.com/news/ast...ce=ref_article


Copper

Expect upward move in copper: Astromoneyguru According to Ajay Jain, CEO of astromoneyguru.com, copper may see great upward move. Expected levels of copper at MCX should be Rs 430 and above within seven to ten days' time period. AJAY JAIN CEO, Astromoneyguru.com More about the Expert... 1 46 0Google +0 0Comments (1) Leaked: Next Apple Gadget As per Ajay Jain, CEO of astromoneyguru.com June 26 is represented by planet known as Saturn and year 2014 represented by planet Ketu. Today Venus and moon are in conjunction with each other in Earth sign. As per Ajay Market theory this combination may push copper upwards in Indian and international commodity market. Copper is trading around Rs 419-420 range at multi commodity exchange. As per astro economics any time copper may see great upward move. Expected levels of copper at MCX should be Rs 430 and above within seven to ten days' time period. Today as per stars, Indian stock market may see sharp profit booking in oil & gas, metal and infrastructure stocks. Following stocks may show profit booking: (1) ONGC (2) HPCL . Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read more at: http://www.moneycontrol.com/news/ast...ce=ref_article

ECONOMICS

When Correlations Lie
12 JUN 27, 2014 9:10 AM EDT

By Barry Ritholtz


If you work in finance, you will invariably come across an example of single-variable analysis. Almost daily, we see terrible examples of this sort of analytic error, rife with logical weakness, yet offered with the highest degree of certaintyThe way this works is as follows: Some ominous data point will be shown, along with a chart that foretells some sort of outcome, often horrific. It usually is accompanied by a chart or table, along with text that warns “IF X OCCURS, THEN Y MUST FOLLOW.” Welcome to the mathematically ignorant, conceptually foolish, money-losing world of single-variable analysis.


A closer look reveals this to be the worst sort of intellectual foppery.


The behavior of markets or economies simply can't be explained by looking at just one thing. If single-variable analysis were remotely possible, the world’s forecasters would have a much, much better track record. They could simply pick the data point with the highest correlation to the target variable, and make much better predictions than we currently see. (Earnings versus Standard & Poor's 500 Index performance, gross domestic product versus economic activity, interest rates versus bond returns.) Even a moderately accurate set of directional predictions should be easy.


But that doesn't happen. Economies and markets are extremely complex. They have a variety of different inputs, including earnings, interest rates, psychology, economic activity, fund flows, taxes, sentiment, momentum, geopolitics, etc. The relevant significance of all of these inputs varies over time. There are periods when fund flow doesn't seem to matter, like most of the past five years. Sometimes interest rate increases are really important to equity prices, other times they aren't. Indeed, markets seem to embrace the idea of rotating memes. These different forces have different weights at different times.
In a lot of ways, markets exhibit behaviors quite similar to those predicted by chaos theory -- dynamic, nonlinear, sensitive to initial conditions, etc. (For those who may be interested, James Gleick’s ``Chaos: Making a New Science," is a marvelous primer on the subject.). Some years ago, I noted that “quantum physics aside, I think we can all agree that the market is a terrifically complex mechanism for digesting an unholy spectrum of all too many data points. Merely controlling for one single variable over time is a surefire long-term money loser.”


What are a few examples of the single factors that have been making the rounds these days?


GDP: “We have never had a negative 2.96 percent GDP report and not gone into recession…”
Rising Rates: “The U.S. stock market doesn't do well when interest rates are rising.”
Earnings Surprises: "Earnings are good this quarter, better than expected, and therefore, the market’s going higher."
New Financial Products: “These new products are being adopted, therefore it means the bull market is coming to its peak.”
Death Cross/Golden Cross: “When the 50 and 200 day moving average cross to the upside (downside), it bodes well (poorly) for any trading vehicle.”
You probably have read one or more of these things recently. They all share the same analytical flaw: Predicting the future actions of a complex system by tracking a single variable. Even when they end up identifying a correlation, we don't know if it is anything more than a random coincidence.
Let's just take one example of how foolish it is to reach a definitive conclusion based on a single data input. Look at the chart below: It shows a powerful relationship between per-capita consumption of sour cream with U.S. motorcycle riders killed in noncollision transport accidents.

Correlation: 0.916391.


http://www.bloomberg.com/image/i7aVzZoLmfgI.png



Source: Tyler Vigen

Given that Wall Street’s computing horsepower rivals that of NASA, if that single variable existed, we have to believe it would have already been found, and whatever informational advantages it offered would have been whittled away already. For some fun with ridiculous correlations, have a look at Tyler Vigen’s website.

This is before we even get to George Soros’s theory of reflexivity. Stated simply, the interaction in any complex system of unfolding events and participants’ reactions to those events creates a dynamic disequilibrium that leads to unpredictable, unexpected future results. In other words, our collective reaction to ever-changing data points ruins any predictability that might have otherwise come about from that data.

Theory aside, real world observations lead me to conclude that investors, analysts and economists aren't going to successfully forecast a stock market or economy by simply looking at a single variable.

To contact the author of this article: Barry Ritholtz at[email protected].
To contact the editor responsible for this article: James Greiff at[email protected].

Observations from the speculative positioning in the futures market:

1. Position adjustment in the reporting period ending June 24 were mostly minor. Only the gross short Canadian dollar positions were adjusted by more than 10k contacts and just barely at that. Some 10.2k short contracts were bought back, leaving a still substantial 45.9k contracts. At the same time, gross longs rose by 6k contracts to 40.6k, which is the largest of the year. The gross short position of 5.3k contracts ist the smallest since last October.

2. The net long Swiss franc position swung back to the short side (5.4k contracts). This was a reflection of 6.2k contract reduction of gross long positions to 9.1k contracts, and the addition of 2.7k short contracts to 14.4k.

3. The euro, Australian dollar and Canadian dollar futures saw a similar pattern of speculators adding to longs and reducing shorts. The yen and peso saw both long and shorts reduced. Sterling and the franc saw longs cut and shorts grown.

4. The net short speculative position in the 10-year Treasury futures fell to 27.3k contracts from 85.8k in the previous week. The longs were feeling their oats and this was before the GDP shocker. They added 37k contracts to 402.7k. The shorts may have gotten nervous and cut 21.5k contracts (to 430k).


Posted 6 hours ago by Marc Chandler

Arrests over plot to destabilise Bulgarian banks
By GARETH JONES IN SOFIA
June 30, 2014

Bulgarian authorities yesterday detained three people on suspicion of plotting to destabilise the country’s banking system by spreading false information about the health of its commercial banks.

The arrests are part of a criminal investigation launched after depositors rushed to withdraw savings on Friday, the second bank at which this occurred in the space of less than a week.

The run on First Investment Bank, Bulgaria’s third-largest lender – which bankers and economists say is well-capitalised – prompted the central bank to warn of a deliberate and systematic attack on thebanking sector.

Last weekend, the central bank took over Bulgaria’s fourth largest lender, Corporate Commercial Bank (Corpbank), after customers, who were rattled by online reports of suspect deals involving the bank, rushed to withdraw their savings. The bank has denied any wrongdoing.

The run on Corpbank has highlighted weak economic governance in Bulgaria which joined the European Union in 2007 but remains its poorest member state and one of its most corrupt. On Friday, leaders of the main political parties set 5 October as the date for a parliamentary election, putting an end to weeks of political uncertainty that has coincided with the bank runs.
Prime minister Plamen Oresharski’s Socialist-led minority government is expected to resign shortly.

In power for barely a year, his government has been plagued from the start by mass street protests and allegations of corruption and has been unable to enact reforms urgently needed to revive a sluggish economy.

Party leaders yesterday began consultations with president Rosen Plevneliev on how to maintain political and economic stability until the election.

The president is expected to approve the election date. Mr Plevneliev, Mr Oresharski and the central bank have all urged Bulgarian citizens to stay calm and to have faith in the integrity of the country’s banking system.

Despite its political and economic problems, Bulgarian and international economists say the Balkan country of 7.5 million people is not in danger of an economic meltdown.

Bulgaria has one of the lowest levels of debt in the EU and its central bank is widely viewed as effective and well-run.
One of the men detained over the bank runs, a resident of the Danube city of Ruse, had called for the scrapping of the currency board, the national security agency last night said.

Petar Ganev, of the Sofia-based Institute for Market Economics, said: “The banking system is stable and there is no need of a new loan from the International Monetary Fund at the moment.

“The credit rating of the country remains high despite the current panic.”

Even Google has Turnover: When it’s Time to Leave a Good Thing
Posted by Ty Hall on Tue, Jul 01, 2014


Everyone knows Google is one of the best places to work—in regards to employee motivation, engagement, and overall culture. That being said, Google employees still want to leave sometimes. Michael Yang, former Deputy General Counsel of Google Legal, wrote an article regarding leaving one of the best companies to work for. The six questions posed are universal for any employee considering leaving, with the prospect of a new job opportunity. As an employer, considering what answers your personnel could potentially have to these questions could preempt turnover due to “greener pasture syndrome,” and help keep your employees engaged.


1. “Why are you thinking about leaving?”

If someone doesn’t have an answer to this question, then they probably shouldn’t leave—simple as that. Knowing what you want out of your next job indicates a highly more successful transition from one job to the next. Yang also suggests having a “focused, thoughtful, and sincere” decision made before seeking out another job or considering a new opportunity.


2. “Are you learning what you want to be learning?”

One would be hard-pressed to find a company that has a better learning culture than Google. Despite the global nature and sheer scope of Google’s resources, some still do not find it satisfying after a while. If what you’re learning from the company no longer engages you, it may be time to look elsewhere.


3. “Are you really going to look?”

If you spend the time to research and actually look for more job opportunities, you’ll probably find that there’s more than one that suits your fancy. Yang said one of the questions he is asked most frequently is, “I have an offer from [insert impressive company name here], do you think I should take it?” to which he replies, “What other options have you considered?” He said the response to his follow-up is typically “I haven’t considered anything else.” Looking outside of jobs you may not have originally considered can open up all kind of doors to new opportunities. “It’s like asking to borrow someone else’s car because you might be sick of your Tesla.”


4. “You realize you’re probably going to make less money, right?”

Average salary at Google, for example, is between $128,00 and $165,000 depending on your job description, and the longer you stay, the more you’re paid. Sure, you’re next job just might pay somewhere close to that—maybe even more—but the odds are not in your favor. If money is your motivator, stay where you’ve got a sure thing. Yang says you should honestly tell yourself, “Even if this company flames out, I may be disappointed but I will have no regrets.” If you can agree with that, then maybe a new career really is a good idea for you.


5. “Should I stay with Google [or whatever company you work for] until I become [title]?”

No. Titles don’t mean anything. All that matters are your experience, skills, responsibilities, and everything you’ve learned. If you feel that you have learned everything you can from the company you work for, and can take those things with you to do something greater, then it might be time to go.


6. “Do you understand the commitment you’re making?”

It’s tempting to emotionally compare the excitement of a new opportunity against the downsides of spending another year wherever you are. But try to remember that you’re making a meaningful commitment to your next job, especially if it’s one you’re building from the ground up. As with any long-term relationship, there will be ups and downs and eventually the novelty will fade.
Not all of the questions posed have to be answered with an emphatic “YES!” to make the decision to leave your current job, but they should absolutely be considered. And to you employers, if you want to prevent potential turnover, ask yourself if you are providing satisfactorily negative answers, or at least reasonable doubt, to the questions. Of course, most companies can’t—and never will be—Google, but they can offer as much satisfaction to their employees, not to mention the security of “a bird in the hand.”

The Delusion of Perpetual Motion
John Mauldin | Jul 02, 2014

In the club where all stock market investors meet every morning when they wake up, the room occupied by those who “don’t understand what is going on” is not as crowded as you might expect. I admit I’m not lonesome – I have plenty of fellow “confusees” to talk with – but I am told they are having to add some more space for the growing crowd in the “it’s a bull market and those stupid old bears just don’t get it” section of the club.

This week’s Outside the Box is a selection from two essays written by an old friend of my readers (and my good friend), Dr. John Hussman. His recent work has been rather forceful in pointing out that expectations of total returns from the US market over the next seven to ten years are dismal. That conclusion agrees with work I have done in conjunction with Ed Easterling, with Jeremy Grantham’s posts at GMO, and with the work of Robert Shiller (mentioned below). There are numerous other analysts who approach the market differently, but the general conclusion is this: investors with a five- or ten-year time horizon are going to be very disappointed unless they have some methodology to deal with the risk of a significant market downturn.

It’s fascinating how investors come to forget that markets move in cycles and not in perpetual diagonal lines. As value investor Howard Marks wrote in The Most Important Thing, “Rule number one: most things will prove to be cyclical. Rule number two: some of the greatest opportunities for gain and loss come when other people forget rule number one.”

I was writing in 1999 about secular bear markets. I noted then and in 2003 in Bull’s Eye Investing that it typically takes three significant events to end a secular bear market. We have had two so far in this cycle. The opportunities for stock pickers and traders have been phenomenal. Long-term investors, for their part, have certainly been disappointed. If there is one thing that I believe we can truly “know,” it is that long-term future returns are based on the valuations in place when you invest. The relationships between long-term valuations and returns are fundamental in nature. Yes, there are variations in the actual outcomes, but they are rather minor when considered from a long-term perspective.

Let me put it another way as bluntly and forcefully as I can. If you are “long” the market today, without an exit strategy or a hedge position, your long-term returns are at major risk. I totally understand that you have to be in the market to participate in the returns. I am not a perma-bear. There are clearly ways to be involved in this market without blindly assuming that it will be what John Hussman calls a perpetual motion machine.
Without a lot of comment, let’s go straight to John’s work. I’m actually going to take excerpts from his most recent essay first, as I think that is the logical way to approach the material. You can read all of his work at www.hussmanfunds.com.

Have a great week. And if your country is still in the World Cup chase, enjoy it while it lasts. It was a fun ride for the US, but the script seems to be turning out as forecast, with Argentina and Brazil working their way through the ranks. Maybe someone can stop those juggernauts; they don’t look that invincible. The race, we are told, is not always to the swift or strong – but that is the way to bet, whether in markets or in fútbol.
Your thinking about cycles analyst,
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John Mauldin, Editor
Outside the Box
[email protected]

Exogenous Threat to Euro Exists as ECB Policy Diverges from BoE, Fed
By Christopher Vecchio, Currency Analyst

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Fundamental Forecast for Euro: Neutral

- The Euro and Swiss Franc were under more intense pressure versus the British Pound, hitting new yearly lows.
- EURUSD was vulnerable going into Thursday and a breakdown may have just started after the strong US NFPs.
- Have a bullish (or bearish) bias on the Euro, but don’t know which pair to use? Use a Euro currency basket.

The Euro experienced a minor setback this week against most of its major counterparts, losing the most ground to the increasingly resilient and impressive British Pound. Even EURUSD had a late-week letdown on the back of the US labor market showing additional fortitude, as the US unemployment rate fell to a post-recession low of 6.1%, the lowest since September 2008. The recent barrage of important data on both sides of the pond suggests a widening differential in central bank policy, leaving the Euro at a disadvantage against the British Pound and the US Dollar going forward.

As traders were buying US Dollars on Thursday after the June US labor market showed the fifth consecutive month of jobs growth above +200K, European Central Bank President Mario Draghi was simultaneously holding court after the ECB policy meeting; the Governing Council’s latest actions did little to help support the Euro.

In absence of new policy action, ECB President Draghi’s greatest contribution on Thursday was to remind traders that not only would interest rates remain low for an extended period of time, but that the ECB was also intensifying prep work related to asset-backed securities (ABS) purchases.

The problem for the ECB with ABS purchases, which is why the market hasn’t taken the threat as a significant reason to drive Euro exchange rates lower, is that the ABS market in the Euro-Zone is not nearly as developed as it is in the United States; and therefore the amount of ABS purchases potentially necessary is difficult to quantify. The ECB, up until this point, was not (and still truly isn’t) necessarily aware of how big the ABS market was and how strong of a purchase program they would need to design.

While the threat of a major LSAP is certainly brewing, the clout behind the ECB’s potential €1 trillion TLTRO is rather weak, at least from the perspective that it could keep downside pressure on the EUR-crosses in a meaningful way. Simply put, these are not carte blanche liquidity injections; the rules published by the ECB on Thursday make well-clear their intention to improve liquidity channels and reduce credit fragmentation across the Euro-Zone.

If the TLTROs are effective, they end result will be capital used to boost organic growth opportunities rather than speculative reach for yield (in the US, the UK, and the Euro-Zone, open-ended QE is widely perceived as free money for financial institutions at the expense of taxpayers and savers, so the ECB is being careful to craft a program that won’t fan the speculative flames). Over time, the TLTROs could even prove to be broadly EUR-positive, but not for several months or years.

For now, the Euro is stuck with a central bank in holding position, preparing for its next move, as it waits and observes what its prior actions have resulted in. One thing is clear, however: the ECB is taking on a more dovish stance by expanding its non-standard policy easing toolbox, and has no intention of tightening policy within the next 12- to 18-months.

The ECB’s ‘lower for longer’ stance is prohibitive for the Euro because the British Pound and the US Dollar are being bombarded with strong economic data and rising sovereign yields as a result, as market participants start to price in interest rate hikes from the Bank of England and the Federal Reserve, respectively.

In this interim period of ECB inaction, we turn our attention outwardly to the BoE and the Fed as the more significant drivers of price action in EURGBP and EURUSD (and GBPCHF and USDCHF as well, given the highly significant, nearly perfect positive correlation between EUR and CHF since September 2011 when the SNB levied the Sf1.2000 floor in EURCHF). –CV

Creating Reality from a Quantum Mechanics Perspective
Dear RAPA members
I am back from my travels to the US which I believe was a successful trip. In the space of 2 days United Airways managed to lose my luggage twice, the first time resulted in me attending a meeting at the Chicago Board of Trade in shorts, as I arrived in Chicago on Sunday night and no shops were open to purchase clothing and my meeting was scheduled for 8am Monday morning, here is yours truly being photographed by the security guy.
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There is an amazing concept in psychology that by simply changing your perspective you can create a new reality and diffuse harmful emotions. To many this seems like hocus pocus but the discovery of Quarks - sub atomic particles in quantum mechanics helps us understand this very concept. You see these building blocks of nature have 2 very unique characteristics: One is that particles are changed when observed, which means the real particle can never be seen. The second is that quarks can be seen in two places at the same time.
Let us revisit the first characteristic. If I am a trader and I know that I am not performing at my full potential, I can decide to analyze my trading behaviour to see where I am going wrong. If I observe that the reason for my poor trading is from impatience and through this observation I gain true perspective on how this behaviour is affecting my performance, then by sheer nature of quantum mechanics and the energy forces of the mind I will have created a new reality and a way forward to trade with potentially less impatience.
One more time; what I am trying to say is that there is no reason to feel locked into a certain emotional state of being. By observing you automatically change reality. The depth to this statement is observing alone does not guarantee that change will take place for the good. In order for a positive new reality to take shape we need a clear perspective and only then can we create a healthy new reality.
I think this highlights the need to engage in a dialectic with a mentor or coach or teacher or partner or analyst or pastoral carer. On our own we struggle to observe and even more we struggle for perspective.
Regards,
Michael Berman, Ph.D.
If you want to go fast, go alone. If you want to go far, go together
CEO & Co-Founder
www.rapacapintro.com