Saturday, May 31, 2008

Currencies Have Feet of Clay!-- IFCN Wk 25 -Fri- Equity: $730.23

Traders have long lived on the profits from market moves that are predicated by simple concepts, the simplest of which follow below:

The cure for a low price is a low price. The cure for a high price is a high price.

It may take a second or two to get the concept of this but it is really very simple. Have a lot of something, like – wheat, like we did in the 1990's because everyone and their uncle grew it-- and you have low prices.

As long as everyone keeps growing the same amount of wheat the price will stay low. Eventually someone decided that they could grow chickpeas or something else in Canada than wheat and make a heck of a lot more money. Partly due to the inept behavior of the Canadian Wheat board (socialism at its best!) and market pressures, Canada barely grows any wheat where they can grow something else. Entire sections of a great land that only grew wheat 15 years ago, now grow no wheat.    (Side note:  I absolutely love Canada.  My oldest trading partner is in Regina and we've talked 5 - 10 times a day for more than 20 years.  I know almost as much about the Canadian government as my own!  They're both hopelessly screwed up!)
The rule worked its magic.

This year we saw the wheat that is grown in Canada and northern US states hit over $23/bushel when just a few years ago it was $3/bushel. It wouldn't have helped Canadians much because of their Board but it sure helped the free trade economy enjoyed by the northern wheat states. A lot of brand new machinery is hitting the fields this year.

What else do you think is happening in wheat country as I write this? Anybody who can grow hard red spring wheat (HRSI)..., is!

The surest way to get a bull market is from an oversupply. The surest way to a bear market is from scarcity.

When crude oil 7 years ago was flirting with $10/barrel, it was depressed because the countries who produced oil needed money so bad they overproduced without any prompting from the industrialized countries, or polite requests from President Bush.

That helped the US and Europe build up strong economies because they could turn the energy of the oil into products and services that had a better than average profit margin. That is what the roaring '90's was all based on, cheap fuel and cheap products relative to correct value.

Now the shoe has been on the other foot for a while, and nobody in the buying lane likes the high input costs of oil. Whether the oil producers realized it or not (very likely not!) they inadvertantly created the huge bull market and generous current prices created by the initial oversupply. (About President Bush's recent request for increased oil production-- He knew it would make no difference, but everyone uninformed about the oil situation thought he should ask. Oil will fall just fine on its own.)

What do you think is happening in oil countries the world over with $130/barrel oil? They pump oil, not to stick on the shelf or in a tank to look at, but to sell. (Imagine what kind of a bear market you can get when you start with abnormally high prices and no real scarcity!)

The current moves in the forex market are no strangers to these bull/bear market rules.

When you have an overproduction of a currency such as dollars; a low price area is guaranteed. In this case, the situation isn't that dollar production is stopping or slowing.

Expensive currencies currently dominate countries where the economies are slowing.

If you are a holder of large quantities of these overpriced currencies you are not able to get reasonable return for the risk of holding them any longer. You then increase your return by buying the easily available cheap dollars and send them back to the USA and buy REITs or stocks or real estate or businesses that actually provide RETURNS much greater than available in Europe.

The dollar is thus forced into an uptrend because of the demand for return, and the dollar is the vehicle to access the returns.

It isn't so much the dollar being strong- it is more the fact that the other major currencies aren't seen as bullet-proof anymore. That's because bull markets usually take prices a little too far and bear markets drop a little too much.

We will likely see the dollar get a bit stronger for some months, with a lot of volatility while the world gets used to the situation.

Here's this week's recap:

The data below is as of Friday's close, May 30, 2008:

No OneNightStand trades were executed today.

Start of week equity: $697.89

OneNightStand Exit(s) on 05/26/08:

Completed FirstStrike trades this week:
  • Eur/Usd: long @ 1.5810, stopped out at 1.5750 for a 60 pip loss.
  • Gbp/Jpy: long @ 205.53, exited Friday @ 208.85 for 332 pips profit
  • Gbp/Usd: short @ 1.9770, stopped out at 1.9830 for a 60 pip loss.
  • Usd/Chf: long @ 1.0311, exited Friday @ 1.0422 for 111 pips profit
  • Usd/Jpy: long @ 103.82, exited Friday @ 105.43 for a 161 pips profit
Total losses: 120 pips
Total profits: 604 pips
Net profits: 484 pips

OneNightStand 05/30/08 entry(s):

Unrealized Losses: -0-
End of week equity: $730.23 (includes unrealized P&L)
Total Gain for Week: $ 32.34 (4.6% weekly increase)

---Two birds with one stone---

About the extreme delay this week in sending the OneNightStand orders that I typically send out early every Friday morning after midnight CST. ( I sent the orders out 12 hours late!)

They are not mechanized. It is me at the switch sending out the emails. Which works for a mild-mannered control freak trained by markets.

I thought I had every contingency covered.

This week I intended to send the ONS orders from an upstate hotel I was staying at while visiting a sick friend. I brought my trading computer with me, with a backup computer – in case! The hotel I stayed at was remote but had great internet access every other time I've stayed there. Shortly before zero hour when I send out the emails, the hotel server gave it up. There was nowhere within 50 miles to get hooked up reliably and for some reason my standby dialup which I still keep for emergencies couldn't be accessed through the hotel's phone system.

I paid for a man to come out and fix the server the next morning. He did, I got my quotes and sent out the emails.

It is good this happened for a couple reasons. You'll get a free education in something you absolutely need to know and I get a point rammed home to me for the hundredth time.

First, all of you who are actually trading FirstStrike and OneNightStand have the rules for the systems and you can (and did) calculate the orders for yourself. Congratulations! And I would have called some of you to give me the orders so I could call in my trades, if I didn't already have a guy on retainer who gave me the prices I needed. (Note: Keep the telephone number of your trading firm in your billfold.)

Second, this is a perfect example of why you have to anticipate every possible contingency for your continued trading.

Fortunately, for me, there were no ONS trades--- but there could have been the mother-of-all -rades that could virtually make the year, and I could have missed it without backups. The thing is, I wouldn't be minding so much about missing an opportunity for the Infiniteyield Forex Challenge account.

It would be financially devastating for ME personally! I trade for a living and missing big trades is not what makes the money come in. In my personal account I put on enough size on ONS trades to make a huge dent in my year if I miss the BIG ONE! It is a great trade and I don't miss it and others which are powered off the same principles.

I got some nice emails and some from new people who said in essence, “what's the idea with sending the ONS trades so late...? I did not intend this to be construed as a signal service.

By the way, that is another good reason why you should never rely on signal services. What if they should quit and you don't know how they get their signals? Fortunately, you can always figure out the signals for the trades IFCN follows.

Best wishes on your weekend.

May we have another good week next week? It's possible!

Joel Rensink

PS: To receive the FREE! trading rules for the Infiniteyield Forex Challenge ($499 value) and the semi-monthly newsletter about this challenge, send an email to: and tell me to which address you would like it sent. Please do not use AOL, Hotmail or Yahoo addresses. Nothing personal, but they've been known to filter out more good mail than actual spam. Try a Gmail address. It's free, simple and perfect for traders!

No comments: