Thursday, December 11, 2008

Character Counts! -- IFCN Wk 53 –Thu- Equity: $1,851.14.

-A Favorite Quote-
J.P. Morgan: "Lending is not based primarily on money or property. No sir, the first thing is character."

Too bad the world eschewed that principle after J.P. passed on. They'll go back to his type of thinking in the future.

Character counts. In lending, in finding someone to marry, making a deal – and the trust in the capital markets by traders.

I completely believe that capitalism is the best economic system ever popularized, but it has a few flaws; a major one is that it's dependent on rational behavior for smooth running. All economies – whether capitalist, communist or socialist – needs capital assets to keep functioning. Roads, bridges, factories, houses and offices need to be built AND maintained with continuous inflows of capital.

Capitalism is based on the profit motive, a basically pure motive in the hearts of men. It is much healthier than fear of getting thrown in a Stalag because you disagree with a government's economy. But, it is a fickle motivation when people aren't confident that their profits (gained by some amount of risk, personal, financial or both) will be worth what they expect when their business is completed.

In a Communist system roads, bridges, factories, houses and offices get built – with no concerns about how to finance them. Get a bunch of people, tell them they must supply the materials. Get another bunch of people, tell them to clear their calendars for a few years because they will be building things. You can see the world's natural attraction to capitalism.

Under capitalistic societies, the people themselves decide whether they like a certain job based on personal preferences or the job's remuneration possibilities. They decide personally whether to take on more or less debt. The companies they work for decide to issue more or less stock, buy or sell bonds – all of these actions in aggregate creating possibilities to have booms and financial busts.

Capitalism, though strongly robust under most conditions can become unstable unbelievably quickly under a few exceptional circumstances like we see presently.

Leonardo Plank Test-

If you put a thick, 2 foot wide, 10 foot plank between two close buildings and the offer to pay crossers $10 every time they cross it– most people wouldn't be terribly afraid to cross it – especially if it was only 10 feet off the ground. The higher the altitude of that plank, the number crossing it comfortably would be proportionately fewer. At 100 feet off the ground and the offer of $100 per crossing, there would be a determined group of brave souls who trust their abilities, the plank and its moorings – to cross the gap. With a $500 offer to cross and a 500 foot height, you would still find people crossing every minute of the day and night.

Unless there was an earthquake or even the possibility of one. Then nobody would cross.

Capitalism tends to shut down for financial earthquakes, and even though the earthquakes may be finished, the little tremors following keep reminding even the “brave” among us that the earthquake might not yet be done. (Side note: In a communist system they would send you across anyway, at the point of a gun, and if you were successful would just take the $500 and send you across again. Another reason why capitalism wins the hearts of people despite some drawbacks.)

Capitalism wins over time because it allows the public to exert their personal confidence in their financial decisions. If you don't think that prices of homes are going to go up for the next decade, you will probably opt for renting – which tends to be cheaper most of the time. If banks think the same thing, they are going to be reluctant about lending (unless they are confident that they will be bailed out forever and ever – which seems to be the capitalist story).

The same principle applies in business. If a company builds a new factory and invests in research and development; profits and yields create higher prices. Which encourages more of the same until competition forces development in other areas. They won't do any of this unless they think their future looks stable.

The "Plank Test" is working. We are seeing little hints that the financial world is not going to disappear for these capitalist risk takers. Expect to see the dollar soften a bit and other assets get some play. That is definitely good for us.


We got filled on our FirstStrikePlus Usd/Jpy sell @ 91.77. At the time of writing, this trade is profitable, which is always welcome. The Euro and Swiss Franc are extending their gains, as is XAG. Good to have a strong week going.

The week's current FirstStrikePlus trades:
  • eur/usd: Long @ 1.2859, stop 1.2739. Trade in progress.
  • gbp/usd: Long @ 1.5007, stop 1.4651. Trade in progress.
  • usd/chf: Short @ 1.2090, stop 1.2221. Trade in progress.
  • usd/jpy: Short @ 91.77, stop 93.26. Trade in progress.
FirstStrikePlus trades will be exited on Mondays at 00:00 CST if profitable. (First-Profitable-Open Exit) See complete rule-set for effective trade management.

Trading account equity: $1,643.14.

Silver position equity: $208.00
(Current XAG price: $10.44 – 200 unit position average: $9.40)
TOTAL Equity: $1,851.14.

And yet another new equity high....

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. 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!

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