Friday Rant.

Key News

• LONDON, March 12 (Reuters) - World oil demand this year will be slightly higher than previously expected, the International Energy Agency (IEA) said on Friday, because of growth in developing countries.

The agency lifted its absolute demand estimates for 2009 and 2010 by 70,000 barrels per day (bpd) from its estimate in February. It now expects world demand to average 86.57 million bpd this year.

• TORONTO, March 12 (Reuters) - Canada's unemployment rate fell to 8.2 percent in February from 8.3 percent January as 20,900 more people found work in the month, with all the gains coming from full-time jobs and in the public sector.
• WASHINGTON, March 12 (Reuters) - U.S. retail sales rose unexpectedly last month despite heavy snow storms and a drop in vehicle purchases by consumers spooked by Toyota recalls, bolstering hopes of a sustainable economic recovery.

Sales rose 0.3 percent, the Commerce Department said on Friday, as consumers bought an array of goods from necessities to luxury items.

Quotable - Sums up European Government Propaganda on Greece (PIGS) Crisis

“Ninety percent of everything is crap.”

Theodore Sturgeon

FX Trading – Friday Rant.
Let’s lead off with this ...

BEIJING, March 12 (Reuters) - The United States should not make a political issue out of the yuan, a Chinese central banker said on Friday, as the two countries lurched towards a potential bust-up over Beijing's currency regime.

The latest rhetorical salvoes underlined how long-running friction caused by the yuan's de facto dollar peg could come to a head next month when U.S. President Barack Obama's administration decides whether to brand China as a "currency manipulator".

People's Bank of China Vice Governor Su Ning said the United States should look to itself to boost exports and not cast blame on other countries, when asked to comment on remarks on Thursday by Obama, who called on China to move to a "more market-oriented exchange rate".

The US will stop making a political issue out of it when China unleashes that puppy to run freely. How about that? So let’s commend President Obama for calling out China’s currency policy which could be dubbed “politically dictated”, at least.

But then let’s ask President Obama to further consider a good portion of his own policies and ideas ... and how well they line up with the free market process.

Either way, the US does need to worry about its own exports; we do need to get serious about maintaining a suitable environment in which our businesses can thrive. But it still isn’t fun when, in this ever-integrated global economy, one major player isn’t playing by the rules (this is not to presume anyone is perfect on this score, but any way you slice the numbers, the Chinese currency is significantly undervalued; this by no means any revaluation will be a magic elixir for Western trade; it’s never that easy, nor should it be).

Okay, here’s another story making news ...

March 12 (Bloomberg) -- Federal Reserve Bank of San Francisco President Janet Yellen is President Barack Obama’s pick for vice chairman of the central bank in Washington, two people with knowledge of the selection process said.

The nomination is pending completion of vetting by the Obama administration, one person said. The vice chairman gets a four-year term, subject to Senate approval, and a separate term on the Fed Board of Governors. The people spoke on condition of anonymity because the selection hasn’t yet been announced.

Yellen, 63, would replace Donald Kohn, a 40-year Fed veteran who resigned last week effective June 23. Yellen, who served as President Bill Clinton’s chief economist in the 1990s, said last month that the U.S. economy “still needs the support of extraordinarily low” interest rates. She would gain a permanent vote on monetary policy, instead of having a vote one year out of every three as a regional Fed chief.

Should this maneuver come as any surprise? No. Should the US dollar be immediately and substantially impacted by this news? Doubtful. Could the US dollar be impacted in the future by this move? Absolutely. Two words: interest rates.

As recently as February of this year Yellen apparently said, “Even with my moderate growth forecast, the economy will be operating well below its potential for several years. If it were possible to take interest rates into negative territory I would be voting for that.”

I hear, as congratulations to being appointed to this position, Bernanke is going to make her a copy of the keys to his helicopter. Where is China when you need them? I mean, can’t some big thinker in the Far East tell us how we should be handling monetary policy too?

Are we still wondering if sub-par growth is due to a lack of sufficient money supply? Are we no longer wondering if ample liquidity bred excesses that helped exacerbate the credit crisis/recession? Hey, the folks over at Alcoholics Anonymous have done a good job recognizing their problems and changing their ways; what do you say we take them out for beers to celebrate?

And to round out this morning’s discussion ...

WASHINGTON (AP) — The government ran up the largest monthly deficit in history in February, keeping the flood of red ink on track to top last year's record for the full year.

The Treasury Department said Wednesday that the February deficit totaled $220.9 billion, 14 percent higher than the previous record set in February of last year.

The deficit through the first five months of this budget year totals $651.6 billion, 10.5 percent higher than a year ago.

The Obama administration is projecting that the deficit for the 2010 budget year will hit an all-time high of $1.56 trillion, surpassing last year's $1.4 trillion total. The administration is forecasting that the deficit will remain above $1 trillion in 2011, giving the country three straight years of $1 trillion-plus deficits.

The administration says the huge deficits are necessary to get the country out of the deepest recession since the 1930s. But Republicans have attacked the stimulus spending as wasteful and a failure at the primary objective of lowering unemployment.
The administration defends the economic stimulus bill that Congress passed in February 2009 with a pricetag at the time of $787 billion as the right medicine to get the economy back on its feet. President Barack Obama has said even more is needed to battle an unemployment rate that remained stuck in February at 9.7 percent.

Ok, yeah, this isn’t a surprise either. But for heaven’s sake it should be a surprise -- a brutally awful one. Otherwise how in the world could this be tolerated?

And “huge deficits are necessary to get the country out of the deepest recession since the 1930s,” really?

“Even more is needed,” really?

Naturally, with an improvement in the economic activity in the US, the focus is turning towards stabilizing the job market. Thus, the government taking the opportunity to “save the day” ... again ... for all those who are in crappy situations.

The thing is, the government wants to promise large amounts of additional funds to create jobs. Lucky for us, the government has the foresight that the private sector does not; they’ll be able to pinpoint exactly where efficient jobs can and should be created, yielding the most benefit for the “greater good” ...

Errrrrrrrrrrrrrrr…………uhhhmmmmmm ………….. uhhhhhhhhhh …………… nevermind ...

It’s Friday.

Markets Misbehave. Certainty is fantasy!

Key News

• International demand for long-term U.S. financial assets weakened in January as China and Japan, the two biggest holders of Treasuries, reduced their positions, the Treasury Department reported. (Bloomberg)
  
• OPEC is increasing oil drilling at the fastest rate in 2 1/2 years even as production exceeds its quotas by the equivalent of a supertanker of crude a day and delegates prepare to pledge no increase in output. (Bloomberg)
• Japan's government kept up pressure on the central bank on Monday to loosen monetary policy even as it upgraded its assessment of the economy for the first time in eight months. It reiterated in a monthly economic report that deflation posed a risk to Japan and repeated its call for the Bank of Japan to support the world's second-biggest economy, which it said was "picking up steadily", a modest upgrade from "picking up" or showing "signs of picking up" contained in reports back to July. Finance Minister Naoto Kan said the Bank of Japan, which reviews policy on Tuesday and Wednesday, understood the government's expectations. (Reuters)

Quotable - Sums up European Government Propaganda on Greece (PIGS) Crisis

“Doubt is uncomfortable, certainty is ridiculous.”

Voltaire

FX Trading – Markets Misbehave. Certainty is fantasy!

Note: The body of today’s issue is a reprint from 14 August 2007.

How many times have you heard this little piece of inanity uttered: “Markets hate uncertainty.”? I heard it said on Friday as I was “passing through” one of the TV “financial” shows on my way to the Home and Garden Channel—the only place safe on the dial for me. Every time I hear that “uncertainty” phrase uttered, it just drives me nuts!

Why in the heck would anyone in their right, or wrong, mind ever think markets have certainty? If they did, the quant funds wouldn’t be blowing apart right now. If they did, we would have no such thing as a dynamic pricing system. Market certainty is standing in line for eight hours for a loaf of bread in the old Soviet Union—you were certain nothing else was on the shelf, and certain the price would set by the state—that’s certainty for you!

In his book, The Misbehavior of Markets, Benoit Mandelbrot summed it up this way, as he described what an alien being looking down on our markets might see:

“Our alien, seeing a planet obsessed by so illogical a system, quickly decamps. But his observations of two forms of wildness remain: abrupt change, and almost trends. These are the two basic facts of a financial market, the facts that any model must accommodate.”

Mr. Mandelbrot appears to be a very smart guy. He knows a bit about math. He has done groundbreaking work on the markets with his research on power laws (corn market) and fractal mathematics (a field it seems he virtually created). If anybody could have found market certainty, he might be the guy. Yet he hasn’t!

The point is this: don’t ever enter markets expecting certainty. Expect to be fooled. If you work from that premise, all the rest is gravy.

I was asked recently: What are my favorite books about the market and trading? I boiled it down to my top six (couldn’t quite get to 5). And one of them is Mark Douglas’ book, “Trading in the Zone.” And the core reason this book makes the list is because Mr. Douglas makes it very clear there is no such thing as certainty in markets. He lays out why it’s critically important to have the right mindset going into markets. And he says, yes it’s important to do your homework and be disciplined. But, don’t believe that this game is anything more than a probability bet. The best we can do is “inch the odds of success ever so slightly” in our favor. And when we do that, pull the trigger (make the trade).

Some may argue about this. But just think about it for a moment. How many times have all the fundamentals lined up in your favor for a trade (a stock, bond, or currency), creating a great deal of “certainty” and yet you’ve been completely clobbered on the trade? I’d dare say for me, too many times to count. No matter how elegant the model, no matter how seemingly tight our inside contacts may be, we will always be fooled because there is no such thing as certain.

Markets misbehave. And sometimes they misbehave in a very big way. And the time they tend to misbehave most is when the consensus thinks there is certainty, or near certainty. For example of recent near-certainty groupthink: global growth is on track, China will continue to grow at 10% plus per year interrupted, interest rates will remain low, central banks don’t matter, on and on into infinitum. It’s all the stuff that one can never forecast, yet we fool ourselves in to believing in certainty

Forex Trading - Safest Investment During Economic Crisis

Economic crisis is chocking the market with its strong grip all over the world. The markets are full of uncertainty, banks are unwilling to defreeze credits and people panic about their savings. When equities markets turned to risky investments for both financial institutions and individuals, is there any kind of investment that is still considered safe?


Forex trading, in my opinion, is the safest investment option available today. Many financial institutions and traders consider foreign currency holdings as the most secure investment option. When couple of years ago an middle class individual wouldnt even dream about entering forex market, today private investors enjoy the appealing forex investment opportunities.

Trading forex gives everyone a chance to enter the real business world. Assets are fully liquid and the biggest advantage of them all the ability to trade long or short on the week days, 24 hours a day. Some forex brokers go even further and offer trading possibilities even when market is closed. Even with a small deposit forex trader can earn generous amount via leverage options.

Forex trading holds a healthy investing potential for every investor around the world. Of course the draw back of forex lays in the fact that not many are familiar with the trading environment and not many have time to educate themselves about it. After all, forex trading requires a lot of learning and practice. When people need investing solutions at the time of uncertainty, learning is the last thing on everyones mind, no matter how worthy forex trading is.

Forex trading is not gambling you cannot simply put a bet on two currencies and wait for the results. Well, actually you can do so, but this will result in a very quick loss of your funds. Currency trading is full of technical terms that have to be memorized and fully understood and for new traders this can also be a big minus.

However, I still think that the pain of learning forex trading is worth even second of it. With a professional assistance of forex broker learning process can safe some time and energy and new forex traders can enjoy the investment opportunities right from their own home.

Another good question is whether financial crisis has or will eventually have any strong impact on forex brokers? After all, if you start forex trading, you have to trust your forex broker to take care of your funds and profits! Is it wise to stop trading at all during economic uncertainty?

My trading motto is trust, but always check. In my opinion, you can continue trading safely but at the same time the moment your profits reach the yes-you-can-withdraw level, you should take the money out. Every time you are done trading, leave no more than $100 in your account just for the save side. That way, even if things go bad, loosing $100 wont sting as much as loosing thousands.

I cannot guarantee anything and I dont know how other traders are handling the economic situation, but I havent stopped trading (although the spreads and swap rates are outrageous). So far every withdrawal request has been processed without problems and I keep my profits save by withdrawing them every chance I have got! Of course, I loose money because of the withdrawing fees and trading with small amounts isnt too attractive, but at least I am not scared every time I open my trading platform! My heart is free when I have nothing to loose.