Blog Switchover

Notification:

To those who read my blog, or who have subscribed to my feed, I have switched over to Wordpress.

This is my new URL: http://freethemarketman.wordpress.com/

Blog Switchover

To those who read my blog, or who have subscribed to my feed, I have now switched over to Wordpress.

This is my new URL: http://freethemarketman.wordpress.com/

America: Freedom to Fascism

"A nation can survive its fools, and even the ambitious. But it cannot survive treason from within. An enemy at the gates is less formidable, for he is known, and he carries his banners openly. But the traitor moves among those within the gates freely, his sly whispers rustling through all the alleys, heard in the very hall of government itself. For the traitor appears no traitor. He speaks in the accents familiar to his victims, and he wears their face and their garments, and he appeals to the baseness that lies deep in hearts of men. He rots the soul of a nation. He works secretly and unknown in the night to undermine the pillars of a city. He infects the body politic so that it can no longer resist. A Murderer Is Less To Be Feared." Cicero, 42 B.C.

The only difference between communism and socialism is its method of imposition.

Communism is forced upon the people against their will. Socialism on the other hand is entered into voluntarily by the majority of voters.

Even though the goals are the same, socialism is much more dangerous because it gradually enslaves the people without the use of visible force, while artfully disguising its evil motives with a variety of so-called noble causes.

The evils of socialism and humanism cannot survive exposure unless "good men and women do nothing".

'Truth is treason in the empire of lies.'

Money, Banking and the Federal Reserve

Thomas Jefferson and Andrew Jackson understood "The Monster". But to most Americans today, Federal Reserve is just a name on the dollar bill. They have no idea of what the central bank does to the economy, or to their own economic lives; of how and why it was founded and operates; or of the sound money and banking that could end the statism, inflation, and business cycles that the Fed generates.

Dedicated to Murray N. Rothbard, steeped in American history and Austrian economics, and featuring Ron Paul, Joseph Salerno, Hans Hoppe, and Lew Rockwell, this extraordinary new film is the clearest, most compelling explanation ever offered of the Fed, and why curbing it must be our first priority.

Alan Greenspan is not, we're told, happy about this 42-minute blockbuster. Watch it, and you'll understand why. This is economics and history as they are meant to be: fascinating, informative, and motivating. This movie could change America.

Video: FIAT EMPIRE - Why the Federal Reserve Violates the U.S. Constitution

This is a new video I discovered, although it has been around for some time. I have only one problem with these documentaries and books. A Central Bank is a Central Bank, no matter what name it goes by. The practices by The Federal Reserve is no more different than that of the European Central Bank, Bank of England, Bank of Japan or the South-African Reserve Bank. Keep that in mind if you are not an American watching this video.

The problem is not exclusive to the U.S.A. Fortunately for us plebs, there are still Americans with a backbone and they are the only people exposing and addressing this issue, as far as I know.

This Award-winning documentary, which features presidential candidate Ron Paul, was inspired by the book, "The Creature From Jekyll Island" by author and FREEDOM FORCE founder, G. Edward Griffin.

To get the full documentary on DVD(with up to 120-minutes of additional uncut interviews of Ron Paul and the other experts) go to www.FiatEmpire.com/screener. To instantly download a DVD-quality version of FIAT EMPIRE, go to www.mecfilms.com/mid/orders/fiat4.htm.

Find out why some feel the Federal Reserve's practices are a violation of the U.S. Constitution and others feel it's simply "a bunch of organized crooks." Discover why experts agree the Fed is a banking cartel that benefits mainly bankers and their corporate clients as well as a Congress that would rather increase the National Debt to over $9 trillion than raise taxes. Find out how the corporate media facilitates the partnership between the Fed and Congress and why it fails to disclose what's going on. Lastly, find out how the Federal Reserve-member banks are owned and controlled by an elite group of insiders.

Hayek's 'The Road to Serfdom' in Five Minutes

Here is a conundrum for you. Various titles are available for this video clip. Which one do you choose?

1) Clinton's "Road to Serfdom" in Five Minutes
2) McCain's "Road to Serfdom" in Five Minutes
3) Obama's "Road to Serfdom" in Five Minutes

Here's the catch. Doesn't matter which one you choose. The result will be the same.

In South-Africa's case there is no conundrum. The only drum beating is:

1) Zuma's "Road to Serfdom" in Five Minutes




Road to Serfdom, The Description

This spell-binding book is a classic in the history of liberal ideas. It was singularly responsible for launching an important debate on the relationship between political and economic freedom. It made the author a world-famous intellectual. It set a new standard for what it means to be a dissident intellectual. It warned of a new form of despotism enacted in the name of liberation. And though it appeared in 1944, it continues to have a remarkable impact. No one can consider himself well-schooled in modern political ideas without having absorbed its lessons.

What F.A. Hayek saw, and what most all his contemporaries missed, was that every step away from the free market and toward government planning represented a compromise of human freedom generally and a step toward a form of dictatorship--and this is true in all times and places. He demonstrated this against every claim that government control was really only a means of increasing social well-being. Hayek said that government planning would make society less liveable, more brutal, more despotic. Socialism in all its forms is contrary to freedom.

Nazism, he wrote, is not different in kind from Communism. Further, he showed that the very forms of government that England and America were supposedly fighting abroad were being enacted at home, if under a different guise. Further steps down this road, he said, can only end in the abolition of effective liberty for everyone.

Capitalism, he wrote, is the only system of economics compatible with human dignity, prosperity, and liberty. To the extent we move away from that system, we empower the worst people in society to manage what they do not understand.

The beauty of this book is not only in its analytics but in its style, which is unrelenting and passionate. Even today, the book remains a source of controversy. Socialists who imagine themselves to be against dictatorship cannot abide his argument, and they never stop attempting to refute it.

Ron Paul is a Kook

Well, that is the label Ron Paul's been awarded by the good people who oppose him and his ideas.

But what is a "kook". According to the Merriam-Webster Online Dictionary, a kook is:

"One whose ideas or actions are eccentric, fantastic, or insane"

OK. So from this definition I assume that the "sane" people are implying that Ron Paul and his ideas are "insane".

But, before I allow myself to be sucked into this belief like a sheep, I first need to validate if Ron Paul's ideas are "kooky". Then I will decide.

To do this, I will juxtapose Ron Paul's ideas (the kooky ones) against the dissenter's ideas (like day and night, hot and cold, etc.)

The Kooky Ideas vs. The Sane Ideas

Freedom vs Slavery

Peace vs War

Capitalism vs Socialism (communism)

Sound Money vs Fiat Money

Savings vs Cheap Credit/Debt

Non-Intervention vs Intervention

Free Economy vs Planned Economy

Surplus vs Deficit

Anti Income Tax vs Pro Income Tax

Independence vs Dependence

Solvency vs Bankruptcy

Deflation vs Inflation

Conservative vs Liberal

Deregulation vs Regulation

Proactive vs Reactive

Decentralized Government vs Centralized Government

Limited Government vs Big Government

Individualism vs Collectivism

Pro-Market vs Pro-Government

Private Property vs No Private Property

Money backed by Gold vs Money backed by Debt

Wow, interesting when you compare the ideas like this, huh?

Ron Paul is a kook...yeah, right! He is actually fantastic!

The Devilish Mixture of Stagflation

By Bill Bonner

"One part slump…one part inflation…and one part who-knows-what. Of course, the feds are eager to put more inflation into the brew. If they had their druthers, the concoction would have more of a kick - with more exciting price increases and less depressing slump."

Read the rest

Upping the Inflation Dosage

By Peter Schiff

In perhaps one of biggest ironies to ever to come out of Washington, this week Congress simultaneously pilloried major league baseball players for using artificial stimulants to pump up their performance while passing legislation to do just that to the national economy. Am I the only one laughing?

In reality, the current slump in the U.S. economy is simply the come down from years of financial doping in the form of skyrocketing home values and easy credit. Rather than reaching for yet another syringe, Congress should ask Americans to do what it demands of ballplayers: play within their natural means. Unfortunately in the case of the economy, the patient is already so juiced up that further doses may not only fail to stimulate but may result in a trip to the emergency room.

As the widely praised “economic stimulus” bill was signed into law, the only dissent heard was from those saying the plan did not go far enough. Speaking for those unheard voices who disagree with the strategy entirely, I believe the most significant aspect of the plan is that it creates a new and improved method for delivering inflation.

Previously, the government has largely relied on interest rate stimulus to keep the economy humming. In this method, money supply growth, also known as inflation, is channeled through the banking system. The Fed makes cheap credit available to banks, which then lend out the new funds or use them to acquire higher yielding assets. As a result, asset prices, such as stocks, bonds and real estate, have been bid up to bubble levels. However, the inflationary impact on consumer prices occurs with a considerable lag.

Now that rate cuts alone are proving insufficient, mainly because banks are now so over-loaded with questionable collateral and shaky loans that few can consider acquiring more assets or extending additional credit (no matter how cheap such activities can be funded), the Government is opting for a more direct approach. By printing money and mailing it directly to the citizenry, the “stimulus plan” cuts out all of the financial middle men and administers the inflation drug directly to consumers.

If simply printing money could solve financial problems, the Fed could send $10 million to every citizen and we could all retire en masse to Barbados. However, more money chasing a given supply of goods simply pushes up prices and does nothing to improve underlying economics. Since this new money will go directly into consumer spending, without first being filtered thought asset markets, the effects on consumer prices will be far more immediate.

This politically inspired placebo will do nothing to cure what ails our economy. The additional consumer spending will merely exacerbate our imbalances, allow the underlying problems to worsen, and put additional upward pressure on both consumer prices and eventually long-term interest rates as well. The failure of the stimulus plan to cure the economy will cause the Government, and the Wall Street brain trust, to conclude that it was simply too small. Their next solution will be to administer an even stronger dose.

My prediction is that over the course of the next few years, successive doses of even larger stimulus packages will fail to revive the economy. As the recession worsens and the dollar drops through the floor and consumer prices and long–term interest rates shoot thought the roof, politicians and economists will look for scapegoats. Few, if any, will properly attribute the problems to the toxic effects of the stimulus itself.

However, like all drugs, the biggest danger is an overdose. In monetary terms an overdose is hyperinflation, which will surely kill our economy. It is my sincere hope that before we reach that “point of no return,” a correct diagnosis is finally made. When that occurs, the stimulants will be cut off, and the free market will finally be allowed to administer the only cure that works: recession. If that means we lose some speed on our fastball, so be it. Maybe we could use a few months in the minor leagues to get back to basics. While we may not like the economic side effects of stopping cold turkey, it sure beats carrying our money around in wheelbarrows!

For a more in depth analysis of the tenuous position of the Americana economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.”

******

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for over twenty years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, Peter is a highly recommended broker by many leading financial newsletters and investment advisory services. He is also a contributing commentator for Newsweek International and served as an economic advisor to the 2008 Ron Paul presidential campaign.

******

FMM Comment:

The scapegoat referred to WILL be capitalism. Ron Paul addressed the question, "Has Capitalism Failed?" long ago in the U.S. House of Representatives, July 9, 2002.

"Corruption and fraud in the accounting practices of many companies are comingto light. There are those who would have us believe this is an integral part of free-market capitalism. If we did have free-market capitalism, there would be no guarantees that some fraud wouldn't occur. When it did, it would then be dealt with by local law-enforcement authority and not by the politicians in Congress, who had their chance to "prevent" such problems but chose instead to politicize the issue, while using the opportunity to promote more Keynesian useless regulations.

Capitalism should not be condemned, since we haven't had capitalism. A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank. It's not capitalism when the system is plagued with incomprehensible rules regarding mergers, acquisitions, and stock sales, along with wage controls, price controls, protectionism, corporate subsidies, international management of trade, complex and punishing corporate taxes, privileged government contracts to the military–industrial complex, and a foreign policy controlled by corporate interests and overseas investments. Add to this centralized federal mismanagement of farming, education, medicine, insurance, banking and welfare. This is not capitalism!

To condemn free-market capitalism because of anything going on today makes no sense. There is no evidence that capitalism exists today. We are deeply involved in an interventionist-planned economy that allows major benefits to accrue to the politically connected of both political spectrums. One may condemn the fraud and the current system, but it must be called by its proper names – Keynesian inflationism, interventionism, and corporatism.

What is not discussed is that the current crop of bankruptcies reveals that the blatant distortions and lies emanating from years of speculative orgy were predictable. "

Capitalism rests its case.

The Conspiracy Theory of History Revisited

Mises.org Updates

Murray Rothbard writes: Anytime that a hard-nosed analysis is put forth of who our rulers are, of how their political and economic interests interlock, it is invariably denounced by Establishment liberals and conservatives (and even by many libertarians) as a "conspiracy theory of history," "paranoid," "economic determinist," and even "Marxist." These smear labels are applied across the board, even though such realistic analyses can be, and have been, made from any and all parts of the economic spectrum, from the John Birch Society to the Communist Party. The most common label is "conspiracy theorist," almost always leveled as a hostile epithet rather than adopted by the "conspiracy theorist" himself.

It is no wonder that usually these realistic analyses are spelled out by various "extremists" who are outside the Establishment consensus. For it is vital to the continued rule of the State apparatus that it have legitimacy and even sanctity in the eyes of the public, and it is vital to that sanctity that our politicians and bureaucrats be deemed to be disembodied spirits solely devoted to the "public good."

FULL ARTICLE

Let's Legalize Competing Currencies

By Ron Paul

Before the US House of Representatives, February 13, 2008

I rise to speak on the concept of competing currencies. Currency, or money, is what allows civilization to flourish. In the absence of money, barter is the name of the game; if the farmer needs shoes, he must trade his eggs and milk to the cobbler and hope that the cobbler needs eggs and milk. Money makes the transaction process far easier. Rather than having to search for someone with reciprocal wants, the farmer can exchange his milk and eggs for an agreed-upon medium of exchange with which he can then purchase shoes.

This medium of exchange should satisfy certain properties: it should be durable, that is to say, it does not wear out easily; it should be portable, that is, easily carried; it should be divisible into units usable for everyday transactions; it should be recognizable and uniform, so that one unit of money has the same properties as every other unit; it should be scarce, in the economic sense, so that the extant supply does not satisfy the wants of everyone demanding it; it should be stable, so that the value of its purchasing power does not fluctuate wildly; and it should be reproducible, so that enough units of money can be created to satisfy the needs of exchange.

Over millennia of human history, gold and silver have been the two metals that have most often satisfied these conditions, survived the market process, and gained the trust of billions of people. Gold and silver are difficult to counterfeit, a property which ensures they will always be accepted in commerce. It is precisely for this reason that gold and silver are anathema to governments. A supply of gold and silver that is limited in supply by nature cannot be inflated, and thus serves as a check on the growth of government. Without the ability to inflate the currency, governments find themselves constrained in their actions, unable to carry on wars of aggression or to appease their overtaxed citizens with bread and circuses.

Read the rest

The Frightful Face of Stimulus

Among businesspeople, bankers, and investors, there is a growing fear that the economy is headed towards recession or already in one. But that alone is not the source of worry. After all, an economy if left alone to function in freedom can recover. The real problem has to do with the political response. There is every indication that no matter who comes to be in charge in November, we face a future of massive spending, inflating, and regulating.

And here is the real danger. One only needs to look at such preposterous measures as the "stimulus package" that congress passed to much fanfare. Dumping money into consumers' hands, drawn from wherever they can get it, is the only means these guys can dream up to shore up prosperity. That only proves that they don't know what brings about prosperity in the first place, which is not congress but free enterprise.

Economist Robert Higgs compares a "stimulus package" to getting water out of the deep end of the swimming pool and dumping in the shallow end – all with the expectation that the water level will rise. As he emphasizes, economists should never tire of asking where the money for stimulus is going to come from. Mankind has yet to invent a machine to create it out of nothing: it's either taxing, inflating, or going into debt that has to be paid later (and crowds out capital creation now). There is no other way.

Read the rest

FX Insights Trade Team Update 14/02/2008

By FX Insights Moderator

A few days ago in our update (2/12) we covered some of the signs the market was showing us and how the signs were beginning to show the market wanted to take the euro back up after making a 400 pip correction...

Based on some things I observed in the market today, I believe we've been given very good confirmation that the euro found solid support in the 4500-4480 level and could possibly attempt to move back towards the 4750 level to test further upside...

The main driving force behind today's momentum to move up and test the 4650 level was Bernanke and Trichet... but, we'll talk more about those two in a moment, first, let's talk about some of the key fundamentals today...

Early this morning we got German, French, and Eurozone GDP which came in as expected and forecasted, and this certainly took away some market fears about slowing European growth -- but remember, that data is somewhat lagging, so we could see a different story...

U.S. Trade Balance came in way hotter than expected, and as we forecasted this USD+ number was the result of the dollar's continued weakness... Initial Claims, on the otherhand, came in below expectations showing further signs of a real recession happening... in addition, continuing claims were ugly again, and this certainly has put renewed pressure on the dollar...

Here's where the fundamentals come into play on a day like today -- Trade Balance was great economically and USD+, but the market couldn't react too strongly dollar positive because the sole reason we saw a hot number was due to the dollar weakness and not because demand for U.S. goods are increasing...

Then the Initial Claims data was just a great "reminder" to the market of how bad things are, taking away and desires to buy dollars and sell euros...

But the real story of the day is what Bernanke and Trichet had to say...

Bernanke -- I can sum up his speech in a few lines... Bernanke basically told the markets that the economy sucks, it's getting suckier, there's no hope it will get un-sucky in the near term, and I'm probably going to cut interest rates by at least 25bps in March to keep Wall St., banks, and Jim Cramer from crying like babies...

Trichet -- I can sum up his speech in a few lines as well... Trichet told the markets I'm hellbent on maintaining price stability, I'm worried about wage-induced inflation, I'm worried about consumer inflation, I'm not budging on interest rates, and I'm not worried about growth, so shut up and stop asking me...

Bernanke: over-the-top dovish
Trichet: over-the-top hawkish
Equals: EUR/USD going to 4650 today

For now, the central bankers have set the table... and now it's the market's turn to respond... Bernanke gave the market zero reasons to buy the dollar while Trichet gave the market every reason to keep buying the euro -- at least for now... he's going to give the market some reasons to sell euros, but that is still yet to come...

The other confirmation we need to consider is the fact we're now firmly entrenched above the key 4550 level... if you remember from the last half dozen or so updates we said in order to re-open the door to move back up, the euro would have to sustain a break above the 4550 level and I think this has finally been confirmed today, based on price action...

As you well know, the market has been trading in a rather confusing and odd range after we shorted the euro down to the 4400 level... we've since moved up 200 pips, but it's been a bit of a struggle to do so and quite "strang" how we've gotten back to the 4650 level...

We'll talk more about trading in a moment, but lets look at tomorrow's fundamentals:

There's quite a bit, but the biggest will be the Empire Index, Import Price Index, Net TIC Flows, and Michigan Sentiment... I really don't see too many USD positives coming from tomorrow's data... I don't expect any real upside surprises...

If my suspicions about what I saw in the market today, I suspect we should see the EUR/USD push for higher gains tomorrow... and as this relates to trading, I will likely have to buy the dips and not risk a short and not risk getting caught on the wrong side of the market...

The price action is still rather "methodic" and we're still trading in fairly tight ranges, so the longer we do this, the higher the probability grows we need to see a bigger move soon...

The euro's just been plodding along after forming support at 4480... the market will not trade within this slow, tight range for too much longer... pattern's are showing that it's getting close to move again...

And it's for those reasons that I will remain very tight and cautious with my trades, taking 20 to 30 pips per trade, then getting out and not keeping my accounts exposed to risk...

I do not like the way the market has been behaving, I don't like knowing the market is confused and unsure about what it wants to do... I don't like trading in a market that is hesitating to drive the euro long or is hesitating to push the euro short...

When the market is trading with this type of mentality and clearly displays these kinds of psychological traits, it greatly enhances how exposed to risk we as traders are, and for this reason, I'm playing it tight, depending on price patterns, not overleveraging my accounts, and I'm certainly not going to try and catch a big move, even though I'm certain one is coming...

Anyway...

We did have another successful live trade that was opened and closed this morning for some quick and easy pips:

Click on Image

Again, please practice very strict risk and money management as we head into tomorrow's trade day...

Also, for yen traders, don't forget the BOJ issues their interest rate policy and statement... you'll want to pay attention for this... with the yen's rapid appreciation the past few weeks, the BOJ could certainly say some things to manipulate prices... just an FYI...

See ya in the chat!

-FX Insights

Whore of the World

No institution in modern times is as vile, insidious, corrupt, evil and disgusting as a Central Bank.

It is a whore that has stradled the globe, copulating and spreading its version of syphilis, namely inflation, in an orgy of debt and cheap credit.

The biggest whore of them all, is the Federal Reserve.

Reuter reports that a Depression risk might force U.S. to buy assets. Really? How will this work?

"Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts."

What is so bad about the Fed and U.S. govenment buying a broad range of assets, including stock? Effectively, if the Fed buys an asset, it means that the asset is monetized, or turned into cash for the seller. The money paid by the Fed doesn't exist.

During a normal transaction, a buyer and seller exchanges money for goods. The money used actually exists. It comes from the existing money supply (assuming the transaction doesn't involve credit).

The money offered by The Fed and/or government to conclude the transaction is money added to the current money supply, also known as inflation.

That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.

In the late 1980s and early 1990's Connolly worked for the European Commission analyzing the European monetary system in the run up to the introduction of the euro currency.

"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday.

"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said.

What is so bad about deflation. It corrects the wrong created by inflation. It washes out the excesses and brings the market back to equalibrium.

"While Connolly already sees some parallels with the 1930s, he expects that a more pro-active central bank and government will probably help avert a repeat of that scenario today.

The build up of a credit bubble in recent years was similar to the late 1920s run-up to the Great Depression, he said."

Wrong. The perception that a more "pro-active Central Bank and Government" will avert a repeatof is flawed.

Continued interferance by The Fed and government only postpones and further inflates the inevitable correction.

The Reuters article is based on a worst case scenario and might not even materialise. However, if you catch a wiff of The Fed resorting to these type of tactics, be prepared for a monetary meltdown.

How to Socialise Risk

What does it mean when a government "socializes" something? The answer is quite simplistic.

When a government socialiszes something, it means that it is incurring a cost to do something, and that cost is transferred to the taxpayer. Northern Rock in the U.K. is an excellent example and illustrates The Economic Incompetence of Socialism.

The Wall Street Journal reports on the attempts by banks to get government to "socialize" some of the risk THEY took on:

"The banking industry, struggling to contain the fallout from the mortgage debacle, is urgently shopping proposals to Congress and the Bush administration that could shift some of the risk for troubled loans to the federal government."

Nice business to be in, this banking business. If going to school was anything like banking, nobody would fail, no matter how dumb you are.

The Fed's Open Checkbook Policy

By Bill Bonner

"Faced with what appeared to be a '70s style slump, Bernanke rushed off in the opposite direction - offering lower interest rates and more cash. He hopes to avoid a recession and - who knows - this morning's news suggests that he may have done the trick."

Read the rest

Dow Jones Musical Chairs - Part 2

I discussed the chopping and changes made on the Dow in Dow Jones Musical Chairs

Mark Hulbert at Marketwatch touches on the same issue: What happens to Stocks added and deleted form the Dow?

According to Norman Fosback, editor of Fosback's Fund Forecaster, the Dow would today be more than twice its quoted level had IBM not been removed in 1939.

Are these examples typical of all changes made over the past 110 years? I don't know, since I have not gone back and calculated the returns of all stocks that were added or deleted to the Dow subsequent to its creation in 1896. But I wouldn't be surprised if the average deleted stock has outperformed the average addition.

That's because companies that are added often are coming off a period of dynamic growth. A company that is substantially out of favor typically does not get added. This skews the Dow towards the large-cap growth sector of the market, which historically has underperformed smaller stocks and issues that are closer to the value end of the value-growth spectrum.

Therefore, to follow the Dow's moves is not a very good way to track the performance of the US stock market.

I suggest you rather monitor the Willshire 5000 index, which represents the broadest index for the U.S. equity market. This should give you a better indication of where the market is heading.

January US Retail Sales are Down

In nominal terms, Retail Sales might be up 0.3%, if you can trust those figures.

However, the picture changes if you deduct CPI. If you use the US Government CPI of 4.1%, real sales are down to -3.8%.

If you use the CPI value of Shadow Stats, which estimates CPI at around 7.5%, then Retail Sales are down -7.2%! That makes more sense. I can not see how Retail Sales can grow when business is scaling back. Shedding more light on this, Mike Shedlock asks the question, Does The Shopping Center Economic Model Work?

The hype reflected on the stock markets over statistics like this, leaves me cold. Is this a sucker trap being used by big players to offload shares onto the next fool ?

I just can not see any valid reason for equities to go up in the current local and global economic environment.

FX Insights Trade Team Update 13/02/2008

By FX Insights Moderator,


Yet again we have another tame day in the market... but, we have some things to discuss and consider...

First, lets talk about today's retail data -- to my surprise and the market's surprise, the data was a big upside surprise... we did see the euro back-off initially, but I think we saw limited downside as the market was probably thinking the same thing I was: downward revision coming next month...

I don't believe those numbers at all, but hey, I have to play the hand I'm dealt...

As far as Eurozone industrial data goes, as we forecasted, it disappointed to the downside, coming in at -0.2% vs. an expected 0.5%. Once again we have more proof and evidence that growth is slowing in the Eurozone and this will put pressure on the ECB to cut rates at least once this year... stay tuned as this story continues to play out in the weeks to come...

Fundamentally, we have a monster day tomorrow. We start with key German, French, and Eurozone GDP, and I do mean this is key as GDP is a tremendous measure of growth... I'm not convinced we'll see any mega downside disappointments as this data is somewhat lagging as it relates to the real-time growth situation, but I'm certainly not going to be surprised if the data comes in softer than expected as growth is certainly slowing in Europe...

Then we have U.S. Trade Balance, Initial Claims, Bernanke, followed by Trichet...

With the USD remaining terribly weak, I would suspect a decent Trade Balance, the key for the USD is for the Trade Balance to come in at or lower than expected... a softer number would keep additional pressure on the dollar vs. the euro...

As far as Bernanke and Trichet goes, I have no clue what they will say... either one could make things sound really good or really bad, so it's anyone's guess... lately, Bernanke has remained dovish on economic conditions and dovish on interest rates... Trichet has started growing more dovish on growth but remains hawkish on rates... so, prepare for anything!

EUR/USD:

As we spoke about yesterday, the euro is trading within a somewhat confusing range... it's still making higher lows, but again, we bounced hard off of 4600 and came down...

We flirted around the 4550 key level, eventually to move up and stay over during the duration of the NY session, but as I type this, the euro's moved back into the 4560's...

I have to assume the market is waiting for tomorrow's big data... but the longer we stay in this tight and weird range, the higher the probability grows that we need to make a bigger move soon... maybe the market will wait for tomorrow of Friday to do it...

I'm trading the range and playing things extremely tight... I only took two trades today, which is about the least I've taken in a single trade day all year, and I will certainly not keep my accounts exposed to any risk heading into tomorrow's big fundamental day, I suggest you do the same...

Price Action:

Staying on the recent topic of price action and using EUR/USD 30-minute price openings, I'd like to give you another perfect price pattern that played out right before our eyes this morning... we were discussing it in the chat and I know quite a few traders took a trade based on this price pattern and took some easy profits from the market...

Here's what we observed:

At the 10:00 a.m. price opening, we saw the euro make a bottom in the 4530's and then move up to the 4580's... leading us to the bottom of the range was a very consistent consecutive pattern of lower half hour price openings, and it played out beautifully to show us what the support was and where to get in on a good euro long that would pay at least 20 pips... this pattern, of course, paid out much more than 20 pips...

6:00 a.m. -- 4592 (high opening of range)
6:30 a.m. -- 4587 (1st lower opening)
7:30 a.m. -- 4584 (2nd lower opening)
8:00 a.m. -- 4582 (3rd lower opening)
8:30 a.m. -- 4581 (4th lower opening)
9:00 a.m. -- 4574 (5th lower opening)
9:30 a.m. -- 4544 (6th lower opening)
10:00 a.m. -- 4538 (7th lower opening/euro reaches bottom)

So, holding true to typical EUR/USD price action patterns, we have 7 straight lower price openings, we hit a bottom, and then we move up about 50 or so pips to the top of the day's range...

Honestly, it can't get much easier than this... I know a lot of traders tell me they still have no understanding or concept of using this price action pattern technique, but it's as simple as writing down the opening price and counting to 7... it's just that easy... if I could break it down and make it easier I would, but if you can write numbers and you can count to 7, you should be able to use this powerful indicator...

Does the the euro always follow this same exact pattern? Of course not, there is no such thing as always in the FX market... but we've seen this same exact pattern play out thousands and thousands of times, so the probabilities are there for sure...

Yesterday, Yeno called a live trade in the chat to short the euro at 4600 and today the trade was closed for a nice 50 pip profit:

Click on Image

Finally, I have two new posts about fulltime currency trading that you'll probably want to take a look at...

Being a fulltime trader PART I
Being a fulltime trader PART II

That's all for now, see ya in the chat

-FX Insights

Becoming a Full Time Forex Trader - Part 1

By FX Insights Moderator,

There’s a lot of things in this market that I’m not an expert on, but I do trade professionally fulltime, so based on what I know and based on my own personal experiences of trading this market 24/6, I’d like to offer a few thoughts for consideration.

Although I’ve only been trading since October of 2006, I put in about 80 hours a week watching the market, tracking the global markets, researching the market fundamentals, and trading the EUR/USD…

I have to be honest and say this – I would never recommend or push someone to trade fulltime, especially if you have a young family or you’re a homebody… this life of fulltime trading is not conducive to family life… for me, I love to go out and socialize, but I’ve had to let that go to a great degree in order to pursue my goals as a currency trader in addition to the demands of maintaining this FX community…

That being said, I would never discourage anyone from trading fulltime… if you have your heart and passions set on trading fulltime, fantastic, I support you 100% and I can promise that the FXI community will do everything in our power to help you succeed.

First, I think there’s a few questions you need to ask yourself and have solid answers for:

1. Why do I want to trade fulltime?
2. Can I emotionally handle trading in the most volatile market known to mankind?
3. Am I prepared for this pursuit to drastically change my life for better and for worse?
4. Are my family and loved ones supporting me in my endeavors?

There are probably a few more questions you should ask yourself, but I think those are the important issues to work out in your heart and mind… if you’re at peace with the decision to go fulltime, your next job is to put together a game plan for how you’re going to get started…

Do you have to quit a job? Do you have to reduce your living expenses? Do you have to payoff debt to get that off your back? You get the idea… you have to mentally and physically prepare your body for the new life you’re about to lead…

If you’re loaded down with debt, or you’re having trouble making ends meet, or you have to take a home equity loan to fund an account large enough to trade fulltime, you better think twice!

OK, now that we have all the touchy-feely stuff out of the way, lets get practical…

Risk and money management:

You might be getting tired of hearing us talk about the importance of risk and money management, but that is the #1 key to surviving and profiting in Forex. Risk management is the foundation of trading and it’s the pinnacle of trading – and everything in between!

Honestly, you could make the stupidest trades ever, you could short range bottoms and long at range tops, and as long as you’re using proper risk management techniques, you’ll likely survive the market until it turns around and goes the other way and your negative entries turn into positive ones…

Establish strict risk management rules for your trading… some of my risk management rules are:

1. Only making between 1% and 2% entries per trade
2. Keeping my usable margin above 90% at all times and in all market conditions
3. Typically not stacking my entries closer than 20 pips apart (unless market conditions dictate otherwise)
4. Not taking new entries when the market opens on Sunday
5. Not adding new entries in the afternoon on Fridays

Those are some of my personal risk and money management rules. You have to establish your own. Write them down and commit to following them in all market conditions no matter what – you must stay consistent and organized in all that you do!

There are several posts in our forums about risk and money management, so I won’t beat this horse to death, because I know you’re smart enough to grasp the concepts and importance of risk management – the key is applying this to your trading and being consistent.

Establishing your personal trading style:

Trading is not an exact science… I cannot tell you the “right” or “wrong” way to trade. But you have to establish a style and system of trading that fits your needs. The only way you’re going to establish your own personal system for trading is by experience.

Trading styles largely can be established and defined by your personality… for example, my personality is more on the adventure, explorer, risk-taker, act first and think later type level… and that’s put me in trouble before as I would over leverage and over trade my accounts… so, I can’t let that aspect of my personality interfere with my trading style and my management of risk.

But, the other sides to my personality of attention to detail, hard work, open to knew ideas and knowledge, etc. have worked to benefiting my trading style.

The other part of establishing your trading style has to do with what “indicators” you use to decide when to enter and when to exit a trade. I use the term indicator simply for lack of a better word, but the point is there has to be something you see in the market to cause you to get into a trade and then to get out of trade, whether it is for profit or loss…

Most of you know this already, but for my personal trading style, I rely on these indicators:

1. Overall market fundamentals/economics
2. Price action and price action patterns
3. Following market correlated variables such as gold, oil, equities, securities, and commodities
4. Watching real-time price action
5. Closely watching and following moves by central banks and central bankers

Those are most of the biggies. I must say that I wasn’t able to fully develop my own trading style until I completely understood how this market works and why the market moves the way it does. And that is one main area that 95% or more of all retail traders never grasp.

Sadly, most retail traders go the way of using tech indicators and nobody ever teaches them what really causes market movements and nobody teaches them the patterns of the market. That’s why we spend so much time trying to educate traders on the reality of this market and not the fallacy of using techs.

As far as my trading style goes, I’d have to say the most important thing is price action and tracking the EUR/USD 30-minute price openings. It took me 6 months to learn it, but when the light bulb finally went on, it’s changed my trading for the better and I know this technique will never fail me.

I believe price action is the best indicator for trading the EUR/USD – it’s what works for me, and it’s what makes me the most money and gives me the most success in the market. The key for you is to establish what works best for you. My benchmark for successful trading is something that gives me 9 wins out of 10.

If using techs is your key to success, wonderful, more power to you. I can’t trust something that’s lagging, but again, if you win the most using them, beautiful. I prefer predictive indicators which is why I’m also very fundamental and why I try to think like a bank trader and not a retail trader trading off of Fib lines or MACD’s or EMA’s, which have nothing to do with anything in this market.

Moving on…

Reaching expert status:

98% of my trades, if not more are EUR/USD. I have put all of my energy, my heart, and my soul into learning every single thing I can about the EUR/USD, about its fundamentals, about its patterns, about its price action, etc. I have learned all of the key fundamental reports and how they could affect the market. I’ve learned to read the body language of Ben Bernanke and Jean-Claude Trichet… I’ve learned how the banks trade the EUR/USD, I’ve spent thousands of hours starring at the EUR/USD prices flash on my trade station…

This is just my opinion, but I believe if you want to trade fulltime, you have to focus on one pair and become an expert on it. The EUR/USD offers me enough trading opportunities to make a living from. The more I’ve focused my attention on just trading that pair, the more success I’ve had in the market. I can tell you just about everything about the EUR/USD’s fundamentals, about how and why it moves, etc.

I could write a novel on it if somebody put a gun to my head and made me. I don’t want to sound arrogant, but I want to drive the point that I feel the key is becoming an expert on just one pair and sticking to it.

I probably know enough about the cable, yen, and Swiss to make money on them, and I used to trade them in addition to the euro, but I don’t do that anymore and I’m a much more profitable trader for it. I save my margin for trading the euro.

Even though I feel like I’m an expert on the EUR/USD doesn’t mean I should try to be an expert on another pair, I don’t even want to, in fact, because I think it would take away from my success trading the euro. Reason being, the market is constantly evolving and changing… market conditions are constantly changing, fundamentals are constantly changing, and market sentiment is constantly changing… so, it’s my job to stay one step ahead of the market and one step ahead of the evolution constantly happening with the EUR/USD and with the market… I haven’t learned it all, and my mind is constantly open to learning new things!

--END OF PART I--