A plate of pancakes and a week of trading

This morning, I'm sitting in downtown San Antonio enjoying breakfast at the Marriott Riverwalk.  And listening to the Batman soundtrack.  And getting ready for this morning's Saturday Seminar across the street. 

Here are my pancakes:

So what do these pancakes have to do with trading?

Usually, when you order pancakes for breakfast, the restaurant brings you like 700 pounds of flour mixed with eggs cooked on a griddle.  And 45 pounds of butter.  More than any reasonable person could ever eat.

But this morning, when Helen took my order to add some flapjacks to my breakfast buffet order, she disappeared and not much later brought me the plate you see at left.

Just two small pancakes.  Perfect for a little guy like me that doesn't want to eat a monster breakfast before I speak.

Now, some may be thinking that such a small portion would not be enough and that's a ripoff.  But she was happy to bring me more if I wanted them.  More importantly, she brought me just the right amount and ensured that I wouldn't waste any food.

Do you approach your weekly trading like this?  Are you happy with a portion of trading time that is right for you, or do you gorge yourself on trading?  I worry when I see traders who have let their life pass by as they spend every waking moment in front of the flat panel monitors. 

Have you portioned out your time so that you're not over-trading?  So that your life is balanced and you have time for what is most important?  I once spoke with a trader who installed red flashing lights in his home so that when he had a trade on, he could flip a switch and alert his family: then his family would be expected to remain quiet for the duration of the trade.  He told me "my wife knows that when I flip that switch I can't be bothered."

What a complete idiot. 

To paraphrase: if you gain the world in pips but you lose your family, it is all for naught.

Anyone for a Refco Jacket?

Our friend George had the pleasure of working at Refco.  He's got the jacket to prove it.

I think that it would be interesting to put on this jacket every morning before I started trading; it would be a reminder of the impermanent nature of the market.  The fact that at any moment, something can go wrong.

That no matter how well things are going now, that we can make mistakes.  That no one is immune from human error. 

So, I started thinking about George's Jacket.  And I imagined that it might be a good idea to ask George if he would be willing to auction off the jacket for charity.

So that's what we're going to do.  If you're interested in the jacket, send us an email by clicking here, with "Refco Jacket" in the subject line.  We'll notify you of when the auction is ready. 

Every penny of the price will be donated to Room to Read, which builds libraries and schools for children in the poorest of circumstances.

Sure, Let's Raise Interest Rates. And Blow Up the World Economy.

If you Google "interest rate hike" you get about 1 million hits. Really.

There is a lot of talk now about how the European Central Bank is going to raise the base interest rate to fight inflation.  I heard the other day on Fox Business News that many private bankers and economists are hoping that interest rate hikes in other places around the world remove the necessity for the US to hike rates in the face of rising inflation.

What I want to know is what in the world these people think is going to happen if central banks start raising rates by 50 or 100 basis points or more, when their economies (and the economies of the world) are in trouble.

Right now, oil is causing people to do and say things that they would not ordinarily do.  There is a sense that we all have that gasoline is going to $5 per gallon in the US and oil is going to $200+ per barrel.  Agrinflation -- the rising cost of food -- is also a concern of many.
 
I think that central banks are, for the most part, broken.  I am not sure I believe that it's in our best interests to let a central bank jack around the interest rates to try to "manage" a multi-trillion dollar economy. 

Isn't it possible that the rising cost of fuel and food are going to restrain economic expansion by themselves?  Is it really necessary to also add interest rate insult to energy injury?

The point of raising interest rates is to reign in growth and prevent an economy from expanding as quickly, so that there will be less lending, and thus less spending, which will in turn lead to price decreases to spark new demand.  But what the crap is any central bank on earth thinking?  That a hiked base interest rate is going to affect the price of oil?

The rising prices in oil and food are going to slow down the world economy, in just the same way that an interest rate hike would be intended to do.  But in this case, the markets are taking care of slowing down the economy without any intervention from any one else, especially a central bank.

Victory Declared in War Against Sanity

Well, it's time for the financial world to come back down to earth.  Today the Dow is down over 230 points.  This is what the Journal says:

Fresh trauma over the magnitude of credit-related losses in the financial sector and worry about the stability of auto makers sent the Dow Industrials plunging through the index's closing and intraday lows for 2008.

Oh, really?  We're now worried about the credit crisis again?  How is it that people can get on TV (like 3 months ago, or more) and say that the worst is over?  What kind of wishful thinking was that?

The financial sector is a mess. If there's one thing that we learned over the last 12 months, it's that every 10 years or less, Wall Street proves to the rest of the world that it does not take an IQ above 80 to make a sackload of money. 

If you and I were running Wall Street, here are some of the ridiculous reforms that we'd make:

1.  We'd have daily risk-management meetings.  We'd know exactly what we stood to lose if things went wrong. 

2.  If we didn't know what we stood to lose on a trade, we wouldn't take it in the first place.

3.  If you think that #2 above is unrealistic, then you could become absolutely super rich, and then subsequently indicted, in a sweet job on Wall Street.

4.  If a trader took a position on something for which risk could not be determined, he or she would be fired. Immediately.

That about sums it up.  It is NOT impossible to avoid investments that have undefined risk.  It's just more profitable (in the short term).

The USD: Ready to Come Back?

The USD has lost so much already since 2000, that it now stands the most to gain from anything positive in the US, and anything negative abroad.

In the past 8 years, the EUR has gained 58% on the USD, the AUD 46%, the GBP 25%.  It is, with only one exception (the JPY), the most beaten down major currency in the world.  It has performed worse than the Turkish Lira, the Egyptian Peso, the Uguguayian Peso, Thai Bhat, and the Klingon Darsek, which isn't even a real currency.

At this point, with respect to the currencies, it's not about whether the US economy is in bad or good  shape; the USD has already paid the price even in good times.  What matter is whether Europe's  ecomomy falters.  If that happens,the almighty Euro stands to lose the most, in percentage terms, against everyone.

I've been short the EURUSD for a few months now and I'm keeping it.