What’s bearish for stocks, is bullish for the dollar

What’s bearish for stocks, is bullish for the dollar
I came across a study that confirms just how tightly tied the markets have become. According to James Bianco, president of Bianco Research LLC: Over the last six months, seven separate assets have maintained an 85%, …
Source: www.moneyandmarkets.com

Fed to Lower Rates to 0%
The consensus among economists is now that the US Federal Reserve Bank will lower its benchmark interest rate all the way to 0%. The Fed Funds Rate currently stands at 1%, and two projected 50 basis point cuts within the…

The consensus among economists is now that the US Federal Reserve Bank will lower its benchmark interest rate all the way to 0%. The Fed Funds Rate currently stands at 1%, and two projected 50 basis point cuts within the next two months would bring the rate to its lowest level ever, where it could remain for as long as one year. Apparently, the concern among economic policymakers is that the sagging economy and falling asset prices will ignite a protracted period of deflation. Given the extent to which the Federal Reserve Bank as well as the Federal Government have already moved to stimulate the economy, it’s unclear whether any further loosening will have an effect. Currency investors remain unfazed about this prospect, perhaps because the rest of the world is in equally dire straits, and foreign central banks are mulling proportionately drastic measures. Marketwatch reports:

"This [interest rate cut] move confirms a highly pro-active and aggressive central banking community and there will be more to come" from the Bank of England and European Central Bank, said one currency strategist.

Read More: High-yielding currencies under pressure

Source: www.forexblog.org

Why Trade Spreads?
By: Jake Bernstein www.trade-futures.com The average futures trader these days has come to the markets either through having had negative experiences trading FOREX, stock options and/or day trading mini S&P and/or mini Russell futures. The grand illusion and big lie of the markets is that trading these vehicles is a sure fire way to make profits with low risk. The [...]

By: Jake Bernstein
www.trade-futures.com

The average futures trader these days has come to the markets either through having had negative
experiences trading FOREX, stock options and/or day trading mini S&P and/or mini Russell
futures. The grand illusion and big lie of the markets is that trading these vehicles is a sure fire
way to make profits with low risk. The associated grand illusion or delusion is that day-trading
these instruments is readily profitable and relatively simple to master. The plain and simple truth
of the matter is that the new trader or new investor is readily attracted to the promises made by
so many advertisements both on the Internet and the media. Some of the claims are truly and
utterly unbelievable. I’m astounded that people actually believe them. Anyone who has tried their
hand at trading knows the reality of what I’m saying. Although not surprising, many new traders
are attracted to the most obvious ways of trying to make money in the markets. But in the markets,
as in life itself, that which is most obvious is not always that which is true or right. During
these times of record-breaking volatility in all markets there are three keys to survival and profits.

They are as follows:

1) Trades must have large stops. Small stop losses just won’t work when daily price ranges
are large and all to often random as opposed to based on market fundamentals

2) More than ever, trades must be based on valid technical indicators and or methods as
opposed to emotional or knee-jerk responses to market related news and finally

3) Low risk is essential if you are to survive and prosper. Only by surviving these markets
will you be able to get on board for trades that are “based loaded” home runs. While it
may be enjoyable, ego gratifying and seductive to go for the small profit, it’s the big profit
that makes the difference.

Is there a way to achieve some of all of the above? Are there several ways in which these goals
may be realized? I say yes. Extreme times require creative and innovative solutions. This does
not mean that we have to find new solutions, it simply means that we have to survey the possibilities
and act on those that will help us achieve the goals above. And one of those solutions is to
trade spreads. Why spreads? There are several reasons to consider spread trading at this time.

Some Reasons to Consider Spread Trading

I have come to recognize and realize the value of being a contrarian. When the lemmings are
going off the cliff we want to head up the cliff. When the crowds are yelling buy buy buy we want
to quietly sell sell sell. When the bubble is getting bigger we want to stand aside and let it burst
without being hurt by the fallout. When I recommend trading spreads and your fellow traders look
at you askance or call you a “chicken” remember that when you are still around and making
money and enjoying the process they will likely be adding new funds to their accounts and/or
complaining about how hard it is to make money in these volatile markets.

I would like to share with you my reasons for suggesting that you consider spread trading. But
first, for those who are not familiar with spreads here is a simple definition. A commodity spread is
a trade wherein you are long one contract month of one commodity and short a different contract
month of the same commodity or the same contract month of a related commodity. Your goal is
to profit on the difference between the two. In other words, to profit from the fact that you will
make more money on one side than you will lose on the other side or at best that both sides will
make a profit.

Here, not necessarily in order of importance, are my reasons for suggesting that you consider spread trading:

• Spreads tend to be less risky than flat positions (by which I mean just simply long or short). This is not always the case; so do not take my statement out of context. Spreads in the same commodity (for example long July corn vs. short Dec corn) tend to have less risk than spreads across different markets.

• Intra-commodity spreads tend to have lower margins than flat positions. In many cases the margin requirements are much lower than in flat positions

• Spreads are more likely to be traded by professionals. So if you’re trading spreads you are apt to be in good company

• Spreads tend to be highly seasonal. Some of the seasonal tendencies are utterly amazing. And they have been very consistent through the years. They are not, however, “sure things”!

• Spreads (as I do them) tend to be longer term, at times running as long as a few months from start to end. Hence, they require less attention

Examples

Shown below and on page 8 are some seasonal spread examples. Take some time and appreciate the consistency of these seasonal patterns. Here, for example is the chart for Long Jun / short April lean hogs since 1969.

Source: feeds.feedburner.com

US to Continue to Pressure China Over RMB
After rising nearly 20% over the last three years, the RMB has virtually stopped appreciating against the US Dollar, perhaps as a result of the credit crisis. At the same time, the US exports sector- previously one of the few…

After rising nearly 20% over the last three years, the RMB has virtually stopped appreciating against the US Dollar, perhaps as a result of the credit crisis. At the same time, the US exports sector- previously one of the few bright spots of the sagging economy- has begun to stall. US Politicians have taken note, and are now renewing their efforts to persuade China to allow its currency to rise further. They are also agitated about China’s perpetually growing forex reserves (currently estimated at $2 Trillion), which are increasingly being deployed in sensitive areas. Meanwhile, the Chinese economy is growing at the slowest pace in years, and the Chinese government is resorting to desperate measures to prop it up. In short, allowing the RMB to rise, while placating US policymakers, is tantamount to economic suicide, and hence unlikely.

While other sovereign wealth funds have existed for nearly 50 years without controversy, "China appears far less likely than other nations to manage its sovereign wealth funds without regard to political influence that it can gain by offering such sizable investments."

Read More: US panel urges action on China currency, investing

Source: www.forexblog.org

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