Year To Date Performance of a Few Dollar Denominated Assets - Currency Wars

The chart below not only shows the Year-to-Date returns, but also very nicely illustrates that concept called volatility, also known as risk.

The management of risk is the number one preoccupation of a successful trader. If you cannot do this, if you do not think of it with your every breath, don't trade.

Trading for the short gain is a thing unto itself. This is why I say that one does not ask traders what to do when shaping their long term public policy, or draw serious economic conclusions from short term market movements. I have to admit that economists themselves, joining the ranks of most politicians and regulators, have a fairly poor track record of late on influencing public policy, but that is a matter for disgraced professions to mull over while they try to talk their way around another financial mess which many of their members actively helped to create.

If you wish, take well thought out long term investments and hold them in a reasonably constructed portfolio appropriate for your objectives. The markets are particularly dangerous now because they are awash with easy money and wilder than the statistics show due to complacent regulation. Everything in this life involves risk. These days things are often not as they appear, and even cash is not without risk. Life is a school of probability.

It is particularly hard to describe currency risk to Americans because most of them have never been outside their country except perhaps for an insulated holiday on the Pax Americana. A surprisingly large number of the Yanks do not own passports, except lately perhaps for purposes of domestic identification. Quite an innovation, to need a passport to go about your business in your own country.

I am not saying that this insularity is a bad thing necessarily, but a phenomenon that subtly but profoundly influences group thinking, the cultural weltanschauung.

And it can be the strength of a nation when it mobilizes to action, but also the weakness, the downside of a relatively isolated and homogenous society, as in the case of an island, ethnic group, or otherwise relatively inward looking society, easier prey for demagogues, and psy ops, and the flattery of frauds. Care for another helping of freedom fries?

But this self-containment is understandable. After all, it is a big and very diverse country, full of natural beauty, much given to the rewards of exploration and travel, a study in itself. And the people are on the whole hospitable, remarkably unpretentious, easy going, and friendly. The country has the gift of virtual self-sufficiency if it were to once again seek it. And it would be the world's loss.

This idea of education and experience is not to say that people need to be geniuses to be people. One of our girls is not quite the sharpest tool in the shed, but she is undoubtedly wise beyond her years, in an almost wonderful way, because she has been gifted with an enormous power of empathy and common sense. Each one can be beautiful in their own ways if you have an eye to see them as they have been created. Every flower has its own enchantments, varieties, and value in God's economy.

But as for a knowledge of money, unless one's profession has exposed them to practical currency exchange situations, they often have only a cartoon like concept of currency fluctuations and relative values as digits on a screen, an intellectual abstraction.

As one of my old professors used to remark, it smells of the lamp, ie hasty and academic without practical understanding. And give them a little power or good luck, and they can quickly become almost unbearable. One of the greatest benefit of an education is that it will teach you what you do not yet know, it will show you the distant horizons.

"And therefore as a stranger give it welcome.
There are more things in heaven and earth, Horatio,
Than are dreamt of in your philosophy." Hamlet Act 1, sc. 5, 159–167

When a reasonably intelligent person remarks that gold cannot be money because its value fluctuates, while their own currency is doing loop de loops to the downside, and their bonds provide negative returns, you have to wonder, until you realize that they are captive to their self-imposed limitations, their limited personal experience, and education and wisdom have not been allowed to lift them out of their deep wells of subjectivity.

educare, Latin from ex ducare, 'to lead out of, to bring forth'

And this I think is the interpretation I prefer for Dürer's Melencolia I. The exhaustion of knowledge, mechanical prowess without humanity or wisdom, which becomes frustrated by its inability to understand life, and to achieve contentment.

Granted, volatility is unusually high in the markets. But we are in a global currency war. Governments are in the markets, which themselves are awash with cheap liquidity and leverage. What else would you expect?

These are big events, and they will not be resolved in a day, a week, or even months.. Try to maintain your equilibrium, and you may wish to stay out of the way of the giants as they contend with one another. That is easier said than done, because the next financial crisis will be of a much greater magnitude, and everyone will be a participant, one way or the other.

US Ten Year Note does not include interest payments.

Gold Daily and Silver Weekly Charts - Currency Wars

With five margin increases in ten days, one could suggest that the CME and their do-nothing friends in the CFTC are machine-gunning the lifeboats, and the refugees from the currency wars.

There is no problem with the exchanges and regulators increasing margin requirements per se, and of course restraining leverage is a good thing. I would just like to see it done more transparently and in a 'rule-based' manner, as opposed to the ad hoc, cronyistic way in which it is done today, most often for the benefit of insiders who control the exchanges, and call for help and rule changes when they get in trouble. And they get into trouble through lax regulation and excessive leverage.

There are 'crash' silver calls down to below 30 to 22 abounding. Keep in mind I sold my short term silver trading positions last week, and was short term bearish.  I have just started buying back in to gold and silver yesterday and a little before with hedges. Also bear in mind that this decline is accompanied by a sell off in equities as we had suggested it would. Hence our hedging strategy has worked.

People ask, why do not the sovereign silver and gold bulls, the BRICS, fight this? The answer is that they are long term bullion buyers, and this short term paper strategy benefits them greatly.

I think the comparisons to the Hunt Brothers silver bubble might be a bit difficult to sustain, very big picture to the point of meaninglessness. The circumstances between then and now are very different, with the only thing in coincidence being the technical price action. But a concentrated effort by the government and the banks could write history and draw the graphs to suit themselves.

I think there is more to this than meets the eye. It really centers around a major struggle with regard to international currency, and the methods by which countries denominate their trade, and store the liquid reserves portion of their wealth. This is a currency war.

Certainly there are almost no bull calls for the precious metals here, and only a few neutrals. I am changing from short term bearish to neutral, and holding new light positions, most of them revolving around a few 'special situations.'  I am neutral, which implies uncertainty. When in doubt, stay out.

I have touched none of my long term positions.

Let's see how the Non-Farm Payrolls number looks, and how it is received. If there is a liquidation panic in the weeks ahead, then all bets are off of course.

This is going to pivot on the stock market and the Fed's short term liquidity actions. The market swings are being triggered by the opaque and irregular management of the markets and the money supply, and the fraud which still taints much of the financial system. Even the staid Economist magazine is questioning US government economic statistics. 

The American oligarchs may be having their own Mubarak moment in the not too distant future.

What has been hidden will be revealed, and what has been whispered will be shouted from the rooftops.

But one day at a time, so let's see what happens tomorrow.

SP 500 and NDX Futures Daily Charts

Another down day for US equities, although it is very telling that the VIX is still a very modest 18.20. In other words, although there is a fairly good decline in place, it is not accompanied by real fear, or at least, not yet.

Non-farm Payrolls tomorrow. Unemployment claims shocked the markets a bit this morning.

I think this is a cynical traders' market, dominated by bank liquidity and insiders. That does not make it any less dangerous to the ordinary person or the real economy.

Republicans Shelby and McConnell are refusing to confirm anyone for the Consumer Protection Agency created by Dodd-Frank, unless it is gutted first in a redo of the law. Although the Democrats are hardly real reformers, the Republicans are the fawning servants of the corporate oligarchy.

This adds more incentive for Obama to do a recess appointment of Elizabeth Warren.