It’s in my hands. The weekly Barron’s newspaper. And what is the front page story?
Out of all the potential macro opportunities and imbalances in the world they could possibly spotlight, they chose the AUD and commodities.
Let’s take out some snippets and analyze them:
“Right now, the Australian dollar is signaling that the rebound in commodities might have further to run.”
First let us look at the comment “rebound in commodities” to see if it is accurate. Yes, Crude Oil has risen since February by about +30% or so. Gold has risen +17%. Iron Ore prices have risen some 35% from the Dec 2015 / Jan 2016 lows. And this, combined with some perceived stabilization in China had caused the AUD to rally some +5 to +10% vs the USD (Via AUD/USD).
However, the less then stellar analysis begins when the author talks about how “commodities might have further to run.” Just because the AUD appreciates in value a bit, doesn’t mean that the commodity prices associated with it have further to run. What if the bounce in commodities is exhausted and they fall further? What if they just chop around? It is a bit of a stretch to say the commodities will have further room to run. They may run further or they may not. If they do run higher, it will not be because of the appreciating AUD. If commodities keep rising, that is for other reasons first. Any rise in the AUD is simply an effect. The cause lies elsewhere. Also, it is very possible for the AUD/USD to rise, not due to anything related to commodities or the Australian economy, but due to USD weakness pushing up the price. One must also be aware of that scenario as well.
There was a situation back in 2009 where the AUD/USD was breaking out higher, and this signaled an Asian led recovery from the 2008 financial crisis, which caused the equity markets to recover sharply from their previous drop. The author seems to believe the same thing is going to happen in this situation. It does not have to be that way.
Commodity prices are only one portion of where the AUD is going to go. The other component is the domestic economic forces and monetary policy. So the rise in commodities as well as a bit of the carry trade demand did help boost the value of the AUD, but that went up against some bearish domestic macro forces. The PPI and CPI in recent weeks came out weaker, and the RBA just slashed rates by 25bps, all helping to cause the AUD to recently fall. The author KNEW of this economic data and the RBA rate cut, and yet still maintained the bullish AUD view.
One member asked me a question about one long AUD/USD trade they had on in April that didn’t work out too well. The gist of the answer I gave him was that, yes there was some risk appetite and carry trade demand that boosted the AUD, but the price had already rallied a few hundred pips. So the bullish macro may have been exhausted, especially considering the bullish scenario did not seem all that powerful. And also considering since the RBA was threatening a potential rate cut which was capping the topside potential. I did not sense any “Game Changer” situations which could move the market, clearly, in a certain direction by 1,000 pips or more. So when this “Battle of Scenarios” signals a choppy or uncertain market conditions, I STAY OUT.
If someone does have a desire to structure trades around shorting the USD let’s say or shorting the EUR, they should SAY IT and pair it up with another currency they believe will be the weakest. They should not try to mix and match them where it only becomes a minor move or choppy conditions (AUD/USD), rather than a great trend and momentum move. If it is true that commodity prices, trump domestic monetary policy for drivers for the AUD, much better that they both COMBINE FOR BULLISHNESS, rather than attempting to cancel out each other to create the choppiness.
Also, be very very careful when someone says, “x” has historically signaled “y.” You need to carefully check the reasons for such beliefs. If they are truly based on sound information, sound reasoning, sound strategies, or based on wishy washy stuff. There are most certainly historical macro catalysts and scenarios that you can say “x” signals “y”, but they have to be based as close as possible on the market truth, on what will actually move the price, not on what you hope will move the price. Since you don’t move the price. It is the traders that place traders AFTER you get in, who determine where the price is going to go.
This goes not just about authors that write articles for the magazines and newspapers, this also goes for the top hedge funds and traders. Stanley Druckenmiller, who worked for George Soros for over a decade and has a stellar track record, talked in April 2015 about the Chinese stock prices and economy:
“Whenever I see a stock market explode, six to 12 months later you are in a full blown recovery.”
Chinese equities topped about two months later and crashed. There has been no full blown recovery in the Chinese economy as of yet. GDP growth has slowly been sliding lower.
In another example I remember various other gurus before the financial crisis touting the shares of Fannie Mae and Freddie Mac in a popular personal finance magazine, before their stock prices plunged and they were put into a conservatorship by the U.S. government.
To be sure, I make plenty of predictions and anticipations, and some of them don’t pan out the way I expect them. What I hope to do, is spur you towards more accurate thinking and action, so you get it right more often than not. And when you do get it right, you win bigger, and you avoid the big losses that afflict some other trades. Your journey to this more accurate thinking and action in the market, contains plenty of joy, as you visualize those successful series of trades, raising your account equity higher and higher, and actually start placing a few of them.
“But in the beauty contest that is the global currency market, the Aussie looks attractive, given the nation’s low net-debt to gross-domestic -product ratio, a triple-A credit rating, growth that is faster than that in other advanced economies, higher yields, and policy coherence reflected in 25 consecutive years of growth.”
There is such a thing as the “beauty contest” in the global currency market. Since currencies trade in pairs, it is the relative value between two currencies. So that part is certainly true.
Where the analysis falls short and where the delusions begin is where the author cites the “nations low net-debt to GDP ratio, a triple-A credit rating, policy coherence.” I am here to say that the market doesn’t really care about such things in the current macro environment. Those forces are generating close to zero aggressive order flow in the market. What the market can certainly care about are the commodity prices, what happens with China, the Australian domestic economy and monetary policy, and yes the high carry yields.
Success is, more often than not, based on clear and accurate thinking and action in any endeavor. Now, there is most certainly room for your own style and flair and judgement and quirks that you bring to the table. However, when dealing with directional trading, there is less leeway for this kind of undisciplined thinking.
A trader must develop more accurate thinking, if they wish to be a more profitable trader and have better time management. You do not want to be spending your time on unnecessary information that does not move the market. There are a lot of other things you can be doing with your time than spending it on the wrong information. You could be spending it on the more accurate, relevant and powerful information that can cause a big market move in the financial instruments that you do trade. You could do research on new financial instruments that you desire to add to your repertoire. You could spend it going out with friends. You can work on side projects and businesses. You can go make love to your spouse. There ARE all sorts of other infinitely more profitable, joyful activities that you can spend your time on, rather than the deluded information.
In my childhood, growing up, at the kitchen table, and at the family gatherings every year, I was usually very quiet. I just spent a lot of time listening to all the various people express their hopes, dreams, philosophies, ups and downs, enthusiasm, depression, etc. With intense fascination, I listened. I had a very tiny inkling that a lot of what they were telling me was not true. Say, around 0.10%. But as the years went by, and my knowledge and awareness and skill grew, I started to realize just how wrong they were. I learned the words of “false beliefs” and “poverty programming” and “delusions,” etc. So now I am much more aware of the 95-99% of the deluded conversations that were going on back then. Which brings me to my next principle of:
Always remember this: Deluded writing, deluded speaking, is a sign of a deluded mind.
It is also important not to confuse the difference between delusion/truth and that of desires/preferences. If one person says they like hunting and another likes fishing, there is no one thing that is “truer” than the other. If one person says they like to play basketball and another likes to play tennis, there is no one thing that is “truer” than the other. These are simply matters of desires in life. Simply a matter of what do you like to do for entertainment? A matter of what brings joy into your life.
However, when we enter the realm of trading, especially directional trading, there are certain prices that we all can see every day. You can’t fool anybody about these. Where there can be disagreement is on what you believe are the drivers of those prices and how you analyze those prices to make your trading decisions. And in my journey over the past decade, I can tell you that there are rampant delusions going on among many traders in the forums, in the other social trading networks, in various trading books, etc. They are far from the truth about makes the price move. Lots of BS being peddled in various news websites, even reputable magazines. When you use the Order Flow Mastery Course to attain a higher level of trading skill, awareness and consciousness, you will start to notice the mediocre trading information. The quality insights into market behavior and the trades they signal, will start to jump out to you more and more.
Before moving on, learn to BE GRATEFUL. Be grateful for freedom of speech. Be grateful for the diversity of market views. Most of all, be grateful for these types of market players and magazines, etc, who believe in such subpar ideas and strategies. For it is them who help to cause the inefficiencies in the markets and profit opportunities. It is them who help cause the profit opportunities to last FOREVER and ever. If everyone believed the same thing, at the same time as everyone else, the price wouldn’t move at all, and the world would become a very boring place.
I would have much preferred them to do an article about the bigger macro opportunity that I see forming as of the current moment. That of big EUR depreciation. I think that would have been more accurate and profitable for their subscribers. I think the EUR/USD is far more overvalued, than the AUD/USD is undervalued. The longer EUR/USD stays elevated and keeps rising, the more it is priming itself for a bigger drop than the AUD/USD is primed for a big rise. That’s just my read of the situation in the current moment. My tongue is salivating and the account equity “firepower” is much more interested in an ultimate big EUR/USD drop, rather than a big AUD/USD rise.
The author also does not seem to be aware of how to spot what I call a “Macro Imbalance” in the market. Either he doesn’t know how to spot, or perhaps may be oblivious as to what it even is. (Those lucky traders who are involved in the Order Flow Mastery Course, most certainly know and can identify these macro imbalances that can resolve themselves for thousands of pips)
It would have been my joy to write such an article in Barron’s newspaper. I would really enlighten them to the opportunities available in macro trading the currency market. They would learn a whole lot about how and why the currency markets and all markets really move.
To be fair, maybe the AUD will go up in value in the subsequent weeks and months. Maybe the EUR won’t drop in the coming months. Maybe these forecasts and anticipations I am making here will not be proven correct. If so, that’s fine. I don’t care much about the mistake I made a few seconds ago if I have already learned from it. I don’t stay wedged to any market beliefs. I strive for the highest clarity possible as to what is moving the market right now, what can move it in the future, what the market biases are for the future, and if I should play it and in what way and what position size, and also what scenarios could invalidate my market views. As Stanley Druckenmiller learned from George Soros:
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
Note: If you desire to raise your trading profits and take things to the next level using the strategies of “Macro Imbalances”, “Battle of Scenarios,” invest in the Order Flow Mastery Course.