Sunday, December 10, 2006

"get your affairs in order"

The Rule of Page 16 & The Rule of Page One are really one rule, conversely expressed.

I attribute the rule to Donald Coxe. Page one and page 16 refer to a section of a traditional newspaper, page one being the front page, and page 16, the back.

Simply put, by the time a story has reached "page one" most of the return has already been extracted from a trade based on that "news"....and a significant risk of reversal is lurking. Information "hiding" on page 16 is where most of the profitable trades exist.

One of the reasons that I really miss CNBC, and have found it diffcult to gauge sentiment while offshore, is that CNBC was a pretty reliable indicator of news that was known to "everyone"

I remember asking my friend, while talking on the phone the other week, "is anyone even noticing the dollar? are they discussing the ramifications?"

I got my answer this weekend when I read a story that showed that the Economist this last week did a negative story on the dollar, showing president Washington's jaw dropping. The Economist, while a fine publication, has several uncannily timed front page (page one) stories that mark turning points in the underlying security in question.

It turns out that the last time the Economist had a negative dollar story was the low in 2004 that held this time again -- in the vicinity of 80 -- .

I suspect that the dollar chart will show an inverted "cup and handle", and the next time it challenges 80 and breaks it, technical selling and "black boxes" at the institutional money houses will be lighting up across the board.

In the meantime, unless you believe there is a fundamental shift underway that would support the dollar longer term (and thus indicated a double bottom) you should probably take the "handle" phase of the correction as a chance to 'get your affairs in order'.

I will be adding and editing this post over the next day or two to explain what in the h.e.double-toothpicks and "inverted cup and handle" is and why the cup and handle is such a reliable indicator of market psychology that (at times) drives buying/selling behavior in a semi-predictible fashion.

ciao for now,
fB

7 comments:

Anonymous said...

how can anyone ever really "get your affairs in order"? to do so would require that you KNOW the future - which only God knows - and therefore we can only guess what the future might bring. we can orient (pun - get it?) our affairs to avert what we see as the future, but i for one have been wrong enuf times in the past that i am cautious in my predictions. and you mite be rite about any dollar drop, but what effect will it have on YOU or ME, is another question entirely because we dont know what effect it will have on millions of other people that will have an effect on us.
just my rant
consider it worth what you paid for it
jon

FuBarrio said...

jon

thank you for your post/rant (your words! :) )...even got a wordplay in there.

very true and wise words indeed. no one can know the future.

there is an old saying, that if you want to make god laugh, make a plan! :)

that said, if your entire networth, income, (house, 401k, etc) is tied up in dollar denominated assets, that has been an ok thing over the last 25 years or so (but not so good the last 5).

that first 20 years lulled everyone to sleep in that people completely stopped advocating having a percentage of your portfolio that would offset currency devaluations and inflation scares.

if jobs, kids' soccer practice, or life in general has made it so that you find yourself in the situation described above you MIGHT want to buy some insurance --- if it's something that makes you worry.

insurance is not free obviously. the "price" is the opportunity cost of leaving your dollars in dollars, and a potential fall in the aforementioned possible dollar hedges.

notice that i don't try to make any predictions on what effect it will have on "you or me", other than to say that if the dollar drops (against other currencies) commodities priced on the intl market will go up in price.

but, i'm sure we haven't see any of that lately (at least since the last time we fille up the old SUV).

if you read my other posts you will also note that i'm rather aggressive about diclaimers and that stuff is all in my opinion, etc. this morning, i just wanted to get off a quick missive since there was an event (the economist cover) which i thought was interesting.

ciao,
fB

FuBarrio said...

p.s.

oops, i forgot to add...

by extension, if your savings/pension etc is denominated in US dollars and you are contemplating living/travelling/retiring abroad, it can have a serious effect on your assumptions about cost of living.

if you decide not to buy any "insurance", you need to at least be aware that you are taking a calculated risk.

ciao,
fB

Anonymous said...

I seem to recall reading recently that George Soros took a beating betting against the Greenback.
The first time I played the currency game I sold yen in the late 90s when it hit its All Time High of 100 to to the buck just to watch it rise further to 80.
The next time I bought Euros when they were first issued and sold at a 10% loss as they fell thru the floor.
I have been holding yen for a year and adding more betting the buck had to fall and at the least lost 5% interest an a dollar savings account.That is a hard game to play and win especially, when you consider the EXTREME amount of $s held by outside forces with their own agenda.But Im a novice!!b

FuBarrio said...

b,

yeah, speculating for profit directly in the forex markets with high leverage isn't for the faint of heart.

however, taking simple steps to "deworsify" a portion of your savings out of greenbacks is maybe a simpler play.

the advice for the "faint of heart" is not to speculate to win, only to possibly diversify to limit losses.

of course, one could also speculate with greater leverage in the hopes of coming out ahead, but as you point out, that is a very easy game to lose, and as you also point out there are a lot of VERY deep pockets who have their own agenda when it comes to currency movements.

fB

Anonymous said...

Think I confused Dinosaurs.It was Warren Buffet not Soros,maybe. Maybe both??b

FuBarrio said...

while buffet is brilliant, he doesn't really belong in the forex playground.

makes about as much sense as soros becoming a patient "deep value" buy and holder in boring cash flow rich companies in midwestern america.

being a winner in investing is no guarantee of being a winner in trading....perhaps even the skills that make yu successful in one can kill you in another.

fB