Another interesting articles from my friends over at Elliottwave.
********************************
Why the Fed is Such a Lousy Wizard of Oz
By Susan C. Walker, Elliott Wave InternationalSeptember 7, 2007
Central bankers who "follow the yellow brick road" end up in Jackson Hole, Wyoming, every Labor Day weekend for their annual symposium sponsored by – who else? – the Kansas City Fed. (Who can forget Judy Garland saying to her little dog, "Toto, I've got a feeling we're not in Kansas anymore," in the 1939 movie, The Wizard of Oz?)
The Jackson Hole Resort serves as the Federal Reserve's equivalent of the Emerald City, as Fed governors and presidents meet with central bankers and economists from around the world to discuss economic issues. This year, the symposium focused on housing and monetary policy. Usually, the Fed chairman kicks off the symposium and, this year, the new chairman, Ben S. Bernanke, did the honors. He closed his speech with these words:
"The interaction of housing, housing finance, and economic activity has for years been of central importance for understanding the behavior of the economy, and it will continue to be central to our thinking as we try to anticipate economic and financial developments."
Then came the other speeches. And it seems that some of the guests in Emerald City were waiting for their chance to pull back the curtain and prove that the Wonderful Wizard of Oz isn't such a wizard after all. Bloomberg reported that "Federal Reserve officials, wrestling with a housing recession that jeopardizes U.S. growth, got an earful from critics at a weekend retreat, arguing they should use regulation and interest rates to prevent asset-price bubbles."
Apparently, one academic paper presented at Jackson Hole graded the Fed an 'F' for the way it has handled the repercussions from the rise and fall of the housing market.
Truth be told, these folks are a little late to the table as critics of the Fed. We're glad they're joining us, but here's what they still haven't learned: It isn't because the Federal Reserve messes up by allowing credit, asset and stock bubbles to form that it's not a wizard. The Federal Reserve isn't a wizard for one particular reason that it doesn't want anybody to know – and that is that the Fed doesn't lead the financial markets, it follows them.
People everywhere want to believe in the Fed's wizardry. But all this talk about how the Fed will be able to help the U.S. economy and hold up the markets by cutting rates now is as much hooey as the Wizard of Oz promising Dorothy, the Scarecrow, the Tin Man and the Cowardly Lion that he could give them what they wanted: a return to Kansas, a brain, a heart, and courage. Because when the Fed does do something, it always comes after the markets have already made their moves.
If you don't believe it, you should look at one chart from the most recent Elliott Wave Financial Forecast. It compares the movements in the Fed Funds rate with the movements of the 3-month U.S. Treasury Bill Yield. What does it reveal? That the Fed has followed the T-Bill yield up and down every step of the way since 2000. And the interesting question becomes this: Since the T-bill yield has dropped nearly two points since February, how soon will the Fed cut its rate to follow the market's lead this time?
[Editor's note: You can see this chart and read the Special Section it appears in by accessing the free report, The Unwonderful Wizardry of the Fed.]
We've got our own brains, heart and courage here at Elliott Wave International, and we've used them to explain over and over again that putting faith in the Fed to turn around the markets and the economy is blind faith indeed.
"This blind faith in the Fed's power to hold up the economy and stocks epitomizes the following definition of magic offered by Teller of the illusionist and comedy team of Penn and Teller: a 'theatrical linking of a cause with an effect that has no basis in physical reality, but that – in our hearts – ought to be.'" [September 2007, The Elliott Wave Financial Forecast]
Because, you see, what makes the markets move has less to do with what the unwizardly Fed does and more with changes in the mass psychology of all the people investing in those markets. The Elliott Wave Principle describes how bullish and bearish trends in the financial markets reflect changes in social mood, from positive to negative and back again. To extend the metaphor: The Fed can't affect social mood anymore than the Wonderful Wizard of Oz could change the direction of the wind that brought his hot air balloon to the Land of Oz in the first place.
As our EWI analysts write, "With respect to the timing of the Federal Reserve Board rate cuts, we need to reiterate one key point. The market, not the Fed, sets rates." Being able to understand this information puts you one step closer to clicking your ruby red shoes together and whispering those magic words: "There's no place like home." Once you land back in Kansas, your eyes will open, and you will see that an unwarranted faith in the Fed was just a bad dream.
Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. Her columns also appear regularly on FoxNews.com.
*********************************
Happy Trading!!
ForexJourney
Global Macro Forex and Financial Market Education, Research and Analysis utilizing Elliott Wave, Fibonacci and Gann Forecasting Techniques -
Tuesday, January 15, 2008
Wednesday, January 09, 2008
Regret Will Kill Your Forex Account
OK, so you just pulled the trigger on a trade and every bone in your body told you not to. You violated the rules dictated in your trade plan and you watched a small profit immediately turn into a major loss.
Sound familiar? What do you do?
You get over it, that’s what you do! Regret over a bad trade will eat your account from the inside out. Regret is a more powerful emotion than most traders recognize. It is like the unwanted guest that keeps living off of your bank account until there is no more left. It takes most traders into a tailspin that they will never recover. It can lead to dangerous psychological results such as failure to pull the trigger over even worse, paralysis by analysis.
“Yeah, but…” (I will save the disempowerment of this statement for another day)
It’s not easy putting those emotions aside when your money is on the line. That’s why they called it trading, folks. In Forex someone is on the other side of the trade controlling their emotions and eventually controlling your account balance. If you want to find consistency you must never let regret live in your trading experience.
Here’s what I do to combat this debilitating emotion … I get over it! How do I do this? I simply perform a post mortem of my bad trades (I still have them every now and then) and keep a detailed journal. Over time I began to recognize my personal triggers and simply tweaked my trade plan to be a more proactive currency trader and avoid the situations that led to the bad trade in the first place, in my instance over-trading or being tired.
What trader do I model my approach after? The answer may surprise you!
The answer is Tiger Woods.
I play golf, so you could imagine I am a huge fan of Tiger Woods. There are a lot of similarities between golf and trading. Both venues offer a look at who we are as a person, raw and uncensored. Both live in the world of risk and reward.
I admire Tiger Woods skill as a golfer, but even more so his mental toughness. Next time you watch Tiger Wood hit a bad shot follow his reaction. His immediate reaction is to get upset, really upset. Then count 5 seconds. His expressions and demeanor will have returned to one of focus and concentration.
And the funny thing is that is doesn’t matter what kind of prize money is online. He takes the same approach to every golf shot, in every tournament.
Let’s translate that to trading. Do you give yourself 5 seconds to get over a bad trade? Do you take the same approach to every trade?
Stop living in the world of regret and only think about the possibilities of wining trades and you will find your experiences trading the Forex market one filled with achievement and success.
Happy Trading!!
ForexJourney
Sound familiar? What do you do?
You get over it, that’s what you do! Regret over a bad trade will eat your account from the inside out. Regret is a more powerful emotion than most traders recognize. It is like the unwanted guest that keeps living off of your bank account until there is no more left. It takes most traders into a tailspin that they will never recover. It can lead to dangerous psychological results such as failure to pull the trigger over even worse, paralysis by analysis.
“Yeah, but…” (I will save the disempowerment of this statement for another day)
It’s not easy putting those emotions aside when your money is on the line. That’s why they called it trading, folks. In Forex someone is on the other side of the trade controlling their emotions and eventually controlling your account balance. If you want to find consistency you must never let regret live in your trading experience.
Here’s what I do to combat this debilitating emotion … I get over it! How do I do this? I simply perform a post mortem of my bad trades (I still have them every now and then) and keep a detailed journal. Over time I began to recognize my personal triggers and simply tweaked my trade plan to be a more proactive currency trader and avoid the situations that led to the bad trade in the first place, in my instance over-trading or being tired.
What trader do I model my approach after? The answer may surprise you!
The answer is Tiger Woods.
I play golf, so you could imagine I am a huge fan of Tiger Woods. There are a lot of similarities between golf and trading. Both venues offer a look at who we are as a person, raw and uncensored. Both live in the world of risk and reward.
I admire Tiger Woods skill as a golfer, but even more so his mental toughness. Next time you watch Tiger Wood hit a bad shot follow his reaction. His immediate reaction is to get upset, really upset. Then count 5 seconds. His expressions and demeanor will have returned to one of focus and concentration.
And the funny thing is that is doesn’t matter what kind of prize money is online. He takes the same approach to every golf shot, in every tournament.
Let’s translate that to trading. Do you give yourself 5 seconds to get over a bad trade? Do you take the same approach to every trade?
Stop living in the world of regret and only think about the possibilities of wining trades and you will find your experiences trading the Forex market one filled with achievement and success.
Happy Trading!!
ForexJourney
Monday, January 07, 2008
Suddenly, It's a Bleak Midwinter for Housing and Lending
If you're wondering how the housing market collapse in the US will impact your favorite Central Banker (and interest rates), here's an interesting article to help support your fundamental Forex analysis:
***************************************
Suddenly, It's a Bleak Midwinter for Housing and Lending
By Susan C. Walker, Elliott Wave International
January 7, 2008
In the bleak midwinter, Frosty wind made moan,Earth stood hard as iron, Water like a stone…(From "A Christmas Carol" by Christina Rossetti)
Shawn Colvin sings a beautiful song based on this poem by Christina Rossetti, reminding us of the bleakness of midwinter. That is exactly where the housing market seems to be now – facing its very own bleak midwinter of falling prices, rising mortgage rates and growing inventories.
The latest report of the S&P/Case-Shiller home price index shows that the price of houses fell 6.7% in October, year over year. That is the largest year-to-year decline drop since April 1991.
Think of it – if you had bought a home for $300,000 in October 2006, it is now worth about $280,000. And suppose you just got a new job and need to move? You are going to have trouble selling it at that price, too, thanks to so many foreclosed homes on the market. One realtor in Phoenix explained to a Wall Street Journal reporter that local residents are now competing with foreclosed homes selling for $50,000 to $100,000 less than other houses on the market. "The sellers now are having to reduce their prices by 20% to 30% to compete," she says. (Wall Street Journal, "Pace of Decline in Home Prices Sets a Record," 12/27/07)
At a meeting of the New York Society of Security Analysts on January 7, U.S. Treasury Secretary Hank Paulson said this about the U.S. economy: "We will likely have further indications of slower growth in the weeks and months ahead.''
Paulson and central bankers at the U.S. Federal Reserve recognize that they, too, face their own bleak financial midwinter. It's not just the mayhem brought on by the subprime mortgage debacle, the implosion of the housing market and the ensuing credit crunch; nor is it that the U.S. economy lurches toward a recession and hard times.
No, it is something bigger than that. Public opinion or social mood, as we call it here at Elliott Wave International, has shifted from positive to negative. When that happens, financial heroes find themselves falling from their pedestals onto frozen earth hard as iron.
Exhibit A - The headline of a recent article on Bloomberg: "Paulson Gets Diminishing Return with Bush, Like Powell, O'Neill" and the lead: "Henry Paulson escaped the Nixon White House with his reputation enhanced. He won't be so lucky this time around."
Exhibit B - The lead from a recent column by David Ignatius in the Washington Post:
"When airport rescue crews are worried that a damaged plane may have a crash landing, they sometimes spread the runway with foam to reduce the probability of fire on impact. That's what the Federal Reserve and other central banks are doing in pumping liquidity into severely damaged financial markets. Make no mistake: The central bankers' announcement Wednesday of a new coordinated effort to pump cash into the global financial system is a sign of their nervousness…."
Nervousness is in the air now. Investors are anxious about the markets; everyone is worried about the housing market.
Our Elliott Wave Financial Forecast December issue explains how housing starts (and stops) are intimately tied to recessions: "One key indicator of success in pre-dating economic downturns is housing starts, which are approaching the 1-million-a-month level that has preceded all recessions of the last 40 years."
And the Fed is nervous, too. So much so that it announced a credit giveaway with four other major central banks (the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank) in mid-December to try to bolster the financial system and the banks that keep it humming. The Fed reports that banks have been stepping up to its auction window each week to purchase $20 billion. Unfortunately for the banks, most of this "liquidity" isn't that liquid. It has to be paid back within 30 days, with interest of about 4.65%.
Editor's note: Elliott Wave International has agreed to make available to our readers a 2-1/2-page excerpt from Bob Prechter's Elliott Wave Theorist in which he describes exactly how the Fed's latest effort to shore up banks' balance sheets has become "High Noon for the Fed's Credibility." Click here to read the Theorist excerpt.
Just how bleak is the future for central bankers if this recently implemented plan doesn't work? Bob Prechter explains in his just-published Theorist:
"Nevertheless, this is probably the single most important central-bank pronouncement yet. But it is not significant for the reasons people think. By far most people take such pronouncements at face value, presume that what the authorities promise will happen and reason from there. But the tremendous significance of this seismic engagement of the monetary jawbone is that if this announcement fails to restore confidence, central bankers' credibility will evaporate."
"At least that's the way historians will play it. But of course, the true causality, as elucidated by socionomics, is that an evaporation of confidence will make the central bankers' plans fail. The outcome is predicated on psychology."
The "socionomics" Prechter refers to is a new social science he has introduced that studies how humans behave in groups within contexts of uncertainty – where fluctuations in social mood motivate social actions. It explains that rather than an event happening that affects social mood (for example, falling home prices make people feel bad), what really happens is that social mood changes first from positive to negative and then lousy things happen (for example, unhappy people make home prices fall). If you can adopt this point of view, then you can see that, in poetic terms, we are fast approaching a bleak midwinter for the economy and the financial markets.
Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. Her columns also appear regularly on FoxNews.com.
***************************************
Happy Trading!!
ForexJourney.com
***************************************
Suddenly, It's a Bleak Midwinter for Housing and Lending
By Susan C. Walker, Elliott Wave International
January 7, 2008
In the bleak midwinter, Frosty wind made moan,Earth stood hard as iron, Water like a stone…(From "A Christmas Carol" by Christina Rossetti)
Shawn Colvin sings a beautiful song based on this poem by Christina Rossetti, reminding us of the bleakness of midwinter. That is exactly where the housing market seems to be now – facing its very own bleak midwinter of falling prices, rising mortgage rates and growing inventories.
The latest report of the S&P/Case-Shiller home price index shows that the price of houses fell 6.7% in October, year over year. That is the largest year-to-year decline drop since April 1991.
Think of it – if you had bought a home for $300,000 in October 2006, it is now worth about $280,000. And suppose you just got a new job and need to move? You are going to have trouble selling it at that price, too, thanks to so many foreclosed homes on the market. One realtor in Phoenix explained to a Wall Street Journal reporter that local residents are now competing with foreclosed homes selling for $50,000 to $100,000 less than other houses on the market. "The sellers now are having to reduce their prices by 20% to 30% to compete," she says. (Wall Street Journal, "Pace of Decline in Home Prices Sets a Record," 12/27/07)
At a meeting of the New York Society of Security Analysts on January 7, U.S. Treasury Secretary Hank Paulson said this about the U.S. economy: "We will likely have further indications of slower growth in the weeks and months ahead.''
Paulson and central bankers at the U.S. Federal Reserve recognize that they, too, face their own bleak financial midwinter. It's not just the mayhem brought on by the subprime mortgage debacle, the implosion of the housing market and the ensuing credit crunch; nor is it that the U.S. economy lurches toward a recession and hard times.
No, it is something bigger than that. Public opinion or social mood, as we call it here at Elliott Wave International, has shifted from positive to negative. When that happens, financial heroes find themselves falling from their pedestals onto frozen earth hard as iron.
Exhibit A - The headline of a recent article on Bloomberg: "Paulson Gets Diminishing Return with Bush, Like Powell, O'Neill" and the lead: "Henry Paulson escaped the Nixon White House with his reputation enhanced. He won't be so lucky this time around."
Exhibit B - The lead from a recent column by David Ignatius in the Washington Post:
"When airport rescue crews are worried that a damaged plane may have a crash landing, they sometimes spread the runway with foam to reduce the probability of fire on impact. That's what the Federal Reserve and other central banks are doing in pumping liquidity into severely damaged financial markets. Make no mistake: The central bankers' announcement Wednesday of a new coordinated effort to pump cash into the global financial system is a sign of their nervousness…."
Nervousness is in the air now. Investors are anxious about the markets; everyone is worried about the housing market.
Our Elliott Wave Financial Forecast December issue explains how housing starts (and stops) are intimately tied to recessions: "One key indicator of success in pre-dating economic downturns is housing starts, which are approaching the 1-million-a-month level that has preceded all recessions of the last 40 years."
And the Fed is nervous, too. So much so that it announced a credit giveaway with four other major central banks (the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank) in mid-December to try to bolster the financial system and the banks that keep it humming. The Fed reports that banks have been stepping up to its auction window each week to purchase $20 billion. Unfortunately for the banks, most of this "liquidity" isn't that liquid. It has to be paid back within 30 days, with interest of about 4.65%.
Editor's note: Elliott Wave International has agreed to make available to our readers a 2-1/2-page excerpt from Bob Prechter's Elliott Wave Theorist in which he describes exactly how the Fed's latest effort to shore up banks' balance sheets has become "High Noon for the Fed's Credibility." Click here to read the Theorist excerpt.
Just how bleak is the future for central bankers if this recently implemented plan doesn't work? Bob Prechter explains in his just-published Theorist:
"Nevertheless, this is probably the single most important central-bank pronouncement yet. But it is not significant for the reasons people think. By far most people take such pronouncements at face value, presume that what the authorities promise will happen and reason from there. But the tremendous significance of this seismic engagement of the monetary jawbone is that if this announcement fails to restore confidence, central bankers' credibility will evaporate."
"At least that's the way historians will play it. But of course, the true causality, as elucidated by socionomics, is that an evaporation of confidence will make the central bankers' plans fail. The outcome is predicated on psychology."
The "socionomics" Prechter refers to is a new social science he has introduced that studies how humans behave in groups within contexts of uncertainty – where fluctuations in social mood motivate social actions. It explains that rather than an event happening that affects social mood (for example, falling home prices make people feel bad), what really happens is that social mood changes first from positive to negative and then lousy things happen (for example, unhappy people make home prices fall). If you can adopt this point of view, then you can see that, in poetic terms, we are fast approaching a bleak midwinter for the economy and the financial markets.
Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. Her columns also appear regularly on FoxNews.com.
***************************************
Happy Trading!!
ForexJourney.com
Thursday, January 03, 2008
A Forex Trader’s Lifestyle
Whether you are a novice Forex trader or a seasoned veteran one aspect you must always take into account is to ensure your lifestyle supports successful trading. Forex trading is no different from any other endeavor in life. Whether you are employee, employer or self-employed you must take the time and effort to ensure your environment is conducive to your success.
Take a look at your surroundings and make sure your lifestyle supports you being a successful Forex trader. Take in all the factors of success (how YOU define success) evaluate your factors to make sure your trading is:
Specific – Do you have specific trading goals and objectives? Do you have a trading plan? Ask yourself is your plan to general?
Measurable – Do you have systems in place to objectively measure your performance? If you don’t know your numbers then do you really have a trading business?
Has a Timeline – Do you have a timeline for which you are measuring your goals and objectives against?
Controllable – There are many aspects in Forex trading you can’t control, ensure that the areas your can control are firmly defined and managed with discipline.
Programmed Into Your Lifestyle – Are your Forex trading activities programmed and congruent with your lifestyle? Balance is important so make sure this passes the test!
Taken in Small Steps - This business is a marathon and not a sprint. Start off with small steps and build. The best practice trading principals do not change with account size.
Accountable – Forex trading (or any trading for that matter) can be such an isolated activity. Find ways to have others participate and hold you accountable for your goals. Make it real and measurable!
True Forex success is built through smart work and dedication. By establishing the trading lifestyle that best supports your personality will guarantee prolonged success. Remember, it is your Forex Journey. Be sure you enjoy the ride!
Happy Trading!!
Take a look at your surroundings and make sure your lifestyle supports you being a successful Forex trader. Take in all the factors of success (how YOU define success) evaluate your factors to make sure your trading is:
Specific – Do you have specific trading goals and objectives? Do you have a trading plan? Ask yourself is your plan to general?
Measurable – Do you have systems in place to objectively measure your performance? If you don’t know your numbers then do you really have a trading business?
Has a Timeline – Do you have a timeline for which you are measuring your goals and objectives against?
Controllable – There are many aspects in Forex trading you can’t control, ensure that the areas your can control are firmly defined and managed with discipline.
Programmed Into Your Lifestyle – Are your Forex trading activities programmed and congruent with your lifestyle? Balance is important so make sure this passes the test!
Taken in Small Steps - This business is a marathon and not a sprint. Start off with small steps and build. The best practice trading principals do not change with account size.
Accountable – Forex trading (or any trading for that matter) can be such an isolated activity. Find ways to have others participate and hold you accountable for your goals. Make it real and measurable!
True Forex success is built through smart work and dedication. By establishing the trading lifestyle that best supports your personality will guarantee prolonged success. Remember, it is your Forex Journey. Be sure you enjoy the ride!
Happy Trading!!
Subscribe to:
Posts (Atom)