Like printing money

It’s a rare trade setup that would cause me to take the affirmative step of blogging about the setup and suggesting a course of action for other forex players. The setup on the EUR/JPY charts is such a great opportunity to make a little quick cash with limited downside, I thought it worth an entry.

You’d be smart to take ‘investment’ advice from any layman with a grain of salt – even if the layman in question is up 300% in just 4 weeks, and 1100% since September 1. My only regret about my trading in the last 6 months is that I didn’t start with a bigger bankroll….. but I am wrong on occasion. If you’re going to trade this pair based on my analysis, make sure you do the homework for yourself.

With that disclaimer, let’s take a look at this setup.

EUR/JPY Hourly

This first chart is the hourly. The pair broke through resistance of the 50 and 100 MA at point 1, bounced off the 50 as support in figure 2, and finally blowing through both support points in figure 3. We threw a pin at the 200, bouncing all the way back to the 50 before being rejected right into the Friday close.

Generally, in the time that it would take to prep the charts and write the narrative, the trade would have played out. Since this setup was near textbook right at the close, it afforded me the time.

As you can see from the chart, we’re trading between the 50 and 100, having just been rejected at the 50. The 100 has proven to be little in the way of support, with the 200 requiring at least one more try to see if we get the breakdown I’m expecting. That support level would come in at about 158.25.

This hourly setup, in and of itself, wouldn’t necessarily make me salivate. But we have further confirmation on the daily charts:


After the breakdown below all three support levels in late December (a great short ride), we dropped about 1000 pips in just a few weeks. I did very well on that trade, but bailed a little early. We’ve rallied from the lows on that move (about 152), threw a pin at the declining 50 on Thursday, and confirmed the reversal in Friday’s close. I am short 12 contracts from 159.02-159.51 (ave 159.33), and am targeting 156.30 as my first cover zone (partial – probably 6 contracts). From there, I’ll be looking for a bounce, getting short again on rallies of 156.60-157. Only a breakout above the 100 (which has proven the most solid support/resistance level on the daily chart) will invalidate my thesis about the direction for this next move.


If I’m wrong about this trade, I won’t be losing 200+ pips waiting to see if we get rejected from the 100 on the daily chart. Looking at the 15-minute chart above, you can see that we’ve been flirting with the band containing all three levels (50, 100 and 200 moving averages) all day Friday. We tried several times to breakout from the 200, but got rejected at trendline resistance each time, failing to close above the 200. We’re sitting right on the 100, below the 200 and above the 50. The red trend line along the top of the spikes on the 15 minute chart will be my main indicator. If we spike convincingly above this level, I’ll start to get out and look for another re-entry point for this trade. If it does go against me, I’ve got stop-losses ranging from 159.17-159.55. I don’t expect to see any of them tripped. I think the downside action will be fast and sloppy when the market reopens on Sunday.

Happy trading. May we all be $250 bucks a contract richer before we wake up on Monday!

why ron paul?

This is just one of several flash-based ads I’ve been working up….

Send a Message

I’ve veered from my planned offering this afternoon to accommodate a little analysis of the breaking news that Romney is suspending his campaign for the republican nomination.


With McCain over halfway to the total delegates needed to lock up the nomination, it’s hard to blame Mitt for pulling the plug on his self-financed campaign. His ‘true conservative’ mantra has failed to rally the troops, and he wants to preserve his chances to make a run in 2012 after the Democrats have had a whack at complete control of the legislative & executive branches of Government. The idea of dumping another $40 million down a hole might have been a concern as well.

McCain’s support in the GOP is extremely shallow among primary voters, and I suspect that he’ll only pick up a small portion of the Romney supporters. In spite of his daunting lead, I remain convinced that McCain could be knocked out by the right dove-tailing of events.

Johnny Rotten

In spite of the gracious welcome he got at the C-PAC speech this afternoon, Conservatives will not sign on to support McCain en masse. Some will support third party candidates, some will vote Democratic, and most will stay home. That is, unless something (or someone) comes along to offer conservatives an alternative to not voting or pulling the Hillary lever.

If you buckle and vote for McCain while holding your nose, there is clear message sent – that the party elite can call anything breathing ‘conservative’ and the great unwashed will fall in line to support the person.

You might be running the calculus in your mind at this very moment. A vote for McCain, you reason, would be a betrayal of your deep held conservative principles. But if you don’t vote for him, we might get Hillary or Obama. What’s a conservative to do?

I’d like to suggest a protest vote. How about a protest vote for the most anti-establishment Republican candidate in any of our lifetimes?

Take that, establishment

At this point, there is little chance that Ron Paul will overtake the front-runner in the GOP race to win the nomination. If your fear is that a protest vote might actually elect someone with whom you disagree (if you do disagree with Paul’s positions) on many issues, is that likely? I’m among the most optimistic historically for Paul’s chances, and I’m resigned that we’ll be making a third party run once the primaries are over. I don’t think there is a thing to worry about.

If you plan to vote for McCain in the fall, the best way to send a message to the power brokers in the GOP is to send a shot across their bow by voting for Paul in the Primary. There is no candidate more hated among those folks, and it may be the only opportunity you have to send a clear message of your disapproval of the anointed candidate. If all you do is hold your nose and vote for McCain in November, you’ve only confirmed for them that you’re willing to do their bidding without any reservations about your own principles.


And what if Paul starts to actually pull more delegates than he already has? Well, Huckabee is still in there too, and will see a bump from Romney’s exit. With the delegates split three ways, we could actually push this thing into the convention without a winner. We could see a nominee not on the slate now, and with the message sent, we might get an authentic conservative through the back door.

For that to happen, conservatives have to send a message. The establishment thinks they’ve won this war, and I’d love to see them repudiated. A vote for McCain in the primary by a conservative is a complete repudiation of our principles. Do the right thing and stand for your principles in the primary, and if we’re lucky, you’ll be rewarded for your principled stand. If McCain still runs away with the nomination, you can always decide to take a principled stand again in November.

Fed Release: Banks Insolvent

If you’ve listened to the darker ruminations on the cable news channels recently, you’ve probably heard someone say something to the effect that “the current crisis is the biggest systemic risk since the Great Depression”. I’m a high volume viewer of cable news, and I know I’ve heard just such language more than a dozen times in the last week. Given the idiosyncrasy of cable news, you might be wondering if this isn’t just today’s prevailing hyperbole to make sure you wait through the next commercial break to see what it’s all about. In this particular case, you might want to hold off on that grain of salt.

According to the recently released Aggregate Reserves of Depository Institutions and the Monetary Base, there is trouble brewing in the financial system. More specifically, it appears that our banking system, taken in the aggregate, is in fact insolvent. Get the PDF version of the report on our server here.

While I am by no means an expert at reading the Fed’s various releases, I am also not a neophyte. I’m pretty good with all things financial – good enough to know that the information contained within the report belies the conventional wisdom that the ‘nimbleness’ of the Fed has helped us avert the worst case scenario. From my reading, nothing could be further from the truth.


For purposes of this discussion, I’ll be focusing on a very narrow part of the release, specifically the first page of the report, and on that page, the first four data columns. This is the part of the data that details the reserve requirements of the banks and the actual reserves on hand. It is here that the problem becomes apparent, and amazingly, the first indications of a problem (in the data set in question) really only surfaced in December.

We’ll look at January of 2007 as an illustration of how to understand the numbers:

Jan 2007

Total Reserves – 42.171
Required Reserves – 40.665
Non-Borrowed – 41.960

(all totals in $ Billion)

So in the January 2007 period, the aggregate member banks were required to have 40.665 billion in reserve, but actually had 42.171 billion in cash reserves, an excess of 1.506 billion over the requirement. Of the cash reserves on hand, 211 million was borrowed funds, an insignificant total as the reserves were covered without the borrowed funds.

The story is similar throughout most of 2007, with borrowed funds creeping toward 2 billion in a few months; without exception, the non-borrowed funds were enough to cover the reserve requirements. Without exception, that is, until we reach December.

In December the picture changed radically:

Dec 2007

Total Reserves – 42.585
Required Reserves – 40.837
Non-Borrowed – 27.154

(all totals in $ Billion)

For the first time in the period covered by the report (and likely in many, many moons), the non-borrowed funds were insufficient to cover the reserve requirements, falling short by more than 12 billion. Also significantly, the Fed extended term auction credit of more than 11 billion in the period – and banks having to borrow to meet the minimal reserve requirements is anything but a picture of health.

sick dollar

Of course, the December numbers came before the Fed loosened it’s policies in earnest, so the more optimistic among us might expect to see an improvement in bank performance in January, as the Fed’s ‘nimble’ response to the burgeoning economic crisis work their way into the broader credit markets.

Such optimism would not be warranted. In the bi-weekly summary released for the two-week period ending January 2, the amount of non-borrowed funds fell to 8.7 billion, and two weeks later (Jan 16) to just 198 million. In the most recent summary ending January, the non-borrowed portion is a negative number, meaning that all of the reserve requirements are borrowed, with an additional 8.7 billion borrowed to cover continuing operational needs. In other words, they are – in the aggregate – insolvent.


In spite of my profound disdain for the concept of central banking, I’ll hold off on an ideological diatribe for the moment. The situation is incredibly tenuous, and I have every reason to believe that the situation will continue to deteriorate. This is not a philosophical exercise; it is tragically real. And those guys on the cable news shows suggesting that this is the biggest financial crisis since the Great Depression? They just might be wrong – this one has the breadth and depth to dwarf the Great Depression.

pray for ben

If you’re inclined to pray, maybe you’ll want to remember Ben Bernanke in your prayers tonight. In spite of my objections to the fundamental premise for a central bank, they’ll have to navigate us through this crisis in the short run. The only question I’d ask is this – when this thing finally comes to a head, will we just sweep the mess under the rug and repeat the process, or will we start to ask ourselves if a system based on sound money wouldn’t be a better solution? We need a better solution.

Governments are not equipped to rationally control a fiat currency, and bankers will always manipulate it for the purposes of the financial sector of the economy. I don’t suspect we’ll see an end to the Fed or a return to non-fiat currency anytime soon. Sound money is only good for the average working (and saving) man, and we all know how easy it is to get people to vote against their interests. We have a central bank, don’t we?

Once Again, Paul Runs Away With Military Donations

In the 4th quarter fund-raising race, Ron Paul once again led all candidates in donations from active duty members of the military.

It is worth noting that Paul received three times the amount of the next leading candidate, the odds on favorite for the GOP nod – John McCain.

It seems more people likely to get shot at prefer the humble foreign policy of Paul to the endless commitments to death and destruction exemplified by McCain. Not so amazing. What is amazing is that the rest of the populace apparently doesn’t share that outlook. In reality, I think they do, but it’s sad that most voters vote only based on ephemeral impressions.

Oh well. That cash will come in handy for the third party run that in all probability will be in full swing by the first week of June.

It Was a Grand Ole Party

Last one to leave – turn out the lights.


I’ve voted Republican most of my life, though in the interest of disclosure, I admit that I’ve always been more of a radical constitutionalist. Having been a vote that the GOP could solidly count on for 15 years, I broke with the GOP in 2004, opting to vote for Michael Peroutka for President in the general election. At that point, my exasperation with the party had grown so great, I voted for the socialist Sherrod Brown over Mike DeWine. I wasn’t a Brown supporter by any stretch, but given the massive lead Brown had, I figured it was a way to telegraph my disapproval with the direction in which the party was oriented.

I am, sad to say, ruling out a vote for any GOP candidate in the 2008 election season, excepting for the outside chance that Ron Paul will be at the top of the ticket. If I have to hold my nose and vote for socialist statism of one stripe or another, I’ll select the pure socialists who make no hedges about their intentions, and at least offer a person not interested in invading more sovereign nations an audience. A vote for the Republicans has become a vote for more war and increasingly entrenched fascism.

I’m under no illusions about my decision. I am not deluded to believe that my idealogical home is in the Democratic Party – I know that it is not. I am also not sending a message. I am done with the Republican Party, and hope to see it die an unceremonious death this election season. To me, it is the electoral equivalent of a mercy killing.

I held out great hope as the campaign season started. For the first time in my voting life, there was a candidate who was embracing the historical positions that had caused me to first self-identify as a Republican. But it appears that the GOP voters have rejected conservatism, opting instead to redefine what I understood it to mean to be a Republican.

I say “bring on McCain“. Regardless of the opponent, I predict a bloodbath at the polls, and not just at the top of the ticket. I predict that this election will go down as the closest corollary to the Little Big Horn on record. Not only will the Democratic nominee win an electoral landslide, the coattails will be long enough to hand the Democrats a daunting governing majority.

I’m not anxious to see the days of democratic domination return, but I am even less anxious to see what currently passes for conservatives to control the apparatus of government. While both parties are controlled by the neocons and their world-dominating agenda, there remains a truly restraining populist bent among the rank and file in the Democratic party.

In all likelihood, Dr. Paul will be on the ballot in one way or another in November, allowing me to stave off the lesser of two evils analytics. But if I had to pull a major party lever in November, I’d go with the lesser of those evils. Go Hillary (ouch!), and good riddance GOP.

The Terrorists are Winning

There are few certainties in this world, but one that I feel pretty safe predicting is that I will be called anti-American, a terrorist supporter or worse for what I intend to write in this entry.

It isn’t that my logic is flawed, or that I am showing a bias in my analytics. If such exists, I invite the reader to make it known. No…. it is because I refuse to suspend reason and subscribe to the orthodox groupthink demanded in political discussion today.

My contention that the terrorists are winning in no way denotes support of their cause, their ideology or methodology on my part. It comes from a dispassionate analysis of the available evidence, and I am in fact decidedly opposed to their cause.


To determine whether my hypothesis is true, we must define ‘winning’ in this context. Terrorists are not standard combatants, and do not try to capture or hold strategic geography. They do not act as normal combatants, and their goals are atypical as well. Terrorism in the middle eastern context might be better defined as clandestine guerrilla warfare. Winning for these ‘terrorists’ is for the invaders to pack up and go home. There are no territorial gains to be realized, outside of regaining sovereignty over lands occupied by the invading force.

Given our commitment to staying in the region for generations, the forces assembled in opposition to us must necessarily take the long view in their war. They face a prohibitive deficit in relative armaments, and cannot drive out the occupying troops with force. That would be a suicide mission, so they employ the only avenue available to an inferior force – guerrilla warfare.


Outside of the World Trade Center bombing in 1993 and the subsequent events on 9-11, there has been very little that can be objectively described as terrorism aimed at America. While the bombing of the military barracks in Lebanon, the USS Cole bombing and similar actions may be tragic, they are valid strikes against a military target. I am not advocating or supporting the strikes in any manner, mind you, but recognize that in a war, there will be deaths. Every wartime death doesn’t equate to terrorism.

If you accept my premise as laid out here, then we are left with two substantial actions that on their face appear to meet the criterion necessary to be ‘terroristic’ in nature. For purposes of discussion, here is the operative definition:

the calculated use of violence (or the threat of violence) against civilians in order to attain goals that are political or religious or ideological in nature; this is done through intimidation or coercion or instilling fear


It is interesting that both instances occurred in the same place, to a location that can objectively be called the center of the American economic system. It is this financial system that affords the United States the capital to wage it’s wars and occupy most of the world. A compelling case can be made that these acts are not in fact terrorist in nature, as they were attacks on legitimate targets for an entity at war with America. That doesn’t address the morality (or lack thereof) of their battle, so please spare me the knee jerk accusations of being a ‘Islamo-fascist sympathizer’. There will be plenty of time for that. ;)

You don’t agree? Was the United States’ bombing of industrial centers in Berlin and Dresden during World War II terrorism? What about the “weapons of mass destruction” used on Hiroshima and Nagasaki? I trust that once you get past any ridiculous notion of American exceptionalism, you’ll agree that the ‘twin towers’ were in fact legitimate military targets. If not, you’re better at rationalizing away logical arguments than I am. When Osama Bin Laden was fighting the Soviets in the late 70’s and early 80’s, he was a freedom-fighter worthy of our support. What has changed that makes him no longer a freedom fighter, except the entity that he now fights?

I’ve veered down this intellectual side road to make the case that the ‘War on Terror’ can be better understood as a guerrilla war being fought by indigenous peoples in the middle east, who thus far have actually killed far fewer civilians world-wide than we have in either Iraq or Afghanistan. Understanding the reality of the situation is critical if we ever hope to end the war that is ongoing. It is this unwillingness to take an unfiltered view of the entire situation that has caused America to lose face in the world. We are seen as hypocritical, supporting the freedom fighters when the occupiers are Soviet, but feigning righteousness when our own occupying forces are targeted.

Now, some bright reader will surely note that there are car bombings in civilian centers in Baghdad and Kabul, and they would be correct. This wouldn’t provide a justification of our military presence there, unless you can explain why American Marines don’t patrol the streets of Jakarta and Manilla as well. But most of what I’ve said to this point is not germane to the conclusion which I am attempting to support: namely, that the ‘terrorists’ are winning.

But – you may take note – I’ve basically said that they aren’t terrorists. They are guerrilla warriors, right?

Here is another variation on the definition of terrorism:

The use of violence and threats to intimidate or coerce, esp. for political purposes; The state of fear and submission produced by terrorism or terrorization.

There is certainly terrorism afoot in the United States, but not the kind that can be measured with a friendly color-coded scale. It is not about bombing civilian targets, and it is not being waged upon us by Osama Bin Laden. The chief ‘terrorist’ occupies the highest elected office in our land, and his ‘lieutenants’ fill the halls of many a big, stately building in Washington DC. (Now would be the time for cat-calls and ad hominems.)


Who can argue that our government doesn’t use intimidation or coercion for political purposes, with violence the ultimate ends for non-compliance? It is not just in our heavy-handed foreign policy, but in domestic policy as well. We are inundated with warnings that there lurks around every corner a bad man who wishes to do us harm; we are encouraged to acquiesce to demands from the government for greater unchecked access to our personal communications and general invasions of our civil liberties, and dissenters face penalties ranging from ridicule to imprisonment. There are few more effective acts of coercion than imprisonment, and the result of these activities is undeniably a state of fear among the general populace.

The people who are presented to us as terrorists can never hope to defeat us militarily. We have the most advanced weapons on the face of the planet, and they are using pipe bombs. If we are of a mind to deny them to ever strike out at us, we have the means at our disposal. But they are critical props in the real terrorism that is ongoing; the terroristic campaign to forever alter the understanding of what rights are fundamental and beyond the scope of government to infringe is raging. At this moment, the terrorists in Washington are winning.