|
|
|
|
|
A Game of Probabilities
|
|
|
Thursday, January 4, 2007
Vol. 9 No. 4 |
|
In Today's Letter:
Comment: Currency Trading: A Game of Probabilities
Offshore: Keeping New Year's Resolution #1
Sovereignty: Does a New EU Flag Equal Freedom?
Privacy: How to Protect Your Greatest Asset
|
Currency Trading: A Game of Probabilities
Today's comment is by Jack Crooks, Currency Director for The Sovereign Society and editor of both Crooks on Currencies and The Money Trader.
Dear A-Letter Reader,
For months now, I've offered my best available insight on the currency markets here in the A-Letter. I've tried to sound "smart." Often I've tried to convey some sense of insight that I have about currencies.
But I have no "gift of hindsight." In fact, very few of us do. And because I have seen some very strange things happen over the years that has drained more money from my trading account than I care to talk about (or let my wife know about), I approach the markets as a game of probabilities. As far as I'm concerned, that's the only way to navigate the currency markets.
What I mean by a game of probabilities is this: I do as much as I can when figuring my fundamental and technical analysis. I read and study all I can. And I do this with discipline, focus, and consistency. I do this to try to gain an edge.
But I know there is never such thing as 100% certainty. You can never have enough brain power or computing power to harness the mind of the market. It's not because the computing power isn't available-it is. It's because the players in the market do not make "rational" decisions all the time.
When push comes to shove, the big moves in the market are driven by good old fear and greed, the base human emotions. The fear and greed and irrationality of millions of players can't be modeled with much degree of certainty. That's a problem for economists and experts who believe they can create some type of Holy Grail model to forecast price action. They simply don't have the mathematics available yet to get their arms around irrationality in a modeling scenario. And there is no reason to think they'll be able to factor in human emotions anytime soon.
| "If you are going to use probability to model a financial market, you had better use the right kind of probability. Real markets are wild. Their price fluctuations can be hair-raising-far greater and more damaging than the mild variations of orthodox finance," writes Benoit Mandelbrot, The Misbehavior of Markets.
Note: Benoit Mandelbrot is the person who created fractal mathematics. He is a brilliant man, to say the least. And he has been shunned to a degree because he has never bought into financial orthodoxy that starts out with "the rational man."
|
Bingo! "Real markets are wild." The massive volatility we've already witnessed in the currency market, after only the days of trading this year, prove Mandelbrot right once again.
So, does this mean we should be defeatist and believe we can never win? Absolutely not! But it does mean you need to develop a reliable system to help you recognize when it makes sense to trade. Or in other words, you need a system that pushes the probability of success in your favor. Here's what I do to help make currency trading decisions.
My system is a three-step approach:
1) I watch the key macro themes around the world. I continually ask: where is the money flowing around the globe? What countries or regions are hot? What assets are investments flowing into? Is it stocks or bonds or commodities, or some combination of these? Why are assets flowing in those particular investments? Is it interest rates or economic growth, or geopolitics? These are the type of questions you need to ask in order to develop an understanding of the macro themes.
2) I look at the technical pictures-charts! First I look at the weekly trends, then daily, then intraday (if it is a very short-term trade). Keep in mind, the tighter the timeframe you analyze on a chart, the more random the movements may be. In other words, these short-term movements you see could be just noise, so you can't always try to match your broad macro themes to the daily charts. Use your weekly charts to confirm your macro view. Charts are especially helpful when you're looking at intermarket relationships. For example, you can see if there's a clear relationship between gold and the U.S. dollar. Often those two move almost as a mirror image of one another. When gold goes up, the dollar goes down, and visa versa. I continuously compare commodities, bonds, and equities against the move of the dollar to see if there is a relationship. Noticing these relationships can definitely give you an edge in the markets.
3) I try to judge what the sentiment is in the markets. I ask myself, are too many players doing the same thing? This is extremely important, because you don't want to be late to the party when investing. When everyone has bought, there is no one left to support prices, and they can fall of their own weight. I also look at surveys, open interest, and volume to gauge sentiment.
Yes, it's a lot of work. But this is my system that has evolved over the years and suits me well. I'm confident that if I do my homework and apply my system consistently, I'll win over time. And the same system can work for you too.
JACK CROOKS, Currency Director
EDITOR'S NOTE: Finding the right edge to play the currency markets can make all the difference in the world. And on January 16th, Jack Crooks will join other leading Sovereign Society experts to host a very special teleconference, where he'll reveal his best kept currency tricks to give your currency portfolio the right edge for 2007. Click here to learn more.
|
|
|
|
There's Only One Affordable Investment Left
It's the world's second oldest asset class, and it's finally made its debut on the New York Stock Exchange. For generations it belonged only to the realm of Fortune 500 companies and professional traders. But now thanks to the launch of 7 ridiculously simple (yet revolutionary) new products you - for the first time - can get in on it for just $79...
Please click here for more information: http://www.isecureonline.com/reports/CRC/ECRCH100
|
|
|
|
Keeping New Year's Resolution #1: Opening an Offshore Account
In my A-Letter comment on Tuesday, I listed The Sovereign Society's top 10 New Year's resolutions. But unfortunately, limited space stopped me from telling you how to keep these top 10 resolutions. And as I mentioned, around 80% of New Year's resolutions are ancient history by February anyways. So I thought some additional information might help. Let's start with resolution #1 on the list...
Resolution #1: Opening an Offshore Account
Why: Opening an offshore bank account is and always will be my #1 offshore resolution. That's because opening an offshore bank account opens up so many opportunities offshore. An offshore bank account equals currency diversification, asset protection (from lawyers, ex-spouses, you name it), financial privacy (not from the government, but definitely from anyone else who might want to know how much you're worth), and global investment potential.
Who: I'd like to say that offshore banking is for everyone. But you need to be able to cover the banking fees and meet the banking minimums to keep an offshore bank account. (And the lowest minimums I know of are US$25,000.)
Where: In reality, there are many decent places to set up an offshore bank account. Immediately Switzerland, Denmark, Liechtenstein, Austria, and Singapore come to my mind...
When: With the U.S. dollar slumping, there's no time like the present.
How: There are many steps to setting up an offshore bank account. It all starts with examining your own personal tax situation. Consult a domestic tax attorney to find out if you can handle the taxes of an offshore account. To find out more about the ins and outs, see my A-Letter comment from December 6th. http://www.sovereignsociety.com/offshore1924.html
And check back tomorrow to read about how to keep our top 10 New Year's resolutions.
ERIKA NOLAN, Executive Director
|
|
|
|
Do New EU Flags Really Stand for Freedom?
On New Year's Day in Bucharest, Romania, the European Union flag was raised over official buildings in what President Traian Basescu described as a moment of a great freedom. In Bulgaria, too, the EU flag went up and there were lavish parties to celebrate the occasion, with the EU anthem "Ode to Joy" filling Sofia night skies.
A moment of "great freedom"?
It is far from that. The Romanians and also the Bulgarians, the newest members of the EU, are now subject to a mind-numbing 80,000 pages of EU regulations. Considering that the European Union was built on the idea of removing barriers to commerce that made travel and trade between the countries of Europe onerous and costly, it would appear that it's "out of the frying pan and into the fire." Not even the bureaucrats running the EU can possibly know or understand the ultimate ramifications of this vast ocean of laws that entangle the citizens of the member countries.
As is usually the case when laws are passed, the citizens of both countries are unsure of what their new status will mean. Some farmers think they won't be able to sell their produce anymore as they can't meet the conditions required by EU rules, and others figure they'll get new subsidies, but will need to have connections in government, which will now be hundreds of miles away and conducted in another language. In Bucharest, Paul Neagu, 65, a tractor driver, was most concerned that he would not be able to slaughter his pigs in the "traditional Romanian way."
Freedom indeed!
By definition, regulations take away freedoms. Those of us who adhere to the principle that individuals should be sovereign over their own lives and property argue that the larger the number of rules and regulations imposed by force, the greater the level of conflict. Sovereign individuals consider that the only practical and just way to achieve a peaceful and prosperous world is through a system of voluntary exchange. In the long run, given the nature of man, peace, harmony, and prosperity can be achieved with only two rules:
Rule number one. Never aggress against the property of another.
Rule number two. Keep your agreements.
And since breaking an agreement is just a form of aggression against the property of another, rule number one is all that would be needed. Isn't this strange, since almost every regulation imposed by governments aggresses against someone's property, and thereby violates the one rule needed for a peaceful, prosperous world.
JOHN PUGSLEY, Chairman
|
|
|
|
How to Protect Your Home When the Homestead Laws Fail
Nearly every state has laws in effect to protect homeowners from losing their home to creditors. Most of these homestead statutes were enacted in the 1930s, so the limits are generally very low. Between $5,000 and $25,000 is typical.
A few states, such as New Jersey, have no homestead exemption. Other states protect your home from creditor claims with no limit to total value. States with no-dollar-limit homestead exemptions are Arkansas, Florida, Iowa, Minnesota, Oklahoma, South Dakota, and Texas.
Lots of people assume that their properties are protected from all creditors in every conceivable situation. But that's not the case. In most states, the following obligations are excluded from protection:
- A mortgage on the home, including a home equity loan;
- Alimony or child support;
- Criminal fines and punitive damage awards; and
- Damage awards in lawsuits for fraud, libel or slander
In addition, homestead laws do not protect your residence against federal tax claims, although a few states grant homestead protection against state taxes. Nor do homestead laws apply in federal civil or criminal forfeiture proceedings.
There are also fraud exceptions to homestead laws. For instance, the Florida Supreme Court has ruled that fraudulent conversion of unprotected assets into a Florida homestead can be reversed in the case of fraud or other egregious acts.
The 2005 Bankruptcy Reform Act restricts homestead protection even more. Now, the value of any state homestead exemption is limited to US$125,000 if you have owned the residence for fewer than 1,215 days (three years and four months) before filing for bankruptcy. In this situation, the entire value of the homestead exceeding US$125,000 is subject to creditor claims.
Fortunately, there are numerous alternatives to protect the equity in your home if the homestead provisions in your state aren't sufficient. One of the easiest ways to do this is by mortgaging the property and investing the proceeds in an asset protected form, such as an offshore variable annuity. Naturally, you need to be certain that you have sufficient income to pay off the mortgage, although if you opt for an "immediate" annuity, the income from the annuity may cover most of the mortgage payments.
There are numerous other alternatives, including limited partnerships, limited liability companies, and even offshore trusts. However, these entities must be used with caution. For instance, limited partnerships are intended to avoid disrupting the interests of non-liable partners in an ongoing business. Where the partnership holds investment assets and/or the family residence, it is difficult to argue that the partnership has a business purpose or that the interests of innocent, non-related third parties will be prejudiced.
Numerous variations on any of the techniques I've summarized are possible. What's important to realize, though, is that your primary residence is a valuable asset-perhaps the most valuable one you own-and that an array of potential solutions are available to assist you in protecting it.
MARK NESTMANN, Privacy Expert & President of The Nestmann Group www.nestmann.com
|
|
|
|
Your Life is an Open Book...If
- You've given out your SSN to anyone in the past 6 months...
- You belong to any church or organization...
- You hold 50% or more of your assets in any U.S. bank...
You're an easy target for unjust lawsuits, asset forfeitures and identity theft.
I'll show you 109 ways to protect your privacy and property rights - and secure your wealth - using the secrets of the United States Witness Protection Program...
LINK: https://www.sovereignsociety.com/catalog/
product_info.php?products_id=56
|
|
|
|
|
 |
 |