Europe and Greece

Posted July 6, 2015 By Phil Elrod

The Greeks voted No. Well, I guess they did. Rumor had it that 9 out of 10 Greeks didn’t really understand the questions. But, what the hell, they voted. Right! Democracy and all that, right where it all began.

Now let’s get a little realistic. Greece is not Europe’s really big problem. It is just the headliner. The problem for Europe is “what they do with the Greece problem.”

The real problem in Europe is that a bad idea, that seemed so good on the original presentation, is coming home to roost.

The very idea of the Euro was flawed in the beginning and we all know that bad ideas can be dressed up in and presented as great ideas for a long time. But sooner or later the window dressing starts falling off and we slowly get a look at what is underneath. The Euro was a great idea – for Germany. Possibly a few other countries with well run economies and a labor situation that did not stifle their ecvonomy.

But for Greece, who had to lie to get in, and close their eyes to reality to stay in, today was inevitable. For Greece, the vote was relatively immaterial. The final outcome for them will be pretty much the same regardless of what happens in the near term. Greece as it has been operating in recent years is finished.They have been living far beyond their means and it will soon be time to pay the piper. Whether they stay in the Euro or leave it matters little for Greece. Their goose is cooked. They are bankrupt. Their economy is in a death spiral and they are relatively hapless in stopping it. They have a cultural problem and it will not be easy to solve. There will be much pain in Greece in the near future and it will be enough to go around so all will get to share it.

Now, what is Europe’s problem?

You have probably heard the term PIGS associated with discussions of the EURO. The PIGS was an acronym for Portugal, Italy, Greece and Spain.

Well the new acronym is PIFS. Greece is going to be old news soon. Yes, their will be much ado about the no vote. But nothing will happen immediately. Europe will agonize for a spell and then something will happen. Who knows what? But it won’t be what Greece must have to pull out of this nosedive. Europe will do something, but they cannot do enough. Not beaseu of Greece, but because of the rest of Europe.

Whatever they do will probably make the Greek situation go away for a while, one way or the other. For us perhaps, but not for the Greeks. For them it is time to pay the piper.

But the PIFS will remain, and they are the real problem in Europe. Why? Because Greece was much ado about very little. The economy of Greece is a tiny fraction of the Eurozone. The powers to be of the Eurozone could solve Greece debt problem instantly. They could make it easy for Greece to pay a prorated share and then be debt free. It would not break the bank of the Eurozone to do that. But what they do for Greece would set a precedent. And that is the real problem.

The PIFS are the three remaingin members of the PIGS – with the addition of France. Whatever the Eurozone does with Greece it must be willing and able to do for the PIFS.

And aside from Portugal, bless its little heart, the economies of Italy, Spain and the big F, France, are just too big to bail out of their downward spiral. Somehow, another solution, other than a bailout, must be found. The solution involves pain – a awful lot of pain – an politicians will kick the pain can down the road as long as possible.

The combination of debt, unrealistic labor laws and ridiculously lavish promises from politicians is going to sink the PIFS – and ultimately the EURO – in spite of everything the Eurozone can do. They will moan, groan, complain and possibly try several things, announced with great fanfare. But reality is a harsh teacher and that class is about to begin in the Eurozone.

Of course, the good ole US of A is not far behind, even as we speak.

The problem with debt is that sooner or later the dumbasses who lent it in the first place start asking for it back.

And that is the problem. The solution is a bit hazier.

And it will take a bit of time. I plan to sit back and enjoy the show. It should be quite a spectacle.

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Greek Tragedy – Currency Markets Volatile

Posted July 1, 2015 By Phil Elrod

Greek Tragedy – Currency Markets Volatile

We are mostly trading currencies these days. The reason is that the currency markets are truly huge and the manipulations are not as hard to avoid. It is sad, but alas, true, that most markets are manipulated these days. We little guys just need to understand that and don’t get caught with our pants down in a manipulative move. Of all markets the currencies seem to handle manipulation the best, at least from my perspective.

Originally the currency markets were conceived as a “beauty contest.” Take two currencies, and buy the “prettiest’ while selling the other. Things have changed a bit – today it’s more of an “ugliest contest.” You take two currencies and sell the ugliest. Same concept – just reverse analysis.

And we all know about the emotional part of trading. Markets move on emotion. Take this week for example. Greece is going to default – no Greece is not going to default. Greece is going to leave the Euro – no Greece does not want to leave the Euro. It goes on ad nauseum.

In spite of it all, last evening I found a good potential trade in the USDJPY. What the hell Greece has to do with the dollar-yen pair is beyond me, but the markets were very volatile. And when the markets get volatile, they almost always over do it.

Now when the dollar-yen pair, USDJPY, moves down, it catches my attention. Why? Well, the dollar is not a pretty currency, in my opinion. BUT, compared to the Japanese yen it looks pretty good. As ugly as the dollar may be it makes the yen look like a real hag. So I go long the dollar, when there has been a big move to the downside – like we have seen lately.

Figure 1 USDJPY 4000 Ticks/Bar 7-1-15

Yesterday evening I bought the USDJPY pair at 122.487, set a sell/stop at 122.350 and got a good nights sleep. This morning, just after 9 AM I closed the trade at 123.216 for a nice profit of 729 pips. See Figure 1.

By 10:30 the market had retreated all the way back to 122.860 (that’s about 490 pips) – remember the 50% retracement rule?

I had a support line at 122.872 and would have loved to long again near there, but a Dr.s appointment at noon kept me out of the market for the rest of the day.

My trading method is called “Trading between the lines (TBL).” Without my method this trade would have been easy to spot so let’s just take a look at what TBL is all about.

Figure 2 USDJPY 4000 Ticks/Bar 7-1-15

The chart in Figure 2 above shows about two weeks of data for the USDJPY pair. Each bar on the chart represents 4000 ticks and the white bars are the first bar of the day.

The horizontal lines are placed there by my system of trading and are available for at least a week at a time. Looking at this chart from left to right it should be easy to see how price oscillates up and down and generally turns in the area of one of those horizontal lines. Those lines are a roadmap to guide my trading.

Learn how to create those lines by getting my book, “See the Music of the Market.

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Ugly Contests

Posted May 4, 2015 By Phil Elrod

Due to various other commitments I have restricted my recent trading activity to FOREX markets. Part of the reason is that the other markets are increasingly hard to understand. I am not exactly a conspiracy theorist but I cannot help but wonder about many markets these days. It appears that conventional forces that are supposed to move markets are no longer reliable. The word manipulation is often heard.

Of Course, the FOREX markets are not immune from manipulation, especially by central banks. However the FOREX markets are so huge that even central banks cannot necessarily have their way, at least for an extended period of time.
Markets today seem to me to be more like “ugliest contests” rather than “beauty contests.” I suppose it is just me, perhaps because of the manner in which I was raised, but, “ugliest” is much harder for me to judge.
A beauty contest presents one with the opportunity to observe the fine details of beauty. I have no trouble doing that. But studying the finer details of ugly is not very much fun and I will likely never be good at it, no matter how hard I try.

Where have the good old days gone?

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