Mad Men teach trading

“I hate to break it to you, but there is no big lie, there is no system, the universe is indifferent.”

- Don Draper, Mad Men, Episode 8, Series 1.

Oil

Pulled from a piece of Goldman Sachs research looking at the Australian economy. It sure is a doozy.

A quick thought – Always look on the bright side of …

… the economic slowdown.

Lower real incomes and falling house prices mean we may see less estate agents and coffee shops on the high street. I see this as a good thing and wonder what will spring up in their place. Lower rents will surely open the way for new entrepreneurs.

When the commodity bough breaks

… down will come the commodity currencies.

But remember, if your commodity currency play is based solely on your view of the commodity prices, it may be better to trade the commodities directly. A short gold/usd position pays out interest, whereas short NZD/USD, AUD/USD positions are deeply carry negative.

Papillon teaches trading

I watched the film ‘Papillon’ a few days ago and enjoyed it very much. From memory, the film captures the sense of place, feeling of utter desperation, and cruelty of both the people and environment, found in the book on which it is based. It doesn’t follow the story to the letter – few films do – but this becomes a non-issue considering that many people question whether the author truly experienced all these adventures and hardships, or whether he ‘borrowed’ stories from other prisoners. Whatever the truth may be, I highly recommend reading the book and then watching the film.

In one scene, fellow inmate Louis Dega (played by Dustin Hoffman) is talking to Papillon (a role superbly executed by Steve McQueen) and makes a statement of the ‘somebody once said’ variety, that really struck home:

“A temptation resisted is a true measure of character.”

Currencies – a reminder of the bigger picture

Just collected these charts to remind me of the bigger picture. The three charts with a green background are of EUR/USD (daily, weekly and monthly). The other charts are long-term monthly price charts of AUD/USD, JPY/USD, GBP/USD and USD/CAD. Interesting to see where we’ve been.

Click through the pics to see them in full size.:

Reverse insights – Emotions hanging on every tick

When I am away from trading, I enjoy looking for insights that may carry over to the field of speculation. These can be found in the unlikeliest of places. Recently, however, I’ve had a few thoughts that run the other way, from market experience to other venues in life:

I currently have a small short position on the FTSE. I chose an entry point, and a stop loss. As the position moves against me, my mind thinks of negative thoughts associated with losing. Nobody like losing. When the position moves in my favour, my emotions also swing toward the positive.

But the more I think about the trade, the more I realise that letting my emotions hang on every tick is meaningless in the grander scheme of things. Indeed, whether the trade closes in a profit or a loss is also of little value. I have no control over the market. What matters is the decision process and whether I tried my best given the situation. It is from here that I find my assurance and sense of self, losing trades and their effect on my mentality be damned.

Likewise, when it comes to performing in other venues in life, much is within our control and much isn’t. In sports for example, we often have limited influence over our competition. What we do have control over, however, is ourselves. I believe it is important to draw the distinction. I know it is a simple thought, but it does ask questions of the meaning of a score-line, and it also raises the possibility for one to recognise that some of the best performances in a man’s life may be associated with a negative end result. What is the better achievement in a man’s life, winning a competition with a lucky draw that pits you against a series of weak opponents and never forces you to bring out your best game, or getting a tough draw, playing your absolute best, against the very best opponents out there, and losing? Give me the latter.

Bears: A Brief History by Bernd Brunner (translated by Lori Lantz)

‘Bears: A Brief History by Bernd Brunner (translated by Lori Lantz)’, concludes with the following:

“Our fascination with bears also makes it difficult for us to recognize that, no matter how familiar their glance and gait may seem, bears are not interested in people. But indifference on their part should not prevent us from feeling admiration, respectful curiosity, and concern for the bears that share our world. I would like to have faith in our ability to devise intelligent ways for humans and bears to coexist – although I hope this book has made it clear that we should also keep a respectful distance from them. Since completely avoiding misanthromorphism may be impossible, perhaps we can think and speak of bears as our distant relatives in the forest who have their own way of doing things and simply prefer to keep to themselves. Let us not be disappointed – the bears cannot help it. We can avoid clashes with bears only if we learn to stay out of their way. Anything else is the stuff of dreams!”

Another quick thought – self worth

For those with strength of character, whose value is not determined by other people’s opinions, it is not the winning or the taking part that counts, but applying oneself to the fullest.

Quick thought on fundamental analysis

People like to talk about fundamentals when discussing the real economy and financial markets. It provides meaning and lends a narrative to events. It’s certainly far more useful than saying ‘car prices/house prices/oil prices have crossed their two hundred day moving average’ – this does not make for engaging dinner party talk. Friends and family, for example, often talk about the demand for housing stock, limited supply coming on stream, and other such reasons for why house prices shouldn’t fall too much.

But here’s the thing. Fundamentals are fundamental and price is price. The two are related but they are not the same thing.

Even when fundamentals are positive, the price can be too expensive. And when fundamentals are poor, the price can get too cheap. Take housing for example. Regardless of immigration trends, population dynamics, etc, it is quite possible that house prices are simply way too expensive in the UK, that the housing market has priced in all these factors and a hell of a lot more. I’m not saying it is definitely the case, just that it might be so. Right now, people are giving reasons for house prices to fall (interest rates, oil prices, etc) but perhaps houses were simply overpriced and due a correction. While any combination of these fundamental factors may have triggered a correction, they may not be the true cause for the decline.

Over to financial markets, the analysts on Bloomberg and CNBC are happy to get their air time and chatter on and on about fundamentals of stock x, or economy y, when touting their buy/sell calls, but why don’t they specifically tell us what they think is ‘in the price’ and what isn’t.

Anyway, enough of the late night blabbering. Just remember to separate price from fundamentals.