Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.


  • Content Count

  • Joined

  • Last visited

Personal Information

  • First Name
  • Last Name
  • Country
    United States

Trading Information

  • Vendor
  1. I have never been in any course about market profile. However, I have seen a place that maybe useful for newbies of MP to learn all basic of MP. http://tradingadvantage.com/marketprofile.html
  2. Hi all, I just got this trading tips from Larry Levin, President & Founder- Trading Advantage. So, I would like to share with all of you here. Hope it may help for your trading strategies! What is Market Profile? Each day the market defines a Market Profile (MP), a Value Area (VA) and a Point of Control (POC), all of which are invaluable to trading the following day. Similar market-derived data over longer time frames is also of great value to day traders and other time frame (OTF) traders. Before I expand on this subject, let's back up and define the various terms we will use. The sole function of any market is to facilitate trade. Over time a profile of the nature of the trading develops and levels of perceived value become established. By the end of the trading session, a structural profile for the period has been established. This is referred to as Market Profile (MP). Definitions You Should Know Market Profile (MP): The MP organizes price on a vertical axis and time on the horizontal axis. A price/time relationship is established. A convenient way to evaluate demand at any given price and time is to use tick values, which are immediately available. Subsequently a bell curve of price - volume distribution over time is created. The basic time period used in MP analysis is the thirty minute time frame. The half hourly tick volume is organized by alphabetic code starting at 8:00 A.M. Letters of the alphabet are assigned for prices that occur in each half hour. The period 8:00 to 8:30 is A; B is 8:30 to 9:00; C is 9:00 to 9:30, and so on. . Value Area (VA): The "Value Area" (VA) is one standard deviation (70%) of a normal bell curve of the time/price distribution in a given period, commonly each day, i.e. the volume of trade as well the cost of trade is included in the computation of the VA numbers. Value Area High (VAH): The upper price limit of the Value Area. Value Area Low (VAL): The lower price limit of the Value Area. Point of Control (POC): Is the price at which most trade is conducted during the period under study. It is that line of TPOs that makes the very apex of the bell curve of distribution. It is the statistical mean of the price, time, and volume relationship. Responsive Selling? If perceptions do not change as prices move away from the upper VA level, prices quickly run out of buyers and start attracting sellers who return prices towards and into the value area. This is also true at the other end. As prices move away from the lower VA level, prices quickly run out of sellers and start attracting more buyers who will bring prices back to the value area. This phenomenon is referred to as responsive selling or buying, respectively. On occasion, the migration of prices above or below the VA extremes, rather than attracting responsive buyers or sellers, attracts the big money who (for whatever reason) now considers the VA extremes as unfair. The big money responds by initiating buying at this previous extreme. Once this happens, the upside breakout is likely to gather momentum as short sellers quickly cover their losing trades. Prices are likely to trend strongly for the rest of the session, or at least until the big money considers a new upper limit of value has been reached. This is also true at the lower VA level (VAL). Normally when prices reach this area, they cause traders to respond by buying. But occasionally the big money will have reevaluated value at this VAL and consider it overvalued and initiate selling. This will attract further selling and a downtrend is likely to continue into the close, or until fair value is perceived to have been reached. Keep notes on trades you liked but didn’t make.What held you back? Do you notice any patterns causing you to miss opportunities? FIX THEM! The Value of the Value Area The VA of the day is of great value to traders the following day. The opening of the Chicago regular trading hours (RTH) relative to the previous day’s VA can be above, below, or within the VA. Opening price, if outside the VA, may or may not pull back into the VA. All these possibilities have significant implications for the ensuing day's trade. Markets frequently rotate through value and only occasionally trend. So VA extremes offer opportunities to enter fading the extreme or trading the breakout. Knowing which to trade has obvious implications for your financial survival. The POC's Daily Implication Similarly the POC of the previous day has great implications for day traders. Being the level of the greatest perception of value, and the price at which the greatest volume of trade took place, it is likely to offer significant support on downside pull backs in an uptrend, or resistance on an up-side correction in a downtrend. The POC will then offer opportunities to fade the pull back. However, failure of these normal expectations as prices test the POC would amount to a break out of sorts, and fading the POC could be a costly mistake. VA and POC Insight Similarly, VA and POC studies of longer time periods offer great structural insight to the market for day traders and other time frame (OTF) traders who are usually the big money looking to initiate, or hedge positions for the long haul. But as James Dalton says in his book, 'Markets in Profile,' "Even OTF traders are day traders when they put on a trade." Use of the VA overlay charts over a 5-, 10- and 20-day period can be a great aid in identifying potentially low-risk trade placement and setting reasonable targets for price movement. These are of use to day traders and swing traders. *PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. VA Overlay Chart Day-by-Day Analysis Chart 1 shows the VA Overlay Charts after the close Friday July 23, 2010. It illustrates and defines VA areas of distribution for the previous 5, 10 and 20 days. In the previous 5 days, we see that there were two well-defined VA areas between 1096.00 - 1100.00 and between 1059.00 - 1094.00. The VA area for the previous 10 days was a tad larger, 1056.00 - 1100.00. The 20-day distribution covered two distinct areas of VA distribution, 1012.00 - 1047.00 and 1056.00 -1099.00. The POC of the previous 5 and 10 days was in the 1090.00 area. The longer 20-day period had its greatest volume of trade in the 1074.00 area. This was the picture going into Monday of the following week. Monday, the RTH session gapped up on the opening above the Friday close and the previous 5 and 10 day VAHs. This was not an opportunity to fade the opening. It was a day to buy the breakout and profit from the trend day that followed. The next day, Tuesday, the RTH market opened at 1116.50, substantially higher than Monday's close (1109.50) and well above the VAH for Monday which happened to be 1109.75. So was this an opportunity to fade the opening or an opportunity to buy another breakout and enjoy another uptrend day? Trade Du Jour The former was the trade du jour. After the opening prices moved up to 1117.75 in the first fifteen minutes, the high of the day was in. Once prices broke below the opening, the game was up for bulls and the sellers swooped in to join the responsive sellers attracted by that early over-valued high, an unfair high price to the big money players. These responsive sellers were quickly joined by early longs covering their losing positions and later in the session by blindsided "long only" fund managers caught on the wrong side of the market. The session closed at 1111.00. Our 5 & 10 day VA overlay chart suggested that no real support could be expected until prices reached the 1100.00 area. So Wednesday when the RTH session opened below Tuesday's close (1111.00)and below Tuesday's VAL (1108.25), one was left with the dilemma of buying or fading the opening (1108.00) and the VAL for the day which was 1108.25, fading or buying the POC (1110.25), or fading the Tuesday close (1111.00) or selling the break back below Tuesday's VAL. The correct trade(s) turned out to be fading any or all - i.e. the Tuesday close, the break back below the POC, and the break back below the VAL. The expectation was that 1100.00 would be tested and the possibility that even the 5 & 10-day POC would be the ultimate test of support. That day the low was 1099.25 so a profit was realized at the target area. That still left the possibility of the 5 & 10-day POC in the 1090.00 area being tested before this down side correction was over. Thursday the RTH opening was a tick off Wednesday's close and above the VAH after Wednesday's trade. Again one had the dilemma of whether to fade the VAH or the POC, if touched, or going short if those levels of potential support failed as such. In the first hour, prices edged up to a tick above the VAH after Tuesday's trading. This was the high of the day and so shorting that three-day VAH was the ideal trade to enter for the day. The target was once more the 1100.00 area with the real possibility of declining further to test the 5 & 10-day VAL, in the 1090.00 area. The low of the session was 1088.75. Friday, Thursday's low was tested but the break below the 5 & 10-day VAL could not be sustained so buying the 5 & 10-day VAL was the trade du jour and prices steadily moved higher from that key reference area, the high of the day being 1103.50, a little above that other key reference area, 1100.00. This apparent break out could not be sustained and prices eased back to close at, you guessed it, 1100.00. VA Overlay Chart Day-by-Day Analysis - Chart 2 Chart 2 is the 5-, 10- & 20-day VA overlay chart after the close Friday July 31, 2010. The key reference areas are shown and are offered to help you in your trade, this first week of August. Before Monday's opening, this chart was sent out to a few friends with this note: If Friday was a reversal day, and I believe it was, we should see prices move up to at least test the 1113.00 area, even the recent correction high at 1115.75. A new high in the 1120.00 area or a test of the June high, 1129.50 cannot be ruled out. If the breakout is unsustainable, we are likely to see a correction that could bring prices back to test the 1090.00 level. VA Numbers for Monday: VAH @ 1100.75 VAL @ 1093.25 POC @ 1097.75 *PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. I'm not being sly in the Chart 1 presentation of the value of VA Overlay Charts. The good stuff you learn about trading VAs in my courses and the use of Market Delta "footprint" charts makes decision making at these key reference areas easier than you might think. "Volume leads price" was the mantra of market technician Joe Granville who popularized On Balance Volume as an aid to investing. Volume is key to unraveling the fade/breakout trading dilemma. Using the technical indicators that over 90% of traders use, all set at the same default values, is far inferior to understanding market structure. It is no coincidence that over 90% of traders fail at this zero sum game called day trading. I teach market structure so that Value Areas are easily defined, and their relevance in any situation can be quickly deduced. Larry Levin President & Founder
  3. metalsguru


    To say that today’s trade was slow is an understatement of massive proportions. It was so slow; it is hard to imagine how it could get any worse. People have a natural tendency to wonder why this happens and the only reason for today must have been the impending AAPL and IBM earning announcements. Both were very good. AAPL earnings were better than expected. Can it already be priced in or is it going to $400/share? Q1 revenue USD 26.74bln vs. Exp. USD 24.42bln Q1 Macs sold 4.13mln, up 23% Q1 iPhone sold 16.24mln, up 86% Q1 gross margin 38.5% vs. Exp. 37.3% Q1 iPods sold 19.45mln, down 7% Q1 iPads sold 7.33mln Sees Q1 revenue about USD 22bln vs. Exp. 20.87bln, sees Earnings at $4.90 on expectations of $4.47 IBM… Q4 revenue USD 29.02bln vs. Exp. USD 28.28bln Q4 gross profit USD 14.2bln Q4 net USD 5.26bln vs. Exp. USD 5.14bln Q4 software revenue USD 7.04bln Q4 global technology services revenue USD 10.2bln Q4 systems and technology revenue USD 6.28bln Q4 gross margin 49.0% vs. Exp. 48.8% Q4 global business services revenue USD 4.76bln Q4 signed services USD 22.1bln, up 18% The ES is almost at my target “level” of 1,300.00 to 1313.75. One wonders if Globex traders will take the baton and run with it into that range. If so, what’s next? Oh, never mind. There are POMO operations every day but 2 this month so it’s up, up & away! Trade well and follow the trend, not the so-called “experts.” Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters. Larry Levin larrylevin@tradingadvantage.com Trading Advantage (888) 755-3846__
  4. Austerity is a word that is being used to describe what some Euro-Zone countries have to do to comply with IMF and ECB loans. According to Wikipedia the definition is “In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided.[1] Austerity policies are often used by governments to reduce their deficit spending[2] while sometimes coupled with increases in taxes to pay back creditors to reduce debt.[3]” Now, however, it is being used to describe what is happening in Illinois. I couldn’t disagree more. Jan 11 (Reuters) – “A big income tax increase was poised to move to the floor of the Illinois House on Tuesday as Democratic lawmakers played beat-the-clock to get the measure passed before a new legislative session begins on Wednesday. The bill would raise about $6.8 billion a year for the state's beleaguered budget by raising the individual income tax rate temporarily to 5 percent from 3 percent and the corporate tax rate to 7 percent from 4.8 percent.” The Illinois House today passed the 66% tax increase, which now goes to the Senate. It will pass the Senate too, I’m sure. As you can see, in Illinois what comes first are tax increases, not last according to Wikipedia’s “austerity” definition. “Revenue from the tax hikes would allow Illinois to sell about $12.2 billion of bonds to pay off a huge bill backlog and make a $3.7 billion fiscal 2011 pension fund payment. Illinois, which faces a budget gap that could grow to $15 billion, is one of many U.S. states grappling with record budget deficits after the deep recession stunted tax revenue needed to keep daily operations running. It is considered one of the weakest states after years of what critics say was mismanagement of state finances. Democrats control both chambers of the legislature and the governor's office, where Governor Pat Quinn is on board with the tax plan and spending cap, his spokeswoman said on Tuesday.” According to Reuters (and the governor himself) the new tax revenue (if it materializes in the amounts believed) will be used to increase debt when Illinois sells another massive amount of bonds. According to the Chicago Tribune “In addition, Quinn and lawmakers are looking at using the tax hike to spend more than $700 million more on education a year.” Unlike real austerity, you can see that Illinois will actually increase spending. Moreover, a large portion of the increased debt will be applied to kicking the can further down the road since it will be added to union pension funds. Unlike real austerity, there seems to be no “reduction of benefits” to unions because, after all, they got Mr. Quinn elected. In the Bill titled Taxpayer Accountability and Budget Stabilization Act I have to ask the following… I have to start with the name: Are the taxpayers being held accountable for the brain-dead politicians that spent the state into insolvency because the average slack-jawed taxpayer voted them into office; or is this bill going to be accountable to the taxpayer? An odd name to be sure. If it is the latter, just how is increased debt being accountable to the taxpayer? If it is the latter, just how is increased spending being accountable to the taxpayer and stabilizing the budget? If it is the latter, just how are pension benefits NOT being reduced being accountable to the taxpayer? Defined pensions have gone the way of the dinosaur in private companies because they are unaffordable. Of course, politicians spend/promise your money as if it were meaningless Monopoly money and couldn’t care less that they are the only ones foolish enough to still cling to wholly unaffordable defined pension plans. All public unions should have 401k accounts like the rest of us, and of course the state would contribute but not at a rate greater than the average corporation. If it is the latter, just how is a massive 66% tax increase being accountable to the taxpayer? We need the exact opposite of these so-called solutions. We need a real governor. We need a Governor like Chris Christie in Illinois! With the current lot in the capitol of Springfield, Illinois could rival the city of Detroit in short order. This is not austerity but business as usual. Trade well and follow the trend, not the so-called “experts.” Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters. Larry Levin larrylevin@tradingadvantage.com Trading Advantage (888) 755-3846__
  5. The markets were shocked today when Ben “Benron” Bernanke announced a ¼-point rate hike! The S&P500 suffered a 2.5% drop on the news. Well, uhh, by “shocked” I meant took it in stride. And by Ben “Benron” Bernanke I really meant the Bank of China. Oh yeah, and by “2.5% drop,” I really meant a 1 point GAIN for the S&P500. Oh sure, the European markets were slammed on the news but this is the land of the free…free of economic & financial gravity. At the shores of the USA all economic & financial truisms, like spending more than you make is a bad thing, stops cold. It doesn’t apply to us. Why would China raise interest rates? Don’t they know that rates can be at ZERO 4evaaah? Apparently not. The Chinese central planners must be far behind the curve of American central planners because it looks like the Chinese actually compute inflation based on things that go up in price. Said another way, they should make like an American economist and simply exclude everything that rises in price like; oil, medicine, food, tuition, health care, etc. (When home prices are rising US economists do not include price increases, but rather decreasing OER.) Specifically, China has a property bubble on its hands and wants to deflate it slowly; however, ¼-point hikes won’t do a thing. Although consumer prices are rising in China, its real problem is asset inflation – commercial and residential property. Sound familiar? Check out this article and the staggering amount and size of EMPTY buildings…and whole cities in China that are vacant. Here’s a thought: stop overbuilding. http://www.dailymail.co.uk/news/article-1339536/Ghost-towns-China-Satellite-images-cities-lying-completely-deserted.html No worries though folks; if China’s bubble pops and brings the global banksters Round II of Financial Armageddon, Zimbabwe-Ben will just print more money. No worries, indeed. Trade well and follow the trend, not the so-called “experts.” Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters. Larry Levin larrylevin@tradingadvantage.com Trading Advantage (888) 755-3846__
  6. Some good insights from analyst, Davis “Rosie” Rosenberg of Gluskin Scheff. All these “rescue” packages in euroland really do is provide bridge financing — they do not resolve the underlying structural problems in these countries or the deflating asset values in bank balance sheets. Greece has already breached its deficit target and a Greek default is likely only a matter of “when”, not “if” at this stage. To suggest that its economy is too small or that its debt obligations are tiny ignores the uncertainty that would prevail as credit default swaps have this nasty way of redistributing those liabilities around the world. This is what the Lehman shock taught everyone. Plus we have to consider that all these funds being earmarked for bailing out sovereigns and shoring up undercapitalized banks. The massive sell off in government bond markets, even in countries like Belgium and Italy (let alone Portugal and Spain), is a clear sign that the bond vigilantes are now targeting the supposedly stronger governments in the eurozone. These bond vigilantes are also speculating that the national purse will be needed to keep their banks afloat and the relentless widening in CDS spreads is an added suggestion from the markets that these governments may not have the resources to fully repay their creditors once they have moved to support their banking systems. What is notable that does not get a lot of press is that both the M3 money supply and private sector credit has contracted in the euro area in each of the past two months. The austerity packages needed to bring intractable deficits down will fuel the deflationary pressures, which will only further destabilize the financial system and add damage to the economy. While Germany is viewed as a darling in the region, its trade and banking exposures to the euroland periphery is huge. Judging by the market action, the contagion through to Belgium, Italy (never mind Portugal and Spain) is increasingly apparent. This is very much like how the problems in Thailand ultimately spread to Singapore and South Korea back in the 1998 Asian crisis. The question ultimately will be how the banking systems in the rest of the world will be affected. Tack on the tensions from North and South Korea and how that will play into U.S.-Chinese relation. Plus the intensifying inflation pressures in emerging markets, which in turn raises the specter of capital controls. In the U.S, as the lame duck Congress reconvenes, with the influence of Reid and Pelosi still around, gridlock may not be good in terms of getting any of the tax/benefit goodies extended into next year. Gridlock isn’t always good. And the new Congress intends on politicizing the Federal Reserve, which is another source of uncertainty. And all this at a time when the latest batch of U.S. economic data — at least outside of the housing market — has started to improve. Consider the following: • The VIX index (a measure of volatility), at 22x, looks inexpensive. From late April to late May, it jumped from that level to 45x on the back of the round of Greek-related concerns at the time. • Larry Fink is dead on — dollar-euro is very likely going to go back and re-test 1.20. • Recall that the risk-on trade that worked so well in September-October was highly correlated to a weak U.S. dollar. These now go into reverse. • The long bond, at 4.2%, relative to core inflation and the funds rate looks cheap, in my view. • The 5-year government of Canada bond is very attractive at today’s level if the Bank of Canada goes on hold. • Gold has emerged as a reserve currency, which is why it rallies even on days that the U.S. dollar is bid. It continues to hug the uptrend in the 50-day moving average very nicely. Although we remain long-term bullish on gold, we are near-term cautious given the technical picture and the high net speculative long positions. • The tensions between the Koreas should be a negative for the Asian FX complex and bullish for the U.S. dollar. Weakness in the yen is a positive for Japan’s large-cap exporters. • Oil should be viewed as a strategy here and should be bought on the dips. Same for base metals and food. Government procurement policies and inventory hoarding are likely to support raw materials. • A great holiday shopping season is priced into U.S. retailing stocks. Utilities, health care and staples have been laggards but could make up some ground if growth expectations recede. • With a total of 6.3 million in inventory of U.S. homes, or about two years’ supply, another leg down in housing prices is underway. Apartment space looks much better from an investment standpoint. What is remarkable is that since the Greek bailout was unveiled back in May, instead of alleviating fiscal concerns in the Eurozone periphery, contagion risks have actually intensified. Even with German 10-year bond yields declining 25bps, they have risen nearly 70bps in Italy, 150bps in Spain, 225bps in Portugal, 420bps in Greece and 460bps in Ireland. Once the stabilization fund ends in 2013, there is no way these countries can fund themselves at current debt-service cost levels. Ireland may have secured funding, but at a 5.8% interest with nominal GDP declining, the situation is untenable in terms of sustaining any balance sheet improvement. Debt restructuring is inevitable. Looking at current CDS spreads, we are up to around 80% on default risks in Greece, 60% in Ireland, over 50% in Portugal, nearly 40% in Spain (this is big), nearly 30% in Italy and 20% in Belgium. No wonder the VIX is breaking out. The risk is one of financial contagion to be sure, but there is the added macro risk as U.S. exports to the EU account for over 20% of the total volume of shipments sent abroad — about double the relative importance of the B.R.I.C.s in relation to U.S. producers. Plus, there is the added deflationary thrust from the strengthening U.S. dollar, which will come home to roost in that large share of corporate earnings derived from foreign sources. Trade well and follow the trend, not the so-called “experts.” Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters. Larry Levin larrylevin@tradingadvantage.com Trading Advantage (888) 755-3846__
  7. In a normal week today's economic data would have made a bigger splash than it did; however, this is not a normal week. Clearly Tuesday's vote, Wednesday's printing press Ponzi scheme, and Friday's jobs data may create a tsunami of waves. First up was the income & spending report. The news came as no surprise to me: incomes were down, but good Americans that we are - we increased our spending. Personal income was far worse than expected at -0.1% and spending was 50% worse than estimated at +0.2%. This data is not not good, but who needs good economic data when the Fed is going to print like maniacs? The ISM report beat expectations by a wide margin. Consensus estimates were for a reading of 54.5 but it came in at 56.9. What is definitely odd is the fact that the regional "manufacturing" reports are a constant disappointment and even show contraction if memory serves me correctly. Somehow, however, when the national data is released it is far better than the sum of its parts. Here are a few quotes from respondents of the survey... * "The dollar is weakening again, which is resulting in higher costs for our materials we purchase overseas. It is hurting our profit margins." (Transportation Equipment) * "Business slowing down but still double digit over last year." (Chemical Products) * "Currency continues to wreak havoc with commodity pricing." (Food, Beverage & Tobacco Products) * "Customers remain cautious, placing orders at the last minute, making supply planning a challenge." (Machinery) * "Our customer base — auto manufacturers — is expanding capacity and making major capital investments." (Fabricated Metal Products) The final report of the day was construction spending. Like the ISM data, it easily beat expectations: consensus estimates were for a reading of -0.5% but it came in at +0.5%. Bloomberg said, "The boost in September was led by a 1.8 percent increase in private residential outlays, following a 4.2 percent decline in August. These numbers reflect recent improvement in housing starts." It looks like this activity took place BEFORE the Fraudclosure scam made it into the Lame Stream Media. This may not continue. Trade well and follow the trend, not the so-called “experts.” Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters. Larry Levin larrylevin@tradingadvantage.com Trading Advantage (888) 755-3846__
  8. metalsguru

    Currency War

    The Federal Reserve's newest dollar trashing strategy is having major currency effects across the globe. Multiple countries from Brazil to Japan, and many in between, feel like they must intervene in the Forex market to offset the Fed's policy. As a direct result of the Fed's soon-to-be-launched QE2 currency debasement, the US dollar has already been slammed nearly 10% in a few short weeks. Because of this, all other currencies are rising relative to the US dollar, which is not what other countries want because it makes their exports more expensive. Now, if the United States admitted to this everyone may be able to work out an amicable solution. Sadly, the arrogance of U.S. officials knows no bounds: they blame everyone BUT the Federal Reserve. In an effort to give the ^$!#g banksters more money and spur the manufacturing sector (via a lower US dollar), which is only 14% of the US economy, the idiots at the Fed are starting a global currency war and risking hyperinflation. Since they're government employees, I'm sure the Keynesian-clown-posse in the Fed will be promoted soon. The following piece sums it up nicely... A currency war is spreading as the dollar's value against major world currencies has continued to decline in recent days. Some developed countries have begun to intervene in their exchange rates. The recovery of the global economy will suffer a negative impact if this trend is not checked. It is the dollar that triggered the currency war. Seemingly a market move, the depreciation of the dollar is actually active. The U.S. Federal Reserve's statement that it might restart quantitative easing — a policy central banks use to increase money supply — triggered the depreciation of the dollar. The dollar's value against the basket of currencies has decreased by 7 percent since the U.S. Federal Reserve began talk of possible quantitative easing. The move nominally aims to further drive down the interest rate in America to prevent the occurrence of a double dip. But it will affect the value of the dollar too, prompting the dollar's devaluation. In light of the history low short-term interest rates in the United States, a further decrease in the interest rate will drive the flow of short-term capital toward markets of emerging economies, quickening the appreciation of their currencies. Second, the U.S. government's strategy to double its exports within five years needs the considerable depression of the dollar. For America, boosting exports is a must in the post crisis era, because it cannot pin its hope for economic growth on the prosperity of its real estate market and consumption based on borrowing money. Obviously boosting exports relying on the competitiveness of U.S. companies is not realistic in the short term. Nor is it possible to be realized by the strong demand of its trade partners. None of America's trade partners — except those emerging economies — are able to achieve growth independently. Judging from the course of history after World War II, considerable depreciation of the dollar is the sole possible option that enables America to realize the goal. In this sense, driving down the value of the dollar has become an important choice in policy for the United States to recover the sluggish economy.. The last but the most important point is that in the long run the considerable depreciation of the dollar will help America to transfer its debts to others. If we say the international financial crisis nationalized the private debts, then in the post-crisis era, the United State sees an urgent need to internationalize its debts. A great amount of bad debts of American financial institutions have been converted to government debt through government aid measures. In 2009, America's fiscal deficit stood at 1.42 trillion dollars, 3.1 times the 2008 level. The deficit ratio surged from 3.2 percent in 2008 to 10 percent to a new high since World War II. The debt of the federal government increased to 6.7 trillion dollars, representing 47.2 percent of its GDP. In 2010, the fiscal deficit is expected to be around 1.32 trillion dollars. How America retains economic growth while reducing the deficit is a big problem for the country. Historic experiences show debt-to-GDP ratio is not directly linked with economic growth and inflation (even devaluation) in most countries. But the United States is an exception because the dollar serves as the world currency. For instance, the ratio decreased from 121.2 percent in 1946 to 31.7 percent in 1974. Of that number, inflation accounted 52.6 percentage points, economic growth contributed nearly 56 percentage points and federal surplus contributed negative 21.51 percentage points. Even if the United States denies its motives to transfer their debts, it will unavoidably happen in reality. Given a sluggish economy and huge amount of debts, driving the value of the dollar down is in line with America’s interests, both in short term and in long term. The international community ought to stay vigilant about the strong motive for active devaluation under the guise of a market-based move. By Li Xiangyang, translated by People's Daily Online Trade well and follow the trend, not the so-called “experts.” Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters. Larry Levin larrylevin@tradingadvantage.com Trading Advantage (888) 755-3846__
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.