I'm going to talk some more about foreign exchange trends today, but first I want to comment about the forex rigging by banks that was all over the news yesterday.
The schemes were uncovered by U.S., Swiss and British regulators and involved the Royal Bank of Scotland (RBS), Citigroup (C), JPMorgan Chase (JPM), UBS (UBS) and others. A total of $4.2 billion in fines were handed out (fines!), which is peanuts, in my view; a modest cost of doing business for these firms. JP Morgan alone raked in over $20 billion in profit last year, so CEO Jamie Dimon's probably not too concerned at the $1 billion or so his bank will have to pony up. Regulators must be real pleased with themselves. Meanwhile in other news, reality TV stars are going to jail for frauds amounting to $4 million. That's the world we live in.
Over the course of my 35 years on Wall Street I have been a member and trader on four exchanges (CME, NYMEX, COMEX, NYFE) and I can tell you this without equivocation: Every single large trader I ever met cheated in some way, shape or form. I am in no way condoning this -- it's just that it has been going on since men gathered around a buttonwood tree in lower Manhattan back in 1792.
If you trade legitimately, you know how hard it is to make money. The markets are tough taskmasters. I once had a friend who was a very good (legit) trader and I asked him, "How do you do it?" You know what he said to me? He said: "I figure out how the market can end up screwing the most people and then I bet that way." Smart guy, my friend.
Personally, I can't stand cheaters, in anything, but you'll always find them. The good news is you don't have to cheat. You can make money legitimately, but it's really all mental. In the trading courses I teach I put a heavy emphasis on the "mental game." I tell students that trading success is 100% mental and I guarantee that you won't find a successful trader anywhere who'll disagree with me on that.
Back to the currency markets. Yesterday I noticed some interesting price action in the New Zealand dollar and the Australian dollar. Both had climbed back to near, or above, where they had been the night of Nov. 4. That was the night of the U.S. midterm election results. Forex traders probably recall that the U.S. dollar promptly rallied following the big GOP victory, so I find this pullback interesting because my outlook for the dollar is that it is peaking and will start to decline over the coming 12 months.
The key point to my outlook is that I am certain the Republican Congress will not raise the debt ceiling next March, and that when that happens it will put the government immediately into balanced budget operating mode and set the entire system on the path to default. I wrote about this the other day. I called it going the "Full Europe." This will wreak havoc with the economy and the dollar will suffer the consequences as well.
Right now everyone is concerned with the end of quantitative easing and what the Fed's next move will be, as well as Europe and Japan's fake "money printing." That's what's been driving portfolio flows, but it's all speculative. The numbers show that clearly. In other words, it's probably unsustainable.
Finally, let me tell you that I recently came across an interesting little tool on Google's "Adwords" service. For those of you unfamiliar with Adwords, it's the company's advertising service and anyone can open an account and use it for free.
The tool is called "Keyword Planner" and lets you graphically display the number of keyword searches over periods of time. I played around with this and found that the keywords "the dollar" "stocks" and "oil" were at highs not seen in two years (this was as far as the tool would let me go back). So if you're a contrarian, this might mean something to you. Check it out, it's a great find!