My name in Andrew Abraham. I have been investing in commodities and managed futures since 1994. I am a commodity trading advisor/co manager of a commodity pool who adheres to the philosophy of trend following.
Trend following stresses a disciplined approach to commodity/ futures trading. Successful trend following and commodity futures investing requires patience, discipline and actively managing the risk. What sets us apart from other Commodity trading advisors and commodity pools is that we are not only concerned about the return on investment but how much risk you will have to tolerate to achieve your goals.
Do You Really Want To Short The US Dollar?
Lets face it…everyone seems to hate the US Dollar…Seems every Forex trader wants to be short the US dollar. So many think the US dollar will crash ( maybe it will..who knows).. but what I do know as a commodity trader..when too many traders are on the other side of the boat… something happens. My short on the US dollar was recently taken out.
What is interesting is that Nouriel Roubini is starting to speak about the US dollar carry trade. A carry trade is when traders/ speculators borrow in one currency and buy assets in more risky currencies… I remember the blood bath for the Japanese Yen in 1998 when the Yen carry trade blew up. Julian Robertson took a major hit as well as countless commodity and forex traders. The US dollar has replaced the Yen and is the now choice of potential danger. Risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals. Traders who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets ( Aussi…New Zealand… Brazil’s Real) and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions. Trades like this do not last forever…
Is the mother of all carry trades and mother of all highly leveraged global asset bubbles fermenting?
No one knows the catalyst why/ if this can end… but the US dollar will not fall to zero and at some point it will stabilise; when that happens the cost of borrowing in dollars will suddenly become zero, rather than highly negative, and the riskiness of a reversal of dollar movements would induce many to cover their shorts. Second, the Fed cannot suppress volatility forever – its $1,800bn purchase plan will be over by next spring. Third, if US growth surprises on the upside in the third and fourth quarters, markets may start to expect a Fed tightening to come sooner, not later. Fourth, there could be a flight from risk prompted by fear of a double dip recession or geopolitical risks, such as a military confrontation between the US/Israel and Iran. As in 2008, when such a rise in risk aversion was associated with a sharp appreciation of the dollar, as investors sought the safety of US Treasuries, this renewed risk aversion would trigger a dollar rally at a time when huge short dollar positions will have to be closed.
How many forex traders, commodity traders or simply speculators will be caught on the wrong side of this trade? Probably countless..
What is the point… trade with a plan…do not trade the news..realize anything can happen…because it will happen…
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Andrew Abraham
A.Abraham@AngusJackson.com
www.AJpartnersinc.com
www.myinvestorsplace.com
Futures trading involves risk. People can and do lose money
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I lean toward working with automated systems myself, but I can clearly see the points you’re putting out in this post. You’ve greater background and more logical viewpoints than many of the people who are spouting off about trading on the net. Thank you for the helpful article.