Retail Traders = Nefarious I-Bankers

At least, according to the tortured and dangerously ill-informed calculus of Rep. Peter DeFazio (D-Ore.)  As I mentioned a few weeks ago Defazio reintroduced a bill under H.R. 1068 on 02/13/2009 proposing a 0.25% “financial-transaction tax” that had fallen off the table when the previous Congressional session closed. In that post, I enjoined any U.S.-based trader (this may also extend to international traders that traffic in products or asset classes traded on U.S. exchanges) to write to their Congressmen/women to make their opposition known.

If you haven’t read the bill out of indifference or preoccupation and the above description is applicable to you (U.S.-based, or trade U.S.-originated instruments), think twice. You can find the bill here, a method for easily sending word to your Congressional representatives here, and important supplemental information blogged by Robert Green here.

As one of my favorite fellow bloggers TLT might note, I’ve done a pitiful job presenting both sides of the argument to this point; and that does the side I am a proponent of a disservice. Thankfully (this way I can salvage some intellectual integrity), Rep. DeFazio made a short circuit of the financial news channels last week, providing us with a concise formulation of the side he is championing:

Defazio on Fox Business

and

DeFazio on CNBC

Where does one even begin to begin? Anyone who trades multiple times a day is “churning”. Daytraders serve no economic function and add no economic value. Daytraders (or anyone trading on margin, apparently) are inherently gamblers. A comparable tax passed during the Great Depression didn’t impede the gains of the DJIA from 1932-1966 from 41 to 1000, therefore a comparable tax will not impede recovery now. China may ask for a refund. The number of people who trade at least once a day do not number in the millions. There is no sub-set of retail traders who aren’t destructive gamblers (because if there were, the argument would be blown to hell). This is an effective way to target Wall Street for recovery of TARP losses, lightening the already crushing load of the average American taxpayer. And on, and on: snarky replies, shoddy premises, frustratingly and staggeringly ill-informed.

There’s just too much to unpack and too many implications to state. A couple of things that do immediately jump out, though:

First, DeFazio is completely oblivious to the democratization of trading that has evolved since the last days of the Hoover administration. 80-year old quotes from a by-gone era do not carry compelling weight or serve as iron-clad justification for your bill just because they refer to a similar tax imposed in “bad” market conditions. Get a clue: the market has not stood still since your grandpa’s day.

Take this thing called “electronic trading”, for example, and the discount brokerage industry’s highly competitive commission structure. The number of retail participants has exploded in the past 10-15 years alone. Back then, the “little guys” were Jesse Livermore-types, hanging out in bucket shops. Today, everybody from that guy delivering cases of beer to your corner convenient store to your assisted living facility-bound great-aunt trade stocks, daily. The demographic has changed entirely, and so this bill’s impact will reach far beyond the nameless mass of “churning” denizens who sit around in front of their monitor banks at home in the den in their underwear all day, along with those slimy CDS/SIV/MBS-creating hyper-leveraging I-bankers…oh, and the short sellers, too. They’re all the same, a troika of financial terrorists; and now they’ll pay with a draconian tax. As DeFazio more-or-less puts it, to hell with that miniscule contingent of “daytraders” who may get snuffed out.

And how about mutual funds, since the holders of MF shares are who you’re truly worried about? Do you think fund managers do not trade large blocks of stock daily? Think the fund is simply going to eat the obscene expense this tax would generate? Not at all: maybe we’ll see the reintroduction of loads by all those families that got rid of them in the last 5-10 years, or a 5 or 10-fold increase in expense ratios. Or you could legislate a cap on those, too, to keep those greedy fund managers at bay – that wouldn’t be very obtrusive. Wolves at the door, everywhere!

Second: buy-and-hold investors good; traders bad. B&H contributes economic value because these are people who take stake in the ownership of a company, thereby helping that company raise funds to grow, compete, develop products and services, etc. Traders “churn” (DeFazio is evidently unaware of what the SEC definition of “churning” is); they gamble and as a class have now victimized countless homeowners and unemployed individuals. In other words: investing as DeFazio defines it is a civically responsible and thus meritorious practice, while trading is just the opposite, and – if we’re truly honest – a worthless, almost reprehensible act for which he shows pure disdain that ought to be taxed into oblivion because – let’s face it – it’s the damned traders (none of whom do their thing on “Main Street”, as we know) who are responsible for the mess that necessitated TARP in the first place.

I feel like DeFazio is leveling a moral judgement in there, somewhere; but it may just be me. Maybe we’ll all wear a scarlet “T”? And why not throw in some accusations of “financial witchcraft” to go along?

Chicago Tea Party!

I heard snippets of Rick Santelli’s…ecstatic utterances from yesterday last night on the way home from the office but didn’t catch up on the bruhaha until today.

I don’t watch CNBC (I don’t even subscribe to cable) but occasionally find a clip entertaining. I agree with Santelli in principle (assuming there’s a principle somewhere beneath Santelli’s rhetoric), even while I find his manner of speech is delightfully absurd. Kudlow, somehow, comes off as more of a buffoon, though. Mercifully – though satire is my favorite type of humor, so maybe I am missing out on something truly wonderful – I’m unfamiliar with the rest of the pundits and empty skirts on the channel.

One fascinating aspect of all this is the galvanization of the Right – Santelli’s rant tapped the disenchanted conservative zeitgeist with startling effectiveness, doing something off the cuff and with relatively no expense that McCain/Palin weren’t capable of during back in the Fall. Take this for example. Of course, they didn’t have a tanking stock market on a Democratic president’s watch or quite so many trillions of dollars of debt to rally around. Whether this will truly mobilize anyone and to what effect remains to be seen – but I’m highly doubtful.

Pattern Break Above the Tunnel?

Price flitted here and there across the tunnel today on GBP/JPY (and EUR/JPY in highly correlated movement), eventually finding its footing above the 125.85 level that functioned as the high on 01/20. The two sessions prior to that day captured the catastrophic 2-day 1000 pip decline from just under 136, giving the Pound a steep face to scale as it struggles to correct the pair now. Talk of BoJ intervention (such as what Kathy Lien notes here) has lent some buoyancy to the JPY crosses. On technical grounds the correction from 87.50-88 on USD/JPY to 88.50-90. seems to gathering further momentum, which may back the BoJ off the hairline trigger they are rumored to have on the Yen offer.

That technical grounding is none other than a hackneyed, tired ole’ symmetrical triangle that has that “7″ look benefiting from a much longer ascending trend line beneath price. Already a continuation pattern, this feature seems (no statistics on-hand) to decrease the failure rate on upside breakouts.

Long off the Ascending Trend Line: Symmetrical Triangle Break?

A number of longer upper shadows appearing around 126.90-127.10, but I think this supply zone will dissipate, freeing the pair for another attempt at 127.55-128.

Trades:

Long GBP/JPY 125.86
Long EUR/JPY 117.36

I would include the training montage from Rocky IV (forget those brat kids from Philadelphia running behind him in the first Rocky; I’ll take the KGB overturning their nondescript black sedan and then running behind him on foot until he scales that mountain – there aren’t mountains like that in Russia, not even the Urals! – and screams “DRAAAGOOOOO!!!!” at the top with the 360 degree camera pan any day) to encourage the GBP but…well, I guess there isn’t any good reason not to include it.

GBP/JPY Battles the Pink Robots And Wins

Right around 124.67 (the previously, previously discussed 261.8% fibonacci extension line) there’s an ascending triangle winding out that looks to break up or down (but usually up) sometime in early Tokyo. You’ll find the same construction across the board on JPY crosses.

Da' Guppy: Ascending Triangle Breakout?

Listen to the Flaming Lips’ account of the epic altercation here:

Okay, so that isn’t really GBP/JPY they are talking about. But you guessed that already. Right?

That track necessitates inclusion of my favorite song off of that disc, one of my favorite albums (of the last 10 years, at any rate):

Not a bad video, either.

El Toreador Delivers the Coup de Grace

Ernest Hemingway, F. Scott Fitzgerald and James Joyce (if you’d count him; maybe not) are my favorite writers among Une Generation Perdue, perhaps in that order. In his 1926 debut novel The Sun Also Rises, Hemingway vividly depicted the Running of the Bulls and now-famous bullfights at Pamplona. The matador, in the moment he delivers the coup de grace is El Toreador: the Bull Killer.

El Toreador

The terse yet elegant prose spun around thinly veiled semi-autobiographical narrative so distinctive of Hemingway is first shown forth here in full flower; this is fascinating writing that forswears elaborate filigree to lend all attention to the aesthetic kernel of the subject; and with the resulting acclaim for the book came significant notoriety for Spanish bullfighting.

Beginning with the current bear market, the swift and merciless dismantling of so many years of outsized bull market wealth creation has evoked the metaphor and myth of El Toreador as the invisible hand and looming specter draping his cape like a black pall over world markets, slaying the bull, administering the destruction.  It’s fitting that an almost methodical systemic breakdown like this seems to imply a cleverly insidious agent capable of unbottling economic famine.

Children have fear of the dark and what might creep from the closet as they lay awake in the night; modern paranoia induced by a culture of voyeurism, surveillance and random acts of violence make drivers and pedestrians suspicious of any going their way; willful ignorance, indifference and inertia contribute heavily to obesity, divorce, bankruptcy, poverty, pestilence and war. Our recession (globalism means we’re all in this together) is the progeny of countless culpable parties, policies and policy changes.

But, in just about every case (Bernie Madoff and those that slither along the ground with him aside) the malicious other isn’t out there lying in wait or targeting our tranquility; the bogey man is us. The myth is that it’s not and that individuals do not possess the terrible power and terrible responsibility that institutions and policies apparently do. As surely as panic-stricken sellers – fund managers, floor traders, housewives – are complicit in the great exercise of power that is driving equities down (a rational response if a stock is an instrument measuring value through forward-looking speculation), those same sellers have a collective responsibility (not because they sell, but because they are capable of the choice to sell) for what has happened: our bloated elected officials, our absurd mortgages, our varied stories of financial malfeasance, our acquiescence to corporate avarice, our at times selfish concern that gazes with indifference on the plight of others.  And then: there’s the responsibility – more to the point – for what happens from here.

I’m eulogizing again what has put so many through hardship and in some cases destroyed lives because of the galvanizing and renewing effect it can exact from people, companies and politicians who have for too long gorged themselves on the fat of the land, abdicating integrity, responsibility, industry and creativity for corruption, leisure, corpulence and bromides. In short, when things are bad enough (and usually it’s only then; otherwise I wouldn’t welcome the dismemberment of our economic strength), people act and they act in the interest of survival.

I’m not advocating for nor do I subscribe to Social Darwinism, and I’m not talking survival “red in tooth and claw”.  Society will wander off slouching into dystopia before it allows itself to become so abased that there is a reversion to nomadic hunter-gatherers and primitive feudalistic city-states.  That is my hope, at any rate.  

On the other hand, I am short the market and the economy out of a sense of moral and pragmatic necessity because creative destruction can bring about return to a unified vision of the democratic ideal.  This isn’t the only way that works, and certainly isn’t the best way, but is often the way chosen by fumbling, hubristic peoples too inebriated with the spirits of their own folly to notice the turn-offs and warning signs posted as they run out of track.  

Getting back on track means public servants who act without bureaucratic hindrance for the upbuilding of their community, whatever that means for them in terms of composition or scale.  Hopefully it means something local, immediate and unmediated by hundreds of miles, reams of red tape and tedious formalism.  And for the rest of us, the political demos and humans eikou tou theou, a return of basic virtue to our way of life: humility before others, fairness, integrity and honor. El Toreador will concede the field once we truly rise up in civic responsibility to action, with indignance toward injustice and with compassion toward one another to a mend a system that isn’t broken; just encumbered with so much lipidinous BS.

To this I’ll add an addendum: a couple recent posts from TLT (here and here) along the same general lines that are well worth reading.

And now time for a marginally related music reference. A song about the “pure magic matador”: Salvador Sanchez (who was, incidentally, a boxer) by Sun Kil Moon from Ghosts of the Great Highway.

Symmetrical Triangle: Bearish Continuation?

A mostly uniform symmetrical triangle is winding up on GBP/JPY. On the left is the triangle (with the previously discussed 261.8% extension at ~124.67); on the right, the same chart overlaid with several fibonacci retracement/extension studies. That one is quite noisy but you can see overlapping ratios providing confluence more clearly mapping activity within the triangle. Building extensions over triangles (and other patterns) is helpful for developing take-profit points in coordination with the more textbook targets associated with whatever pattern is in play.

There isn’t much challenging a bearish continuation technically, except the appearance of long lower shadows on the 1D: yesterday’s (unconfirmed) hammer and today’s (currently) kind of hammer-ish spinning top. These obviously aren’t definitive, but presage tops/pullbacks/throwbacks/corrections/reversals often enough to carry solid weight. There are several great examples of this on the chart above.

Until there’s solid evidence otherwise, I’ll be looking for short opps only for my typical long day/swing trades. I’ve taken a series of countertrend/throwback long daytrades this week that aren’t time “scalps” but typically last 15 min. – 1 hour. As unaccustomed as I’ve become to trading in quantity and with much intraday frequency, these trades have gone strikingly well, even while they turn into the prevailing winds driving the pair down. If I see a (relatively) quick round trip, I’ll take it. But I’m no scalper; the light went out on that corner of my “trading personality” when I gave up skimming ticks off of e-minis contracts several years ago. How I trade now is much less “sexy”, but immensely more productive.

And now I won’t end up like that trader with the ulcer in the bathroom before the pit scene in Trading Places. And speaking of the pit scene:

“Get those traders back in here! Turn those machines back on! TURN THOSE MACHINES BACK ON!!!”

Never get tired of that….

Making Good On A Promise….

That was made to no one in particular (maybe it was more of a resolution, now that I think back), I’ll be resuming my semi-consistent Ichimoku analytical output this week! Once every couple days is a plausible expectation, as long as I don’t novelize the entries.

This weekend, my wife and I watched The Attack of the Clones, because she had never seen it (and has yet to see Revenge of the Sith) before and because I had seen it only a single time, responded initially with loathing and have finally come around to giving it a second chance. No review to offer – except the acting of Hayden Christensen and on-screen chemistry – greatly assisted by their dialogue – between him and Natalie Portman is just as deplorable after a 7-year hiatus:

There just aren’t words to describe acting like that when it isn’t part of a 3rd grade production of The Sound of Music.

But watching it again did excite my curiosity about some aspects of the backstory I was fuzzy on. And now I’ve spent so much time mentally glutting myself reading Wookieepedia that my right eyeball is about to ooze, rupture and/or explode from the Force Eyestrain power my computer is wielding against me as I mindlessly pursue omniscience of the Star Wars Expanded Universe. The irony here is that I am more of a casual fan than a real devotee, but there’s a startlingly lopsided representation of pop culture references made here that suggest otherwise.

And why did Lucas settle on Attack of the Clones? I know this stuff, well-loved though it may be, is at bottom formulaic, syncretistic space opera created as much by shamelessly concatenating bits and pieces from a disparate sources as through original development, but that doesn’t merit this B-movie/pulp-rag dribblet of a subtitle. Why not just The Clone Wars? Isn’t that the esoteric reference made by Obi-Wan in A New Hope that got anyone mildly enthusiastic about the original films salivating over the backstory?

So, I ask: What the hell, George? Bah. And now we’ve got this animated film (haven’t seen yet), which not surprisingly taps into the treasury of good SW title material the saga has begotten rather than the poisoned creative well Lucas was drinking from up through…well, through Indiana Jones and the Kingdom of the Crystal Skull. But I’ll stop at that before starting down a far longer path.

I’ll have an IKH study on one or two pairs up later tonight….

Dead Man’s Shoes

Last Sunday afternoon brought with it a closely-guarded block of time we set aside (stubbornly and with much struggle) to do nothing in particular. So we chose to stay at home, just living.

On a whim after pausing and then passing over it a number of times before I watched Shane Meadows’ Dead Man’s Shoes off the streaming video on Netflix.

When released in 2004 it received modest acclaim – mostly for Paddy Considine’s typically strong performance – but was widely pegged as a slasher film. An absurd misnomer categorization which is, after all, applied to all films in which characters are murdered: take Clue or Unforgiven as two examples of among countless others. The promo poster featuring a silhouette of an axe-wielding figure on a field of red and then that rifle-toting bloke may give this initial impression, but belies a film that while admittedly macabre at times is really something else entirely.

A few executions aside (which are closer to My Little Pony than some of the unspeakably gritty and disgusting acts depicted in popular torture films), DMS spends most of its visceral energy on themes of fraternal love and loyalty, exploitation, the banality of petty cruelty, the farce of petty criminality, vindication of the weak by meting out justice through strength and taking radical action to absolve guilt and atone for wrongdoing.

As vigilante movies go, along with V for Vendetta (and the newer Batman movies, if they can be included) I found it to be among the best of the genre (not that the likes of Death Wish is particularly rigorous competition) precisely because it doesn’t rely on a sequence of deaths to advance the plot, isn’t primarily about preying on the aggressor and doesn’t skip over or hurry through building the psychological basis on which the vigilante justifies circumventing the law. The force of the revelation at the end of the film is not diminished by the ease of predicting it and the unsettling climax was very unique and some of Considine’s best acting.

Something I have yet to think through is why I have such an affinity for vigilante movies….

“Search Your Feelings; You Know It To Be True”

What does Darth Vader have to do with the unfurling financial apocalypse? Nothing, unless you count Barney Frank as a Dark Lord of the Sith. Which I think is more than charitable as a Democrat from Massachusetts.

Darth Vader, speaking to a summer camp on the benefits of following the Food Pyramid

Barney Frank, with makeup, speaking pensively into a chin-mounted microphone from the House floor

How’s that for a resemblance?

Okay; this is really yet another bait-and-switch post. Now for the real reason:

That’s tallies up to 1.5 out of 2.0 posts non-trading related. My solemn vow the next post will be back on-track.

EUR/GBP Short

After a discussion with TLT and Jules drew my attention, I picked a short entry on EUR/GBP: .9497.  The hesitation in the .9450-.95 zone looks appealing as at least a short-term ceiling to pivot off of.  Targeting .9375-.94 initially, then .9320, followed finally by .9265.

Also, posting trade details provides an excuse to include this: The National – All The Wine: