Today’s dollar index trading idea comes from something Danny Riley said yesterday in the office after the close. Scanning the headlines while answering emails and messages, he said, “We look like $^#&in’ idiots around the world!” It was a hard point to argue. Myself, I put more of the blame on the House Republicans letting their internal dispute damage our economy and reputation (and possibly our credit rating).
But I understand people who are mainly concerned about the national debt. (I hope they were worried back when Pres. Bush nearly doubled it, too.) And I understand those who are disgusted with all politicians. Even Pres. Obama knows that this victory is a Pyrrhic one at best.
But MrTopStep is about trading, not politics. What can responsible traders do in the aftermath of this needless fight that is based on sound trading principles and not gimmicks or speculation about the news? When in doubt, I look for someplace solid to plant my feet. I go back to a few simple truths, the things I know to be true, partly because I’ve been burned by ignoring them.
- The only truth is price.
- The trend is your friend
- OPPORTUNITYISNOWHERE. If you read that as “nowhere,” try again. It says “Now. Here.” There is always a path to profit.
- And from James Michener’s wonderful novel Centennial, a line I’ve loved since I was a kid: “If you want horses, go where the horses are.”
Let’s go with this idea that we do look like idiots to the world. If so, we’re not the only idiots. The world is full of national and international buffoonery. But we are the only idiots who also have the world’s reserve currency.
The fuel in the world’s cars and power plants is bought with dollars; precious metals are traded in dollars; the rice cookers and ovens of planet Earth may be filled using local currency, but the global price of grain is quoted in dollars. Even criminals prefer dollars. Try trafficking in arms or human beings or drugs and paying the cartels in yen or rubles. Bitcoins might work.
The world is upset by our government’s incompetence because their fuel, their food, even their crime is financed indirectly by the strength of our economy.
That’s why China takes the rare step of publicly advising us not to put their investment in us at risk. That’s why the IMF lectured us in a tone they normally reserve for banana republics.
The sad truth about this debt crisis is that nothing is over. The desire of some in Congress to burn the place down in the name of small government and the desire of others to simply see Obama fail, those haven’t gone away. And the president’s obstinacy can’t get better when he finds so little reason to even try for compromise. This heart attack has been stopped, but the patient will go on smoking and living on doughnuts and cheeseburgers.
Short-sighted thinking and short selling the dollar
That means that the factors that weakened the dollar will continue to weaken the dollar. But since everybody is stuck with the dollar, that means our weak dollar is everyone’s weak dollar. If the world wants it stronger, they have to strengthen our economy despite the best efforts of the worst of us to weaken it.
In the meantime, a weak dollar policy can have its upside. After 2011’s debt ceiling shutdown, the dollar index fell. The cheap dollar led to a small but helpful rise in US exports, despite the rise in oil and gasoline prices.
The dollar index is making a similar move now. And that may not be a bad thing. A weak dollar policy, in any case, is likely to help companies show good short-term earnings. The extreme right wing of the Congress aren’t the only myopic thinkers willing to trade long-term security for short-term spectacles.
The “We look like &$^%in’ idiots” trade
So in the spirit of “If you want horses, go where the horses are,” let’s say, “If you want dollars, go where the dollars are.” Right now, the dollars are clearly in a market beginning another wave down after a long head-and-shoulders pattern and a failure to match the most recent high. Even if you are a technical purist and disregard the news (good for you), there are plenty of reasons right on the chart to expect more downward movement towards the 79 level if not lower.
But a straight short sale of the US dollar index is risky. In a market that swings between volatile and comatose, a good strategy would be to look for out-of-the-money put options in the dollar index and then bid lower than the current price. Even bidding half the current price and waiting for the market to come to you is a workable approach.
When volatility cools and the volatility premium drops, the price will come towards your bid. This way, you don’t have to have perfect timing. The market will tell you when it’s ready to be bought cheaply and your order will be there, waiting.
So that’s the trade. Do it right and you and I will take money from the market in exchange for our willingness to assume risk and add liquidity.
And what about the news? As a trader, my belief about the news is mostly “I don’t care.” If I want horses, I go where the horses are and take them. I don’t need to know what some guy thinks about saddles.
The House’s Un-American Activities
However, I do care about the news in the 90% of my life that is not about trading. As a citizen and a New Capitalist, I want to study and understand in depth the past month’s display of all that is wrong with old capitalism.
I want to know especially how we can stop politics and greed from causing so much suffering to the poor and vulnerable. Children lost Head Start opportunities; sick, elderly people lost their one hot Meals on Wheels meal of the day; and the US economy alone lost $24 billion to this selfish and unnecessary display of ego.
But this bit of news was my kick to the gut. The NIH lost funding for a number of trials of experimental treatments for cancer and rare, incurable diseases. Children who were approved to receive the new treatments were turned away. For some, it’s now too late to start. We turned away sick and dying children from receiving treatment so our politicians could indulge their egos.
Danny was right about us looking like “#$&%in’ idiots to the world.” When ideology becomes idiocy, it’s embarrassing. But when it threatens to kill children, it’s something worse. Something unfeeling and mean-spirited and utterly un-American. I don’t think we just embarrassed ourselves before the world. I think we scared them.