Long NZDJPY 6045.1

Initial. Long again 2x @ 55xx, 4x @ 45xx. Long 1/2x on dips to support above 64xx and 70xx. T1 at 80, T2 at 90, but flexible and trailing after. This is a Knotty trade.

Caught on tape by Tim Bourquin

I used to listen to Tim Bourqin’s Trader Interviews back when the site was free and really got a lot out of hearing about how other traders went about their business — professionals and amateurs alike. The site is a gold mine. I’m sure almost everyone passing by this blog has at one time or another heard Tim’s interviews. (He’s also a co-founder of the Trader’s Expo.) And then it happened to me. We taped it last Thursday. I told nobody. I didn’t know how it would go. Would I be a pedantic boob? Would I get lost in a forest of thoughts and wander over a semantic cliff? Would I expose myself as a trader who has been completely outflanked by the risk of ruin, heading inexorably for the dreaded margin call? You be the judge. He has posted a free link:

Lonely Trader Interview

Some of you can imagine the mixture of surprise and apprehension I felt when he contacted me week before last. I had concerns and it took me about a day to think it over. You know how it is. Once you’re caught on tape, that’s it. Even if you change your mind down the road, you will be held accountable for what you said “back then.” Complicating matters is my unorthodox approach. The trading community and particularly bloggers are ruthless critics — I should know because I’m one of them. So I was a bit nervous about discussing my trading. But of course I just had to get my 15 minutes.

Anyway, I’m invigorated by my conversation with Tim and am indebted to him for allowing me room to run, so to speak. The thought of listening to myself talk unselfconsciously is unsettling. Tim managed to make me feel very comfortable. Miraculously, there was no wincing when I listened to the interview for the first time this evening — from me or Mrs. LonelyTrader.

So, thank you, Tim. You’re a real gentleman.

And I hope those of you with the patience to listen to my rambling will drop me a line — if only to tell me how sexy my voice is over the phone.

Thoughts on “recovery” and a trading update

Admittedly, the patterns over the last couple of days are inexplicable to me — not speaking in retrospect. Of course the patterns are obvious in retrospect. This is what most trading blogs earn their living from — explaining patterns and price action in retrospect. Right?

Crude: WTI is undoubtedly stabilizing and will probably trade under $70 for the rest of the week – but is the USD stabilizing? Is the contango trade unwinding? Current crude spot prices are nowhere near where they should be, given demand and supply. But like calls for a new global reserve currency, this point is academic.

Disinflation or deflation: I think pundits are confused between disinflation and deflation — they keep using the word deflation. Of course, there are fears that economies will enter deflationary periods. As a consumer, I’ve stopped buying in anticipation of lower prices. Not just 10%, mind you. I’m hoping for a further 40% discount for the crap I buy now. And it is *crap*. And most of it is coming from China. I am even bitter about having to pay in dollars for this stuff…but what else would I use? Yuan? Reais? Rubles or Rupees? Right now these seem somehow more substantial. So I’m certainly not helping matters.

Most of what we are seeing in major economies is disinflation. Right? Somebody correct me if I’m wrong. I hope I’m right only because I’m tired of all the deflation ballyhoo. I suppose it depends on one’s time horizon and the indicator one is talking about — not to mention the economy. Over the next couple of months, or even over the next year, I believe disinflation will continue. I also believe some pretty serious inflation is around the corner. I doubt respective ministers of finance, secretaries of treasuries, and central bank officials in major economies will be able to unwind their QE policies and raise rates fast enough to avert an avalanche of irremediable consequences that will develop in two to three years. In a way, they are caught between a rock and a hard place and the markets, from Treasuries all the way to equities, will continue to manifest their respective dilemmas.

Do I think the worst is over? Somehow, no. In the US, I’m waiting for commercial real estate to implode. In the EU, I’m waiting for the PIGS to rebel, among other things. In China, I’m waiting for a host of internal contradictions to subvert their own recovery — or what passes for it in the imaginations of China’s new political and economic elite. (Are they really distinct? Does it matter?) Do I agree with everyone that the global contraction will decelerate? Somehow, yes. Do I think this is the definition of a recovery? Absolutely not. There is no such thing as an “L-shaped recovery”. The notion is ludicrous. For starters, I think corporate finance will remain in crisis mode for the near term. I think we are a long way away from anything that can be defined as a recovery. But I’m not qualified to say one way or the other.

In any case, my trades are largely under water now. EURUSD continues to defy the laws of gravity. I maintain my three month target of 131xx. My positioning in this trade is very weak, but I plan to add again on an approach to 14600. This will revise my profit target higher, of course. I think the euro as a currency is pretty vulnerable. But apparently nobody else does. Rock on, Knotty!

AUDJPY is still strong. I expected a correction in AUD to start this week and still believe there is more room to fall. This was supposed to be a longer term trade from the outset, with the six month target above 85xx. (Then again, I had a six month target for EURUSD as well. You can all see how that is going…)

USDJPY is still strong, although I expect more JPY appreciation. In the near term, exporters will probably be on the offer and cap the pair at 96xx. Long term, I still hold the view that the pair is unsustainable below 100. But, as in the case of the EURUSD, my opinion doesn’t matter much to the market.

Truth be told, none of these positions are in trouble. Not even remotely. I may bug out of the EURUSD at b/e. I may also bug out of USDJPY between 0.5% and 1%. I’m reluctant only because I would likely exit before the reasons for being in these trades were invalidated. However, this course of action would free up capital for other trades which will surely come. 

I’m currently interested in EURCHF and watching the 15xxx level very carefully. Read: A key level thought to be the line in the sand for the SNB. It’s really nothing of the sort, as the SNB has stated, but that isn’t really important at the moment. I will also want to see how price action at this level affects GBPCHF.

You can see my general lack of direction in the currency markets here, if you haven’t already.

Had a thought…

Was just thinking about how much I love my dogs, because they really don’t care about any of my unpleasant smells. Just today, Hanna-girl was nuzzling me with her usual affection and I was telling her what a lovely doggie she was. I had extremely bad breath from eating a very questionable catfish lunch today, and she didn’t seem to mind. I mean, holy crap, my breath would have melted metal. I marveled at how she didn’t seem to care.

And then I remembered this is a dog who as a puppy ate poop.

Add long AUDJPY 7643.2

Added 1/2 to the AUDJPY long trade today. I expect the JPY correction isn’t over yet, though I think AUD will fair better than other currencies. For now.

On the chart above, it looks as though my entry was significantly below price — for those of you who trade with Oanda, you know the current bar is a lighter color than the previous bars. In fact, the trade is under water at the moment as AUDJPY currently trades 7632 at 1117 PST.

Related post:
Long AUDJPY 7428.2

Lee Young, epilogue

Not that I really needed to confirm this, but I’ve satisfied my curiousity about Lee’s trading account posted on Twitter. I suspect he will soon delete all of them, or come up with some story about what the “real deal” is.

With DBFX, accounts denominated in USD are numbered as follows:

Demo:     005xxxxx
Live:        5xxxxxxx

Here is a screenshot of one of Lee’s daily twits: Hornswaggle. Yes, I did see him earn $3.5M in a month. And yes, it was a demo account. His risk profile was that of a scalper. His probability curve and risk tolerance were acceptable from a short term trading perspective. But this was only one month and there were some fairly dramatic intraday swings. I did not have six months of broker statements to back my assumptions and observations. (I would have required two years for a swing trader.) The videos that Lee has posted on YouTube are horrific — courtesy of my guardian angel, DM.

Skeptics answered
Trade the tick charts
San Diego Curreny Fund
Day in the life
When all else fails
Be wrong 90% of the time

What a train wreck. This is not the man I met. This is a moron. Had I seen these videos, I would never have given this guy a chance. Nor would I have been willing to sit with him while he traded. Only the most ignorant of people would give this guy any of their time – though this would not be their fault. It is incredibly embarrassing for me. HPT has rightly lampooned this affair.

Lee called me today and said he wanted to square things up. He said DM was holding a grudge because he was “kicked out” of the currency cafe. Lee didn’t know DM and I had lunch last Saturday. I know the whole story, backed up by confirmation from FXCM. He maintains these are serious allegations here on my blog. I suggested they are facts and that I would leave them on the blog unless he could prove otherwise. He offered to provide that proof.

Of course, I know he can’t offer any. I’m am fairly certain all of this — the videos, the Twitter posts, this website, and this website – will disappear soon into virtual obscurity. So get it while it lasts! For a limited time only you too can enjoy these amusements.

I feel stained, somehow, but relieved that he didn’t trade a cent. At least I was smart enough to ensure he had a LIMITED power of attorney. I will present all of this information to DBFX. It is my hope that he will be banned from managing money there, as he was at FXCM and at ICON.

This is the final chapter in the Lee Young Affair. I would post this under the category, “trading wisdom”, but I am too embarrassed to do so. Instead, I’m posting it under ”admin notes” and “distractions”. I did not do my due diligence. I was greedy. I was emotional. I was stupid.

Don’t repeat my mistake.

Where are the sellers?

If anyone took profits at the end of May, they appear to have jumped back in. The old adage about selling in May and going away may not apply this year.

Interbank FX moves have been robust — which means a short summer season this year, methinky. There is no indication that things are slowing down. Yet.

This week’s event risk may be the last hurrah. I guess we’ll have to see, but I’m excited at the prospect of a volatile summer season.

The Lonely Trader has been duped

Lee Young is indeed not who he claims to be. This is not made up — this really happened. I was first alerted by emails from a Mr. David Mouw, of Carlsbad, CA. In effect, Lee Young of Currency Cafe, in Solana Beach, CA, attempted to defraud several investors of money, albeit not very effectively. So how did David Mouw find my blog? Random chance. 

A friend of David was searching for videos posted by Lee on YouTube, to show his wife what a fraud Lee was. Lee had attempted to cheat this friend as well. What the friend found was a link to my blog with Lee Young’s name. He was shocked that someone would be entrusting risk capital to a guy like Lee, and emailed David. David in turn was compelled to let us all know on my blog that Lee is not the trader he claimed to be.

Thank God for Google. And thank God for good people.

Here are the emails I received from David

———————————————————————–

From: D M [mailto:xxxxxx@gmail.com]
Sent: Friday, May 29, 2009 5:38 PM
To: jay@lonelytrader.com
Subject: Beware of Lee Young

Hi Jay,

My names David Mouw and I just wanted to give you some feedback on Lee Young.  This guy is a mini Bernie Madoff and used to be my next door neighbor in Carlsbad.  He talks a real good game, but this guy is pathological liar.  To the point where it’s scary.  I used to trade down at the Cafe from October 08 until January 09.  I heard him and another trader down there talking about how they needed a demo account with 10MM so they could use that to show people so that they would invest with them.  This is where the 10 mil account came from.  This guy drives a white Nissan truck…..he’s not some multimillioare.  He was renting a vacation rental next to me in Carlsbad that was fully furnished and ended up moving out in the middle of the week one night. What happened in my experience is I opened up an account with FXCM with Lee being the IB.  He told me that FXCM required me to give him a 20% deposit that he wold hold for 90 days just in case something happened to my account it wouldn’t be wiped out.  After 90 days I tried to get my money back from him and he gave me excuse after excuse after excuse.  I started talking to some other people that had experience with Lee.  They were having the same problems….eventually we went to FXCM and told them the scam he was pulling.  They said they never required any such deposit.  What he had done was take our deposits, but them in his own trading account and lost them.  FXCM did an investigation and actualled took money out of his account to pay me and some other people, then terminated him as an IB for FXCM.  I’m going to attach the email I got from FXCM terminating their agreement so you know what I’m telling you is the truth….If it’s not already to late, I would get my money out from him as soon as possible.
Regards,
DM

From: David [mailto:xxxxxx@roadrunner.com]
Sent: Friday, February 27, 2009 11:51 AM
To: ‘Tim K’
Subject: FXCM Compliance

Tim,

Just an update, I received a call from Arturo, FXCM’s compliance officer. Told him my side of the story, I’ll be forwarding a copy of the police report I had taken and a copy of my deposit check to Lee. Every time I see him now, I call him Bernie Maddoff and ask if he’s still ripping people off. He’ll barely even look at me now. I put a note on his truck saying our neighborhood doesn’t like liars and thieves and to move out. It seriously makes me sick living so close to someone like this. He’s going to be in an uncomfortable spot as long as he has me as a neighbor. Still working on getting some rental documents. Because of privacy issues and liability I don’t know if the Landlord will do it for me, but I’ll do my best. Have a great weekend!

David

From: Tim K [mailto:xxxxxx@tiparis.com]
Sent: Tuesday, March 03, 2009 12:55 PM
To: David
Cc: xxxx@mindspring.com
Subject: [Fwd: FXCM Referring Broker Termination Notification]

Here is some good news and it did not take long, Bernie Madoff is out of FXCM!I am having my remaining 2K transferred into my account as it will be deducted from his merchant account as they close it. The check I received from Lee last week bounced of course thats why I am getting 2K from his account. Success always feels good, now lets make some success in trading.

Tim

From: David [mailto:xxxxxx@roadrunner.com]
Sent: Wednesday, March 04, 2009 11:08 AM
To: ‘Tim K’
Subject: RE: [Fwd: FXCM Referring Broker Termination Notification]

Tim,

That’s great news, I’m out of town all this week. I’ll try to catch up with you this weekend so we can get together sometime soon. I can’t believe the audacity of that guy. Summer is coming soon, so he won’t be my neighbor for very much longer. Good Riddens!

David

And my personal favorite:

From: Tim K [mailto:xxxxxx@gmail.com] On Behalf Of Tim K
Sent: Friday, May 29, 2009 1:19 PM
To: Brian K; David Mouw
Subject: Lee the CON

Hey guys

I am at the airport heading back home and was going to show Pat the ridiculous daily videos he has been putting out, I have been unable to find them, he may have stopped dropping Pearls of Wisdom on the reading community, a major lose for us all. I did however look him up on Google under Lee Young currency trader, you need to check this out for yourselves, its under Lee Young pt..2.

This has to be on the line of criminal, 1.5 m in 4 days fading the GBP , of course give or take a few hundred K, THIS IS BEYOND REDICOULOUS. Thia guy does all that in only 3 hours a day, he must of been holding back on the three of us all this time, Lord help us all!

Tim

———————————————————————–

So, the lesson is, don’t get caught up in how much a trader is making, even if you see it first hand. I rationalized his trading. I went to great lengths to convince myself that it was worth 20% to make 200%. Don’t do what I did. Do the due diligence. I got lucky this time around because someone had the courage to speak up.

(I remember a certain visitor to my blog, “Chris“, who commented on a post of mine about Woodie — something about stupid people deserving to get ripped off. Now I know I don’t like that guy!)

The fact is, Lee is a very good liar. His stories are very nuanced and he is consistent with them. That multi-million dollar account is apparently a demo. I still have to verify this with DBFX, but in retrospect, the odds of this being true are even. And that is enought to scare me. I won’t make the same mistake twice. I will just have to be happy with a paltry 15% to 20% this year and with my crazy-ass methods.

Stay tuned. This will get better.

And no, this isn’t some sick ruse to drive traffic to my blog. This is reality. Caveat Emptor.

Related posts:
Lee Young, Pt II
Another non-trading trading experience

Peeved.

Was reading today on twitter a poster who proclaimed, “crude leading the currencies and gold,” and “crude is the center of the universe.” Needless to say, I’m not following him anymore. (Actually, I never was.)

Just because “crude” appeared to have “led” currency moves, doesn’t mean that crude was in fact “leading” currency moves! (By the way, what does one mean by “crude”? For God’s sake would somebody use a ticker symbol when citing an instrument?!)

Let’s generalize this: Just because x appears to lead y to you, doesn’t mean that in fact x is leading y! Usually it is correlation, not causation, that one observes in such situations. Causation is a pretty tough nut to crack in explaining the behavior of the markets.

And anyway, if one wants to put too fine a point on it, I recall bonds and gold leading most major currencies and crosses today, though not all. Bonds especially.

Crude is not the center of the universe, people. Just because all you can fit on your screen with your currency pairs is WTI, gold and the S&P doesn’t mean that this is the whole universe.

Sheesh.

Um…no thanks.

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