The trend is not our friend

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By Boris Schlossberg @FXflow, CEO and founder of BKForex

So there is so much to talk about this week. I could talk about how the SNB nearly destroyed the FX retail business in a matter of 24 hours. I can talk about how much fun I had in VT trading chat room where we banked so many pips that I stopped counting by end of week. I can talk about how I went from sheer elation after being on the right side of the EURCHF trade to complete panic when FXCM announced that they were basically staring into the abyss of bankruptcy to absolute relief when they found a White Knight just before the close of business on Friday.

But the most interesting thing to cross my desk this week was actually a throw away article on Marketwatch that revealed something fascinating about how money is actually made in the capital markets. In a piece titled Easy way to get rich: Buy the most hated stocks Brett Arends basically lays out the case for contrarian trading. Arends looks at 10 worst ranked stocks in the S&P 500 as named by Wall Street analysts and discovers that 100,000 invested into 10 most hated ideas every year since 2008 would have turned the portfolio into 270,000 dollars. Just investing into the broad S&P 500 you would have made 170,000 dollars.

That is a massive difference and I think it says a lot about how alpha is really generated. Don’t get me wrong. I am not arguing that the way to riches is just to blindly bet against the trend. That in fact is the way to ruin. And if you are a long term investor who really doesn’t have the time or inclination to follow the markets them the old and boring dollar cost averaging strategy of buying a fixed amount of index funds every single month come rain or shine is the absolutely best way to make your money grow. In the long run the trend does win.

But if you are a trader, the profit does not lie in the trend. Of course the obvious can sometimes be incredibly lucrative. Shorting oil as it continued to fall or selling EUR/USD as it broke 1.2000 were both great trend trades that made gobs of money. But the problem with those examples is that they are very much like lottery tickets — incredibly seductive but utterly disappointing for 99.9% of us who try them. Just as the lottery trots out the winners and lets us vicariously wallow in their good fortune while conveniently forgetting about the millions of wasted tickets, so does the trading industry love to pull out massive multi-year charts of trend moves with very conveniently tagged labels — if you entered here and exited here you would have made ten trillion percent!

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Click here to read the full article on BKForex

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Wordwide FX partners with ForexLive

We are very happy and proud to announce that Wordwide FX has entered into a partnership with FX portal ForexLive to translate their content into Spanish for our blog Insight by WFX. ForexLive is one of the most respected FX blogs in the FX cosmos. It features top-tier authors such as editor-in-chief Adam Button, who recently won the FXStreet’s “Forex Person of the Year 2014″ award, former FXDD chief analyst Greg Michalowski, and Ryan Littlestone, a well-known analyst with over 20 years of experience in the market.

Wordwide FX will publish ForexLive’s technical and fundamental analyses by Greg, Adam, and Ryan on a daily basis. The material will also be published on the Spanish site of the reputed portal investing.com.

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Ruble Drops on Oil as Russia Credit Risk Climbs After Fitch Cut

he ruble weakened for a second day and the cost of insuring Russian debt against default increased after Fitch Ratings lowered the country’s credit score to one step above junk and crude oil slid below $50 a barrel.

The currency of the world’s biggest energy exporter dropped 1.9 percent to 62.7350 versus the dollar by 1:25 p.m. in Moscow. The yield on Russia’s five-year ruble bonds rose 84 basis points to 16.26 percent, the highest since Dec. 17. Five-year credit default swaps increased 6.5 basis points to 585, making it the world’s fifth-riskiest credit, according to data compiled by Bloomberg.

Russia’s investment-grade status is under threat after plummeting oil prices and the conflict over Ukraine triggered the worst currency crisis since the country’s 1998 default. Brent crude slid 2.6 percent to $48.81 a barrel after plunging 11 percent last week.

“Oil remains the key factor pressuring the Russian financial markets,” Slava Smolyaninov, the chief strategist at UralSib Financial Corp. in Moscow, said by e-mail. “The Fitch downgrade brings Russia closer to the verge of the non-investment grade status, clearly. The bond market has already priced in Russia far below the current ratings.”

Tumbling oil prices and sanctions over Ukraine have made the ruble the worst-performing currency worldwide since Russia’s annexation of Crimea in March. The nation’s economic outlook has “deteriorated significantly” and forced a “steep rise” in interest rates, Fitch said in its decision on Jan. 9.

Russia’s inflation rate will average 13.7 percent this year after accelerating to 11.4 percent in December, Morgan Stanley analysts led by Diana Pasquale said in an e-mailed note. That will prevent the central bank from lowering the key rate from 17 percent, the emergency level it introduced last month to stem the ruble collapse, according to the note.

Click here to read the full article on Bloomberg

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(Español) Draghi insinúa la compra de deuda y precipita el desplome del euro

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Any effort by the European Central Bank to launch a massive quantitative easing programme this year would fail to revive the eurozone economy, according to economists polled in a Financial Times survey.

The FT survey of 32 eurozone economists, mainly working in the financial sector, conducted in mid-December, found most expected the ECB to launch QE in 2015 — catching up with the world’s other main central banks that have all bought large quantities of sovereign debt since the last financial crisis.

Twenty-six economists forecast the central bank would start purchasing government bonds this year, while five thought it would not. One did not respond to the question.

A stuttering recovery and a worrying drop in inflation have raised fears of another financial crisis in the currency bloc and put pressure on policy makers to cast aside powerful opposition from Germany and begin purchasing sovereign debt.

ECB president Mario Draghi last week gave his strongest signal yet that the central bank would extend its asset purchases to include sovereign debt in the next few months. A decision could come as early as the next governing council meeting on January 22.

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Click here to read the full article on the Financial Times

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