Now that we've pretty much sold our souls to the Chinese in exchange for cheap margin, cheap mortgages, and now cheap government spending, we can get on with the rest of the bubble in treasurys and explode the American economy again.

Tomorrow marks the next phase in ridiculous Fed statements. Are you ready for some economic football?

It's likely the Fed will say something like:

We know the economy is sucking wind. We didn't think so in June, but we did in August. Last year for a while, we thought things were looking hot. We were already ordering our "world economic championship" hats. But then we realized that we just couldn't make up our mind, and we were trying our best not to scare you, but now that we're scared too, we just don't know what to do. So we're going to consider more easing. Whatever that means. Under no circumstances, however, will we take responsibility for any of this mess.

Look at the difference between the June and August statements:

June: The economic recovery is proceeding as planned!

August: It's not! Oh, crap!

But what does any of this mean for me, a currency trader?

It's my belief that the Fed tomorrow will signal that the economy has shown continued signs of weakness.

The Fed will say something along these lines:

The pace of economic recovery has slowed
Output and employment have continued to slow in recent months
Holy shit

One of those phrases is sure to appear in the statement. And it means that they will be ready to do more "easing," which is Latin for "borrowing more money from China to pave your local streets that were just paved two weeks ago as part of the U.S. stimulus." Remember, temporary construction jobs have never revitalized the American economy in a recession, and it's not going to work this time, either. 

Here's what I am planning to do with the GBP/JPY (it's a nice proxy for risk, and for the markets in general, so it's a reasonable pair to trade around these major releases - if you know what you're doing).

I'm ready to sell the pair (even in advance of the release) into the 132s. If the pair jumps up instead, I'd be happy to start buying it above the highs - above the 135.00 mark. It could certainly start to move up overnight (who knows why, but it could happen) but I'm not sure it has the strength before the report to do much of anything.

P.S. Don't call it a "double-dip" recession. You can't dip twice into ONE scoop. It's one big fat recession. We've never come out of it. We're not going to anytime soon at this rate.

RISK WARNING:
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. 

Over the last 10 years as a trader and an educator, and an author, I've done some good trading, I built (and largely walked away from) a successful education business, and had a very good time doing it all.

Over the years, I've had people take my systems and resell them or give them away. I've had people spam my list and sell stuff to them. I've also had the pleasure to work with some amazing traders, and some people who changed me for the better for a very long time. On the whole, it's been a great experience. 

I've had about 40 requests this year alone from people who wanted me to help them launch their own education businesses. In some cases, I've been able to help. In others, I've been a detriment (sorry, guys). 

But the fact is that I can't help everyone, and I also shouldn't. While I'd be thrilled for you to have a giant, multi-hundred thousand dollar education company, I don't have the time to help each of you get it off the ground.

So I wrote up a set of guidelines - stuff I've learned over the years about the education business - and it's here, for free. It's the most important stuff I ever learned, and it's what I send out to people now when they ask me for help. I don't think you'll ever find someone as willing to open up and tell you how to compete with them, and you don't have any obligation to accept or reject or even read anything that I've written here.

But it these are the most important lessons, the most important things, that drove the success that I had. 

Here's the PDF:

Click here to download:

Starting_an_education_business.pdf (551 KB)

(download)

Click here to download:

Starting_an_education_business.pdf (551 KB)

About 57 years ago, Friedrich von Hayek wrote The Road to Serfdom, a masterpiece of economic literature, 320 pages of brilliant proof that when a government starts down the road of central planning, then the citizens, excuse my French, are screwed.

Here's the quote I would ask you to memorize, because another 10 years from now, or even 5, we're going to look back and say, what the hell did we do in the first 10 years of this decade?

The more the state plans, the more difficult planning becomes for the individual.

That's from chapter six. Read it again, please. Really.

If you haven't read the book, or at least read an excellent summary of the book like the one you'll find here, then you're missing out on the greatest argument against the wholesale destruction of your right to do stuff the way you want that has been happening right in front of you and me for the last 10 years on an unprecedented scale.

And why would you care? 

Fifteen years ago it wasn't practical, or nearly even possible, for you or I to trade currency, to operate in the foreign exchange market, at all. Next to impossible. It wasn't available to you. But technology opened up a corridor that no one had been able to open before (electronic trading) and once opened, hundreds of thousands of us decided that's what we wanted to do.

In another 10 years, if we continue heading in the direction we are now, you might not be able to trade currency at all, again. Wouldn't that be ridiculous? Well, we're going down that road, and it's my livelihood, and if you're reading this, it's probably yours, too.

I'm not saying that all traders were profitable. 95% of us did it poorly, and lost everything that we put into it. Really. It's true. You know it, right? Most people lose money trading, and they don't just lose small and call it a day. They trade like drunken monkeys. They lose about $5,000 on average, and they do it in about 90 days, and then they usually quit. The valiant (deranged) souls buy another stack of chips. They lose that stake, too, and by that time there are about 10% of the original group left. Then that group gets thinned out in the same way until you have a very small, very dedicated, and very lucky group of people who are making their living in the currency markets.

This is not much different than:

Investment banking (where most people fail)
Investing in stocks, wheat, or pork bellies (where most people fail hard)
Running an investment bank (where assholes blow up companies all the time)
Starting a new small company (where most people fail, cry, and then go back to a desk job)
Starting a hedge fund (most funds do not beat the market = FAIL)

...Or any other capitalist venture. Except for one thing. There is one path that typically leads to repeated success. Guess what it is?

Politics. You get elected to office, and then guess what? You're likely to get re-elected over and over and over again, because once you have the power, you can hand out the favors, and then you can raise lots of money, and get elected again, and do more favors. We should all be so lucky to be central planners in the great machine of democracy.

Are you lucky that the government wants to protect you from things that are bad from you? Or should you be worried that someone has decided for you what's good and bad? I'm not talking about social issues, like abortion or pornography or teenage drinking. I'm talking about economics. When the government tells you that:

THIS risky venture is acceptable

 BUT

This risky venture is NOT acceptable

What is the purpose? Fail rates are high in almost every capitalist venture you can think of. Period. People are terrible at getting things off the ground. Most people assume they are going to be more successful than they really are. Most of the "winners" in any capitalist venture brought some combination of skill, luck, persistence, and excellent timing to the table. But guess what? It's evolution! It's the way you and I can even walk upright today, or we can think with a neo-cortex, or how you have a thumb. We might be really mad at AIG, or Lehman, or the jerkwads at Bear, Stearns, but that's how capitalism "works." People take risk. Even dumb people do. Wealth is created and destroyed, and you cannot plan your way to avoid problems.

Would you outlaw the laws of nature because they are unfair? Would you like to bring back the dinosaurs, and get eaten?

When you are told that you cannot open a financial account offshore, or that your money does not travel freely where you need or want it to go, the central planners are putting the brakes on risk-taking. What's next? Futures trading? Stock trading? What, I might ask, is an acceptable form of risk taking that the government can live with? 

I am exhausted by arguments that forex dealers somehow present a greater risk to investors than the investors themselves. I receive at least 1,000 emails per year from people who believe that the reason they lost money trading currency was because the dealer purposefully stopped them out. 

Somehow the government caught this argument and ran with it, but the entire U.S. governmental regulatory machine somehow missed every other financial disaster of the last ten years. 

We will protect you by not allowing you to open a bank account!
We will protect you by not allowing you to freely exchange currencies for each other!
We will protect you by lowering the amount of risk that you are able to take!

And in the midst of all of this, there are no new regulations on forex leverage for banks, for hedge funds, or for "sophisticated investors." Let me name some of these "sophisticated investors":

Long-Term Capital Management
Lehman Brothers
Bear Stearns
AIG

Why do these people regulate you like they do? Why do they do this? Why bother with Joe from Topeka and his $5,000 trading account, when there is so much stupidity going on with massive firms that can destroy so much more wealth, so much more quickly?

They do it because they are regulators. They are paid to go to work, and find things to regulate. So that's what they do. They draft rules. It doesn't have to have a purpose or a reason other than that.

When the state engages in central planning, it begins to do that planning for its own sake. 

I'm just saying. That's all. 

I promise that after I finish writing this, I'll be done ranting and I'll get back to trading.

IMPORTANT UPDATE: Click here for information on the next webinar series about the CFTC regulations.

On the greatest questions of our time, the government seems to keep getting the answers wrong. At least it seems that way, doesn't it? Doesn't it appear that the government makes a whole lot of decisions based on erroneous, or incomplete, or outright false information? Consider the following:

The CFTC desires to "protect" you from losing money to what they almost resort to calling "bucket shops." They require U.S. retail forex dealers to disclose profitability of customer accounts, but don't require the same information from futures brokers, as if retail futures traders are any more profitable, or any less gullible, or any less informed, than any other kind of retail trader on the planet.

Or they restrict access to opening foreign forex accounts because foreign governments do not provide the same protections as U.S. regulators.

Let's recall what a grand job the U.S. did at regulating:

Enron (volcanic fail)
Long Term Capital Management (funny if it were not so sad fail)
Worldcom (epic fail)
Bernie Madoff (bloody fail)

Just to name four enormous failures to protect the public when there were laws already on the books that were supposed to protect us. The laws did nothing. The laws prevented none of the above behavior from happening. The laws did not protect, or restore the financial well-being, of hundreds of thousands of innocent Americans. Why? No one asks, and no one cares to ask anymore. We're just hurtling towards our next grand explosion of wealth, which should be coming within the next 2-5 years (right on schedule). 

The CFTC wrote to me two days ago and said the following:

“Entities that offer off-exchange retail forex products but are not eligible counterparties will be subject to investigation and will be prosecuted for conduct that violates the CEA.  The Commission has a long standing tradition of international enforcement and coordination with international regulatory authorities in furtherance of the investigation and prosecution of illegal activity.”

And:

“In any filed enforcement action the Commission and Courts consider, on a case by case basis, a range of remedies including, where appropriate, civil monetary penalties, trading bans, registration restrictions, restitution and disgorgement and any other appropriate remedial relief.”

This all comes from an official CFTC spokesperson. This means that if a foreign retail forex dealer allows you to open a trading account, the CFTC intends to sue that firm, and disgorge (their word) money from that firm.

What if the firm is based in Cyprus? Is the CFTC going to team up with the Cyprus regulatory authorities and shut down a retail forex company that pays millions of dollars into the Cyprus economy? You know what that firm is going to say? Eat me. That's what they are going to say. 

Does that mean I think that you should open an account in Cyprus? Hell, no! I don't know what the crap they're up to over there. But the point is that the regulations leave thousands of people in the same position they were before: no more protected. No better off. And meanwhile, those of us who agree to deal with the lower leverage, the strange trading restrictions, are we completely assured that the CFTC can protect us from an evil retail forex executive? No. They really can't. So why have the restriction on offshore accounts in the first place?

Please. Do you really believe that if a retail forex dealer in the U.S. wanted to cheat you, they couldn't get around regulations, restrictions, reporting requirements? 

Update: After talking with more people, and hearing back from the CFTC, it seems that the regulations are going to prohibit access to offshore retail forex accounts after October 18, 2010. For those of you who are going to be disrupted, or have questions about this, please leave a comment in the comment section below and I'll post again this week and address as many of your questions as I can.