Renowned investor and Columbus Business School Faculty member Jim Rogers has been cautioning investo...
Always Bet Against Intervention
10/26/2011 4:40 pm EST
Former floor trader Sam Seiden discusses central bank intervention and the common tendency for these announcements to move world currency markets opposite of most traders’ beliefs.
Currency exchange is a topic that’s gotten a lot of attention lately. We’re talking today with Sam Seiden. Now I know you began your career in the currency exchange markets. How have recent worldwide developments affected that trade?
Yeah, I started out on the floor of the Chicago Mercantile Exchange. There were two levels back in the heyday, and I started in the currencies. I spent quite a bit of time there.
I was very fortunate, too, to spend time pretty close to the Japanese yen, so the Bank of Japan, and I witnessed this countless number of times. Japan is an export economy, so they want to keep the yen fairly weak. So anytime the yen would get strong, the Bank of Japan comes in and sells tons and tons of yen to get the price down.
Another word for that is “intervention,” like a lot of the stuff going on in Europe now, so my point is every single time—not sometimes—but every single time the Bank of Japan would come to intervene to weaken the yen, they will get the yen to go where the Bank wanted to; the price point they wanted it to go to.
It would certainly move big, but every time within an hour or two, or a half a day, not only was the yen back where it was at original levels—I’m saying once they were done with intervention—but now it’s screaming in the other direction.
So what that showed me is that the forces of supply and demand always play out. Even an institution that prints money can’t change that.
Relate that to what’s going on today. Intervention with Greece, and intervention here in the United States with interest rates and the Fed.
What we do at Online Trading Academy, and what I coach people to do is always bet against the intervention. Initially, when there’s intervention and say the stock market rallies, we are looking to short that rally at key supply levels.
Anything with the euro, some type of intervention for Greece, again, any news that is perceived to be good on the intervention front, we’re always betting against that because the invisible hand always plays out. As Adam Smith said a few hundred years ago, you cannot trump real market force.
You know, there are always problems going on in the world, but the market does very well at sorting it all out and bringing prices down to levels (or up to levels) where they should be. All intervention does is just kind of slow down the process. Intervention never works is my point.
Well for the do-it-yourself trader, what’s the best way to keep up with these developments, make sure that he/she enters the trade at the right time, and gets out at the right time? What do you suggest?
I suggest that the most important thing is being able to identify these price levels on the chart, these key turning points where you have a supply and demand imbalance. That’s why prices turn.
The more you can identify these key points and take action at those points, the less you’re going to be thinking about this news, or that news, or that number.
All the economic numbers, all those reports do is speed up what was going to happen anyway.
So it’s about following the action on the charts, not necessarily worrying about the next news item?
It all comes down to the real willing buyers and sellers, absolutely. Any and all influences on price are always going to be reflected in price.
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