How the Panic of 2008 is creating more wealth than ever in the Forex markets.

Posted on by The INO.com Team

With Forex getting millions of hits on our site over the past few days I asked Bill Poulos from ProfitsRun to give us his opinion on the Forex markets. Bill has recently released a number of highly educational Forex videos and has over 30 years trading. Please enjoy the piece and watch his latest videos.

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By now, everyone has been well-schooled by the media on how dire the economic situation is in the USA, as well as globally. A massive credit contraction is in the process of wreaking havoc on one and all. After almost 70 years of non-stop credit expansion, the party appears to be over.  The result is plunging stock markets around the world, a collapse in real estate prices, commodities, and even oil.  Unemployment is moving higher, retail sales are off significantly, and the media has now announced what we already knew months ago - the economy is in a recession.

Now, there is no denying that the situation is very serious and, of course, the government is doing everything they are capable of to stave off the contraction and the consequences of deflation.

So the prevailing mood is one of "doom and gloom" – it's in the air, in the print media, radio, TV – you are programmed to believe that you are a hapless victim that can only hope for the government to save you.

As for us investors and traders – the message is there is little you can do in this environment except wait for our stock portfolios to recover, which may take years.

I strongly disagree with this notion and here's why.

There is at least one market that offers significant profit potential right now, hour by hour, day in and day out.  Whether you are a day trader or an end of day trader.  And it should be no surprise that I am referring to the Forex market.

The Forex markets have always offered great profit opportunities, but these opportunities get even better in times like these.  You see, with all of these economic cross currents and pressures that are working against other investment vehicles, they actually drive even better profit opportunity than normal in the Forex market.

For example, since this past July, the dollar has been in an almost unprecedented rally against other key currencies offering the savvy trader terrific profit opportunities.  The EURUSD pair has fallen by 3500 pips or $35,000 per standard lot, the GBPUSD pair has fallen by 5000 pips or $50,000 per standard lot, and the AUDUSD pair by 3000 pips or $30,000 per standard lot.  So while other more traditional markets are being decimated, the dollar rally has offered great opportunity.  But only for those with eyes to see it and a trading method to take advantage of it.

Make no mistake, there is plenty of risk associated with the Forex markets and for that reason you must have a good trading method to guide your trading that puts risk management first and foremost – because without it, you will lose.  But to better put this into perspective, I often use the analogy of driving a car.  Driving a car without understanding the rules of the road and without experience would be a very dangerous thing to do.  But with the proper training and guidance, as you received when you first learned to drive, you were able to enjoy the benefits of driving by first paying attention to and controlling the risk of driving.  I think of Forex trading in the same way.

Whether you are able to trade a large account or small account, standard lots or minilots, the mechanics of Forex trading are quite straightforward and easy to do, again with the proper guidance.

I believe anyone who wants to ditch the "gloom and doom" scenario and take control of the situation has the opportunity to do so by mastering a good Forex trading method that puts risk management first and in the process go from reliance upon others to becoming an independent trader.

For an in-depth technical look at how to spot profit potential today in the Forex markets, click here for a free, 3-part video training series.

Good Trading,
Bill Poulos

Watch Forex Vidoes Here

Connecting The Dots In Volatile Markets

Posted on by The INO.com Team

Connecting The Dots.

One of the easiest ways to determine the trend in any market is simply to connect the dot's. In this five minute video, I explain how you can connect the dots in any market to determine its trend. I will show you three examples of connecting the dots...

1. How to determine a downtrend.
2. How to determine an uptrend.
3. How to determine when a market is making a change of direction.

One of the key components I look for is how a market closes on a Friday or the last trading day of the week. This is when traders have to decide what they want to do with their positions. It also tells you with a high degree of probability which way the market is headed for the upcoming week. I learned this trading secret on the floor of the exchange in Chicago and it is one I would like to share with you today. I feel that this technique has a lot of validity, particularly in light of today's volatile markets.

Enjoy the video.

Adam Hewison
President, INO.com
Co-creator, MarketClub

Here are TIPs to Protect Yourself from Future Inflation

Posted on by The INO.com Team

Today's guest blogger is Tony D’Altorio, a regular contributor for oxburyresearch.com. Originally formed as an underground investment club, Oxbury Publishing is an investment think tank second to none. The research team is comprised of a wide variety of investment professionals - from equity analysts to futures floor traders – all independent thinkers and all capital market veterans.

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This article is another in my series of articles about common mistakes that the average individual investor makes in their overall portfolio allocation. For these articles, I drew from the 20 years of experience I had at Charles Schwab in dealing with clients face-to-face and helping them meet their financial goals.

In previous articles, I wrote about two areas which were dramatically under-represented in most clients portfolios – commodities and international securities. There is a third area which I found to also be under-represented and that is fixed income investments. Many clients had little or no exposure to fixed income investments.

The most difficult task I believe for allocating funds to fixed income investments is to choose what type of bonds an investor should buy from the myriad of choices available. Obviously, an investor’s specific financial circumstances will dictate the final choices. In this article, I will choose an area of the fixed income world that I believe most investors should currently allocate funds toward.

TREASURY MARKET FANTASY

Right now the Treasury market is enjoying its own titillating little fantasy. It is the ultimate dream of everyone in the bond world. It is nirvana for bond market junkies. It is the D-word – deflation.

The media and financial authorities have fallen in love with the word deflation. The dim bulbs that appear on CNBC air are constantly talking about deflation. This fact alone sets off alarm bells in my head. When is the last time that the conventional wisdom as presented on CNBC ever came true? In fact, when is the first time?

I believe that all of this deflation talk is simply a way for the financial authorities to prepare the public for incredibly massive government spending over the next several years. It simply helps to justify even more massive government bailouts and spending programs. Look at the amount already spent on the “bailout” - nearly $8 trillion. I fully expect that figure to rise by tenfold or more.

I notice that CNBC conveniently seems to have forgotten about how the Treasury market crazies got it wrong in 2003. There was a huge deflation scare at that time too, although on a smaller scale than the current nuttiness. What followed that deflation scare? One of the most massive upward moves in history of the price of many commodities.

Right now, the Treasury market crazies have priced in massive deflation that will occur in the United States for the next decade or longer. They have also priced in corporate default rates of 21%! And this is in the face of massive printing of money and multi-trillion dollar annual deficits.

There is a major headwind that the Treasury market crazies will soon be facing. Over the next four years, 66% of America’s current $5.2 trillion of debt has to be rolled over. Who is going to buy all of this Monopoly paper?

Wall Street is expecting the suckers (foreigners) to buy it all. They seem to have forgotten that, thanks to Wall Street, these foreigners have major financial problems of their own. I strongly believe that most foreign investors’ funds will be spent in their home markets, buying their own bonds, and funding their own governments’ fiscal needs.

When this happens, the Federal Reserve will have to resort to cranking up the printing press to warp speed so that there is enough Monopoly money available to purchase the massive amount of Treasuries which will be issued. Can you say inflation?

MIS-PRICED ASSET - TIPS

In all of the Treasury market nuttiness, there are Treasury securities which have been completely mis-priced. These securities are Treasury Inflation Protected Securities or TIPS. The interest and principal on these securities are indexed to the U.S. Consumer Price Index or CPI.

TIPS have become mis-priced because liquidity has fled the TIPS market, just as liquidity has fled from the equity markets. After all, why would anyone want to own TIPS when everyone “knows” that deflation is here to stay and inflation is dead forever, right?

Wrong! For reasons stated earlier, I believe we will see a mass conflagration of the funds that are currently rushing into Treasury securities at zero or one per cent because of liquidity concerns. And once again, we will see that the conventional Wall Street wisdom will be proven incorrect.

I don’t believe we will ever see massive deflation in this country. I believe that the only possibility of  deflation in the US would be if we truly see 1930s conditions – where the US GDP collapsed by 50% in nominal terms and unemployment rates were at 25%  and corporate defaults were in the 15% range. Sorry, that scenario is not in the cards. What is much more likely is a return of inflation.

TIPS ETFs

An investor can buy an individual TIPS bond, but with the current lack of liquidity the spread between the bid and asked of such securities is unusually large. A better choice may be an ETF which invests in TIPS securities.

Currently, investors have two choices for TIPS ETFs. They are SPDR Barclays Capital TIPS ETF with the symbol IPE and the iShares Lehman TIPS Bond Fund with the symbol TIP.

Both ETFs have many similarities – both ETFs have very low expense fees, both ETFs are down between 7% and 8% for the year, and both ETFs also have a similar average duration of the TIPS bonds that they hold of approximately 7 ½ years.

The only difference seems to be that TIP trades with a higher daily average volume than does IPE and is therefore a bit more of a liquid security.

Due to the current mis-pricing I believe is occurring in the US Treasury market, both TIP and IPE are currently yielding in the 8% range. Keep in mind – this is an 8% yield that investors are receiving on a US Treasury security!

Investors are urged to jump on the bargains occurring currently with regard to the TIPS market. I believe that an immediate purchase of either IPE or TIP will be a wise choice.

Regards,

Tony D’Altorio
Analyst, Oxbury Research

How to handle volatility.

Posted on by The INO.com Team

Wednesday, December 3rd, 2008 - Noon (EST).

How to handle volatility.

Sometimes it's hard to believe that with all of this volatility,  the markets (DOW) main trend is still pointed down. The rallies and volatility that we're seeing are all meant to confuse you.

The fact is, Monday's downward move in the DOW was the fifth largest move in history. The two day rally (Tuesday and Wednesday) are counter trend moves. If we see the Dow close at its open or even close lower for the day, I suspect that the high or today's rally will be the high for just the moment. We will see pressure on both Thursday and Friday.

A close below 8000 will be devastating for the bulls and will indicate a further move down and a retest of the lows that we saw earlier in the week (around the 7600 level basis the DOW).

Readers of this blog know that we are still negative using MarketClub's "Trade Triangle" technology. I expect to see this market remain on the defensive for the balance of the year. So here's what we're looking for... if the market closes lower on the day, or if it closes at or near to its opening range (which was 8,409), then I expect that today's high will in fact be the counter trend rally high for the week.

These are incredibly volatile times in the marketplace. We are seeing swings on a daily and hourly basis that would normally take six week or six month to play out.

The key concept to a winning strategy in times like these is to have a game plan and to stick with it because overall it will bring you out on top.

Every success in trading and in life,

Adam Hewison
President, INO.com
Co-creator, Marketclub