Martin Kronicle

Bloomberg ran an interesting article on the relationship between the Australian Dollar (AD) and the Canadian Dollar (CD) the other day. Both are considered commodity currencies b/c their respective economies rely heavily on commodities. Easy, right?

“The Australian dollar is being overtaken by the Canadian dollar among commodity currencies as the safety of Canada’s banking system and ties with the U.S. economy spur investors to buy the loonie.” Maybe this is true, maybe it’s not, but you can see what the rest of the world thinks of this cross rate (see below) by looking at the chart and seeing for yourself. There is an upward trend the cross as indicated by the red line.

Bloomberg has a nice chart of some of the major currency crosses.

Like the term greenback, the word loonie is slang for Canadian Dollar b/c there is a picture of a loon on one side of the coin.

Besides trading these as outright, directional trades, you can create relative value – or spread trades between the currencies. As a default, the currency futures contracts are benchmarked inversely against the USD, so if you’re long the Loon, you’re short the USD. But you can avoid all that by trading crosses: relationships between two currencies other than with the USD.

Click to enlarge.

Check out this chart from AFT, LLC.

According to Peter Bernholz, whenever you see a government borrow to cover 40% or more of its fiscal expenditures, it’s resulted in hyperinflation. Bernholz wrote about it extensively in his book Monetary Regimes and Inflation: History, Economic and Political Relationships.

The US has recently been as high as 44%.

Unless we see growth upwards of 3-4%, there is an almost 100% chance that we will see hyperinflation.

I write mostly about commodities here, but stock trading at SAC and Steven A. Cohen are too good to ignore. Only one down year (2008) since inception in 1992 should be enough for anyone to want to learn to trade and give up being an employee.

Steve Cohen is the cover story in the April edition of Bloomberg Markets magazine.

Here are a few great motivating blurbs from the article which you can get to from the link above:

- Cohen left Long Island for the Wharton School of the University of Pennsylvania, where he would often skip class to watch stocks at a local brokerage. He taught himself to be a master “tape reader,” according to people who know him, able to predict the direction of a stock by watching each tick of the price and the volume of shares traded.

- After graduating in 1977 with a degree in economics, Cohen joined Gruntal, a New York brokerage firm. Cohen came on board as a proprietary trader, buying and selling stocks with Gruntal’s money. He thrived and in 1985 became the firm’s head proprietary trader, a job he held until 1992, when he quit to start SAC.

- In his own trading, Cohen solicits ideas from everyone at the firm, people familiar with the arrangement say. Send “Stevie” an idea that makes money and you get paid something extra, they say.

- Unlike many hedge funds, which tend to have a handful of executives making investment decisions, SAC runs what amounts to 100 small funds. SAC borrows as much as $4 for every $1 of its own from prime brokers, including Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co., then distributes the hoard to various teams.

- Managers’ contracts have “down-and-out” clauses: lose 5 percent from your peak assets, and SAC can take away half of what remains. Suffer a 10 percent loss, and you could be out.

- Each team manages from $300 million to $500 million, on average, according to an SAC marketing document.

- Whether the stock is cheap or expensive is irrelevant. There must be a catalyst that will make it move