Crypto Currencies. Genius Or Another Scam?
The first of the hundreds of Crypto currencies was Bit-Coin. It was released by Satoshi Nakamoto (very few if any know his real name.) In the fall of 2009 after he presented a paper professing his views that central bank currencies were outdated and eventually all currency transactions would be done online and central banks would gradually fade from the “new currency.” Bit-coin has had quite the ride over the past nine-years mostly highlighted by theft, illegal payments to arms and drug dealers and money laundering. Let’s compare the virtues of Crypto currencies to central banks.
Central banks have been issuing currency for hundreds of years. They control the amount of their money that is in circulation, control interest rates and guarantee the payment of the currency used. Until the end of the Brenton-Woods treaty during Richard Nixon’s administration, the U.S. dollar was backed by gold. If you wanted to change your paper into the precious metal, all you had to do was go to the FED and it would become gold. Nixon realized that with the money supply ever growing that it could be damaging to the U.S. dollar to have all outstanding currency backed by gold. So, he allowed the dollar to trade freely against gold. This form of currency is called fiat currency. It is not backed by any precious metal or other commodity, but rather was backed by the full faith and credit of the Issuing government.
Proponents of the Central bank system believe that having an overseer of the currency helps to smooth out the ups and downs of the business cycle. Nothing will stop that supply and demand situation. There is no silver bullet, but using central banks helps to control the cycle. As with all large businesses, there is going to be a few bad apples that try to circumvent the rules, and some are successful in stealing from the central banks. However, counterfeiting and other means to cheat the government are limited and life goes on.
Proponents of the cryptocurrency model see the opposite. Central banks can control the flow of money and keep track of what goods are being purchased or exchanged in any currency. They want no supervision and no trace of where there money goes. They want no international or government agency to hold any power over them. They want the currency to be like the wild west where the guy with the biggest guns rules what happens. So far it is still the wild west. In the past year the cryotolerance index has had a range of 170%. In 2017 it doubled in value and in 2018 it has lost 70% of it’s value. In addition, the bid offer spread to enter the market is usually around 10%. So, you can decide if this is a viable market or just another highly sophisticated scam? I would be very careful about going back to the days of Billy the Kid!
Ask Mr. Seifert
I am constantly asked questions about trading and how important execution is to insure success. Each week, we will answer those questions with a short paragraph on a variety of trading subjects.
Question: What is the best way to initiate a credit spread?
Answer: Getting a credit spread on correctly is important. Novice traders blow themselves up trying to get the “edge” on the market makers. Forget about that strategy-it won’t work. You are not going to be able to out execute the market makers. However, there are a couple of choices that will work when getting the spread in place. First you can “leg” on the spread by buying the long side of the trade first and selling the short leg second. I use this strategy when I have a preference in market direction. I get my limited risk leg on first and then try to sell the credit side with more premium. Second you can set your browser on the platform you are using to find where the spread is trading in the market. You should be able to get filled within a few cents either way once you know where the spread is actually trading. The third way is always wrong. It is to leg on the spread by selling the short option leg first. This is selling a naked option and will eventually cause a big loser. You are not going to beat the wise guys at their game. Sooner or later the impossible will happen and as soon as you sell the naked option, Houston will get 50 inches of rain and you will take a possible risk of $280 and turn it into $3000. You will then email me and tell me that I don’t know what I am doing and the risk is much greater than I claim it is. Remember bulls and bears make money in the market, pigs get slaughtered! Don’t be a pig. There is plenty of money to be made doing it the right way.
The Wise Guy Report: The View from The Electronic Floor
Each week I talk about how the Wise Guys (floor traders) find the soft spots in the market and take advantage of price dislocation in three major commodity markets: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). On the equity side, I cover MSS which is the Mister Seifert Sez Composite Index. This is a proprietary index that I created which measures the dollar flow of the four major indexes (S&P 500, Nasdaq 100, Russell 2000 and the Dow Jones Industrials) on an unweighted basis. Let’s take look at last’s week price action in the Gold market.
Gold Reaches New Lows (Possible Blow off.)
Last week Gold reached a new yearly low, down more than 14% since January. Gold has been moving lower for about five 5 months and it looked like it caught a possible bottom in the first week of July. The bottom held, and a small congestion pattern formed for the next month. It looked like the bulls may have finally become the strong hands, but as it turned out they were trying to hold off the weight of more selling. There may be some more selling this week, but the loss cannot be sustained at this rate. It appears that gold will find a bottom quickly and will be an ideal candidate for a blow off bottom trade. If so, it would be OK to pass this trade. The only mistake would be to take a short position after a break. It rarely works.
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Each Monday morning by 11:00 EST, the plays for the upcoming week plus updated model portfolios for each strategy are posted on the site. The prices in the reports are Monday morning’s opening prices. In addition, I have a webinar on Thursday afternoon where I discuss various option strategies, what is happening on the floor and answer any questions that you may have. Don’t worry if you miss the show. They are archived on the site. Sound Good? Good! You can subscribe to one or more of the subscriptions for only $19.95 each per month on a month to month basis with no contract or strings attached. If you subscribe to three, it is only $49.95 per month while you can subscribe to all six for only $79.95 per month, a 33% discount. I think you will agree that this is a super offer so give it a try. Click on www.optionomicsgroup.com to access the Optionomics Group web site and get started today doing what the pros do –
“Don’t Buy Them – Sell Them”.
Mr. Seifert