With computerized global trading of U.S. government bonds at $150 billion each day, investors worldwide can sell enough bonds within 24 hours to wreak chaos in the fixed income markets in the U.S. and around the world. Meanwhile, at the currency markets, the worldwide volume in foreign exchange trades is an astonishing one trillion dollars per day, roughly eight times the daily volume in U.S. government bonds and 200 times the daily volume on the New York Stock Exchange. Industry observers estimate that roughly $50 billion of capital is devoted to short-term currency arbitrage. The market for foreign exchange trading has expanded around the world to hundreds of trading rooms, all joined by telecommuniions. Consequently, a sustained long-term decline in the value of a currency signs a fundamental issue in the economy, or at least a realignment of the economy relative to its key trading partners....The marketplace has intelligent and sophistied investors that make decisions fast. Moreover, the widespread usage of derivatives generates a leveraging effect that hastens market movements. The global markets render judgements on every currency and instrument every hour of the trading day. The convergence of computers and telecommuniions connection global investors in real time, making a force stronger than any government or central bank intervention. In this new era, the constant pursuit of higher investment yields manifests itself in accelerating capital mobility. Capital financial and intellectual -- goes where it is desired and respected. The economies that recognize this market reality will be best positioned for long-term wealth, whereas those that cling to protectionism, narrow national interests, and statist bureaucratic controls is going to be those left in the ash can of history.



F.J. Chu
The Mind of the Economy

Spiritual Lessons For The Active Investor

(Fraser Publishing Co., 1999)



F. J. Chu is an experienced investor and also a published author of 2 books on investment, The Mind of the Market and Paradigm Lost: The Plogy of Money and Purchasing The preceding quote is from his first book. I hadn't ever heard of this gentleman before studying a quote from this book printed by Jack Crooks in one of the daily ”Currency Currents” updates. It had been this:



Successful trading requires a systematic approach. The sophistiion or theoretical underpinnings of any platform is not as important than the practical fit between the trading platform and the personality of the dealer which enables the dealer to have some kind of an edge.



This quote intrigued me because it has only been lately, I'm embarrassed to say, I have awakened to the critical value of a systematic approach for my trading and that I guessed if Jack Crooks believed enough of this gentleman to quote him was clearly studying his book that it may be worth a look-see. So I moved to Alibris and found a great used copy in perfect state for about $11, I purchased it and five days after it was in my hands.

I found it to be a very, very well-written novel. In fact composed. And I always respond positively to that. Although Mr. Chu's rhapsodic love affair with the Capitalist Spirit and the Free Market Economy drops a wee bit to the right of my own private cosmology, I discover that I don't necessarily have to agree totally with an author's standpoint or ultimate decisions to profit greatly from his work. I find that even in books whose decisions or underlying philosophy I might disagree with in whole or in part, I could discover observations that are honest, truth-like, informative and eduional, sort of like finding bricks within an intellectual gold mine, which was my response to Mr. Chu's book. I do not know if the beautiful and highly crafted writing is the product of Mr. Chu's own private literary accomplishment or that of a highly skillful editor or in a part equally and it doesn't really matter to me but the book is filled with nuggets such as these:



The foundation of the stock exchange is your history of denying. Problems and events once analyzed are dismissed and then forgotten, only to resurface at a later datge as something innovative and new. The generation that experienced the Crash of 1929 and the following Depression was scarred for life. The injury of 90% inventory declines, and the financial deflation which followed, shadowed them such as unconscious pieces of shrapnel embedded in his or her psyche. (p. 5)



Why do otherwise smart investors make dumb decisions? The answer is that they're individual, subject to emotions from within and from the crowd that contributes to ridiculous choices. Whenever an investor is depressed with a sudden fall in the price of his shares and sells at a level under ”fair value,” he has lost any benefit he might have had. Rather than buying at a bargain cost, he has become a victim of crowd plogy by selling at a bargain price. Yet if he understands this, why would he continue to act this way? The overwhelming bulk of investors mimic their peers: stampeding out of a stock when its cost is falling and stampeding to a stock when its price is rising. People tend to view their investments within short time horizons, and they feel the pain of financial loss far more significantly than the joy of financial gain. For example, plogists have demoned empirically that the pain of losing $100 offsets the delight of winning $250. As a point of view, modern portfolio theory states that one should be indifferent to an increment of pain and an increment of enjoyment. This kind of financial myopia can breed excess caution that diminishes investment yields. (p. 11)



Implicit in the principles of free markets is the right to reap private gain from the energetic forces of the market. But the privilege of generating wealth and earnings by the use of funding by its owners is not generally resented by the masses because capitalism is a far more open platform than other forms of society. A huge proportion of the populace participates in this sacred quest, also there are adequate examples of individuals who bootstrap themselves up the capitalist ladder to convince the majority that the system is functional. The markets might not always be honest but at least they seem to operate under the governance of impersonal all-natural forces. (p. 16)



Throughout its self-regulation and inherent ability to incorporate and adjust to the unknown, it dispenses the seductive elixir of financial freedom along with the threatening whip of economic ruin. The mind of this market, with its admiration for unintended effects coupled with a moral sense of sin and salvation, is now more than just descriptive of an economic system but, finally, indiive of a better lifestyle. (p. 17)



During fiscal history, the pursuit of money has regularly reached religious proportions. The Marxists have argued that the hoarding of money, beyond what is required to appreciate life, reflects a deep-seated avarice bordering on the pathological. Indeed, this acquisitive behaviour was burdened throughout history with an intense moral ambivalence. In capitalistic circles, money-making as a life work was barely tolerated, viewed disapprovingly as a kind of heresy. Curiously, the wealth of many rich people upon death was bequeathed to charities and churches as a kind of conscience money, a diffident gesture of potential salvation. (p. 18)



In many regions of the world, money and capitalism still evoke a sort of demonic hatred. Although rewarding may hamper the energies of society, it has seldom captured our excitement or our imaginations. In short, its positive virtues as well as its instinctive inevitability have been overlooked. Despite two centuries of prodigious accomplishments, it has seldom been able to appeal to the individual soul. It's been left to the passionate advoes of free markets like Ayn Rand and others to argue that free market capitalism is not just uniquely effective but also effective at being uniquely moral. (p. 18)



The creation of greater and newer forms of leverage, via debt in name or in substance, lies at the heart of all speculation. (p. 51)



Nuggets like these are to be found on virtually every page of this book; observations which stand alone and are susceptible of this interpretation the reader wishes to put them on and that may support the decisions that the reader wishes to draw from them that well can differ from Mr. Chu's in whole or in part.



The last, I believe, is especially relevant to us as currency traders, appreciating, as we do, the many incredible leverage readily available in almost any market anywhere any time we wish, ranging from 100-1 as a default option to as high as 400-1, if asked.



The Mind of the Market was published in 1999, before the dot.com bubble burst and the market took a critical nose-dive that ruined the retirements and life-savings of many small, and, alas, dumb investors. Nonetheless, it is apparent in the quote with which I began this review at the top that Mr. Chu was living to the emerging significance of the foreign exchange marketplace. When he composed, the volume was 1 billion dollars each day. These days, it is more like 1.9 trillion.



I liked and am still enjoying his novel very much and I recommend it highly.



Respectfully submitted,



Yr. Fellow 4X Trader,



hiyo