Recap for Week Ending 8/10

Net Asset Value: +12.94%
Change in Contributed Capital: 0
Cash Reserve (USD): 61%

This week was a doji (Japanese for blunder) in and of itself. The length of the weekly candle is extended, yet the body (i.e. the difference between the open and close) is razor thin, if not virtually unchanged. Whether this turns out to be part of a morning star pattern remains to be seen.

The beginning of the week was pretty bleak. I booked some profit from pullbacks of the Yen's rally last week. But during mid- and late-week, things became interesting. Equity markets seesawed on Wednesday and Thursday on the same question: Will problems in the sub-prime market spell trouble for the financial markets and for the larger global economy, yes or no?

Words following interest rate decisions spoken by central banks' officials have a calming effect, yet recent actions taken by central banks themselves indicate otherwise. The ECB added €61 bln in a three-day tender. Fed entered the market three times, first time to add $19 bln in 3-day repos, second time to add $16 bln in 3-day repos targeting mortgage-backed securities; third time to add $3 bln buying treasuries, agencies & MBS. The BoJ injected ¥1 trillion into money markets, after it got off the phone with the ECB and the Fed overnight.

The Bank of Canada added $C2.3 bln in two operations. Australia's, Hong Kong's and other smaller central banks followed suit. Pundits are saying central banks haven't injected this much liquidity into the market since Sept. 11. This goes to show that central banks were, at least, somewhat concerned with the widespread subprime mortgage problem and are willing to take preemptive actions should threats of adverse developments materialize.

In other words, we raise interest rates (or keep them steady) to show that we're serious about fighting inflation, to keep savers happy. But we have to buy back low-demand financial instruments with fiat money to prevent more people from running for the exit. Fearful investors make exit disorderly and unpredictable. Eventually, the stock market and the economy will tank, but we want a soft-landing, you see. If we were truly serious about long-term economic growth, we would have lowered interest rates already. But not so fast, because then we'd lose our credibility.

Whatever. I'm indifferent to market interventions. With them, the market and I get along just fine. Without them, I could churn up bigger gains in a shorter period of time, but I could also incur bigger losses in a shorter period of time. Or I couldn't make any money at all, who knows. I work with what is, not what could be or ought to be.

My profit this week came from trading XAU/USD short, net TRY/JPY long and net NZD/JPY long. What I hadn't expected to find was that the range of AUD/NZD was rather limited. In contrast, EUR/TRY moved like an arrested heart on a chart of heartbeats. My preset TP and SL orders were simply too narrow to accommodate ebbs and flows in EUR/TRY. One time, the bid and ask spread got to be 300 PIP's. 300 PIP's on XAU/USD is understandable, but on EUR/TRY? WTF? I called my broker, but they just give me the canned response: "illiquidity." So I have to adjust my SL orders manually from now on.

	4-Aug	10-Aug	long USD	short USD
CHF	1.1903	1.1983	0.67%	-2.11%
CNY	7.56	7.5715	0.15%	-1.59%
EUR	0.7263	0.7305	0.58%	-2.01%
GBP	0.4901	0.4944	0.87%	-2.30%
JPY	118.01	118.34	0.28%	-1.72%
XAU	0.00149	0.00149	0.02%	-1.46%
ORORCL	classified	classified	-12.94%	11.50%
DJIA	13,181.91	13,239.54	-0.44%	-1.00%
Nasdaq	2,511.25	2,544.89	-1.34%	-0.10%
S&P 500	1,433.06	1,453.64	-1.44%	0.00%

Looking at this table gives me an idea. What I'm looking at are really assets at the core. I'm an owner of capital; I've got some discretionary USD in my pocket. I can either keep it (long it), or invest it in something else (short it). Weekly return varies, depending on market sentiment. In the long run, I'm confident that the USD will depreciate because of U.S. persistent current account deficit and budget deficit. But in the intermediate- and short run, I don't really know, until after the fact. So why am I keeping 61% of my portfolio assets in USD long. I'm not achieving the maximum return on my capital. Must improve this.