Millionaire TradersQ: Now would you ever use fundamental analysis as a reason to
notget into the trade?
A: I’d use it to some degree. For example, I might not short the
British pound against the Japanese yen for any extended length of
time knowing that an interest rate differential is going to create
some sort of significant transaction cost to hold a short British
pound/Japanese yen trade for anything longer than a few days. So
I might be more reluctant to hold something longer, and I might
be reluctant to even initiate that type of a position in the first
place knowing those type of things about fundamentals. Although
I have in the past made short-term trades immediately following
major economic events such as the nonfarm payrolls report, it has
been quite some time now since I have done it. I think that it is
absolutely far more dangerous than it ever used to be. Far easier
to lose a significant amount of money and it has become, on the
retail investing side something of a scheme or a trick that people
want to teach other people to try and do that becomes a really,
really quick way to lose a lot of money. It’s sort of a get-rich-quick-
lottery/slot-machine-type mentality. So I will rarely participate in
any short-term moves around economic events. I’ll usually let the
market settle down, and I’ll just buy or sell depending upon how
it fits into the bigger picture.
Q: It’s interesting that you talk about interest rates or carry. Do
you ever factor it into your shorter-term trades, or just longer-term
ones?
A: Into my longer-term traders, absolutely. My good friend and
trading partner, Maxwell Fox, and I did a long-term interest rate
study that tracked the interest rates, the monthly average or the
monthly base rate for the Bank of England, the Bank of Canada, the
New Zealand Reserve Bank, the Bank of Japan, the U.S. Federal
Reserve, and the Swiss Central Bank and we plotted rate differ-
entials from the early ’70s, I can’t remember the exact year, but it
was 1974 or 1976, all the way through to the present, and then we