Would you participate in a Ponzi Scheme, if you felt you were likely to win?

This is not a morality test, rather a question of curiosity. - The reason I ask is this is exactly what is occurring further East. -  A recent article in the Baltic Times http://www.baltictimes.com/news/articles/31380/ talks about a new scheme run by Sergei Mavrodi who ran an infamous Ponzi scheme in the 90s in Russia which defrauded thousands of investors out of their savings.

Last year, Mavrodi announced a new project, ‘MMM-2011’, however this time he stated boldly that it would be another 'Ponzi scheme'. The website for the scheme declares “Even if you strictly follow all instructions, you can still lose”.  And on the Rules page http://i-mmm.com/en/info.php he blatently defends 'Pyramid Schemes' applying a somewhat skewed and nuanced to say the least justification. However, according to the article, more than 35,000,000 people have joined the scheme, though the article does not state where they have this number from, this number in itself could all be part of the confidence (con) trick . 

This sort of scheme is clearly immoral, designed to enrich its owner and his cronies, and with absolutely no concern or regard for the investors further down the line who will lose their hard earned savings.  However, if its claims are to be believed and millions of people appear willing to participate in it, it does cause me to ask a number of questions?

• Are they deluded, not fully aware of the risks of what a Ponzi scheme really is? (I would think there are few people in the world left who do not know what one is)
• Are they fuelled by greed and willing to take the risk? (If so is Greed just part of Human Nature?)
• Is fear of missing out driving them? (Regret Theory – If my friend or others I know make money and I do not, then I’ll be sorry.) 
• Do people see it as a low payout/ high return’ lottery’ and are they therefore willing to participate on that basis, knowing there is a risk they could lose?
• Further to this last point - Are people so distrustful of legitimate financial organisations, and is the view that the financial markets are a casino anyway, leading people towards participation in this scheme?
• Again, building on that last point: Hypothetically (and in the absence of regulators) could a similar scheme work in the West? -Despite the events of recent years - financial institutions are probably more trusted than in Russia and parts of Eastern Europe.   
• Is life a gamble anyway, and if so are people willing to takes gambles given the opportunity? (Note the rise of online trading and gambling throughout the world)

I am sure there are a myriad of questions which could be asked, and many different answers?

Indeed a further question which springs to mind : - How much intervention should the authorities be tasked with having? Personally this scheme abhors me, yet at my core I am a libertarian (but not a liberal), yet I do think people need saving from themselves. Should we try and achieve that balance, and if so how do we achieve that balance?

How many ‘cans of worms’ have I just opened?!?! (Rhetorical question)

– Anyway I would be keen to hear any responses. – I will be posting this a discussion on my linkedin groups ‘Trader, Trading & Risk Psychology’ and the excellent linkedin group  ‘Behavioral Finance: Theory & Practice’, which are ideal platforms for discussions of this nature.

USDJPY potential basing and upside.

Following on from yesterday’s post with regard to risk of a summer rally for equities, the USDJPY is also showing some signs of basing and may offer a potentially cheap risk/reward set-up.

• The chart below shows USDJPY daily.
• The features which stand out to me are:
• The breaking of the downtrend of the past 3 months.
• The test of the downtrend last week, which successfully held.
• The basing pattern of the past 4 weeks, which appears to be an Inverted Head & Shoulders.
• The breaking (though intraday only thus far) of the Neckline of this inverted  H&S.
• The solid break (though still only intraday) of the 34 day simple moving average.
• Supporting this is a similar matching break in the downward trend in momentum, which is starting to trend higher.  

Currently there is a favourable target cluster above in the 81.69-82.05. Which would suggest there may be around 200+ points in this move if it can gather some steam?

79.79(last week’s high) and the round number at 80.00 may prove tough hurdles, and if not clearly broken could act to dent any progress.  Support for the upside call should remain as long as this holds over 78.60 in the next few days.  – I think if this can start breaking higher, and gaining some momentum, then the current area should revert to support.   

Sell in May and go away – Except in year with an Election day!

Has sentiment turned? – Is Risk-off off? And is Risk-on on? - These are some of the question people are asking after some fraught and fractious weeks in the markets. However some semblance of normality seems to be returning to markets. - It may be perhaps still too early to say whether this is the start of another rally, or merely a correction in a new downtrend, however, isn’t that always the case: Last October and last November felt the same, as did September 2010.   

Whilst my longer-term outlook remains rather miserably bearish, I believe there is a fair chance we may have a decent summer rally. – Part of my belief for this goes back to an article I wrote about earlier this year, which alluded to a comment from Bank of America Merrill Lynch analyst Stephen Suttmeier, who pointed out that 'On average, the April-May period is the weakest two-month period for the Presidential election year and this is followed by the strongest three-month period in June-August. I include a couple of charts from Barry Ritholz's Big Picture blog which highlight this (Here is the link to the article). 

 

The performance of the past few weeks does little to dispel this theory on under-performance in April and May in elections years, April this year saw a small drop of just under 1%, May saw a decline of over 6%, whilst so far June is up over 3.5%. – The strong bounce by equity markets over the past few weeks has been helped by the Spain bailout, the Greek vote, and a host of small steps by various governments and monetary authorities. Amongst these we can include BRIC nations pledging money to the IMF war-chest, UK government pledging money to its banks, Scandinavian countries relaxing pension fund rules, easing the burden on domestic yield curves. - Given all this backdrop, talk of further Fed and ECB action do not seem that far-fetched. - All this action could set the backdrop for a decent summer rally, possibly back to or close to the highs of earlier this year. 

The technical picture also supports the possibility of further gains. The chart below shows the Daily S+P500 with a clear inverted Head and Shoulders pattern, though the very sharp rebound, having hit 61.8% correction may be slightly overdone for now. Worth noting the similiarity between this pattern and the larger inverted H&S pattern from 2008/09 - (See Lower Chart).

Chart below is 2008/2009 Base. 

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