Do you use long-term scenarios about economic growth, inflation, and the dollar in making your trading decisions? I have mental pictures, but I try not to use them when I'm trading. Trading to me is like betting on
independent roles of the dice that you think are loaded a little bit in your favor, because you know some statistical
things about the market. Long-term scenarios can prove to be right or wrong, but even if they are right, on balance,
I'm not convinced that they make much difference over the term of any individual trade.
Even if you think the dollar is going to collapse, that doesn't affect your basic trading pattern? I would like to say it doesn't, and I don't think it should, but it probably has in the past. The worst thing you
can do is miss a profit opportunity (assuming you are already disciplined enough to cut your losses short). And if you
think about it, rigid long-term views are the kind of thing most likely to lead you to that mistake. For example, if I
believe the dollar is going to weaken, and because of this I ignore a sell signal in the foreign currencies, I might risk
missing a large profit. What is my reward if my view was right? Avoiding a small loss. Therefore, the risk/reward is all
wrong for my type of trading.
Acknowledging that caveat, as a long-time market observer, what major trends do you see shaping up over the coming years? I bet we will be at record levels of inflation by the end of 1990. [This interview was conducted in mid-1988.]
What is going to be the driving force behind that inflation? It is going to be driven by trying to avoid a deep recession. The recession is going to be caused by the federal
budget deficit as investors require higher and higher levels of real interest rates to buy the debt. The' government will
try to avoid the recession by stimulating the economy, a tactic which essentially doesn't work.
