One of my posts from Market Watch…do you agree?

By , 16 March, 2009, No Comment

With so much money idled on the sidelines, the only people that are terribly interested in the stock market seem to be speculators, which doesn’t bode well for any REAL rally in the near future. Like bottom feeders, we speculators are hovering around the market carcass and catching the scraps that come free.

I’m not much of a believer in capitulation, however, I believe the market is in the final leg down and will end with a fairly spectacular blow-off of panic-type selling.

I respectfully disagree with randymartin about becoming a manufacturing giant again, as our country will head in newer technological directions and continue to outsource manufacturing, though the financing and investment banking sector of our economy will take a decade to recover (if it ever does) as all confidence in their risk assessment ability has disappeared.

In my opinion, the breathtaking astounding pace of this deleveraging based recession will leave the country wounded but not dead, as the overleveraged consumer and coroporation will have been forced to clean up his/her act or perish. Though I don’t think we will have any recovery overnight, I see a slower recovery build toward the end of the year. Of course, I point out these are just my opinions, and are worth just exactly what you paid for them….Zero.

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This is a post I made today on another blog as I listened to people bitch about politicians……

By , 4 March, 2009, No Comment

Boy, this is a pretty salty crowd tonight, and a very forgetful one, at that. For an excellent analysis of governmental debt, you might try reading this article.

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/03/AR2009030303321.html

For those of you who seem to have forgotten the REAL cause of our problems, which is miscalculated derivative risk, you might read this: the story of the implementation of David X. Li’s radical risk management approach to derivative risk management.

http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all

And for those of you who want to understand the the flaw in Li’s Bell shaped Gaussian copula riskmetrics, and why “catastrophic tails” invalidate Bell curve riskmetrics, you might read this book:

Benoit Mandelbrot: The Misbehavior of Markets.

You all want to point fingers and snivel about one politician or another, but the damage was done far before any politicial, or the Fed, or anyone outside the inner sanctum of derivitive theory knew the scope of Li’s formula’s and the uniform implementation of those theories as they related to securitization of CDO’s, credit default swaps and risk.

It’s unfortunate when this board haggles over politics when there is little understanding of what REALLY happened. Arm yourself with some knowledge and then argue the salient point rather than spew partisan blather one way or another. Very few of the above posts are even germane to our current dilemma…instead you argue the symptoms of the problems. But the cause is well understood by those who understand economics…unfortunately we find ourselves in a liquidity trap that offers few alternatives for recovery, save a bit of luck.

Read todays blog from Nobel prize winner Paul krugsman’s blog, then begin the refutation of riskmetrics, liquidity traps, and the pseudo economic views of the Austrian School of Economics:

“My view, which I thought was pretty clear, is that the liquidity trap is real: no matter how much the Fed increases the monetary base, it has no effect, because it just substitutes one zero-interest asset for another. If the Fed could credibly commit to inflation at rates higher than the 2-ish percent target it’s already believed to have, that would be effective. But right now I don’t see that as a realistic option, hence the emphasis on fiscal policy and bank recapitalization.”

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Chew on this thought for a few minutes, from Paul Krugman

By , 2 March, 2009, No Comment

A quick response to Scott Sumner

OK, I see that Scott Sumner has written an open letter to me. But I’m puzzled. He writes:

I think you have acknowledged that there is some level of quantitative easing that would boost demand. If I am not mistaken you are concerned that if such a policy boosted inflation expectations sharply, the Fed would have to quickly sell off these assets, suffering massive capital losses.

Um, you are mistaken. I’ve never said such a thing. Did you mean to address this letter to someone else?

My view, which I thought was pretty clear, is that the liquidity trap is real: no matter how much the Fed increases the monetary base, it has no effect, because it just substitutes one zero-interest asset for another. If the Fed could credibly commit to inflation at rates higher than the 2-ish percent target it’s already believed to have, that would be effective. But right now I don’t see that as a realistic option, hence the emphasis on fiscal policy and bank recapitalization.

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My apologies

By , 2 March, 2009, No Comment

I have encountered a serious illness in my family that required a temporary relocation to help with the care of my parents. I am now back and ready to trade, sorry for the inconvenience this may have caused anyone. You only get one mom, and she and my father have been in very poor health.

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The Last two days…kinda similar

By , 28 January, 2009, No Comment

ESH9 1-28-09
Click to enlarge
The market was very entertaining today, as traders celebrated the prospect of yet another bailout. There was a time when positive news made the market go up…and negative news caused the market to go down. In this highly speculative market, technically based trading with well thought out stops is the order of the day. As you can see on todays charts, several lines of and resistance and support were key the entire day. Of course, in recent months, no day would be complete without some giant moves up/down that occur without warning or reason.

ESH9 1-27-09
Click graph to enlarge
As has been the case in the last few sessions, there was lots of action around the support and resistance lines, and it payed to pay close attention to the volume numbers as the lines were approached. I had a great time trading today.
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think about this

By , 26 January, 2009, No Comment
Ten Rules for Trader Longevity
This list is for traders but also applies to investors.

1. Recognize mental blocks. If you believe that the financial markets are rigged, stay away. Bias is blinding. If your ego requires constant feeding and vindication, do not trade. If being right is more important than making money, steer clear of the stock market. If you must be dogmatic, direct your energy into following these rules.
2. There is no needle in the haystack. There’s no reliable way of picking a single winner from the thousands of stocks listed on the exchanges.
3. Resist betting it all on the longshot because the outcome is based purely on luck. Dr. Ziemba explains the mathematics of horse racing. The point is that the bettor is better off with horses that finish the race “in the money”. They don’t have to come in first.
4. Diversify. Spread your bets around. It’s the only way to be on board the winner.
5. Trade small. Bet only a small fraction of your equity on each position. You must take risk to get reward, but ruin is certain if you take insane risk. It’s defined in Fortune’s Formula. Think Adventures in Conditional Probability.
6. Press the winners. You must compound a winning streak.
7. Never throw in good money after bad. Never double down. Ever.
8. Do not rationalize. Down is NOT up. Red is NOT the new black. If the account equity is shrinking, your bets are in the wrong direction.
9. Establish a stop loss. Place it in the appropriate location (except just above the swing high or under the swing low where everyone else put theirs), a place where you can be statistically confident that the move in the present direction is over. Don’t use a tight stop for lack of equity. The market doesn’t care about how much is in your account, so trade a smaller position size and put the stop in the proper place.
10. Use the stop loss. Just do it. Immediately. No excuses. Having a “mental” stop loss is the same as lying. There’s no point, because the longer you let it slide, the deeper the doo-doo.
Observe Rule Nine. Always. Don’t go to the bathroom without it.
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This from JanPaul on Market Watch

By , 26 January, 2009, No Comment

Somebody mentioned gold will go down when bond yields go up. Why?

Yes, that can happen in a sound economy but in this one would cause gold to soar in price if yields start going up. Why?

Because the Fed has no intention of letting yields go up but, it may happen anyway. If yields start going up it is because the dollar is in trouble and they can’t sell enough bonds at the lower rates. However, it is a two-edged sword because the more the dollar drops the less people will want the bonds because they would get paid back with devalued dollars.

I am not saying some people won’t buy the bonds if the yield goes up but, not enough to help the government out of the mess it is in. There is about $500 billion available for lending and the government wants a couple trillion. So, you could offer 10% yield and you still can’t get enough lenders.

Also, at this time, nations that lend to us need to spend on their own people and economies instead of lend to the U.S. Our nation is basically bankrupt so our people can’t cover the loans we need and the world can’t either.

Then you have the rumblings in the G-20 of a new global currency to be the world’s reserve currency. The people who say the dollar won’t end its reign as the world’s reserve currency say there is no currency to replace it. They are probably right which is why the G-20 was talking about an entirely new currency tied to a “basket of currencies.” Some say it will be a gold backed currency but, I doubt that.

If the world returns to a gold standard, it would most likely be due to oil nations. The Gulf nations are going to depeg this summer from the dollar and go to a common currency. The Malaysian gold and silver backed currency is being pushed by Malaysia to be the “Islamic currency.” Should they decide to go with that currency and then require oil be sold in that currency, it would destroy demand for the dollar.

Even if they only go with a “common currency” tied to a basket of currencies as has been talked about in the Gulf nations, and require oil be sold in it, the dollar’s demand will fall like a rock and all commodities, especially gold will soar in price even if value is falling.

The U.S. government seems to be doing everything it can to destroy the dollar. You have to ask why? Could it be they need an excuse to default or hyper-inflate out of debt. Testimony to Congress says we can’t grow or tax out of this anymore. Well, guess where that road leads?

The Gov. Accounting Office says it leads to the “gradual, if not sudden loss of ..our standard of living…” Guess how a “sudden loss” happens? A currency collapse!Don’t go by what our government says. Go by what they are doing and what they are doing is an all out war against the dollar’s value.

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This video had me in tears laughing.

By , 26 January, 2009, 1 Comment

I WANT SOME TARP
by
Bill Zucker

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