Thoughts From Left Field

Post from a left leaning wacko!

“Guys, If you can get your heads around the notion that 2009 was 1932 all over again, calling these markets will be a lot easier….. Americans are turning Left, as then, as more and more are demanding American made products over foreign made and Labor representations are becoming more in demand…… One must remember that the number one change which brought the economic success to America from 1932-1981 was Unions…. Deny it if you must, but history is simply repeating it’s self…… When Income Inequity comes down the Velocity of money increases as more and more people have the funds to spend on the products they want and out of that spending, jobs are created….. Trickle down economics was a HUGE lie that never delivered anything but the transfer of wealth from the average citizen to the already rich….. “Job creators” was also a blatant lie…… Right now we are simply having another 1937 which is freaking out the Conservative Ultra Wealthy (CUWs) as they are losing power as Americans are waking up….. When the next rally starts it ought to run another 50 years like 1932-1981….. Try to enjoy it!… 🙂 ”

My Response: Mike, you as most of the left, love to amplify your positive results and minimize the negatives, while doing the reverse for the opposing political party. Funny how you terminate the end of the prosperity period in 1981? Is this because, to extend the prosperity period would give credence to Reaganomics? Included in your self proclaimed period of prosperity is the Carter years, who everyone, but left wing historical revisionists, will agree, was one of the worst periods of time for the middle class when you factor in mortgage interest rates. I lived through the prosperous 80’s (the Reagan era) – where every factory worker, like my Dad, drove a decent car, could afford a down payment and mortgage, put money away for retirement and made enough to afford to send their kid to college, without saddling them with insurmountable debt! Yeah sure, the leftists redefined the era post hastily to an era of ‘selfishness’. Please someone explain how earning a decent wage and supporting a family, without needing the extortion and racketeering shenanigans of a union and their ilk, can be defined as selfishness!

How does the left talk about the velocity and money multiplier effect of welfare, yet ignore the same EFFECT of tax cuts! Unions fighting for extorted, inflated wages (collective bargaining is NOT free market forces) is good, yet giving the real working non-union middle class small business owners reduced taxes which also results in increased disposable income is bad?

I guess that’s what the left is about, hypocrisy, look what your wonderful unions did for the Auto industry, decimated it, with bloated wages and over weighted pension plans, as the cars were made more and more inferior for “we” the consumer. You probably also conveniently forgot the import tariffs that Reagan placed on foreign auto makers- which forced them to construct assembly factories in America and employ Americans, but of course as a Republican, he had to be the enemy.

The time for Unions fighting for safe labor practices and FAIR wages is long gone, they now use tactics similar to the Mafia, collective bargaining could easily be called extortion and racketeering. But I know you are more beholden to the Union then the economy, we see that first hand. As far as GM (Government Motors), individual private investors, and pension funds all got screwed on bond holdings taking pennies on the dollar, while Obama protected his favorite voting block the Unions, surprise, surprise.

Your Union Hero- Obama, has done more to widen the income gap than any President in the history of the US- but I know, campaign rhetoric and bumper stickers mean more then facts, he’s on your side. I’ll take trickle down economics any day over trickle up poverty, facts are facts.

Response:  Reaganomics was a failure… The rally from 1982-1999 was brought by Paul Volcker (appointed by Carter) who stopped inflation, period….. Reagan appointed Greenspan who favored the removal of Glass-Stegall which brought the crash of 2007). I will say it again…. Democrats rule and the people win…. Republicans rule and the people lose…. Up to you whether you study economic history…. ”

Retort from the Intelligent Me!

Please re-read my first line- EXACTAMONDO!

And you’re a Canadian? Born in England? Jeez- you have Socialism running through your blood stream (maybe bordering on a Commie slant). NOW I know why you can’t understand a free market and the dynamics that make it superior- you’ve never seen one. Why don’t you tell us all about your Socialist- lite health care system, I see snowbird Canadian patients all winter long that are happy to get an MRI down the road on the same day, at a reasonable price, rather then driving 4 hours for one in Canada under your crappy, everyone is covered plan!

And even a communist monkey could end inflation with a 21.5% prime rate- and to you, that’s some kind of miracle?
What about the mortgage rates?- that hits the REAL little people trying to afford a roof over their heads.
By the way Volker was appointed by Carter and Re-Appointed by REAGAN (1983)!!

And Reagan is blamed for the repealing of GS 11 years after he left office? Now me, being an American, and proud of it, remember MY Presidents pretty good, and in 1999- another left wing hero (of yours) was in the Presidency for the second year of his second term, Clinton? I guess this is how you liberals think, that Reagan pulled some strings and 11 years later it happens, is that the same reason that Obama’s stimulus hasn’t worked yet? Maybe we’ll see some real wage and GDP growth 11 years after he Obumbler leaves office (and the resulting closing of the income gap that you conveniently ignore) .

And if you determine the failure of a system based on created PROSPERITY, how can anyone argue with facts? Where do you Canucks get this crap? Maybe that’s why your 2 greatest exports are Molson Export Ale and Pam Anderson (20 years younger!) oh yeah, and Alex Trabek, (he’s a genius, he got out!).

Heading into October- Scary Kids!

Friday 09-25-2015- was a weird day, after Yellen’s do over speech, where she re-defined the fact that inaction was not to be confused with weakness (although it maybe, and the weakness would be acted upon), the morning seemed to to show some strength, only to fail in the last 2 hours. We are definitely in a short term downtrend- with some pretty significant headwinds and resistance above us. I wouldn’t put it past the FED to use a stealth form of QE- that wouldn’t be obvious to the dumb money (us). Operation twist comes to mind. With the amount of energy and money the FED has used to prop up the market- I find it hard to believe they’ll let it fall by the wayside now, yet it may be out of their control, when enough of the smart money loses faith, the results could be devastating.

Why Occams Razor?

The first time I ever heard the phrase I was watching a movie- movies I like, I can watch over and over again, ad nausaum, I mean not silly recitations like the “Boiler Room” scene where every character (Vin Diesel) recites a Gordon Gecko quote verbatim, but more the file cabinet full of quips that seem to fit situation. Just the other day i impressed my 11 year old because I knew the next line in “The Terminator” when the detective was pondering the story told by Sarah Conner and states “I need a cup of coffee” and the remembered next line was “It’s 2 hours cold!” But exactly which movie, I really can’t remember. So anyhow in it’s simplest terms Occam’s Razor dictates that with two differing methods of determining a solution- if the answer is equal- the solution with the least assumptions is the preferred solution. Simply stated the simplest way to arrive at a conclusion- the better. Now if the simple way leads to an incorrect answer, that solution shouldn’t be used, so the solution is not the caveat, the answer is.

In life there are literally millions of variables, which can hinge and dictate literally millions of different directions and obviously the same number of outcomes. Same as in trading. Do you know how many Billionaires who’ve made money in the markets talk about having simple rules and STICKING to them. My wife and I took a commodities trading course many years ago- and ran up a small account about 40% in a few weeks- simple rules- simple executions. Human nature being what it is, I wanted to do better- we were listening to audio tapes by traders, reading about Livermore, and the rest, we were excited- but eventually as a rational and intelligent human I wanted more. I thought it was easy- I thought more complex would have even more startling results- I tweaked, I modified, and I changed and literally stopped following the rules. In the next 2 weeks I managed to lose all my gains, and my account was down 10% off my starting balance- so I quit. Now granted the account may have blown up even if I had stuck to the original rules- but who knows. Are markets different then previously- yeah maybe, I get the old adage that markets are run by people, and people don’t change, so markets (and technical Analysis) should stay the same- yet we see some big time money managers and traders stop trading all the time. John Henry comes to mind- ” In March 2006, Boston Magazine estimated Henry’s net worth at $1.1 billion but noted that his company had recently experienced difficulties.[1] In November 2012, the company announced that it would stop managing clients’ money by the end of the year, and John Henry confirmed that total assets under the firm’s management had fallen from $2.5 billion in 2006 to less than $100 million as of late-2012.” More from Wikipedia- “After spending a summer in Norway with his first wife, Mai, Henry developed a mechanical trend following method for managing a futures trading account. He tested his trend-reversal method—which was never out of the market but always held a position (either long or short) in every one of the markets in the account’s “basket” of commodities—”using his own money” (in the words of his marketing literature of 1983). When that test proved successful, he founded JWH in 1981″ and “The firm’s management methods make mechanical, non-discretionary trading decisions in response to systematic determinations of reversals in each market’s direction, with the explicit intention of precluding not only human emotion, but also any subjective evaluation of such things as the so-called fundamentals, to trigger each decision to be long or short each market, or not.”

Pure mechanical system- John himself was worth over 1.1 BILLION dollars from trading not only his own account but also those of his clients. But why did it stop? had the market changed? did the system change? did John Henry change?

By using the 2nd law of thermodynamics- “entropy” all systems break down- without intelligent input ie TWEAKING.

entropy [( en -truh-pee)]
A measure of the disorder of any system, or of the unavailability of its heat energy for work. One way of stating the second law of thermodynamics — the principle that heat will not flow from a cold to a hot object spontaneously — is to say that the entropy of an isolated system can, at best, remain the same and will increase for most systems. Thus, the overall disorder of an isolated system must increase.

So we are told about a LAW that requires tweaking and human input to survive and not breakdown- yet most times this results in a break down!! How is that for the oddest of conundrums?

The path of a million miles begins with one small step- we can all be overcome with “paralysis by analysis”- or what I like to call “constipation by procrastination!” Yes we have to make decisions, but ultimately the trigger has to be pulled and an action step MUST be taken to even have a chance to arrive at any destination- Take the step, pull the trigger, look yes- but eventually one must leap!

4.5 Trillion Reasons The Market Won’t Crash!

Trillions- when you say it you have to say “With a “T””! Why, because we were used to the word billions, but as far as our national debt is concerned, that number didn’t last long! Ignore the political party affiliation below- both parties spend our tax dollars like drunken sailors- actually that’s an insult to drunken sailors, I apologize.

budget-ceiling

Just to reference and comprehend that number, for those who have a hard time visualizing – One Trillion- let’s use an example and use time. Suppose you wanted to count to One Trillion- start now……………one…..two…three… keep going.. four…five.. okay you get my drift if you count a number every 1 second- take a guess how it would take you to get to ONE TRILLION? 1 year? 2 years? 3years? 10? 20? 50? 100? No- not even close. It would take you, now get this 31,709 years and 9 and 1/2 months!! I know, I know it sounds crazy but the formula is here:

There are 24 hours in a day so you would count 24 X 60 mins x 60 sec = 86,400 seconds in one day. There are 365 days in a year so you would count 86,400 x 365 = 31,536,000 seconds in one year. To find how long it would take to count to a trillion dollars divide 1 trillion (1 followed by 12 zeros) by 31,536,000.

That is 1,000,000,000,000/31,536,000 =  31,709.79 years

So, to count to the amount that the Federal Reserve Bank has used to prop up our economy (ahem stock market) would take you- 142, 694.055 years. That is an awfully  large number!

With that kind of investment- do you think there is anything that the FED won’t do to preserve that amount of money in the debt stream. And exactly who do we (as in the USA) owe the money to? Well, conspiracy theory minded folks would have a field day with that one- but the answer is not easy to find. Congress was given the ability to coin, print and determine the value of money in the constitution Article I, Section 8, Clause 5– known as the coinage clause. yet, in December 1913- that right and ability was conferred upon a Central Bank called the Federal Reserve bank. Originally the Fed printed the money at cost and loaned it to the US treasury at face value and it was loaned from the Treasury to member banks with interest. The taxes you pay- do not go to running our government, as we are told or as we thought, the taxes you pay go towards servicing the debt on the money the Government borrows to run. Now the Fed doesn’t have to print and deliver printed bills- they just sell treasury bonds and treasury bills- The Fed sells this things on the good natured promise that the US has and will pay the amount back. Yet as of now the US is having a hard time servicing (paying) the interest payments of those bills and bonds- so they just issue longer term bills and bonds to pay off the shorter term B’s and B’s. If that scenario makes sense to you- it’s the same as putting your mortgage payment on your credit card- because it’s easier to make the minimum payment to your credit card then to pay the mortgage??

Ah….2008 all over again!

The FED can not and will not allow this market to move down- I feel NO MATTER WHAT. Listen to some of the DOOM DAY SAYERS- they are NOT wrong, everything they say is fact: Huge debt, lowest workforce participation rate since the 70’s, home equity armageddon (pre 2008 housing crash equity loans), over inflated P/E ratios, near zero interest rates, less then 3% GDP growth in spite of the 4.5 Trillion investment, lack of US manufacturing, decreased spending from baby boomers, dismal corporate earnings, the end of the petro dollar as China and Russia buy oil in native currencies, the rise of the ruble and yuan (remindi), slow down of growth in China, BRICS nations recessions, lack of demand for commodities (which drive down their prices), wage stagnation, loss of dollar purchasing power…. and this is just a partial list!!

The FED can’t let it crash- they just have to keep juggling balls, more and more balls in the air- with less hands to juggle, if they allow it to crash they may NEVER get those investors back, ever ……………………

but if there were a war or some other catastrophe (natural, terrorist or man made) on which to blame the market collapse, Then the FED can gets it re-valuation without blame …………………………………………………………….!

The High Cost Of A Traders Procrastination!!

One of the main tenants of trading is to respond to the information presented too you and respond almost robotically to your pre- conceived plan of action. YOU never enter a trade without an exit strategy. Recently I took a vacation outside the United States and returned on August 21, 2015. Now that day may mean something to you, because it’s a standout day in the 2015 trading year! Why? The DJIA fell 531 points to a figure that was 10% off the May high for the index?? Now I wasn’t foolish enough to leave trades on the table without broker instructions, yet I still have my long term portfolio in place. In June I was leery of this market, we had hit a new high in May with little fanfare and moderate volume. I look at that as a weak sign, the breaking to a new high without some meaningful follow through by program traders with buy-stops above the resistance level- signaled trouble, to me.  But, sometimes the market needs some time to digest the new level and build momentum for the next leg higher. Through June, that follow thru had not materialized. We were still in a trading range, but in my mind any move above or below signaled action! I watched and waited- poured over the charts and was very lucid as what I planned to do- a break above the resistance- put unused capital to work and buy buy buy. A break below support- pull some money off the table, reduce risk, and preserve capital for the turn around so… sell sell sell.

The break below support happened on Wed August 19th, the downward move on the 20th was a confirmation of the signal. Foolhardily, by the time I sat down on Sunday night to review charts- I thought, I missed the move- HOPE for a rebound so I can pull the trigger on the move I missed:

August_2015

Black Arrow =  The signal day

Green Arrow = Confirmation day

Red Arrow = (TDTPTT) The Day To Pull The Trigger!!

However Monday the 14th I sat paralyzed (markets can do that to you)- Literally- the day I finally made the move (a full 8 trading days later) the market was a full 500 points below my mental (chart base) exit (positions) point. A full 2.95% below where I should have been out. Now suppose the market goes 5% against my position (no position is a position if I closed out trades I’d been holding for some time) I’m down 5%- but If I would have pulled the trigger I would have still been up 2%- the numbers are really that dramatic. That’s a 7 point swing in portfolio value- 7%!- fund managers would love to average 7% yearly. Now, I have to absorb more percentage loss if the trade goes against me- if I use the same stops (chart based) I would have, had I pulled the trigger on the signal. If I change my stop based on my (new) entry- the trade may go against me- stop me out- and then move in the direction I was anticipating. I naturally have to accept more risk above the initial percentage had I taken the trade at the right time. On the other hand, to use the same chart based stop and percentage of funds- I would have to reduce my trade size- and potentially give up profit that  I would have made, had I taken the trade at the appropriate risk level. Sometimes the trade still goes in your favor- and maybe times like that the lesson isn’t learned- but it should be. Trading isn’t easy- and it becomes even harder when you don’t follow the rules…..

Suffice to say- Not pulling the trigger limits potential profits and exposes you to more potential risk- How’s that for a double whammy buzz kill!

The Case Against Financial Armageddon!

Interest-Rate-SP500-061713

In MOST market drops, interest rates (money markets and bonds) provided a respectable safe haven- risk off rest period. Trading is a zero sum game- for every winner there is a loser- same for investment classes (especially Mutual Funds that must stay invested), money from one class MUST flow to another. If you were a manager who averaged 6% a year for the last few years (more on why later) are you happy to move large funds into a bonds for a 2% return? The net effect of moving these funds further erodes your yields, as you buy into the market (remember bond yields are inverse to bond prices) you drive up prices. I know there are a million comparisons featuring rates vs. corrections or up down trends- and the theory is what moves what (chicken or the egg) but with no where to go with interest rates- whats a manager to do?-Answer: stay put and move more capital to the stock market. So immediately you call your investors sitting on cash and say “Hey, the market is on sale, time to buy”, I know, because I got that very call!.

Every previous correction- there was a value to moving to bond (a decent return- and hedging for the fear of losing capital, hopefully principle erodes slower then equities) – but liquidating actually accelerates the inevitable decline of stock prices.  Today that value is just not there- and with the FED teetering on a .25% increase in interest rates?? Still not enough of a reason to call the trading floor and liquidate stock positions. The CNBC talking heads are always saying the same thing- If the S&P is up 30- it’s buy time- If the S&P is down 30 it’s buy time??? How is that a strategy- it’s a song! Some may call the last week a counter trend rally (counter to previous 2 week down trend)- a correction- based on the 6 bear bull run (which they constantly remind us is healthy)- or a sign of impending doom. The impending doom crowd looks to several things:

1) Historically high P/E ratios- While earning are dropping, and prices are (or were) rising, P/E’s have risen- but they can stay over inflated for a Long Long time- (much like technical oscillators- which can stay overbought or oversold for months if not years). Again not much a reason to flee to the safety of bonds. Conclusion– although many market drops have coincided with historically high P/E ratios- we have had many periods were P/E ratios have been over inflated yet stay that way for a long period of time. Conclusion- Inconclusive.

2) Huge mountain of debt- Doomsday sayers have pointed to the huge amount of debt the FED has undertaken on their balance sheets under the operation called Quantitative Easing. The Fed has acquired 4.5 Trillion of assets during the QE period since 2008 thru September 2013, where 700 – 800 billion had been the previous amount the Fed was willing to carry. So some may say the FED, which we all know needs to UNWIND it’s operations and zero interest rate program, might be unwilling to carry more debt- But Why? The same could have been said when the Fed’s assets reached 1 trillion or 1.4 trillion or 2 trillion or 3 trillion??? Once this thing has started when does it end….. the answer- who knows and who truly knows what level of debt the FED is comfortable with?? Who’s to say the FED isn’t willing to go 7, 8 or 12 billion??? The same people that warn of the FED’s 4.5 trillion- were warning us about 2 trillion- 3 trillion and 3.5 trillion!! Warnings can stay in the red stage for years (as have the FED debt fear mongers). The Fed uses 2 metrics to clue them into a market that may be overheating from too much QE and they are unemployment (employment) and price inflation. If you believe the latest unemployment figures- the job market is approaching FULL employment (a figure the Fed says is about 4%- Do you see the problem with figuring out the FED- 4% Unemployment = 100% employment  (about the only time 4% will ever equal 100%.)) And inflation- the wealthy economists that are often quoted probably never shop for themselves (the maids and other servants do that for them!) The Fed talks about 1% inflation, if you buy groceries you know it’s more then that, but whatevs- Conclusion- Inconclusive

3) The Economy-

“It’s the economy, stupid” James Carville

vs.

It’s the stupid economy!” Occams Razor Trader- 

From Wikipedia Quantitative easing (QE) is a type of monetary policy used by central banks in the purported attempt to stimulate the economy when standard monetary policy has become ineffective.” the traditional ways in which a central bank manipulates (you may hate that word, I do, but it is what it is) the economy is through the money supply and the discount rate. The discount rate is the rate at which a bank can borrow funds from the central bank to loan to consumers. It stands to reason that if the banks can borrow lower they will loan the money out lower, and this has a stimulatory effect on the economy. The Federal Reserve tried that and it it didn’t have enough of the the response that they were seeking. The second way to stimulate the economy is through money printing- when the Fed prints money they increase the money supply, as the theory holds if people can borrow money and put it to use- increasing the supply makes more money available to put to use and again causes a stimulatory effect on the economy, again limited effect was noted  – so they got creative. By  buying assets on the open market, they are adding capital funds to the money supply in the effort to have more funds available to be put to use to help the economy grow. The money supposedly hits the broader market as the wholesalers employ more the money multiplier effect comes into play which should stimulate. Former Federal Reserve Chairman Alan Greenspan calculated that as of July 2012, there was “very little impact on the economy”[ due to the QE policy. What it would seem was the money never really hit the broader market- and the loans the banks took were used for internal trading and business decisions rather then broad market loans. That’s why the FED points to very limited inflation (as of this writing oil supplies are a glut- and fuel prices are the lowest since the nasty oilman Bush was in office). Never before in the history of economics have we increased the money supply without inflation. The very definition of inflation “too much money chasing too few goods” is an axiom which forms one of the basic tenants of economics. Apparently the money the FED used to bolster the economy never really “hit the streets”. How would you like to be the middle man scalping a few basis points on the 4.5 billion open market purchases- the Fed was making with good ole Uncle Sam’s hard earned tax revenue?

We will never know how much the FED decides is a comfortable level to type into the computers and prop up the ahem economy, there has been talk of Buzz Light Year QE!

That means Quantitative Easing To Infinity and Beyond! The Fed can always recoup those funds from the taxes people will pay from the money they earn from being employed by the “stimulated” economy, all 32 of them.