I'm working on a short article about this peculiar fetish (i.e. the gold fetish). The more I read, the more I find statements like "Gold is money, and money retains its value" to be foolish.
Think about it this way: if I were to offer you an ounce of gold (no strings attached), would you take it? Most rational people would say yes. The interesting thing is, most won't take it because they will be able to use it for electronics, jewelry, or dentistry, they will take it and turn it in for fiat money. And the person they give the gold to will likely keep it in a safe somewhere.
The point I'm trying to get at is that gold has whatever value people give to it. Yes, historically gold has been used as a currency. But, and I may be missing something here, it seems like it is all in our heads. Compared to other commodities, gold's current utility (excluding the ability to exchange it for other commodities) is limited.
Its value is based largely on tradition. And, even then, that tradition is mired in all sorts of business failings and market crashes that goldbugs fail to mention. Gold has not prevented inflation, as new gold deposits are found value of current gold holdings drop (although how much gold is left to be found is up to debate). And there have been plenty of depressions and recessions with gold as a standard. Another problem is gold hoarding which reduces the amount of gold (i.e. money) in circulation. Actually, because of gold's inelasticity, a gold standard tends to restrain and even stiffle economic growth. From what I have gathered so far, most people are much better off without a gold standard, despite what Dr. Ron Paul says.
I'm still trying to parse it all; I'll post more later. For now, enjoy:
A highly technical look at the gold fetish: "Leprechaun, gimme da gold" rap video. You have to admit, Mr. T is highly convincing.
There are some amazing free trading and investing resources on the internet. If you haven't read John Mauldin you're missing out on fairly frequent insights into the economy. I Mauldin's writings emailed to me whenever he posts something new.
Upside Trader has a weekly newsletter that is not posted on his blog. I've read it the last few weeks and have enjoyed it. He tends to analyze the overall market, putting forth his opinions on what signals and info to look for in the coming week.
This last weekend Upside Trader mentioned one of Mauldin's recent posts. He highlights something that I found curious last week--something that I was going to point out today after reading Mauldin's "Here Comes Tarp 3 and 4". Last week I was surprised when I oversaw CNBC. The ticker for the DOW and the S&P500 was showing something peculiar. The DOW was up ~.5% and the S&P500 was down ~.5%, or something similar. At the time I didn't understand what would cause the divergence; I thought both of the indices monitored similar influences in the stock market. I was wrong.
While the S&P500 is market cap weighted, the DOW is weighted based on the amount a single share costs. When I first heard that, it sort of flew over my head. But what it implies is definitely worth the effort it takes to understand. Here's an example: despite MSFT's larger market cap ($156 billion), IBM (market cap of $123 billion) has a greater influence on the DOW's price. This is because market cap has no influence on the price of the DOW. It is based on share price. MSFT's shares go for 17.63, significantly less than IBM's 91.60.
This really starts to make things look weird when you consider the price of some of the financials on the DOW. They are all very low (e.g. C is 3.33 and JPM is 24.50). Mauldin says all the financials and all of the automakers on the DOW could go to 0, yes zero, and it would have less affect on the price of the DOW than if IBM, all alone, were to go to zero. He adds GE as a financial.
Mauldin goes on to say that there is a tacit rule that anything that falls below $10 is replaced by something else. However, the uproar that replacing C with something else, would be tremendous. Can you imagine the effect it would have on the DOWs price to replace a failing bank with something with a little more perk?
If you want to read his full article, check it out here.
I've heard a lot about why the DOW doesn't matter. Hopefully you now understand that the S&P500 is a better barometer of the stock market (assuming you didn't already grasp that 500 companies would be a better sample than 30).
I'm beginning to wonder how the media may manipulate this divergence to boost the general public's stock market sentiment towards something more positive. Something to look out for, especially considering many, many people use the DOW and not the S&P500 as a measurement of the stock market's health.
Odds of 58.2% with equal downside and upside is a bet you would want to take, especially if you could take it again and again. Although the edge may look insubstantial, no casino you go to or lotto you participate in is going to give you such an edge. If you're relatively patient, I'm certain you'll be somewhat pleased over time (unless you were looking for a rush).
The screenshot clip is from a new game at Wall St Survivor that allows you to bet 50 "loyalty points" on the next tick on a random stock. What I did for 122 times (I had to get to class, but I did this last week too, with similar positive results) was place my bet on whatever direction the stock was heading at the time. Basically, I was following an extremely short range trend. If the line chart was heading up, I bet up; and, vice versa. Not bad for little effort (albeit, you need 50,000 loyalty points to trade for $5...if only I could develop a cmoputer program to do it for me).
You may be thinking: hey this is cool, but I don't think it will work on a larger scale. Well, I beg to disagree, and so do many influential and successful economists, traders, and investors. Here is my theory--derived and distilled from such brilliant minds as Robert J. Shiller, Charles Kirkpatrick, and Michael Covel, among many, many others:
Trend following works on the large scale because when companies are successful (or percieved to be successful) people will continue to invest in them, pushing stock prices up. Most people are not going to put their entire savings into a stock and never invest in it again. Many people are going to put some money into a stock, wait for their next paycheck and put more money into it as long as the stock continues in a positive direction. They may also tell others about their success, increasing the demand for the shares, further strengthening price. This is what Shiller refers to as a postive feedback loop. As money experiences success, more dollars will follow.
The same works for the downtrend. If people are panicking around you, you (maybe not you but the statistically average person) are also going to panick. The process feeds on itself driving prices further downwards. People will probably tell their friends about their lack of success in the stock market and warn them to stay away. People may also feel sick to their stomach continuing the optimistic investment process they had performed up until then, further reducing demand.
So, why does this work in the short term? Well, in order for the line chart to be driven upwards, greater demand than supply must be present, meaning more buyers than sellers (i.e. a greater chance for an uptick). When there is a greater supply than demand, you will have the opposite.
While I have some charts from last week and a few from my forex trading today that I’d like to post, at the moment I’d like to discuss something else: The Death of Capitalism; or, on the contrary, the possible renaissance of Capitalism that will be born from the ashes of Socialism.
Over at ContraHour, the most recent post on Martin Armstrong’s work piqued my interest. It focuses on the question often asked in the media: Does the current crisis suggest that Capitalism is dead?
He argues that this is not the case—far from it.
To understand the reasoning behind his conclusion, we should turn to Armstrong’s main contentions:
1) “Vote for me and you will get something for nothing” is a central tenet of our current government doctrines (socialist).
This is the steal from Peter to pay Paul idea, except at the moment, the politicians are stealing from a Peter who has yet to be born to pay for a Paul who may never die (I exaggerate, albeit people are living much longer than expected). People aren’t being encouraged to work at developing new skills in order to obtain better health care or a higher standard of living; instead, they are obtaining a higher standard of living and longer life spans funded by debt.
2) We cannot spend our way out of a crisis that stems from excessive leverage and debt, but government is definitely going to try.
Armstrong discusses the collapse of the Spanish, the Romans, the French, and how all of these collapses were caused, fundamentally, by excessive debt. Each of these entities failed to understand the importance of maintaining their credit. If we do the same, and we are on are way, we too could face collapse as we struggle with untenable debt to foreign entities.
Armstrong argues that, of course, the government will try to spend its way out of the mess it has created for itself (e.g. Obama’s stimulus plan, bank bailouts, auto bailouts, etc). This is done so that those in positions of government power can retain their power. However, such spending can only go so far before it begins to oppress the members of the union, leading to revolt or extreme discouragement.
3) Communism and socialism centralize power in the government, not in the forces that increase wealth, forge progress, and enhance life in the long-term.
Because of the tendency for government to misallocate resources (refer back to point number one for the reason this happens), the centralization of power can stifle progress and harm citizens. While communism and socialism redistribute wealth in order to more equally equip members of society, capitalism distributes wealth to those who develop skills and towards that which allows progress.
4) “Where in a normal economic model, to earn more one improves his skills, the Communistic model promotes advances income without improvement in skills” = Unions stall growth and causes skill to remain stagnant.
Currently, one of major strongholds of a union (the Detroit automakers), is displaying its own ineptitude. Compared to the non-union production models of automakers in the South, Detroit is failing miserably.
Teachers’ unions are perhaps an even better example of the failure of the union. Instead of making the educational environment more potent, it enables many teachers to continue work that they may not be suited for simply because of the difficulty in firing them. Through the collective, those without the necessary skills can impede the functioning of the education system. This happens in any business that is forced to use a "one size fits all" approach.
5) Unfunded state promises will collapse. It is helpful to understand them as an attempt to impose a Marxist-like (i.e. Utopian) environment on society.
Social Security, Medicare and Medicaid, are unfounded liabilities. The government cannot maintain these promises for very long, especially with the mounting economic crisis, the baby boomers coming retirement, exploding debt, increasingly expensive health-care, and more.
Yes, without these promises our union will not be as utopian-like as it would be with them. However, remember what the word utopia actually stems from: the Greek for “not” “place,” or a nonexistent place. While the homophone eutopia in Greek means “good” “place,” it is much more likely that when Sir Thomas Moore wrote his book he intended for the former to take precedent over the latter, as his vague explanation of the perfect society is oftentimes humorously naïve and at others satirically unbelievable.
It is time to stand back and look at what the current situation is telling us.
At least since '00, there hasn't been such an extreme and direct rise in the $BPNYA. Moving from below 30% to above 30% is considered a bullish signal. Going from above 70% to below 70% is seen as a bearish signal. I don't know exactly how to read the signal at the moment. But from the way I understand it to work, I think there are two good interpretations, that might be useful when combined with other indicators:
1) The market was so oversold that everything is registering bullish signals. Because of this, it is the time to buy, buy, buy.
2) The market is being irrational. This many bullish signals cannot be supported given the current economic environment. The BPNYA index is due for a pullback.
The second is more along my line of thinking. Check out the Chart Addict's newest post. He points out a rising wedge, a bearish signal. Actually, most of the site's I read and follow are currently bearish and, at most, considering a bear market rally before bearishness resumes.
I agree. But I am wondering if the government/media/someone will find a way to present the unemployment numbers on Friday as better than expected and representing a "bottom." In other words, I'm watching my back.
PS: Been doing a lot of digging and twittering. Working up my accounts and actually making some money on twitter (a pittance, but that's to be exptected). I am slowly edging myself away from those time sinks...
- "The problem now is that the insanity didn't end with the sub-primes...there were other exotic loans: alt-A's and option ARMs." - "The teaser rates will go up. A mortgage payment of $800 a month could easily jump to $1500." - "70% of these option ARMs will default." - "We're looking at about 3 to 4 to 5 years."
Been out most of the day. Got a new book, though: The Coming Generational Storm. Talk about a bleak looking 2030 for a good portion of the baby boomers. Hopefully I'll be on a beach somewhere drinking a martini. Otherwise, I'll probably be making a shitty wage in the nursing business.
Many people are interested in what will happen tomorrow, because if you know what will happen tomorrow you can profit from that information. While difficult to predict what will happen in the time ahead (e.g. flying cars, anyone?) a general idea of the future can be generated. And, at the very least, reading other people's predictions gives you insight into their preceptions and how successful businessmen think. Here are several lists of predictions for 2009:
- Many people have been waiting for the Fly's '09 predictions. The man runs a successful site, trades well, and is generally entertaining (first tier shit, baby). Check out his predictions here.
- CNBC has an entire section dedicated to '09 predictions. With two [1, 2] optimistic articles and a single slightly pessimistic one, CNBC appears to have a bright slant. While a view into where a good portion of the United States will get their economic information, I would take anything at CNBC with suspicion, especially Jim Cramer.
- Corey Rosenbloom, at Afraid to Trade, posted on Buffett's 2008 predictions, which include some all-around good advice. It is safe to say many anticipate Buffett's 2009 predictions.
- There are the very pessimistic views of Celenate, given in the post below.
- John Cassidy at Portfolio.com wrote a fairly bleak 2009 outlook, saying, "Most economists predict a recovery late next year. Don’t bet on it." He also mentions several polls with this as the highlight: "...people working in the finance business are even gloomier: 77 percent of them say their industry is in a state of crisis, and 50 percent say the economy is the worst it has been in their careers."
- Barron's has an interesting article parsing the views of a handful of economists: Troubled Waters.
- And Seeking Alpha has a rather interesting, reasonable, outlook on 2009 here. There's no prediction of sunny day's ahead there.
Here are three youtube “videos” (basically mp3’s) of a Gerald Celente interview. From what I understand, this man works as CEO for The Trends Research Institute. He forecasts trends and has been rather successful at doing so. You’ll hear all about that in the interview. If you want something that claims to counter some of his claims, click here.The blogger edrants does not do a very good job at debunking Celente’s claims. He doesn’t really point to any false forecasts, but instead aims at saying Celente is a generalist and says things that anyone on the street could say.
Now, while I do not think Ed did a very good job of pointing out Celente’s missteps, I do think you should do some research on your own, maybe take a breath or two, before breaking into a panic and having a fallout shelter built in your backyard. Yes, our economic outlook appears gloomy, but he does mention certain things, albeit subtly and almost as unlikely, that could prevent an all out depression. In any case, never take anyone’s word for what they are saying. My dad would always say, believe a fourth of what you hear, a third of what you read, and half of what you see. I think he stole it from an Almanac he had around the house.
In any case, I am posting the videos because they point out some of the problems I see with the American system. Our economy is based largely upon consuming and services. We do little production. This seems somewhat unstable to me given the makeup of our population (e.g. fewer high school graduates, less emphasis on education, many taking easy college majors and large amounts of disdain towards intellectualism). But what seems even more unstable to me, and has seemed unstable to me for a very long time, is summed up in the fact that we, as a nation, are willing to pay $4 for a cup of coffee. Yes, it is delicious, but doesn’t this say something about how we value money? We are losing touch with reality and paying far more than we should for things that we give too much importance to in our lives. And you will find this in other areas of our economy as well: McMansions, impractical automobiles, unsustainable growth, pay scales that fail to reward in a sane manner, attraction to glitz, the superficial and the glib. Watch most any television show on business and you’ll see unhealthy decadence and outright misinformation.
Now, whether this leads to food riots, is something else entirely. But, I enjoyed the videos nevertheless:
I'll post more tomorrow, but I have finished Irrational Exuberance and would highly recommend it. Plus, on a lesser note, I made ~10 pips trading currency this evening trading from the 15 minute.
I'm getting ready to go short tomorrow. Futures are red (not that they are anywhere near a reliable indicator for much of anything). More importantly, we are at that P&F resistance that I was talking about yesterday:
I'd look for resistance at 850, then 865/870, judging by the P&F. If the market decides to wipe out today's gains and head down to 815, I'd watch out below, especially on high volume.
Take a look at the 88 level on the SPY. It's running up into a descending trendline, as well as a previous reversal at 87.
PS: Unemployment Rate, among other stats, will be released on Friday. Be aware.
The job report shows a 250k loss. The October numbers have been revised for the worse. Surprise? Not if you have been following along.
Automakers want money. Congress says: go back and make a plan so that it doesn't look like we're throwing money into a pit.
Oil is below $50. Gas prices average ~$1.80 a gallon.
Goldman Sachs looks at a $2 billion loss. At least their first loss looks impressive.
You're a legend. But we're going to argue with you and continuously ask you questions that you have not answered to our liking. I'm going to giggle because I'm an idiot. I'm glad I get paid for being an ignoramus. CNBC, thank you.
I didn't get to watch the market today. I had to get up early and didn't get home until 2 1/2 hours after the close. But the day wasn't completely surprising. I thought we'd head down after some upshot because of the 9% down day yesterday (you can only have so many of those before the entire market would become delisted). I was surprised by how high the market went, but in retrospect it feels healthy. If nothing propels the market upward tomorrow (e.g. a GM/F/whoeverelse bailout; free money for every man, woman, and child; or, a Murdoch whistle blower saying this entire sub-prime mortgage mess is a sham), we probably won't head all that far upward tomorrow. If we break the Thanksgiving highs on some decent volume, then things change--resistance becomes support and whatnot. But, I don't think that is going to happen.
I did not participate in any trading today. And I didn't change any positions over at Rob's. Over there, I'm still in cash after trading in my puts on the SPY for a ~75% gain after a nearly ~180% gain in C calls. Part of it is luck, part of it is charting, and even though I didn't have any money on the line, it boosted my self-confidence (a little,) in option trading. I probably won't be able to trade tomorrow either. I'd look for resistance at 850, then 865/870, judging by the P&F. If the market decides to wipe out today's gains and head down to 815, I'd watch out below, especially on high volume.
PS: You don't want to be short if the NYSE Bullish Percent Index makes an X above 30. Historically, going from below 30 to above 30 precedes a rally of some sort. While it is at ~26 right now and unlikely to make it above 30, it is still a good indicator to keep in mind while trading these volatile markets.
Sometimes I think articles like this one from the WSJ hurt people. Yes, there is some truth to the statement: "The current volatility is less about fundamentals than forced selling." But, I personally believe it to be misleading. The fundamentals are terrible for many companies and for the US (and world, for that matter) economy as a whole. I have posted several things in the last week or two that point to this distressing fact, but the outrageous Debt to GDP ratio stands out most explicitly. When the author says, "Once everyone thinks it can only go down . . . it might go up" I cringe. In middle school, in high school, my teachers implied the stock market went in one, and only one direction over the long term: up. But, if you look around, it feels like we are economically stagnant, living in the 90's and (with a little imagination) the 00's.
PS: My opinion--don't get your information from cable television*. It's bullshit, nonsense, misleading, denial inducing, utter shit. Fuck, Winston had it better in 1984. Stay away from MSNBC with their decaboxs and the talking heads. You will save your sanity, and have time to dedicate to some actual study, not to mention, I have a feeling your account will not suffer nearly as much.
*yeah, I know the above article is from WSJ, and I enjoy the paper; it just reminds me a little of cable television.
Yes, you read the title of this post correctly. There is an easy, completely legal way to get the Wall Street Journal for free. Although you won't get the journal delivered to you every morning in its paper form, you can read all the online articles for free with these few easy steps:
1) Go to WSJ.com
2) Choose the article you want to read (any article).
3) If it is a subscriber only article, go to the bar right below "To continue reading, subscribe now." Look for the "share" section and go to the icon directly in the middle (at least it is at this time), the icon with a little guy and a shovel. Click it and it will direct you to the website digg.com.
4) A window should open to Digg's site. Click on the link with the title of the article you wanted to read.
5) Wah-Lah! It is as though you are now a subscriber! (i.e. you can read the complete article)
There are some sites out there that discuss the ethics of using this go-around, but I am not going to link any of them. The few that I have read are poorly written and have directions on how to perform the above that will definitely confuse you (much too convoluted and overly technical; stick to the easy five steps above). Furthermore, the paper wants people to be able to access their articles from websites such as Digg and Google News. They do this on purpose. There are plenty of other things that a subscriber gets besides the articles anyway. If you want MarketWatch, for instance, you will have to pay. The same goes for making and reading comments.
"Ross said that we as a nation are to blame for GM's problems (I am not making this up) because we do not have a national industrial policy. The US allowed other automotive companies to build plants in states that had lower labor costs, and that is the reason GM is uncompetitive. GM pays an average of $33 an hour, and those selfish other companies pay a mere $19 plus a host of benefits." - John Mauldin (link). Thanks to Cluster Stock for the link. (Image: Graph of GM from 1962, with a peak at $87 in 1999, to the recent price of $3.10 during after hours trading).
I have been reading the Wall Street Journal lately. I find it rather informative compared to the local newspaper's business section (my grandparents get the San Diego Union Tribune and another county paper--thus, I get them as well). Of course, that is to be expected. What is also to be expected is a much more right leaning perspective, albeit the San Diego Union Tribune is one of the only major Republican leaning newspapers in California. But I am amazed at how right leaning some of the articles can be. For instance, this article on how "the treatment of Bush has been a disgrace."
I find it entertaining that the first evidence of disrespect Mr. Shapiro points out is an offense by 12,000 people in San Francisco. That is one of the most liberal, if not the most liberal cities in the entire country. Of course most people who live there are going to dislike a President who not only seems to shrug off their economic difficulties, most likely prolonging them, but who also stands in direct opposition to what many of them believe in (i.e. social self-determinism).
But, furthermore, Mr. Shapiro seems to think that quoting several comments from George W. Bush's speeches gives insight into Bush's true political sentiments. President Bush does not write those speeches himself. Many politicians, especially Presidents, have professional speech writers. I am guessing those Americans who dislike Bush do not do so because of the speeches he gave encouraging prosperity and unity. I think they may dislike the dismantling of the public military in favor of funneling that money into the private sector. I am presuming those Americans dislike the egregious abuse of prisoners in, oftentimes, recalcitrant prisons. They probably do not appreciate Cheney's connections to Haliburton, and his belief in being part of both the executive and legislative branches. There is much more including, but definitely not limited to, his handling of New Orleans during Katrina, his assurances that Iraq had connections to al Queda and WMDs, his blubbering incoherence and disdain for intellectualism, etc, etc, etc.
I do not mean to put down the entire paper. I enjoy it immensely. Actually, there are plenty of opinion pieces in the paper that I agree with almost entirely (such as Just Say No to Detroit). I just do not understand the sometimes extremely right leaning editorials. I am all for the fiscally conservative (something I am guessing most of the readers here would agree was not a strong suit during Bush's presidency), but when it comes to socially destructive ideas (whether on the left or the right), I just cannot bite. I do not see how writing an editorial on how disgraceful the American people have been contributes to the understanding of the current predicament. Perhaps an editorial searching for the reason the American people are upset would have been better.
GM. Toyota makes $1.6k per car it sells, while you lose $2.4k. What's going on? I think we're going to have to put you out to pasture...
I setup a micro forex account this weekend at ForexMicroLot.com. They have an account minimum of $25 and crazy leveraging (I'm going to be careful, albeit you can't lose more than you deposit). I figure that in my equity downtime I can work on making some money in the forex market. I have a lot of trouble with the US equity market because of the day trading rules. I like to add small lots to my position and sell when I think is best, even if that is within the same day. Hopefully I can do some more frequent trading in the currency markets. We'll see.
