Trading markets

It appears some of us are interested in the business of trading, hopefully for both fun and profit.
Here's a place to talk about that. I suggest two main categories. How to trade (timeless), and what are you trading now, and why, and how it turned out. Those tend to be missing from the pro boards, so pundits can have selective memory....but that's not all that is important. Being wrong is part of the game, and how to handle it and make money anyway is crucial, for just one example.
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The usual. Be nice, be informative, tell it like it is.

Trading markets - manipulation 102

Postby Doug Coulter » Thu Nov 04, 2010 10:32 am

Here's a new one that most don't recognize, that makes it harder to see through the "fog of battle". Normally you can count on the main two emotions driving everything and everyone -- greed and fear, both usually short term with a time constant that varies depending on the overall sentiment -- which is an important observation on its own. Systems that work well over a given time period tuned to today's nervousness don't work as well when the time constant is different, and one of the things you look for all the time is what that is right now. This severely limits but doesn't eliminate the usefulness of backtesting, beware.

But now I want to talk about another, fairly new kind of manipulation that goes on that is from left field compared to how it used to be, one that few of the books and old wisdom apply to.

Sovereign wealth funds.

These are big chunks of money that don't always get played like a normal trader or fund would do. Being managed by those more or less not accountable for actually making money in the short term, they play things a lot differently than most other players, and I have an excellent example (hope I can find the old plots that show this, it's very illuminating, for now I'll just go with what I remember from then).

China has one such fund, and they are smart and slick at this, and know how to win for China if not their fund.

Awhile back, during the last bubble, there was some talk that the two major iron ore miners supplying China would merge, BHP trying to buy Rio in this case. The offer made Rio's stock zoom to the sky, though even with that, they claimed the offer wasn't good enough. The point is, the merger of those two would gain something very nice for them -- the ability to more or less set ore prices in a near monopoly. For obvious reasons, their biggest customer didn't like this idea much at all. So they did something about it. They bought Rio stock, enough to drive the price out of reach for BHP, and get a seat on the board to prevent the merger. I saw this going on, and once Rio had peaked, got out, and closed my short on BHP, both at a profit; usually, when one company buys another, they experience a bit of down just after due to risks it won't work out as hoped, while the company to be bought zooms on the news before the deal can go all the way down.

Once the deal was killed, BHP resumed their normal course, and Rio went back down, so sad. China probably lost money in Rio. But China won -- they don't have someone setting prices on ore, which is of quite a lot more value to China as a whole than what they might have lost on that deal.

This kind of shenanigan is new to most of the old school -- someone making a large play without expecting to make money on it, or even caring. It messes up their way of thinking. Most of the old school can't or won't adjust their way of thinking until it really is hurting them not to, and their ability to rationalize that it's a one time anomaly is amazing, but hey, it's not.

Money in the mix that isn't accountable (in huge amounts) really is a case of "it's different this time", so it's important to pay attention and not use the old methods of analysis overmuch, or depend on backtesting that goes back before this started to be important.

Despite a little information asymmetry especially as regards HFT, the reality is that the average dude with an online account now has so much more information than before, we can ride these moves like never before, and the reasons to go with a broker who is "in the know" are no longer so compelling.

I feel this is one reason for the quick rise of ETF's -- really just another type of mutual fund in sheeps clothing. The people who run those get paid no matter what, and all those brokers need work, so that's where they went. Think about this the next time you see an advert for a broker or get one of those cold calls -- if they were as good at this as they always claim, why would they bother with you, and not instead just trade their own account till they were rich beyond the dreams of avarice? I mention this to those sorts, and often get a very satisfying "click" on the phone that way. Hah! The truth hurts.

There's another factor that the rise of ETF's creates, that most aren't more than dimly aware of, even most experts it seems (though again, I'm putting this word out on the big stock pro trader boards and they are catching on). One thing most ETFs supposedly give you is some diversification in a sector or market. But since people buying the ETF mean the ETF in turn has to buy the underlying assets, the presence of that much money doing that makes those assets correlated, ruining the diversity! In other words, it's self fulfilling but in a backwards direction!
This one is snaky, and I'll have some more words on it once I have a better take on how to play with it, but it's something to look out for. This might not be deliberate on their part, but it's big and it does have an effect on how you'd trade to do best, so it's worth looking into.

For me, I avoid most ETFs, simply because of the de-worse-ification. They are at their best when they let you get into a market that's otherwise hard to get into, else their fees and loads will nearly always cause you to not do as well as if you'd just picked the right things to trade on your own -- you earn, but get to keep, the fee in that case.

Oh, and by the way, BHP is at it again, trying to buy POT of all people, which is another China oriented play. POT went up about 50% on the news (no, I didn't catch that one, rats, 50% in one day! You don't have to do many of those to beat the crap out of the markets.), and has sat there for awhile, after being in the doldrums far below its peak in the boom, which it is still well below. I'd have to bet we'll see some action by China in there same as last time....

Here we do have an information problem, it's hard even with the good data feeds to see this sort of thing going on, it's not generally in the news, and big players don't telegraph their moves much -- when they do, look out, they are trying to accomplish something by letting you know that and it's probably not for your benefit.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
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Doug Coulter
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Trading markets - what I trade and maybe why

Postby Doug Coulter » Thu Nov 04, 2010 11:18 am

I have large watchlists, some customized on sectors, and some pretty broad, to help me get a feel for who's doing what with who and so on, but I only trade a few issues. Figuring out which to add and witch to ditch is most of the work I do while watching for a good setup for a trade on something on my list.

Here is what I look for (along with all the conventional stuff that every good book on the topic covers).
  1. Decently high beta -- this means a stock tends to move more than the market. Motion is money so motion is good -- if you can stay on the correct end of the trade. Not super high, that's just too flakey to make money at. Otherwise a decent beta is kind of like using leverage, without some of the risks of that.
  2. Either best in sector, or close, which is kind of a judgment call. Since I'm a long-mostly trader, it's nice to work with companies that have good long term prospects, as when I break the rule about never letting a trade become an investment (and everyone breaks even their own rules) it tends to pan out more often.
  3. A business plan I understand and like. Though I'll make exceptions -- if I have a chance to take money from guys who club baby seals so I can do fusion better, I'm there for that.
  4. Liquid, but not too much so, and not too well known -- the more players in a trade the harder it is to figure out their "tells". So I don't trade the industry darlings so much, and when I do, I don't always do as well as with the lesser known stocks.
  5. High enough market cap, but not too high. I want companies who still have growth ahead of them. Too small market cap makes manipulation too easy, and the only other players too unpredictable too. Avoid penny stocks where even I could push the price around easily. If no one else than the company principals are mainly in it, it can be hard to sell high -- no buyers.
    Also, these are the most usual targets of the pump and dump scams, and that's just not a good game to play in.
  6. I like the CEO and/or other management. Purely subjective I suppose, but having been one myself, I can generally tell a good one who is a real benefit to the company. An example, I'm not a big Ford fan (see picture) but I love Alan Mulally. And Ford as a company has gone from under $2 a share back in March last year, to what, $14 now. Who knew? Not me, I sold out at 5-6 (about where they were in the boom), so no complaints.

That, and playing with companies where I *don't know too much* so I concentrate on the other traders, has led me into mostly commodity based companies. Miners, oil drillers, water providers, guys who dig stuff up and sell it. They happen to be in the limelight right now which isn't all good -- too much speculation driving prices up nicely is good while it's happening, but when sector rotation comes around again, it will also mean some sharp drops too, the other side of high beta.

But I like these guys. I think Malthus was right, just in the wrong century. We're getting real close to what the planet can carry, and really, there's no new tech that's going to make metals and fuel obsolete in view. This also means some of the agriculture issues are good (POT in some times, but not now, for example). The need for their products is fully assured, and limited only by buying power of the world. It's at the point where many of them have some pricing power, always nice for an outfit, but most of them aren't bordering on monopolies, which tend to lose interest in their shareholders, not to mention start treating their customers badly because they can and get away with it, for awhile. (See microsoft). You want to see some room for growth in a company if you might find yourself happily stuck in a trade that becomes a good investment (rare, but it happens and it's good when it does).

To that list I will add a few generally very solid large cap dividend paying players. I use them to park money when I'm not trading it, for example in my retirement account which is my larger but slower trading one.

OK, here's the ticker list I'm currently or recently playing with.

FCX -- best in breed copper, gold, moly miner, good management, one of my favorites. Not really an investment, see chart, they swing and I make money on that, then get out.
ANR -- metalurgical coal company very well run, good to their people, swings wild -- a little dangrous, but good when you time it right.
BTE -- Canadian energy trust, fat dividend, and it goes up too! Canada oil is about 50% of what America actually buys...and our neigbors to the north are pretty cool people. Add in currency "risk" which is and has been going in my favor for awhile and likely to continue.

I used to really like PBR as an oil play, but things are a little confused there lately with their government and China all getting control over it, and Brazil trying to prevent the rise in their currency due to foreign money flooding in. For now, I'm doing Brazil via EWZ, not fantastic, but it's doing fairly well. Ditto the big miners down under with EWA, kind of a nice place to park a bit of money not being needed to play zoomers.

BHP -- worlds largest miner of all things, Aussie based. Not as sweet as FCX, but a good one, and again, international and USA is winning the race to the bottom on currency, making the internationals a winner in general.
GLD -- duh, a nice place to park some money, and if traded right, a nice trade when going up faster than the buck is tanking down. In fact all the precious metals are good if you buy them right, which might not be right now, or it might be. So add to that SLV, PALL, PPLT which don't always all move together.

MCP is one I'm just now starting on, and it breaks most rules. Huge negative balance sheet, but the only "new" US startup miner of rare earths. Not actually new because they have been in this business until China kind of priced them out of the market, but now starting up again with a decent plan. Looka that chart! I've now managed to get two over 10% moves in my favor in and out of that one. This month. Not a bad return rate, eh? Have no idea if it's going places in the long term. I think this is a case of over-enthusiasm that will actually take awhile to get stable and be anything like a good investment. For now, it sure is fun when you're on the right side of the wild swings.

Understand that with all miners -- swings are the norm, and you have to have a very strong stomach to just buy and hold them, and might lose nearly all your money if you do, and do the usual panic sell right what you can't stand it anymore (which inevitably is right before it starts going up again -- this is an eternal truth in the markets). My situation prevents that -- I live today on the money I make today, so again, the ticker is the truth, cut your losses brutally before they cut you brutally. Better to fight and run away, and live to fight another day.

FAS, FAZ -- financial leveraged ETFs. Never to hold more than a couple days and not for the faint at heart at all. I will sometimes play C or BAC, short in general. That's one sector we KNOW is going to fail or at least see serious turmoil in (they may get a bailout again), the only question is "when" the big moves happen. Watching these is good for the general feeling of the markets, anyway, so they are on my watchlists all the time. All the big financials are HFT'd as well, which kinda messes up their trade-ability most times.

My bank, STEL. Not a big one, I like to keep an eye on how they are doing, mainly, but since I'm only trading against about 50 tellers and bank branch managers, and perhaps a fund or two, easy to make money on most of the time. In this case, more often than not I actually know the person on the other side of the trade, how they think, and what motivates them! Ideal! For me. For you, well, there are probably similar situations out there. Not super liquid, but...enough. In fact, this is about my lower limit on liquidity, they only trade every few minutes at most.
So, Jack can't be too nimble on that one and you can't count on getting the current price going either way & right now.

JNK -- as the ticker suggests, this is junk bonds, which actually are doing well. As some people I listen to warn, it's a crowded trade and when bond rates rise (as they certainly will) that means the prices of the bonds falls, and so will this. As is warned by others, the exit ramp for this trade is going to be very crowded when that all goes down, so it's not a low risk trade, but for now it's a nice dividend payer.

PG -- if you buy it right (and I did), pays divvies and goes up too. Really just a place to park some money while waiting for a juicy better trade to show up on the radar, but till then, a better deal than treasury bonds and so on, and a little diversity in the mix. I prefer divvie payers that pay monthly, as you might have to ditch one going down and then you'd miss the dividend too. PG doesn't do that, but since I bought around 50-something, I'm ahead no matter what at this point. It's kind of a nice way to watch the consumer business along the way, but discount retailers that are still growing might be better plays if you're bent that way.

NOTE! I am DEFINITELY NOT ADVISING PEOPLE TO GO BUY THESE -- I AM SELLING THEM NOW MYSELF! At least in part, I'm well up on most of them (or already out). The times will come to get back in or add to my holding in these, soon enough -- you rarely have to wait all that long for a nice swing that makes buying back in attractive. Meanwhile, taking your winning bets off the table is not a way to get broke, ever! How many advisors will tell you that? The norm is for them to suggest you buy what they are selling. Now, since we're having a zooming day (11/4), I'm not selling most of this outright, but putting a tight trailing stop on them all that covers most but not all of my holdings of them -- the next tiny dip gets me out after letting any profits run, in other words, could be sometime today, we'll see. From my charts, I'm seeing others do this (watching on balance volume and bids/asks, and depth charts). People are taking profits on these now, or figuring out this is time to cut their losses. When they are done with that, time to get back in! Wash, rinse, repeat. The medium tight stops means I stay in as long as things are going up, or holding, but get out quick if they aren't. This is somewhat risky in a single (USA here) market, as things can gap up or down a lot overnight (because they trade in other markets too, pretty much 24/7) when these orders can't be filled by my broker, so I will take a hard look at the end of today and decide if manual intervention is required at that point. After a zoomie like this it's nearly a sure thing we'll see a pretty big gap down within a couple days, if not the next day -- then I can buy back in at a better price, which is the name of this game after all. You want to get a lot of a move, but not be one of the pigs who get slaughtered and sit around whining about what it could have been. I'd bet that if the market here doesn't gap up tomorrow, it will instead go down pretty hard again, to about half or so the peak it reaches today -- it's human nature we're playing with here, and seeing a loss on this sweet gain will trigger selling to keep at least some profits, self-fullfilingly driving the prices down further. That's when a smart trader buys...

Depending on what I see in about the last hour of trading today, I may actively take bets off the table, and perhaps even buy some inverse 3x leveraged bear ETF (like SPXU) to bet on the idea that the market might revert tomorrow, with the idea of closing that trade win or lose tomorrow. I don't often do that, but my experience is that after nearly 200 point moves up in the dow, the next day is at best going to be tepid up, might be serious down, and I'd just be playing the odds there. Pretty rare to see two consecutive 3 digit runups, it happens, but usually you get a smaller one, then the larger one. When you get one like this "out of the blue" or in this case, government manipulation driven, the chances are good for a partial reversion right away.

Some relevant sayings:
Make hay when the sun shines.
He who is lost, hesitates.
The market can stay irrational longer than you can remain solvent. Use rationality to make decisions about irrationality.
For long types -- buy high, sell higher. Don't catch a falling knife, the middle of a move will be enough.
Be greedy when others are fearful, be fearful when others are greedy. (Warren Buffet) He's not an investor or trader, he's a runner of companies, a fixer upper guy. He's still right often enough, but don't buy his stock, I've made more on the short side of it when he's wrong -- which is inevitable when someone is as not-nimble as he must be with those amounts of money.

From the US Marines:
Anything worth shooting is worth shooting twice. But be sure of your target and the backstop first.
Improvise, adapt, and overcome.
If you ever find yourself in a fair fight, shoot your planner first. The object is to win.

Some of the above companies have alternates that are nearly as good, and since they don't quite track lockstep, a move in one can slightly predict a move in another, or one can be in a better place to buy than another. For example, FCX has SCCO that is also good in copper. BTE has PWE as an alternate. Other large conglomerates pay some nice dividends while their stock goes basically nowhere other than PG. Bonus on any of those if you can catch them at bottoms, but when you look long term -- they just aren't going up or down, but pretty flat, like WMT for example. No motion, no money other than the dividend, but in that case, you still have a risk it will go down -- not so good, eh?

In a rare more or less full disclosure (I redacted my account numbers) here is what I'm seeing, doing and holding just now. Not a bad day to say the least. A lot of people would be getting excited and "doubling up" at this point, but ot me this setup screams "SELL!" and "it's too good to be true, unless I force it true now". So I'll be triming some of this today, probably near the close as things are still going up, though the market as a whole stopped more or less about an hour after it opened today. The big boys do most trading early and late, which is why all the volume curves tend to look like smiley faces.

The three little plots that got their names covered (so you could see my watchlists, or at least the ones I have up) are, top to bottom FCX, MCP, BTE. Speaking of "too good to be true".
Hate to sell much BTE, as there's that monthly dividend (180 bucks on the 1000 I own now), but I may.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
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Trading markets - who do *I* listen to?

Postby Doug Coulter » Thu Nov 04, 2010 12:57 pm

I pay attention to everyone, but that's risky -- it's been proven that anything that distracts one from "The ticker is the truth" like watching the financial pundits costs you profits, because they make up news out of nothing to fill time (and you might actually believe it to your peril) -- and that's when they are not trying to get you to buy something they want the price to stay up on while they sell.

There are a couple outstanding exceptions to this.

Todd Harrison at MinyanVille is one. Do check out todays videos by him, and frankly anything he writes. Follow the links to his older stories, this dude has been calling it right for many years (including calling "now" quite awhile back), is insightful and honest, and is just a "good spirit" out there. I pay attention. It helps. Not saying that about the rest of his media empire, but he's the real deal. Some of what he sees in the future is kind of scary, and a prudent person would learn it even if not as trading info, but a life head's-up for what is inevitably coming down the pike. I know he's telling the truth, as for one thing, I employed a forensic accountant after the last crash to learn how to "follow the money" and what we found doing that -- well, Todd knows too and it ain't pretty at all. Make hay while the sun still shines! But know there's going to be an eclipse at some point and "be ready".

Here's a choice little clip from Todd -- in 2006. Thanks man!

Or this, a bit later.

Does this guy remind anyone else about some weird cross between Mel Gibson, Paul Hogan, and Harrison Ford? He'd be right at home in my outfit (in my dreams).

Another real deal is Adam Hewison of ino/market club. I used to belong, and may join back up. He's just an honest guy, has a system he sells (not super cheap, but if you do as he says, you make real good money and forget the fees). His "trade triangle" tech is a bit slow for the current market conditions, but if you time things the way he says and take a slightly longer view than I usually do, you do quite well, thanks. I use the free features of his site to watch things like the dollar, the prices (now and in forward options) of things that will be affecting the stocks I own in from minutes to hours (nice to have a very reliable heads-up, eh? It's a fantastic edge in this game). I may join up again, now that I learned how to do it with and without help, and therefore be able to judge the quality of that help, his deal is not a bad one at all, and could be a tremendous time saver for me anyway. Takes a bit more patience than I normally can muster, but good otherwise.

Those two above are open in my browser by default, all day every day.

Now, there are some other sites I pay attention to (but not that often agree with) and post on. I'm not sure I recommend any of them in the positive sense, but it can be a good way to see how some of the nut cases are thinking -- and some of these nutcases control enough money that this matters. I am finding that when I inject a meme into these, it gets picked up. Interesting.

One is Seeking Alpha (nice sentiment, but gheez -- seeking ain't finding!). I look at their macro view, and a couple of authors aren't stupid.
Another is Green Faucet, same ideas. A mix of liberal bent and gold bugs and nut cases, for profit site that has way too much love for whatever is trendy and makes commisions and fees for "their kind of people", but useful nevertheless and sometimes entertaining.

Background -- get some of William O'Neill's books on how to invest. Old school, but very good explanation of all the basic concepts, well written. He runs the Investors Business Daily paper, which is on the expensive side, and so "conservative" as to sicken this conservative, I dropped them. Sometimes they fall into "buy what we want to sell" which isn't rare in the business, and their editorials would freak out Adolf H. But -- his books are some of the best, go figure.

Get Curtis Faith's books too, once you have the basics. Curtis is a real smart dude, and is trying to teach you how to think rather than what to think in a more timeless fashion. I think his training was mostly based in a different type of market than we currently have, IS the most common type we have, just not right now. The principles all apply given that.

You could listen to me, but that could also be a mistake. Dunno. I've only got about 5 fulltime years in this, and have only doubled my money about 3 times during that, including the beginner mistakes (now I make larger ones). I didn't do as Einstein suggested (compound) -- I spent the money as I made it, only letting principal go up a little. Because that's how I survive, I can't wait for "retirement", it's already upon me, sort of. This is about the only job I can have -- as an ex CEO, I'm more or less unemployable at anything lesser, and no one is hiring CEO's like me just now. Lowes won't let me work in the hardware store, the computer store needs techs, but not me -- they know I'd leave at some point, that it's not going to be my life, and so on. They are all correct in fact, though it would be nice if they weren't so insightful! I really don't have the energy (or the other talent on tap -- but this board is kind of talent-laden by design) to do another startup, so this is it for the present.

I will also visit Marketwatch (WSJ), CNBC, Bloomberg etc, but mainly for a diversion on a boring day when I'm not posting here or elsewhere, or actually getting real work done. They never seem to have anything actually useful to say, it's a way to waste time, at best, don't let their shill stuff get into your head! It's almost always either late, wrong, or dishonest. That can make these sources useful as "tells" on the big players, but you might have to mentally "invert" much of what they are saying....they are looking out for #1, and that ain't you.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
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Trading markets - end of day notes

Postby Doug Coulter » Thu Nov 04, 2010 3:16 pm

I really am going to start another thread showing what I do, more or less in realtime, as it will help anyone just learning kinda how to hold your mouth (or how not to!).
But for now, given the excitement of today, here's what happened.

I made 6 grand *in one day* with 150 in, rest in cash at the moment. I sold roughly 50 grand worth, as this was all "too good to be true". Mainly the flakier stuff -- MCP, FCX, BTE. Not all, but some. It's a play the odds thing here, I expect to get right back in if I was right to sell now, because I expect some reversion, but kept some in in case I was wrong -- often enough I am.

I am noting that lately (last few months) all the action has been not during trading hours here, or during the first few and last few minutes when the big boys mostly do their moves after endless meetings about it all. But mostly we see most of the day flat, and it's all in the gap up or down, indicating that most of the action is not in the USA these days, but elsewhere, and where the overseas markets leave us is where we start again. So there's significant risks no matter what. If you do some trailing stops (which I just put on a bunch of) they may trip in the first few seconds of the next day, when there's some action in other markets overseas. This kinda stinks, as fairly often, we recover from a dip overseas in the first few minutes, but by then an automated order has gone in and happened, to your chagrin, so I most often advise you make your stops "mental" rather than "dumb computer", at least until I write some code for "median smoothing and wait a little while" to make a better thing happen there. Still, I did make the money today, and most of it is now safely back into the mattress (or money market fund) for the moment.

If we get an instant 200 point zoom tomorrow, again, you can (and are encouraged to) call me an idiot. For example, Curtis' turtle rules would have had me buying in more "units" today, but...and in a more normal market, he'd be right and me dead wrong. My contention is that this game doesn't reward those who don't adapt quick as well as it does those who do, and given than most of the action "today" really happened before the markets opened, and in the first few minutes....that's the pattern, I can't trade 24 hours easily, and for now, it feels good to be back out mostly and I'll sleep sweet after the champagne I'm about to pop.

Can you believe that all day today, AFTER the main move, people kept buying all day? Except for the biggest guys, they did. Duh. This is when you sell, dummy! It went up! Sell high! You don't buy high when it's an obvious outlier statistically. Yah, we could get a little more up tomorrow, and this QE crap means precious metals are in good shape (because the currency they are priced in is tanking, they are mostly actually close to neutral), but there will be more chances. This is the type of time one hurries up and waits for -- then when it's time to move, by golly, you MOVE. I mostly trimmed oil, and will show a plot that explains why but the short of this is that every time in the last year or so we've had this big a jump up, it's simply crepitated around awhile before either going back down, or the next jump. Till then, my money is better off elsewhere, as oil future charts show. (Thanks INO for making this freely available).

From the chart, you can see that every time we've had this hot a jump up, you may as well have sold and then bought back in later. So I did, and took about 1500 profit off the table doing it, risking that I won't be back in on BTE in time for the ex dividend date. $1500 now vs $180 dividend? Take it. It'll be there again, could be I can even buy it low again before the div date, and get both -- again.

Ditto the meteoric rise (again) on MCP -- most times right after this, it reverts as a plot will show. So, sold most of that too, maybe should have been all, but hey -- admit fallibility -- and hedge. And FCX, though I tend to hold onto a hundred shares of that no matter what, and that's been a good move. They have another one of those magic CEO's who has navigated the under-excess capacity thing better than just about anyone else on this planet (and certainly better than the semiconductor guys who have about the same set of issues --). But yeah, I took a ton off the table. Smart? Dunno. Safe? You bet, or more correctly, I did bet that way. If I'm wrong, I cut a little upside. If I'm right, well it's jump out the window, going down...and it'll be nice to have a wad of cash, again to buy again there.

Now I am largely either on the sidelines (1/4 in, in "safe things"), or only in some things that either don't move fast, or were still building buying volume as the market closed -- generally (but not always) bodes well. Tomorrow is another day, time now to pop the corks, and go play with what this board is really about, in the main -- extremely dangerous things you shouldn't try at home (oops, I might be on topic in some weird accidental universe), and there's this HV supply across the room calling me to smell the ozone and make some things light up.

Ah, the morning after. I sold the rest of MCP this AM, before it went down further, and the rest of FCX after getting another percent or so off it. Also sold some gold (not all) because hey, it's going down due to a (probably very temporary) spike in the dollar due to the jobs report. Nice thing about paper gold (heresy to the physical guys) is being able to do that quick and efficiently, and of course I may buy right back in real soon. As is, I'm still load-lightening so I can have a fun and worry free weekend. EWZ just went too, fine, I'd made good money on that, and there will always be another day. Boy, hard to see FCK going down so quick when copper futures are way up -- usually they are very predictive and make trading that one a snap -- copper up, FCX up a very short time after. But it zoomed so hard just now, it's mean reverting anyway, so time to give it a rest while watching close. Doesn't look like I made any truly stupid moves, other than maybe I should have held FCX till this am (it was looking good on obv, which is why I held any) and BTE, which is up today (which is why I kept some). Zowie, it's going down now (dollar inverse) but it's over $86/bbl -- that's going to affect the pump prices.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
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Trading markets - chart mistake to avoid

Postby Doug Coulter » Fri Nov 05, 2010 9:13 am

I'm not going to write a lot about technical-chart analysis (yet), partly because there's plenty of it out there, well written, and partly because that's where you should learn it anyway -- the same places everyone else does. The reason being that it is more or less self fulfilling -- lots of people make buy sell decisions based on it which of course move markets -- and since you're on the other side of the table from these players, you want to see just what they do. I keep my own analysis moderately simple when it comes to charts, but I do pay attention to some of the chart freaks out there too.

What I really want to talk about is a major failure in most computer charting software that will cause you to either lose or not make as much money as you could once you know about it.
Actually, there are a few, but this one is first -- linear, autoscaled charts are pure poison -- and that's what 90%+ of software gives you. Since most people don't realize the traps this creates, and you will, this can give you a bit of edge -- obvious in hindsight, but not obvious evidently to most people until they are told about it.

Taking each thing in turn, let's begin with linear plots. In these the vertical axis is evenly spaced amounts of money. This has nothing to do with percentages, but that's what makes you money -- percentage change on your trade. You shouldn't think about amounts of money per share, but percentages, and not think about a certain number of shares, but how big your unit investment is -- a simple calculation will convert that to number of shares at the current price, and these days, there's not even a penalty for trading odd lots -- they don't care, so you shouldn't either. If you decide to put 10k bucks into a trade, you could be trading anything from 2222 shares of DRYS, to 96 shares of FCX (at recent prices), and you don't care, you've got a 10k bet on the table either way. What you do care about is how much in percent you're going to make or lose, not how many pennies a share price moves -- that just places an extra burden of calculation on you. AT 10k, 1% is a hundred bucks, and in hectic times, I'm sometimes willing to close a trade on that if things look iffy -- minus about 20 bucks commissions, I made 80 bucks, which is better than losing money on a trade that didn't zoom as hoped, after all. If you can make the price of a good restaurant meal for you and spouse in a few minutes, heck, do it! I know of few spouses who don't like fine dining (including me, I'm the cook here and don't mind a break now and then), and no brokers who mind collecting commission streams.

Of course, once you have bought something (or shorted it, all this works both ways) most trading software will track percents and bucks, which is one reason I tend to keep a little of each thing on my current trading list owned one way or the other -- a few shares, not much money, it just makes it easier to keep paying attention, and makes the tools easier to use.

Not many software programs (including the main one I use, TD Ameritrade's command center) do log or percent plots very easily. In fact, I just found a way to force that the other day, after using it for years, but it's not great. Google finance will let you make log plots, not very good, but still much better than any linear plot. What you really want is something that lets you set, say, 1% per division, and set the basis too, letting things go offscreen if they must, and I've not seen that anywhere yet -- I'm going to have to bite the bullet, learn how to decode TD's XML feeds and do it myself sometime.

The autoscaling kills you another way. Lets suppose you're doing your basic homework on a stock, and want to look at differing time scales -- highly advised, so you know where the thing is and how it tends to behave vs it's own past (or compared to something else). Well, a gross example is shown looking at any stock that was involved in that flash crash. By autoscaling, you see (in general) a straight line with one big spike down/up. Oh yeah, that's useful -- NOT! Since you can't control the scale, you can no longer see the "real" variations, they all reduce to a flat line due to autoscaling.

So, the tools most get to use, almost deliberately make a fool of you and your normal ability to perceive what is going on! Knowing this, you can un-fool yourself while others fail to -- EDGE!
But it's a lot of work, and makes comparing things harder than it ought to be. Could this be deliberate, so the guys selling the expensive packages (which I don't have) have something to sell?
Whether it is or not, if you know, you have an edge you didn't have before. Let's see if a picture or two is worth some words here. As always, clicking a pic will get you to a larger more readable version.

Twin plots, 10 days

Looking at the picture above, notice that both plots span full scale vertically, but also notice how they are labled in constant bucks per division. At a glance, you'd think that MCP's large bump was about the same as FCX's recent "flash runup". But now look at the chart below where I got things forced into percent! Not the same at all, eh? And of course, the little trend plots (which show each trading second, bids and asks and closes, not easy to see in fast trading issues like these) are always full scale! So unless you know how to interpret this, your natural perception will lead you pretty far astray (or will the guy you are trading against...heh). You must constantly be aware that a $3 change in say AAPL is the same as a $.01 change in a $1 stock from your point of view, no difference at all to you, because for a given amount of money in the trade, you make (or lose) the same with either one for a given percent change.

I can't say why I've never seen this one written up on any stock board, nearly all books (William O'Neill gets it) or just anyplace. Is this like how to work a urinal, everyone just knows? An alien arriving on earth would have trouble finding this out! And it's kind of important.

Same, but one month

The difference is more telling on this bottom plot. Note the difference in percent you'd have made holding both of these for the last month. Despite similar looking top plots, there's quite a difference in what you'd have made (assuming that unlike me, you didn't sell MCP at that huge top and buy it again after, as I did, then sell it yesterday and today, while I held FCX)

These are maybe not the best two to compare this way, but since they are what I'm trading, and it's a little hard to see even these big difference, it's instructive nevertheless.

Google has a great facility for this kind of comparison, but of course all the tech indicators (at the chart bottoms here) are meaningless. But lets say you want to look at oil stocks, and compare them -- which are generally best (the ones you want to put on your list of "I'll trade this one", which have maybe zoomed too much and are overextended just now and so on.
It's good, and instructive, but when some pay dividends, and some not -- you still can't just get the information at your fingertips, quite, on what your yield would have been. So, most people don't -- an MBA doesn't make a trader diligent automatically. To save you the hassle, here's one I just did on oil companies (leaving a good number out, of course). You gotta do your own homework!
Google goggles

It might now be obvious why I picked BTE in another post above. On top of that, it pays a monthly dividend roughly equal to 5% yearly rate, and the others don't have anything like that going for them. PBR was a superstar before the crash, but now? Well, if you play the swings it can still be good, and they are sitting on about the largest new oil field discovery since the middle east, but various borrowing and government intervention (Brazil demands a cut, China's getting involved with loans that have special payback provisions) means it might not make so much money for us as it otherwise would.

Now, one last thing. Just about wherever you live, you're stuck with the fiat currency of that nation to work with. These charts would look very different in euros or gold, for example.

That nifty nearly 50% gain (actually better with dividend) doesn't look quite as slick when you subtract how much the dollar went down (or GLD went up, same thing more or less) does it?
You gotta make money faster than it loses value for there to be any point in this exercise! Except for various speculative wiggles on the curve, I count gold as a zero gain kind of thing, because when it goes up, so do prices of everything I buy (whether our government figures it this way or not, it's how it is).

Slightly off topic but important. This year perspective would tell me as a chart reader to wait for one of the pullbacks in BTE before I buy it again. The quickest rises always follow, and it's all about percent per time in trade. So I sell at those little tops (sometimes) and buy back in the dips (sometimes). In general, in a long mostly trade strategy, you buy when it's going up (so you miss a little of the move, but also miss more head-fakes) and sell while it's still going up, or as soon as it drops a little bit -- if nothing else, you move your trailing stops (mental or otherwise) up as soon as you're nicely in the green, and let nature take its course.

A story that sometimes infuriates gold bugs. Back in the day, an ounce of gold would buy a cowboy a Colt Peacemaker, a holster and ammo, a suit, a bath and night on the town with one of the saloon girls.

Today, you can't quite get the Peacemaker for an ounce of gold -- it was a better investment. For fun we took that out of the equation and ran the numbers on one of the other boards I post on, using a modern Glock instead. You know what? It's going to be a very cheap suit and you don't get the girl at all.

Even reproduction Peacemakers are getting up there in price these days!

So while gold is a good place to preserve wealth, it's not a money maker unless you artfully play the swings in it, instead of buy and hold. Since it's a fairly manipulated market all it's own, that's some extra learning you'll have to do to get that one right. Lots of emotional players and real big boys messing in this pot just now, with various agendas (see sovereign wealth fund manipulations and extrapolate a little for just one). Countries now have a big interest in gold not going up too fast and making their currencies look too bad in this race to the bottom we are in now, and selling gold (along with their increasingly valueless paper) is one way they are getting what they want...when they run out of spare gold to sell, or get too close for comfort, look out!

This is one place we techies have a leg up -- after looking at spec charts and scope waveforms for years, we just know this stuff automatically, so forgive me if I'm boring you. Most people don't get it even after this sort of simple obvious explanation, and that's one edge a techie has in this game. Play it to win! Being smarter is fair.

OK, one last picture that hopefully makes what I'm talking about much more obvious. These two look about the same at the right end, don't they? Well, MCP is down 2.65% as that was taken, but JNK was down .41% -- a six to one difference, nearly, in the move today. But they look the same!
Looks the same, but actually as different as it gets.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
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Trading markets - manipulation 103

Postby Doug Coulter » Sat Nov 06, 2010 8:33 am

OK, it's the weekend, and I have a gig to go and play at, but something occurs to me that I think I should talk about just a little.

I went long (risky) before the elections and the Fed -- risky but it was the right move as it turned out -- even I just plain get lucky sometimes, the point is to capitalize on it when it happens, and I did. Now, the gloom and doomers have been decrying the Fed printing money, as even these short-term thinkers who watch and trade the markets know where it all leads when a country devalues its currency and goes into true deficit spending that no one (else) is buying the bonds to back. Only feeds the gold bugs, of course, who still can't seem to understand that gold is by definition a flat-value thing historically -- until it suits their religion, then they remember.

History has plenty of examples, after all, and I don't see how the fact that nearly all governments are doing it at the same time changes any of the lessons one should take away from it.

We are witnessing the fall of the western world (or maybe the whole world), right before our eyes. No bangs yet, but the whimpers are getting real loud.

It might take a generation to finish happening, but there's no road back from here that is "politically acceptable" when people have at least the appearance of a vote, and people have gotten to where they actually believe they can vote bread and circuses for themselves and it magically appears -- no need you know, to actually grow the wheat, bake the stuff and so on.
Humans may have gotten too soft to be good at surviving with out a lot of delicately balanced help. Someone from the past would surely be pretty disgusted with what we have become (present company excepted -- the elimination of those who are actually alright value-creation entities isn't complete - yet)

It's one thing to run up so much "real" debt your kids won't be able to pay the interest on it (much less the principal) without you also creating huge inflation to make the debt smaller (in effect), but this move is moving from borrowing what can't be paid back to outright theft from both the future and the present. This is a stupid-human trick -- easier than to be honest and do a cram-down (partial default) on all that debt, politically. Of course, that would cause more pain to the guys who created the mess, rather than spreading it more evenly, so it won't be done, since they are still running the show. They won't go easy, either. This is why all governments fail eventually and real turmoil occurs -- look at history. We've had a nice long run.

OK, most of us are aware that the Fed's stated reason is utter baloney, even in their own eyes, and if you follow the money to the "primary dealers" and beyond, you learn a little bit. We are still in the business of bailing out banks and trading houses, but in a stealth mode, is the long and short of that one -- evidently they don't want people to see the obvious (usually a safe bet), that the banks are still in very deep trouble, despite "mark to fantasy" rules they are being allowed to use, and they need real money, now, badly -- even if it 's going to cause a lot of other troubles down the road, not to mention creating a "drug habit" for some players. Why straighten up and fly right when you can get paid for continuing to be dysfunctional?

I don't recall the actual number (and it changes) but someone (Todd) mentioned how many trillions of derivatives are out there -- and it's a crazy number. With those, you buy and sell risk, it's like insurance. It can only work if, when a disaster happens, the insurance company doesn't fail. See AIG for example -- they sold insurance too cheap, figuring they'd never have a payout, as well as selling multiple insurance on the same thing to different people, verboten in the normal insurance business. You wouldn't want it to be legal for multiple people to take out life insurance on YOU, right? That would kind of paint a target on your back. Since there's a large multiple of the worlds GDP out there as "insurance" it's hard to see how it won't fail. Or didn't already and the books are very cooked and that's the real problem.

(I'm thinking I should describe how the last crash really happened and why -- we did actually follow the money, the laws, the rules, the enforcement, the lack thereof, the loopholes etc, and it's not quite the picture the public has -- if the official or common picture were true, we'd have recovered already - I didn't lose any skills, tools, or possessions for example, and didn't stop being productive and neither did most people-- so why was that more than a blip? The 20% or so I lost on the markets before I got smarter didn't hurt me much, either, just a setback but nothing to cry about, stuff happens. - that will be another post, at least I suppose, remind me if I forget.)

This doesn't work for the small guys -- they are all now out of a job. When I look for lab help, the quality isn't showing up, but those people I'd lay off myself do, in droves. It's kind of scary, and I'm glad to NOT be running a business right now, because any successful businessman knows the people are the business, and the good ones just aren't out there, at least around here.
And as a result, productivity per employed man hour is at all time highs, interesting. Could it actually be more efficient this way, assuming we can find a way to support the slugs so they don't riot in the streets? Is that what the super-extended unemployment benefits are actually doing? Could welfare actually be smart? This is heresy for this old conservative (not a republocrat fascist, however) but maybe I was wrong? What do we do with all these people who effectively produce nothing, think they are entitled to some sinecure, yet eat and consume?
What we DID do was create an illusion for them which finally has failed. What to do now?

After all, a simple public works program would cost less and create lean-on-shovel jobs instantly and put the money into the economy instantly, that's obvious, and since they aren't doing it or anything like that, they must be obfuscating the real reasons for what they are doing. These are smart people, they must know something we don't.

Normally, you can set the clocks by a fed announcement -- the market reacts so fast and so hard it seems obvious that the people doing it didn't wait to read it (or didn't have to, and were just waiting, for the sake of appearances -- which makes one wonder how far ahead they really know, too). No difference this time in that, but....a picture points out what I want to say here:

Fed announcement spike, then delayed reaction

You can see the glitch in the afternoon, right on top of the announcement timing (actually about 30 seconds before the announcement text was published all over the web), then a more normal reaction. But the big slam-up didn't happen till the next day!

How like government -- a day late. In reality of course, it takes awhile for all that new money (bits, not even paper) to move around through the system, but the other players in the market like to get in early, and usually do; the markets are forward looking. Which leads to the next picture, and rats on google for losing the volume on these overall charts a few months back as it would be informative in this case, for now we'll just have to go with my observations on individual stocks till I fire up the real cool software again Monday at least.

Longer term

The longer term doesn't show the spikes due to more smoothing, but -- notice how flat and wiggle-free it is in the week or two up to the "event". Pro traders weren't doing diddly, or were doing it very quietly and in low volume, which I noticed at the time -- I was quietly going long then myself and re-balancing things. The big money was scared and once they'd made their bets, sat on them and waited -- same as me. Then boom. The thing is, if it were only them, there (probably) wouldn't have been the big gap up and then flat while still in high volume from them alone -- some idiot was buying all day Thursday (and Friday!) to keep the market up, something no smart trader would be doing, and the big boys aren't dumb. But big volume happened, despite there being little reason to trade at that point, other than to sell and take winnings off the table. Hmmm.

I heard through Todd Harrison that at one point Paulson had let slip that the fed wasn't just buying bonds, but had a team (variously called the open market operations team, or the plunge protection team) that played the markets -- reason not stated, but there are a few possibilities. Here I think is proof that's not a tinfoil hat conspiracy theory, but reality. Frankly, it's probably more useful for the Fed's stated goal of creating the willingness to spend via the wealth effect than the bond deal -- that almost has to be for another reason -- handing their pals (remember, the fed and treasury are all Goldman related) a pile of bucks we are going to pay for in many ways in what amounts to a legal ripoff of the whole country, and a regressive stealth tax increase (inflation). Dunno about you, but I notice how cooked the federal CPI etc are every-time I go to the grocery store or gas pump. That's one way to cut SS benefits!

The other observation to make that I don't have a good chart for right now, is that we've been seeing a lot of these lately, by which I mean large gaps, then flat, with or without volume.
The net effect is to make day-trading not worth it -- during the day, there's no change to trade(!), this is all coming from overseas or something like that, where we pick up where they left off, we do nothing, then the other side of the world picks up and changes things we see the next day. Why? Easier to cheat over there where the news media don't look as closely? Don't have a clue, it's worth looking into I suppose. Maybe I should become a night trader ;)

This is not normal, sure it happens sometimes, I've been at this long enough to have seen it before, but it's not the norm until the last couple of months and now it is the norm. It makes it a more risky PITA to be a swing trader, you must hold overnight to get those gaps, because during any one day, little happens on the major stocks, anyway -- particularly the ones owned by ETFs that get HFT'd all the time here. Only the middle-visibility issues I recommend trading don't show so much of this -- another reason to choose carefully. Whether this is a "plot" or just a natural but maybe unintended consequence of the basket and index ETFs coming on the scene, I can't tell, but it clearly explains the "mysterious correlations" written about on the stock news boards better than they do -- they don't get it. This is obvious, so it's no surprise they don't get it -- if it's not tricky they can't figure it out, as usual. Bad mental models. Or maybe they are so busy pushing ETFs as great trading vehicles, they can't see the problems and flaws they create. In the case of ETFs designed to "create diversity" they actually destroy it by causing everything the ETF holds to go up and down in lock step. They claim to simplify things, but sometimes you just can't do that. It does make it easier for fairly dumb computers to push huge volumes around.

Re that -- any techie who has had to close a difficult feedback loop and get the thing stable would have noticed awhile back that these computer alg's were too dumb to do the job. You could actually see the ringing and oscillations they produced -- and sometimes see the effect it had when a human stepped in and turned one off. Sorry, these PhD "quants" aren't as good at this as any real EE has to be, and it shows. And the actual problem is harder than the ones most EE's have to solve, because there are other players out there doing it too, and they aren't stable alone, much less when all hooked to each other.

But it's clear a number of interesting things are going on, I'll say more when I know more, and I've learned where to look -- but it's hard work to find things some people don't want found.
Growklaw revolutionized the legal business via the "many eyes" effect -- perhaps this business needs a Groklaw sort of entity? Sadly, I'm no PJ -- she is something truly special.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
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Trading markets - manipulation 103 recap

Postby Doug Coulter » Mon Nov 08, 2010 12:33 pm

Ok, so I had a couple beers and accidentally said what I think (some of it), which isn't always wise -- sometimes it offends people.

But there it is. I will say this -- the long term gloomy view of myself and many others means exactly diddly to a trader, it's a waste of time and will cause you to make wrong moves.
Long term prognostication is something I find entertaining to do sometimes, and judging by the financial media, it's a popular pastime. Perhaps that's because they are so often so wrong about anything immediately actionable and are getting called out for all their dead-wrong predictions in the shorter term.

This is all long-timescale (in single human lifetime terms) stuff, and what a trader wants to know is what to do NOW. And frankly, there's no point worrying about going over the cliff even if you're heading that way until you get pretty close -- the last crash and what happened just before that is a good illustration of what I mean here. Had you foreseen it too terribly much, and acted on that too soon, you'd have missed out on an easy doubling of your money. Whereas if you kept your glass more or less half full, but were wary (as everyone should be, always), you didn't lose a heck of a lot when the crash happened -- normal trading would have gotten you out well enough, and did me. So if you doubled your money and then lost say 20% either not selling out quickly enough, or like I did, still trading with the assumption that there was going to be one more upsurge, you still came out well ahead. And that upsurge did finally come, March 9 of 2009, and I was ready and there for that one, perhaps luck? It wasn't all that long a wait, looked at in hindsight, but it was excruciating at the time of course. And till then it was better to wait, which I hope I've learned how to do now.

It's easy to miss that point, and there's quite a lot of talk around on the media that will make a doomer out of nearly anyone. Some of it even makes sense, but I don't think the core underlying reasons are stated because hey, the truth hurts and applies to them as much as anyone. I may as well finish my rant so I can get on to more useful words here.

Put simply, the human race is in deep doo-doo, and we did it to ourselves and we are still doing it. If anything the first differential is increasing in magnitude, sign is negative.

At the turn of the last century, no one had electricity -- now when electricity goes out state wide in the US, that state is a disaster area -- we've forgotten how to do without it, and lack the tools needed to do without it anymore. People no longer have woodstoves and woodlots, and their oil heaters won't even run without electricity...and the nat gas pumps don't run either.
An the refrigerators in the grocery store...

Similar, at the turn of the last century, there were no hospitals worthy of the name. Now women can't have babies without them!
That's an eyeblink in the human race's history -- what have we done to ourselves, we obviously used to handle that fine.

It used to be if you screwed up badly, you died. Now you procreate. (Please don't mistake this for me saying I'm against helping people who are disadvantaged, just making a point of what we've done to the species. I wish I had a good answer, but I don't, and it's not for lack of trying either, which is a little scary all by itself.)

There used to be new frontiers -- if you messed up your nest, you could go someplace else and have fresh resources to pillage again if you so chose, or use wisely (did anyone?).
Now all we have is space, and no one knows how to get there on a decent budget.

In WWII, we could send all our best people overseas, because of excess capacity in everything, and the people who stayed behind could have victory gardens and were largely self sufficient -- and made all the war material on top of it -- there were women who could join the workforce, now they are already all in it and we can barely live any other way -- stealth inflation again.
How could that happen now? Where is your garden going to be when you live 1000's per sq mile? Or more.

I live in the boonies, in an area that has been farmed since before the American revolution. Now not one in 100 places is running a real farm that would even feed the people who live on that place all that well. Most is either hobby horse-farms, or not even that, just places where people have kept what could be farmed mowed as huge mansion show-off front yards -- if you tried to plant that now, it'd be a couple of years to get to good crops at best, with modern power tools and chemicals, not to mention the old ways. Sure, almost everyone has a decent garden -- which would probably provide 10% of their food if they really worked it hard. As Rodale pointed out (a couple generations of them actually) farming has become so concentrated and dependent on modern things like trucks and highways and monocultures and fertilizers, it wouldn't take much to cause a real disaster -- groceries DO NOT come from the store, or even necessarily the country you live in -- the USA is a net importer of food now, and heading that way even for beef, something we are pretty good at around here. There's some corn grown around here, but nearly all of it goes into cows. We do cows around here because much of the land is on the steep side for crops, and the cows don't seem to mind grazing on the hills.

As my Dad said, we are now very dependent on small differences in very large numbers. If there's a little more than people need, we are all rich. A little less and it's a catastrophe. That's neglecting the issues of distribution of things, which are complex indeed. The balance is now a fraction of a percent -- not very long ago, say 1950, there was 20% or more fudge. I don't like that idea one bit or what it implies.

The big difference now is that hardly anyone is living "close to the earth" -- including the greenies who are largely hypocrites in my eyes, as they travel around in jets to talk about how everyone else should be greener, and live in dense communities that have no possibility of ever becoming self sufficient. I guess they are unable to believe that it's their driving, their use of electricity and so on that creates the pollution they complain about. The enemy is us. If we stop using electricity, they'll stop burning coal, it really is that simple. Heck, I didn't do solar for green, I did it for power, and the other things too -- so without the philosophy, I'm actually more green than most of the greenies!

I know this because I've spent the last 30 years trying myself to be self sufficient, and have to admit failure. I have a "farm" but it's not enough to really feed me, and couldn't be ramped up on a moments notice either, even though this much land should be able to do it. I'm off the grid, but I still use gasoline sometimes for power, and you cannot live here without vehicles, the nearest store would take over a day to walk to, and if they don't have trucks coming in, nothing to buy there, anyway. I have a stash of food, PM's, ammo and all that, so what -- I pray neither I or anyone else ever needs that, and my excuse is it's fun to feel ready, and the stuff is fun to play with when there's no emergency anyway. I can shoot for entertainment, and use the gold etc to make pretty things. But the truth is, even I am not ready for truly bad times. For one thing, I'm getting old and I'd have to have some help doing what I know to do in the event!

And so is everyone. The collapse of the ponzi schemes we sometimes call entitlements or socialist is easily predictable from the census numbers around the world. It's about the smartest thing the CIA taught me many years ago when I worked there. Everyone who is going to be 20 next year is already alive - so how many are going to enter the workforce in a year is pretty easy to "predict" -- no 20 year olds are being born, just babies. There are not enough young "makers" to really take care of the older "takers" any more, population growth has not kept up. Which by itself is good, but we live in a world largely based on growth, and it's only during a certain part of life that most are "makers" of value -- at either end we are dependent on others.

So, increasingly the world as a whole is dependent on a delicate balance of some fancy systems to grow food where that's best done, then move it to where the need is, and you can more or less repeat that idea for all goods. It's even gotten worse than Rodale imagined -- now all the grocery stores are "Just In Time" managed, where inventory arrives just as the shelves empty, as that's more economically efficient. Which also means that if their automated ordering computers and networks were to fail for a few days, there would be a panic without precedent, and it would take a long time to recover. You can't just order 3 times as much three days late -- there aren't the stocks in the warehouses, or the trucks and road to bring it if there were (old War School logistics analysis). I have found that today, if the computers are down, the checkers can't even sell you groceries -- they don't know what the prices are! They don't know how to do it by hand anymore. For that matter the number of people who can still do long division, much less square roots by hand is at an all time low -- I'd bet you have to go back to almost pre-literacy to find a worse time for things like that. Remember it only takes one big EMP and all that stuff we rely on is garbage -- it's happened here due to the EMP's I've made with the physics stuff. There's probably some advantage to keeping the old EMP proof vacuum tube stuff around.

The '73 oil crisis is a case in point there, though a minor one, which I lived through and was a professional driver at the time (working for DEC as a computer repairman -- you mostly drove and spent very little time on any site, they made good machines, easy to repair). Once the fear took hold, an entire country of people all decided at once to never let their gas tanks get below half -- and just that little quick spike in demand caused the rest! No way could the country ship in enough oil to fill every gas tank up overnight! I missed some of the worst of that one, being a pro driver and all I got special treatment and didn't have to buy gas on odd or even days and like that -- but I still had to waste endless hours in lines for which I was being paid -- my employer was getting killed over that one though they ostensibly had nothing to do with energy, other than to build computers that helped find it. And all it took was one little glitch, some fear and the usual dumb herd behavior.

This is what I'm talking about when I predict the decline of the developed countries. Bad off as they may be now, the underdeveloped countries are actually better off in the event of something major going bad. It's bad for them now, but it wouldn't get a lot worse. For us, it would be terrible, most of us lack the skills to live in such conditions, and we are too dense to do it anyway. Sure, we whack a deer here and there for food and bragging rights out in the country, but there's not enough game to feed everyone by far anymore. Too many people, not enough game, not enough arable land ready to go (remember there's a least a season lag to food from a start, too). It isn't like most of America wouldn't be better off with half the calories, but we don't have the better, more efficient food types as available as the frozen convenience junk anymore -- and the latter would be first to go in a world where running a refrigerator got to be difficult. When I was making knives I was stunned to learn how few people even knew what a meat cleaver was for. All those customers were old folks.

I'm not the only one saying this stuff -- our own Pentagon is saying much the same, and they should know, as they at least study history. They are predicting wars and rumors of wars (yeah, that line's from the book) starting soon. Over all sorts of things, but the ones above more or less give the idea. And we now live in a world where there's a few countries that have nukes or will soon who are crazy enough to perhaps use them in a fight over religion or resources.

Does this affect trading? Not really. Smaller, shorter term things do, after all, everyone wakes up every day and more or less goes about business as usual, with short term stimuli affecting how they behave about it all. What I'm talking about I expect will be gradual until we finally get to the cliff edge, at which point money in almost any form won't matter anyway, it will be other things that seem important -- that next meal, safety from people who only know how to get it by stealing, stuff like that. Until then, while keeping an eye on the horizon for that cliff edge, it's business as usual, but I sure hope we are smarter than the buffalo the American natives killed herds at a time by driving them to the nearest cliff and letting nature take its course.

I will soon put up some stuff on how to discover tradeable truth, hard to do these days, and I've resorted to finding some of it on my own. As a well known business owner (around here it's easy to be famous, not many people) I talk to the other ones all the time about how things are going, and they tell me. I watch for how traffic is developing -- how many trucks are there, and are they full. Trains ditto. Are people coming out of the woodwork to borrow money from the rich dude? Am I getting a metric ton of cold-calling stock brokers wanting to play with my money? Some of these lead, and some lag as indicators, but it's a good way to find out what's actually happening on the ground now. Check out how busy your mailman, UPS or FEDEX guy is.
Given that we do things the way we do them (whether it's smart or not is a different question) how well are we doing at doing them that way? Things aren't all bad at present. When the crash happened, no one around here lost their skills or tools or most of their wealth, with the exception of one part time school teacher who'd managed to run up half a million in debt against her land and fancy log cabin -- that was a disaster that would have happened regardless. She just decided to do it, knowing it was her one shot at living large for awhile, and also knowing the train was going to go off the tracks -- not stupid, irresponsible in the extreme. Most of the rest of us just sighed, having seen this wheel turn a time or two before.

However, the thing that is different this time is all the derivatives out there, not even all public (hard to see how you could make all private contracts public, actually) that represent insurance for a multiple of the entire world's GDP. That one never hung over our collective heads before. It's not hard to imagine the destruction that would happen if all those bills were to come due, it is simply impossible to pay them all in a lifetime. These things are poison, and how all the excess leverage was able to come about. After all, if I have insurance that this mortgage back bond will pay off (and it was considered safe anyway) why not use it for collateral to borrow more money and go around the circle as many times as possible, especially as the insurance costs a tiny fraction of the profit due when the bond matures? In a market share driven world, that requires growth to stay even, if you let one guy do it, all the competition MUST do it, and here we are now. Todd H realizes this (because he's part of that world) and that's why you hear him say he has to try and smile sometimes.

Hopefully, now I can get on to things more cheerful. It's a nice day here today, and I may have to go down and burn the extra solar power with some machines and such!
Maybe I'll get one of the new neutron detectors finally off the workbench and into a box or something. Nice quiet day on the markets, looks like I was correct to lighten the load last week, and now I'll wait for the rest of the dip and then get back in at I hope a good time.
(I better mention when I'm right, so it will cancel some of the times I'm wrong, which is plenty -- without good risk management, I'd be hurting)
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
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Doug Coulter
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Trading markets -- good book

Postby Doug Coulter » Tue Nov 09, 2010 2:20 pm

Not THE good book but A good one. ... 0/id/23134

Some insight from another level.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
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Doug Coulter
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Re: Trading markets

Postby Curtis Faith » Wed Nov 10, 2010 9:57 pm

Earlier today, I posted this to my Twitter, StockTwits, Facebook and LinkedIn Connections as well as via email to my closest friends:

I'm seeing a big divergence in the risk/reward ratio for stocks and way too much pent up risk on the fundamentals that don't correlate with stock performance.

The last time I felt this way, I told my father-in-law to get out of his 401K when the S&P was at 1,550. He got talked out of doing anything by his banker who didn't know shit about stocks. The market dropped within a few weeks to 1,270 and then bounced around and I got my father-in-law and took him down to the bank myself when the market came back to 1,350 and he told his banker to liquidate everything while I was there to explain to his banker that I knew more about trading than he did and that he wanted out so please stop trying to convince him to get into something else. That was in April of '08, by March of '09, the S&P had halved to 670 so I saved him half his retirement savings.

I can't exactly explain why but I feel even worse at the gut level about the markets right now.

We might even see a test of the post crash lows of 670 again before the market comes back.

In short, be careful and keep your stops tight would be my advice. If you are not at least an expert amateur I'd get out and get to safe cash investments.



Here's what I've been telling my friends today.

If any of you have a lot of money in the stock market. I'd suggest that now is a very good time to go to cash. 100% cash. If I were you I'd sell everything in my 401K etc. Sell mutual funds, etc. Individual stocks etc.

The market is ripe for a correction and it could get ugly again. My intuition tells me that it could get worse than we've seen in recent memory.

I don't generally make predictions and this isn't a prediction exactly as the price could certainly go higher. The issue is that the risk/reward for staying in is wrong. The upside is much smaller than the downside and the market has just failed to exceed the highs of April of this year.

Historically that is not a good sign.

I just thought I'd let my friends who are not traders know.

Don't put the money in corporate bonds either. Put it in U.S. guaranteed funds or Treasury Bills preferably.

Definitely Avoid Gold!!!!

And I would not wait until tomorrow. It could cost you a lot.

- Curtis

P.S. Feel free to tell your close friends as any friend of yours if a friend of mine.
Curtis Faith
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Re: Trading markets

Postby johnf » Thu Nov 11, 2010 12:44 am

Thanks Curtis
I'm not that exposed, my money is tied up in trees for carbon credits and lumber
But I have passed your uneasyness on to others that are exposed.

trying to be self sufficient is a big ask. I have a friend who has been making a model of the earth and its resources. To be self sufficient at the 1950's level you need 10 acres per person of good arable land so most need 15 to 20 acres to reach this level. the real kicker is if you now take the world population and line them up as at present, then you have to shoot six out of seven to make this sustainable.
sobering thought!!
I hope his model has a big error
I might invite him to chime in
He's Ex Seattle but I got him a job at work in the Globe Claritas team as he sees NZ as a good bet when the Hammer falls
one of his websites
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