Context -- where are we?

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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Context -- where are we?

Postby Doug Coulter » Fri Apr 08, 2011 3:01 pm

I should probably put in a buncha words like most pundits would. I'll spare you this time except to note that when you see something going up concave (exponential) it's probably time to get out, as that can't be sustained in any finite universe.
1yrDollar.png
Dollar vs other world currencies -- not absolute! Winning the race to the bottom.

1yrGld.png
Gold in dollars. A benchmark of value

1YrOil.png
Oil in dollars -- exponential

1YrCom.png
All commodities, in dollars


I will add just a few words. Notice how all these other things are rougly inverse the dollar? I'd point out that right now it's easy to seem to make money without actually increasing your purchasing power. No inflation? I refute it thus. And so do the countries in MENA. Oil can't stay where it is or the world will catch on fire. If it goes higher, look for a really great depression.

These are the backdrop to any trading or investing you might want to be doing. Ignore these at your extreme peril.

Charts from INO.com, thanks buddy.
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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Re: Context -- where are we?

Postby Doug Coulter » Fri Apr 08, 2011 3:44 pm

Here is a well written article and lively comments from an author I like at Seeking Alpha. There's not much more to say, really -- we're in deep doo-doo, created by people who think in very strange ways. The fit is just getting ready to hit the shan. And we're not alone, similar number apply to others worldwide --

I didn't comment there yet, I might link back here...IT and his readers are generally a cut above (at least IT anyway).

It's almost as if they think paper rules over reality. If they can create paper value, it automatically means the underlying goods and services are created. Or that if it's lost on paper, it's really lost. What we are experiencing is the fallout from that false view.
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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Re: Context -- where are we?

Postby johnf » Thu Apr 14, 2011 5:56 am

Doug
maybe you should put your money in Bananas
it looks like the good old US of A is turning into one of those republics
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Re: Context -- where are we?

Postby Doug Coulter » Thu Apr 14, 2011 9:53 am

Would be funny were it not oh so true. There's so much blame to go around it's hard to point fingers in this country, and there's quite a bit of denial that the bread and circuses we've voted for ourselves can't be funded by wishing it so. What's worse is that the money is "already spent". Few people realize that the greatest portion of our collective debt is unfunded pensions, for everything from state workers to our defense department. Commitments to a broken medical system that people have "already paid for" but the money disappeared -- and they weren't charged enough really to fund the commitments under the current setup. Or our national pension system which was screwed up at the start -- pays more the more you made during working life, so still doesn't really cover the poor -- but the rich retire with extra money from the government on top of whatever they've managed to put by. What was supposed to be a safety net for the very destitute went completely mainstream so 100% of people expect it. No, that's not a strong enough word. Demand it.

Although I have a mild rule against obscenity here, I think I can say "politicians". But you can't just blame them, they have responded to the wishes of the people, kind of. We wanted all that nanny state as long as it was spun correctly to us, and they willingly obliged, saying that it wouldn't cost what it really does, that we were "entitled" to it (another swear word, the worst sort, as it's a philosophical disease), and that of course since some people are rich (but not a lot) we can just "spread the wealth around". Anyone who knows math and a few other things can realize that is an equivalent statement to "spreading the poverty around", for starters. And while there are indeed a few really rich people, multibillionaires -- taking 100% of all their wealth would run our country for only a few days. It's the 47% of our population that pays zero taxes where all the dollars are -- and most of them really can't afford to fund this either -- they are barely making it.

Well, even that's not quite right. The "barely making it" all tend to have TV's, running water, autos, and mostly eat expensive processed food. Very few are at the level where doubling the cost of grain makes any difference to them -- as it's only 2% of the price of that loaf of bread. They just don't feel they have enough beer. Even though the main health problems here are obesity related.

In true banana republics, where due to corruption (did they not have plenty of natural resources, oil, to feed themselves if the money were distributed somewhat fairly?) even worse than here, most of the population was living on unprocessed grain -- baking their own bread -- that doubling of price was (IS!) a life or death issue. Hence the unrest in the middle east/northern Africa.

The blame game is in full swing. Those with a half decent lifestyle would like to blame both other extremes for our plight, and fight to keep what little they have. The very rich always have ways to avoid paying levies anyway -- the best loophole laws money can buy exist worldwide. The poor have nothing to take. As most people know, the government creates only very small amounts of real value, so they're not a solution and never were. Of course, the first things they cut (and have been all along) are the few things they do that actually do create value -- R&D, roads, infrastructure so the rest of us can thrive are the first to go....always, and already.

But once you promise someone a pension, medical care, whatever, and they've paid so much as a dime or worked an hour toward that - telling them it can't really be delivered is a real problem for people who don't want to lose office, much less be drawn and quartered in the streets -- we're not that far from that here. I am astonished at what I see on technical or other "non political" websites about the classic boxes -- soap, ballot, ammo -- with emphasis on that last one increasing rapidly. All stupid of course -- who would you shoot? All are guilty to some extent, just a matter of degree once you create and start down a slippery slope. Promising what you can't deliver to people who ignore the facts that you obviously cannot -- and are therefore implicated themselves. "Those other people" will pay for it all. Except we can't seem to find them to send them a bill -- because we don't look in the mirror.

We are actually worse off than any of the PIIGS in Europe, and a few other places too. And our behavior of late is indeed that of a power that creates banana republics (at the least).
Trying to force that vision of a nice life for everyone, deserving or not, for us, no matter what it costs the rest of the world obviously doesn't make us real popular.

Although the US is the poster child for this kind of stupidity, my forensic accounting (what I need to do to know what to trade) shows me we're far from alone in this -- it's mainly that the crisis has brought it to light here earlier than in other places. I could name names, but it would just be a geography lesson -- it's pretty much everyone, with only slight differences in just how they got there.

Few people realize that the "CDS"s sold too cheap by AIG to insure various things weren't even a significant fraction of the "bad paper" that exists now, and guess what - the total amount of that stuff is quadrillions of dollars -- multiples of the world GDP, and the so called healthy countries either own or have issued all that bad paper just as much as anyone.

The situation is as though everyone had bet a million dollars at long odds (apiece) on something not happening, both states and individuals, but it happened, and no one has the million bucks. The bookie wasn't smart enough to demand the cash for the bet upfront (real bookies are smarter than our financial system, obviously). People on the other side of that bet want to be paid -- and in general they have some power to attempt to collect. No one is discussing honestly the fact that it simply cannot happen -- the bet was made in bad faith, in essence, the value was never there to back it up -- and the people who took the other side of that bet (primarily the really wealthy) are just going to have to take a haircut on the payout. The entire world is in denial about that one.

It's not all out in the open yet, even here, and it's more hidden other places than here. Our government has for years taken tax payments into these entitlement programs (we pay a separate set of taxes and bills for those and the money is supposed to go there, not elsewhere) and stuffed the entitlement bank accounts with IOU's -- they spent the money on other things.

And left us holding the bag, with our implicit consent, at least those who've been paying attention all along - and most of those people got tired of listening to, it doesn't make one popular at parties to point things like this out. Your average American is living high on debt -- extreme levels of personal debt. And just now they are finding that even that was a drop in the bucket, as our government has been doing the same on a grander scale and we (and future generations as far as the eye can see) are also on the hook for that. The money, or value, or products, or whatever just are not there to pay it. No obvious solution presents itself other than some sort of financial reset -- a nice way of saying "total breakdown of the system with restart".
And since every country's central bank owes every other country's central banks tons of debt (it's very weird and hard to understand why two countries would buy each other's debt in some perverse nearly zero-sum game, but it's the case) -- it's not only our problem, it merely came to light here first -- it's a worldwide issue. You know why Germany is propping up the Euro and say, Ireland -- it's because they already loaned them money a long while back, not just the bailouts now -- but for decades. So, for example Germany bailing out Ireland (or Portugal, or you name it) is actually Germany bailing out German banks who are owed by those other entities....and so on, a world wide circle jerk -- Ireland also owns German debt....That's kind of a wash (other than that so much is owed it can't be paid back) -- but now we get into interest that is also due. At some point the paper worshipers who think that numbers on paper map directly to actual value are going to have to admit their religion created a fake world that can't be sustained - heck, it never really existed, jut the promise of it, and take their whippin.

In other words, it's not the crash that's fake -- it was the boom that was.

During that boom, and before, those who actually created value and got paid for it loaned money (or made bets) unwisely. They expected safe gain for essentially doing nothing further - just set and forget investing. Now they want their earned money back, but it's gone and the guy they loaned it to can't create enough value to pay it back. And the current situation is divergent - it makes it that much more difficult for the borrowers to ever reach a place where they could pay it back, even if they had a "change of life" and really intended to.

I liken it to an old western saloon in some regards. You played the poker tables and won a ton of money. You pull out a few bills to go upstairs with one of the saloon girls, and some how expect that money to still be lying on the table for you to take home after your bit of entertainment, or even more unrealistically, to have grown -- and you made commitments to spend the increase. Of course, what really happened while you were gone is people picked up your pile and left -- what else would anyone expect if they thought about it?
Investment, to be smart, means you have to earn the increase one way and another, and pay attention, which is what I am preaching here. For starters, you don't lend to losers....seems pretty basic, but the entire world in some large amount of self-delusion, forgot that one when things were nice on the surface. Human nature doesn't change that much over time, no matter what the politicians try to help us believe (and we'd like to believe it -- sure would be nice if humans weren't dishonest, lazy, self-aggrandizing and all that other junk).

I'm pretty lucky. I didn't lose much money, I got out of that during the big reckoning (stage one that is), I still have 10 fingers, all my tools and toys, and in that paper universe, I don't owe anyone anything. Except even governments feel entitled. For example, our local county thinks that despite this, they can just raise taxes and keep giving themselves pay raises, renovate buildings that don't need it in the most expensive possible ways and so forth. When asked to cut, do you think one of those sinecure workers who do basically nothing in a courthouse is going to lose a job? Nah, we'll cut teachers, firemen, police first. The lawyers will keep their cushy paychecks, jobs where they do nothing, and of course, the cute secretaries who also do nothing but look nice doing nothing.

But you know, people will lose their homes, because they think Cable TV is an entitlement -- or a necessity, and pay those bills before a mortgage. It's not just the governments. As if sitting in front of a boob tube doing nothing was better than doing something that created value. I don't even find it more entertaining, myself, but I'm (more than ) a little weird. If I want music, I pick up an instrument, and to me, controlling charged particles and making them dance my dance beats the snot out of anything Hollywood offers as "entertainment". If I want visceral excitement, there's a car in the driveway that hits 200 mph in a very short time, or I can go out in the back yard and do like Heather, and make large booms. Or I can build something useful and then use it. Doh! I guess most people lack the imagination, or the perseverance to learn how to entertain themselves anymore.

It's a very interesting psychological disconnect from reality -- or reality needs a redefinition -- whatever, there hasn't been a bigger mismatch in my lifetime than now. It stinks, and it's not just here. My point in this rant (and others) is to put it out there, because during the long, slow (I hope) fall -- there's still a situation where those who are diligent can do well if they understand what's going on around them and are "first to the trade". As the old saying goes "a sucker never gets an even break". You don't have to like that idea to decide not to be the sucker, right? As they say in poker, if you don't know who the mark is at the table -- it's you. At least they are honest up front about that. The same thing applies in trading....but no one mentions this. So I figured I would. I find it not sinful to take money from the less skilled traders -- many of whom have been responsible for the problems in the first place -- plenty of blame to go around. If I can out-trade BP, and then use the money to make fusion practical, I find that a moral thing to do. If I can out-trade Goldman Sachs, who are very very extra guilty in causing this sort of thing, and use the money for good instead - I think that's pretty peachy. Beating cheaters fair and square does have a bit of attraction for me philosophically.

//////

On a lighter note, yes, bananas might be a good investment! A parasite/disease is wiping them out worldwide, so anyone who shows ability to keep producing them despite that is going to do quite well!
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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Re: Context -- where are we?

Postby Doug Coulter » Tue Sep 06, 2011 2:05 pm

I've not hit this thread lately but something interesting has come to my attention. Well, a few things, and I'm not the only one to notice. Look at the following plots:
Screenshot-22.png
Current year plot of the markets

Note on this one that we have two double-top formations. Feb-May and another all inside July. Those are bearish, and usually portend deeper drops on the other side. Though we are now making slightly higher lows and slightly higher highs, look at what happened last time in 2007 or thereabouts:
Screenshot-23.png
More history

We did just the same thing -- just before the real big drop. I got faked out there because of the "higher lows and higher highs" because that's usually a sign things are going to generally muddle back up, if slow and haltingly. But...we see what happened last time. After just enough bounce to sucker us all in, wham.

Hope it doesn't happen this time, but you know the saying, fool me once, shame on you, fool me twice -- well, I'm alerted this time.
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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