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Friday, May 25, 2012

GETTING ACTIVE




After a period of no action, the Bond System is triggering a lot of trades right now. The short entered at 147'27 exited at 147'05 for a gain of 22/32's and now it is long at 147'17. This long being more in the middle of the channel, would not be one I would filter, so it is a go and we will see how it does. For those who like action it is providing some now.

A fellow trader forwarded something to me this morning that is worth commenting on. It was an analysis of the crisis, what stage we are in, and some possible outcomes. I am not an economist and have no desire to ever become one. I cannot afford to be that inaccurate. Even for the good ones, larger picture economic calls are just not suitable for short term trading. However, I do find myself thinking about how all of this is going to resolve itself in the end.

Here are a few thoughts some of which are in the main stream and a few that are not.

First, it is pretty clear to me the core of the problem is over leveraging. I think most people agree on this point. There is finger pointing about what caused it and that really does not matter now. The fact is we are where we are. In my life generally solving problems that are big problems, requires some type of sacrifice or trade off. I can't think of any that haven't. This usually means I have to change my behavior. Maybe it means buying less new golf clubs, maybe it means driving an old car an extra year. It could mean anything. I don't recall any significant problem in my life I ever solved by continuing to do the same thing, not one. In fact I would never even consider that as a course of action to solve a problem. 

However, it seems to me that is exactly what politicians are doing to solve the problem. They are continuing to spend more, continuing to support unions that extort from the masses, they continue money printing, just to kick the can down the road. I certainly understand the politicians on both sides of the aisle, not wanting to be the guy who presided over the brutal period that we have to go through, to get this moving in the right direction. They surely will be one termers, because the corrective period is likely to be a big down, then flat, then back up in a correct fashion, which will take time. It may not be apparent things are moving in the right direction within a 4 year window of time. This will be one of those situations where history will view this person much more kindly many years later, than they are viewed at the time these events happen.

It is my belief that there is no such person on the horizon out there willing to be "that guy." As a result, here is what I think is going to happen for whatever it is worth. We are going to go through a long period of deflation, as they try to print money to keep it from happening, and the economic forces slowly overcome that artificial manipulation attempt. We are starting to see the signs of this now. In other words, a Japan type of situation. I would love to be wrong on this, but the political landscape being what it is, I see no other likely outcome.

Here is the view that I don't see voiced much other than by one person, Dick Morris. I don't really have any opinion on him one way or the other, but I have heard him express the same view I have on the subject of currencies.

If we were to peg all currencies to Gold, the whole world is going to come to a halt. There is a finite supply of Gold so essentially the world's GDP would have a ceiling if this was done. All countries would then be fighting for market share. Growth could not occur without new discoveries of stores of Gold. This would once again require the manipulation of something, our favorite past time. We would have to devalue everything that is existing to allow for new things. This is just completely impractical and why it won't ever and should never happen. Everyone argues that currencies have no real value they way they are currently structured. Says who? To me the measure of value is what you can get in exchange for something. Currencies are exchangeable for many things, so they obviously do have value. Why do they have to be tied to something physical? Our whole world is built on the system being the way that it is. Everyone has gotten so carried away with the fixes. This is really simple to fix, and it does not require the whole currency system to be overhauled. It requires less government who artificially pay off all the groups that keep them in power, that creates too much debt which is incurred to pay them off. Second, don't issue too much debt to those who can't pay it back. This means don't loan someone who makes 40k a year a million dollars to buy a house. It really is that simple.

It is interesting to me that all these eggheads who are brilliant always miss the practical ramifications of these laboratory theories. I have a sister with an IQ close to 170, and it is amazing how she at times is out of touch with the real world and has no common sense. This all reminds me of her at times. Also, and I have stated this before in here many times, if we are headed to a Mad Max Thunderdome type of situation like some predict, Gold may test that theory in the ads that it has never been worth zero. It might get very close to it. Food and Water are going to be what has value.

Anyway, as it pertains to the markets, I foresee the following. We are going to have another very sharp scary wash out period in the stock markets, and I wish I knew when it was coming. I see no way around it, but I don't think we will see it until the tough love stage is initiated. As a result, not coming any time soon. As long as the Fed can buy into these dips either by actually buying futures and stocks or by de facto doing so by injecting liquidity at certain times, they will be able to contain the declines.

Of course these are all my opinions and all of them could be dead wrong. Here is one thing I am 100% sure about, I don't want to know what the FED is really doing in secret. I am 100% sure it would make me sick.

Gold Bugs don't bother with the comments I will just block them.

Have a good holiday

2 comments:

Michael Tredr said...

enjoy the holiday!

Anonymous said...

I agree and believe that Europe is going into this stage now. The japan stage. The united states is next.