“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Monday, October 24, 2011

Let's Play "Guess a Chart"

Take a look at the following TWO charts and see if you can notice how similar the two of them are.


You can tell that both charts, while not identical, are eerily similar in the manner in which they depict the overall price action.





The top chart is the S&P 500. The lower chart is Crude Oil.

They both tend to move up at the same time, mover lower at the same time and grind sideways at the same time.

What these charts tell us is that there is no longer any SERIOUS INVESTMENT "STRATEGY" in today's financial markets. All that they are doing is reflecting either the willingness of the HEDGE FUNDS to take on RISK TRADES or to FLEE from RISK.

On any given day, if the risk trades are on, these nitwit hedge fund managers buy everything in site except for US TREASURIES or the US DOLLAR. If the following day brings in risk aversion trades, they throw away everything purchased the previous day and do the exact opposite.

Truth be told this sort of thing has nothing to do with INVESTING. It has everything to do with MONEY FLOWS generated by computer algorithms. This sad state of affairs is what Central Bank interventions and constant interference into the financial markets has reduced our markets to.

Traders have to put aside their personal disgust at this madness and trade accordingly if they wish to profit. Still, in this trader's opinion, this is one more symptom of the decline of the West. No longer is the stock of various companies bought because of long term prospects for solid profits based on solid research and good analysis. Instead it goes up based on whether or not the Central Banks will spit more liquidity into the marketplace.

Heaven help us all.

12 comments:

  1. Spot on DAN. Take a look at the Volume its almost translucent. Yet the market pumpers are all out with their 12k hats baiting the fish.

    Long a few Puts, yes I may be on the losing side, but I have come to terms with this market and realize patience prevails. If I hit it, I am out and staying cash and physical metals.

    Right now just trying to recover my losses and I am riding off to the sunset...The market is corrupt to the core where a mere whisper can swing it 100 points either way, not something I want to invest my hard earned money into.

    ReplyDelete
  2. here we are, watching the slow motion train wreck that is the 'exponential credit expansion bubble' that started in '71.

    and my ostrich friends say 'what in the world are you talking about'.....one of them bought GM at 2$....."GMs not going anywhere"....heyyy-oooo.

    then there's the MMT crowd----"All the euros have to do is make a fiscal union" like it is forming a fantasy football league......and "they're not printing money...or monetizing the debt---its an asset swap"........and "all the rising commodity prices are the just result of speculators and is transient".......

    ReplyDelete
  3. Quote: No longer is the stock of various companies bought because of long term prospects for solid profits based on solid research and good analysis. Instead it goes up based on whether or not the Central Banks will spit more liquidity into the marketplace.

    Dan, I would also add, the age of computers have left the trader not to think for him/herself, just how the trade effects their bottom line. Computers don't think, daaaa! just spit!!!! therefore no personal analysis needed.

    This is one symptom of the decline.

    ReplyDelete
  4. Thanks for your interesting blog post.

    I personally do not like what is happening in the economic big picture (the large role the Fed is playing in our markets now). Papering over our problems in the short run is going to create even larger problems in the future.

    As a trader, I need to learn to put that personal feeling aside and just trade the markets based on the price action.

    ReplyDelete
  5. "No longer is the stock of various companies bought because of long term prospects for solid profits based on solid research and good analysis. Instead it goes up based on whether or not the Central Banks will spit more liquidity into the marketplace."

    This has nothing to do with the Fed.

    When the Fed raised interest rates in 04-06, the dollar fell anyway, and stocks continued to rise. This rise in interest rates also did little to stop the price of gold from rising. The hedge funds you belittle are as responsible for the rising price of gold as they are everything else.

    I told you before that a falling dollar is not a bad thing, and that a rising dollar is not a good thing. This should be obvious to the blind by now. You will not get a rising dollar in tandem with a rising stock market for at least 2-3 decades, aside from occasional short periods. There is a good reason for this, if you cared to research it - and it has nothing to do with the Fed or any other central bank.

    ReplyDelete
  6. Unknown;

    It is all about Central Banks and liquidity. Stop wasting our time with this sort of display of ignorance.

    When the Fed was doing QE1, up went equities and commodities. When that dried up, down they went. When they ramped up QE2, back up went equities and back up went commodities.

    Now that it appears we are getting a quasi- QE from the Europeans, Stocks and commodities are getting a bid once again.

    Please refer to my relatively recent post comparing the S&P to the size of the Fed's Balance Sheet.

    Until then, stop posting this sort of nonsense. If you persist, You will be blocked from posting.

    ReplyDelete
  7. If it was just QE's that's been sending stocks and the price of commodities up, then how come commodities have been going up since ... well, since 2002, basically, with a few brief interruptions? There was no QE in 2002-07, yet oil, gold and most other commodities went up during most of that time. Stocks also went up during that same time, again with no QE. And until 2008 the Fed's balance sheet was small and going nowhere, so obviously that had nothing to do with the rise of the stock market then.

    ReplyDelete
  8. Unknown;

    Did you ever hear of a mania????

    When the bubble in stocks burst in 1999-2000, Alan Greenspan then lowered rates to the point that he created a mania in housing. When that finally burst interest rates were lowered generating a mania in commodities. All of this came crashing down in 2008 and ever since that time it has taken massive liquidity injections via QE to keep the markets levitated and to prevent a deflationary spiral.

    The central banks are opting for currency debasement and inflation in an attempt to avoid the fallout from the massive speculative frenzy due to excessively low interest rates, exotic derivatives and alphabet soup Structured Investment Vehicles that all blew up.

    Where the hell have you been the last 3 years?

    I am not talking about 10 years ago, I am talking about the current market structure and what it has degenerated into - a game kept alive for the hedge funds by more Central Bank activity and liquidity pumps.

    This is the last post I am going to waste attempting to educate you.

    ReplyDelete
  9. It's such a sad thing for a relatively new market participant like me to learn how "market" works in this way rather than what they taught in university. Boy like you said, to profit you have to act accordingly to this new normal and bite the personal disgust. Well said.

    ReplyDelete
  10. Dan,
    Could you post a gold chart showing volume for some insight into today's action?

    Thanks,
    -Lemming

    ReplyDelete

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