Friday, October 30, 2009

Timothy Geithner Tricked on Halloween by Chairman Barney Frank as Fed Governor Bernanke Watches...



WASHINGTON (Dow Jones)--The top U.S. House Democrat crafting legislation to overhaul regulation of the financial services industry now supports having large financial firms pre-pay the costs to cover a large firm collapsing, a spokesman said.

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A spokesman for Rep. Barney Frank said the Massachusetts Democrat, who chairs the House Financial Services Committee, would seek to amend a broader system-risk bill to create the pre-paid fund. Frank, appearing on Bloomberg Television, said the initial fear that the existence of the fund could encourage risky behavior was unfounded.
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"It turns out that doesn't have any impact because everybody thinks it's going to be there anyway," Frank said, according to Bloomberg.
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The reversal comes the day after a number of Democrats on the Financial Services panel questioned the idea of collecting fees from the banking industry after the fact for a major failure. Rep. Luis Gutierrez, D-Ill., said the industry should pay to have a fund in place.
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"Most of us don't die and then buy a life insurance policy," Gutierrez quipped at a hearing.
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That position was echoed by Sheila Bair, chairman of the Federal Deposit Insurance Corp. She said collecting the fees after the collapse of a systemically important firm would punish the firms that did not fail.
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"It allows all large firms to pay risk-based assessments into the [fund], not just the survivors after any resolution, and it avoids the pro-cyclical nature of requiring repayment after a systemic crisis," Bair said.
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Frank's reversal of opinion on the matter puts him at odds with Treasury Secretary Timothy Geithner, who on Thursday said having a pre-existing fund would create a moral hazard. It would send the message to creditors and market participants that they are insured against losses, he said.
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"We don't want to create that expectation, that's why we think it's better to do it after the fact," Geithner said, adding that "We want the ability to let them fail without the taxpayer being exposed to losses."
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Frank and the Treasury Department earlier this week introduced a draft proposal to regulate and wind down the largest financial firms, for the first time giving regulators the ability to take an overarching view of financial markets.
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-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; michael.crittenden@dowjones.com
(MORE TO FOLLOW) Dow Jones Newswires
October 30, 2009 14:25 ET (18:25 GMT)
Copyright (c) 2009 Dow Jones & Company, Inc.- - 02 25 PM EDT 10-30-09
http://psychologyofthecall.blogspot.com/
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Tuesday, October 27, 2009

The Energy Transfer from Real to Intrinsic Wealth is Coming; Are You Protected?


Another quality piece submitted to us by Simon Jester:

What is wealth? In my opinion, the creation and destruction of wealth requires the transfer of energy. The energy it takes to make something, grow something, mine something, and eventually destroy something is what creates transient value. Since wealth is influenced by energy, wealth is subjected to the same laws of the universe as any other force.  One cannot make wealth out of nothing, so it's also true when a force/asset class erodes (mountain range or real estate) or completely destroyed (dinosaurs or Lehman Brothers), some new force or financial asset class attempts to balance out that erosion or destruction. 
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The financial markets have an energy transfer effect like in nature. Whether in a communist barter economy like Cuba, or a U.S. free-market economy, the creation and destruction of financial wealth exist since human nature is driven by greed: ( http://www.youtube.com/watch?v=RWsx1X8PV_A/ ). Thus, respecting and recognizing the cyclical nature of markets, and then practicing the swapping phenomenon from one asset class to another from time to time, is of critical importance to conservative portfolios/investors..
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The U.S. economy is still bleeding wealth, and unfortunately the greatest wealth loss is occurring in the largest asset class,  real estate.  Like crop blight to a farmer, or a tunnel collapse to a miner, it is a temporary setback that causes uncertainty, discourages recovery, but also creates opportunity.
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I am not a short term player in the market,  I have a conservative long-term investment philosophy tailored to my retirement goals. It is my opinion the commodities market will offer the best chance to build or retain wealth in the coming years: ( http://www.forbes.com/forbes/2009/0525/094-investment-guide-09-best-inflation-hedges.html/ ).
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The reason why physical commodities like gold are a good place to swap some of your vanilla mutual fund money during uncertain times is because it represents concrete efforts of energy; the sum of the efforts of millions years of nature and eventual production costs. The price of commodities, through modern times, have definite bottoms. Physical Gold has never filed for bankruptcy. The spot/market price of gold has never fallen below its production cost in times of global economic strife (1931, 1981, and 2009). In terms of real wealth, the price swings as currency weakens or inflates, but the value of your investment always carries that intrinsic raw physical element, even before extraction. Gold is a force of nature that doesn't erode and bankrupt like a paper asset. Thus the physical nature of commodities are a smart swap in times of great political and economic uncertainty, like today.
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Last April, Charles Biderman gave this interview: ( http://money.cnn.com/2009/04/21/news/economy/fortune-recovery-index.fortune/index.htm?postversion=2009042411/ )
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Biderman was asked:
"In your view, what would be the single best sign that we've hit bottom"?
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"That foreclosures dry up. That'll be a sign that household wealth has stabilized. Things aren't going to hit bottom until the real estate market bottoms, and we work through all the problem homes, and people can afford the homes they're in. Then we can grow from there".
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Wise investors should pay close attention to Biderman. This is why the current quarterly increase in home foreclosures bears careful watching. This means that the 17% increase in the second quarter ( http://www.washingtonpost.com/wp-dyn/content/article/2009/09/30/AR2009093001696.html/ ) and the 23% increase in foreclosures in the third quarter reported here: ( http://www.bloomberg.com/apps/news?pid=20601103&sid=aFofq9_za8Is/ ) is good reason to predict another economic downturn in real wealth the immediate future.
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This wealth bleed continues despite unnatural government programs to halt the natural free-market economic cycle. It is my opinion the interference of the Federal Government will actually prolong the descent of real wealth and exacerbate inflation and prices of commodities like gold and oil; unfortunately most investors are too conservative to swap their equity funds into commodity funds, this has me concerned. As unproductive public dollars begotten from thin air are spent in hopes of ending the slide, it becomes a matter of dangerous socioeconomic entropy for the masses of unsophisticated investors:  ( http://www.washingtonpost.com/wp-dyn/content/article/2008/11/11/AR2008111101178.html/ ).
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The Mortgage-Backed Security (MBS) market, and Collateralized Debt Obligation (CDO) market price and demand erosion locked up credit markts. Fannie and Freddie were paradoxically created by the  government, and now the recent thaw has also been created by goverment officials, not free-market entrepreneurs. The more home loans go into foreclosure the more “toxic” MBS's and CDO's become and the more toxic the federal reserve's balance sheet becomes. We have already been through a couple of rounds of CDO auctions: ( http://www.bloomberg.com/apps/news?pid=20601087&sid=a5KbYLsaKQhU/ ) If this trend continues, the glut of foreclosed homes will continue to be the deepest gash that bleeds real wealth from U.S. consumers overweight in real estate.
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If the government ended the spending frenzy today, real free-market wealth creation and destruction would be allowed to coogulate the bleeding. What does this have to do with investing? Well it means younger investors would have a green light of go back into higher risk strategies like equities, hoping to catch the economy on a normal bounce. I am worried that senior citizens holding their money in the stock market, or adding more in this latest bounce, will be hurt most as they sellout at the lowest point either in 2010 or 2011. The government cannot continue to print dollars and expect the free-markets to be fooled. Inflation in the next few years will degrade the bulk of savings. I recommend investors consider swapping into inflation protected assets like iShares Barclays TIPS Bond (TIP), or a larger chunk into a commodity ETF like the PowerShares DB Commodity Index (DBC). 
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I am obviously very concerned with inflation in late 2010. Official numbers for inflation are weighted 30% to the cost of homes ( http://infoproc.blogspot.com/2005/02/housing-and-inflation.html ). As home prices fall, it will keep “official” inflation low and fool many. Please remember home prices have little to do with the value of the dollar in the international market, nor do home prices have any correlation to the value of gold or oil on the world stage.
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Here's proof wise investors are worried about inflation: ( http://www.ft.com/cms/s/0/a28ac2fc-bda7-11de-9f6a-00144feab49a.html/ ). The system is being injected with public capital as lending rates remain at Zero Japan: ( http://www.bankrate.com/rates/interest-rates/prime-rate.aspx/ ).
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When an economy troughs/bottoms, it historically marks the top of gold prices. Thus, I would not buy real estate as long as gold remains at elevated levels. I do not see gold breaking down for quite some time, perhaps an entire decade. Understanding the mechanics of swapping asset classes is critical to the forward-thinking conservative investor like myself.

The crude oil and natural gas markets will continue to be volatile and weigh on consumers' discretionary spending decisions in months ahead. Right now oil is in a vicious upswing, and I would be very concerned if the move continues through $100/barrel with no improvement in employment or home prices: ( http://www.oil-price.net/ ).
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As I wrote in my last installment for this blog, I predict “hovering” action for the U.S. equity market/S&P over the next several months, as the $787B stimulus and $2.3T budget has negative consequences long-term, yet short-term it's difficult to fight against such a tsunami of liquidity. You can still make money in the equity market by taking advantage of the bounded ups and downs, always remembering there are two sides to the market: long and short. Yet I chose to transfer 25% of my portfolio into inflation protected assets mentioned above.
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My personal circumstances do not allow for day trading and watching CNBC's experts. I wrote this piece for an audience that respects long-term conservative investment strategies that even anti free-market  Administration's offer. The transient nature of financial instuments is fascinating, and the energy transfer mechanism of greed should influence forward-thinking investors to swap asset classes based on supply and demand principles first.
Simon Jester.

Monday, October 26, 2009

Caution to Majority Leader's Hook to "Opt Out"; CPB Disagrees with ANY mention of the Word "Public" Alongside Health Care..


WASHINGTON (Dow Jones)--U.S. Senate Majority Leader Harry Reid, (D, Nev.), said Monday that health-care legislation that comes before the Senate will have a government-run health insurance option which states can choose not to carry.

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Reid told reporters that, under the legislation, states would have until 2014 to choose to "opt out" of the public plan. The move casts doubt over whether Reid will be able to attract any Republican support for the bill and whether it will have 60 votes needed to avoid a filibuster.
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Reid cast aside questions of whether he will have 60 votes for the bill's passage, but suggested that he would have support among Democrats for a procedural motion allowing the Senate to proceed to the bill.
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"I believe we clearly will have the support of [the Democratic caucus] to move to the bill and start legislating," Reid said.
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Reid has led talks on health-care legislation between he, Senate Finance Chairman Max Baucus, (D, Mont.), Senate Banking Chairman Christopher Dodd, (D, Ct.), and White House officials. While there are 60 Democrats in the Senate, Reid has faced the challenge of crafting a compromise on the bill that can attract support from both liberals and moderates within his party.
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Sen. Olympia Snowe, (R, Maine), who is considered a key swing vote on the bill, has signaled that she would not support a public option with a state "opt-out" provision, though she supported a health-care bill approved by the Senate Finance Committee. The Finance Committee bill didn't include a public health insurance option, but rather would a network of health-care "co-operatives."
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In a statement, Snowe said she "deeply disappointed" that Reid would include a public health insurance plan in the bill. Snowe has argued for a public plan "trigger" that would spur the creation of public plans on a state-by-state basis only if private insurers did not provide affordable coverage to a large enough proportion of a given state's population.
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"I still believe that a fallback, safety net plan, to be triggered and available immediately in states where insurance companies fail to offer plans that meet the standards of affordability, could have been the road toward achieving a broader bipartisan consensus in the Senate," Snowe said in a statement.
Reid said that he hopes Snowe "will come back."
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"I'm very disappointed that this one issue, the public option, has been something that's frightened her," Reid said.
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In a statement, White House spokesman Robert Gibbs said President Barack Obama is "pleased" that the bill will include a public option.
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"Thanks to their efforts, we're closer than we've ever been to solving this decades-old problem," Gibbs said. "And while much work remains, the President is pleased

.. at the progress that Congress has made."
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Senate Minority Leader Mitch McConnell, (R, Ky.), in a statement Monday, criticized the yet-unseen bill, saying that the "core of the proposal is a bill that the American public clearly does not like, and doesn't support."
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Liberal lawmakers and groups cheered Reid's announcement. Sen. Jay Rockefeller, (D, WV.), who has argued forcefully in favor of a public plan, in a statement said he is "gratified to see the public option debate is alive and well in the Senate."
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Gerald McEntee, who heads the American Federation of State, County and Municipal Employees (AFSCME), said the bill is "by no means perfect," but a "significant improvement over the proposal crafted in the Senate Finance Committee.
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Health insurers have fought against a public plan and, in recent weeks, ramped up their criticism of leading health-care proposals before Congress. Karen Ignagni, president and chief executive of the America's Health Insurance Plans (AHIP) trade group, said in a statement Monday that the public plan debate is "a roadblock to reform."
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"A new government-run plan would underpay doctors and hospitals rather than driving real reforms that bring down costs and improve quality," Ignagni said. "The American people want health care reform that will reduce costs and this plan doesn't do that." Leading insurers in AHIP include Aetna Inc. (AET), Humana Inc. (HUM), Cigna Corp. (CI) and UnitedHealth Group Inc. (UNH).
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-By Patrick Yoest, Dow Jones Newswires; 202-862-3554; patrick.yoest@dowjones.com
(Henry J. Pulizzi contributed to this story)
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Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=1fjqP1dofWMKlIc%2BH7NDiQ%3D%3D. You can use this link on the day this article is published and the following day.
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(END) Dow Jones Newswires
October 26, 2009 16:45 ET (20:45 GMT)
Copyright (c) 2009 Dow Jones & Company, Inc.- - 04 45 PM EDT 10-26-09
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Thursday, October 22, 2009

Monday, October 19, 2009

CPB asks: Haven't We Witnessed these Altruistic Gov't Housing Initiatives Before? hmmm...


DJ Obama Administration Announces New Initiative For Housing
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WASHINGTON (Dow Jones)--The Obama administration on Monday announced a new initiative for state and local housing finance agencies.
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The initiative will help support low mortgage rates and expand resources for low and middle-income borrowers to buy or rent homes.
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-By Jeff Bater, Dow Jones Newswires; 202 862 9249; jeff.bater@dowjones.com
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Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=Ys6beN01yAdASZJc0To2fg%3D%3D. You can use this link on the day this article is published and the following day.
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(END) Dow Jones Newswires
October 19, 2009 12:46 ET (16:46 GMT)
Copyright (c) 2009 Dow Jones & Company, Inc.- - 12 46 PM EDT 10-19-09

Thursday, October 15, 2009

Our Capitalist Pig Bob on Google, AAPL, and RIMM via His Facebook Soapbox...


I think Google (GOOG) is the one stock you could buy on any pullback and just hold. NO need to listen to Jim Cramer or any other cable head. Butt remaining Capitalist Pig Bob's Facebook friend is a must...
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GOOG, in my porky opinion (impo). is better than AAPL, and safer than GS. GOOG is basically a legal monopoly.
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How many friends noticed GOOG's market share is exactly AAPL's at $170B, and they have $22B in cash after this Q, AAPL $24B.
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I say a wise trade would be long GOOG and short AAPL, any takers? AAPL is a great company no doubt, but this capitalist pig prefers RIMM over AAPL if he had to pan fry one.
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Yet no dividendless company trumps General  Google as a buy and hold impo.
 
Yours Truly,
Capitalist Pig Bob.

Tuesday, October 13, 2009

A Different Perspective; Unlimited Capital...


We're happy to publish another subscriber contribution, this time from George Swanson. You can find more of his work here and here

Capitalist Pig Bob and I met through Facebook. It was purely coincidental we became friends through this media, for I know nothing regarding capitalism, politics, and so forth. My ignorance to these topics may prove to be a valuable asset to those who follow my publishing’s. On the other hand, there is one thing I do know, and this may be the main reason Bob and I became acquainted. That issue is the financial markets.



I base all trades, investments or otherwise, upon mathematical principles required to have basic regulation within the markets. It all began with the simple precept that barring no limitations on capital, you can profit off each and every trade transaction utilizing a compounding position to roll down your cost average. Over time, this simple principle has proven to have some very complex mathematical structures, yet they are adhered to under every circumstance of the market cycle.

The trade technique removes the very principle under which this site (POTC) was constructed, hence, I tip my hat to Bob for keeping an open-mindedness which so many individuals lack.
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The technique removes the psychology which effects and influences every traders decision making capabilities. These influences typically occur when those decisions most impact the outcome of the trade. Psychology is born of the human psyche, it is more difficult to remove this element from trading habits than it is to attempt finding cognitive reasoning to explain what, where, why, or how something has occurred. The mind is always looking for a logical explanation to reason why something has occurred. The logical reason is there, but beyond the scope of what many can readily identify, hence the continuous attempt to create organization out of perceived chaos.

The psychology of trading, or those individuals involved in its practice, is not the topic of this writing however. So, I do not want to go any further in that topic. Once the mathematical rules which apply to the markets are identified, it makes for terrible writing. It is quite bland, boring, and just does not prove to be very interesting to monitor day by day. These rules are required for basic market regulation, for regulation is required to insure liquidity. Liquidity is required to sustain volatility, and volatility is required to increase professional profitability. Volatility, and the promise of profitability to market newcomers, is required to bring fresh money into the market. It is a cycle which most never escape, almost akin to a hamster in a ball. The onlookers know the hamster will never get to touch the object of desire, and the hamster probably does not even realize it is contained within a ball.

I asked Bob for a topic he would like me to write about. His suggestions were “Your best pairs trade idea with Jan 2010 strike.. or Where you see the S&P ending up by Dec 31, 2009.. or How do you think Obama's presidency will or will not affect the markets..”.


I will touch on each topic, and keep each very brief. I will start by addressing where the S&P will end up by Dec. 31, 2009. This question, or any variance of such question, is one of the most popular root causes to a traders account depletion. It is typically referred to as “speculation”. Speculation is an educated, or assumed so, guess. A guess is hope. Hope relies on luck. Relying on hope and luck makes for one broke trader. Even “controlling” risk:reward ratios, or whatever cognitive reasoning (see above) you use to counter this statement, the variables leveraged against you are insurmountable. Yes, some do walk away with fortunes, but see if they do this consistently.
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Professional money is made consistently, it does not rely on speculative conditions. Speculating where XXX will be on such and such a date is gambling. Gambling is only truly gambling when you are oblivious to the true variables which effect the outcome of a scenario. Does a professional gambler actually gamble? No, he does not. He will increase or decrease leverage, increase or decrease exposure, given the percentage calculation outcome of probability. This is similar to the market, if you counted all cards, the last card is always known. That last card is rule adherence, it must be abided by. So, back to the question, where and when. When is the most misleading variable to many an analyst, especially technical analysts. Ask any analyst what time frames he uses to analyze a security. It is pretty amazing, you always get a different answer. The markets trade in one time frame, that is current. This may sound pretty off the wall, but this piece of information is crucial. When one analyzes time on a chart, they note it on a horizontal axis. The markets are not bound horizontally, they are bound vertically. Once a traded issue exceeds an absolute price momentum change it becomes bound to that point. That point plays a roll in the compensation required to keep the issue regulated. Regardless of the time it takes to compensate, it will compensate. This is the primary reason why professional money is made utilizing stock, not options. Options can be used to hedge, or insure a position, but they are not the primary trading vehicle for wealth accumulation. The professional options market is made on the bid/ask spread and premium sales. Theta is time decay, you do not want to expose your capital to time decay when time is not an issue or objective of the market you are trading. So this is what I can tell you of the S&P for the remainder of the year, or beyond. The SPX is obligated to shave 15% off its posted high (since March), the higher the S&P goes, the larger this percentage will become. I do not guarantee this happens by year end, but I guarantee it will happen. How you play that information is on you, for how I play it would scare the crap out of most traders. Any drop beyond 15% is purely speculative and will not be participated in by the likes of me.

Next question, “How about something about your best pairs idea with Jan 2010 strike..”. First off, the only way I would commit to a Jan 2010 strike would be by playing extremely deepin the money” options. This would be where you are buying pure intrinsic value only. When Jan 2010 rolls around, if you need to calendar roll the position out, you can do so at almost no cost. With that being said, I can guarantee (yup I said it!) a profitable return IF (always that damn “if”) rules are followed! The pair trade would be long DIA, short QQQQ. The trade needs to be delta balanced (when referenced to a third issue (beta weighted)), deep “in the money”, and averaged in if the spread widens. The trade requires exiting when up to 15% of capital is utilized in the trade.


Last question, “Why and how you believe Obama's presidency will or will not affect the broad market..”. Frankly, I could really care less. Markets react to any and all input collectively. When they need to compensate, they will find a reason to do so. There will always be an “after the fact” reason to why something happened. Obama will be the equivalent to Goldman Sachs, or Google, or AAPL, or war, or any other mentionable reason one could use to explain the markets behavior. All in all, it is just one more source of smoke, or one additional mirror to the larger picture of being able to play this game with unlimited capital.

With that, I bid you a great day.

If you would like to view more of my writings, you can visit www.channellines.com and http://thetradingtruth.blogspot.com

Wednesday, October 7, 2009

Historical Trends and the Current Economic Situation


This contribution comes to us from our valued subscriber, Simon Jester.

Historical records of market data are freely available online, usually in the form of raw numbers.  By downloading the information (DJIA and/or S&P 500), and using a spreadsheet program it is a simple matter to turn the data into a graph that shows trends quite readily.  The curves of these graphs interest me because they relate to market conditions.  Obviously, the following is an historical analysis, not a crystal ball into the future.  The future can always be much better or much worse as it deals with the unique circumstances of the present.

One of the ways I 'normalize' market data is by taking a monthly sampling to dampen down the “day to day” noise of market trading. This results in a fairly smooth graph for both the Dow Jones and S&P, except for periods of severe market turmoil.  Since having more complete data sometimes obscures trends with chaotic ups and downs this method is an easy way to get a feel for the trend, although a more rigorous method is to plot all data points and use a trend line to point out the underlying movements.  However -as seen in all chaotic systems- new patterns can emerge because no single incident has the exact starting conditions of previous incidents.  What follows looks at similarities between our current economic situation and those seen during other periods in history. Just as importantly, a look at the differences between the situations may present opportunity.



With several graphs available for a given time period measuring such things as unemployment, inflation, the Dow Jones Industrial Average, S&P500, trade deficits and Federal Government Deficits (see links provided below) the logical step is to look for correlating curves in the data.  Does one go down while the other goes up?  Do they rise and fall at the same time?  Does one have the same curve as the other, although separated from it in time (implying a cause/effect relationship)?

It is my opinion that this sort of “meta-analysis” can be useful in understanding trends between systems within the economy, very similar to how weather data can be used to explain the population of foxes in an area.  The right mix of sunny and rainy days at the right time produces a good growing season, causing the rodent population to explode, causing more kits to be born per litter the following year, causing the fox population to go up and the rodent population to go down.  In real life there are more predators of rodents than just foxes, but relationship to predator, prey, and population holding capacity of an environment is well understood in the biological sciences.  For the purposes of this article we will take a look at an artificially limited economic model, one that looks at the relationship between government and economy as a biologist would look at predators and prey.
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The two worst economic situations in living memory are the Great Depression, and the Stagflation of the 1970's followed by the worst recession in our history in the early 1980's.  By setting a bar graph for the monthly closings for the last decade, September 1999 until present, it becomes obvious that we are in a large percentage dip.  The “stock market crash” of 1929 was only the beginning of the fall, as it would continue for the next few years, with only the occasional dip upward, until hitting rock bottom.  For the next seventeen years the DJIA would “hover”. 

Fast forward to 1975 and the election of President Jimmy Carter.  Jimmy Carter inherited a mess with the oil crisis and yet even with the stagflation economy the DJIA 'hovered'  Comparing the DJIA with the S&P500 the data correlates well simply because they are measuring sticks for the same markets.  It is interesting to note that while unemployment and inflation soared in the late 70's to 1980 the hovering of the markets actually reflects a net loss in value due to inflation.  In the 1930's the markets hovered, unemployment was high, but inflation was not a major factor as the longest periods of monetary deflation in our history increased the buying power of cash.

What correlates and what doesn't?  Unemployment follows a crash in the market according to the example of the Great Depression, but unemployment follows inflation by about two years in the case of the 1973 to 1983 data.  Since a market crash and inflation represent the same thing, the loss of wealth, it makes sense those moves would cause unemployment.  Is the correlation valid in showing a causal relationship?  The data suggests this is the case.

Up until now I've discussed the movement of the markets in time.  Now to insert the political environment in which markets act and react.  FDR and his “New Deal” possibly extended the Great Depression by upwards of seven years.  The idea was to spend the economy into health, invest in America, and create jobs by public works.  Jimmy Carter had a similar approach to economics, although to his credit he lobbied for modest tax cut. Carter ended up fighting his own party in Congress as to how to stimulate the economy, but ended up bailing out Chrysler in 1979.  Sounds very familiar to me.



Another data source for consideration is Government spending as a percentage of GDP.  The graph of this data shows spikes and waves.  Spikes represent a fall in GDP or Government spending jumps.  Waves represent an increase in GDP or a drop in spending.  The largest spikes on the graph are World War One, the Great Depression, World War Two, and the current spending in fiscal year 2009.  For the first time since WWII spending exceeds 40% of GDP.  Note that spikes in GDP spending do not happen during good times.



The price of gold is a useful economic indicator.  Historically the peak of gold prices was in 1980 during an economic dark period. A rapid rising trend starting in 1972 and was exacerbated by the oil crisis and “stagflation”.  While the price of gold 'fell' during the following years it never fell below the 1979 price and is a good benchmark of how much value the dollar lost on the world market.  I cannot use the Great Depression’s gold market prices because of the confiscation of private gold under FDR and the artificially fixed market price under the New Deal.  But it is safe to say that during economic downturns gold and other minerals represent a safer place than currency to store wealth.  Right now the price of gold is again hovering around a peak. If it continues hovering that means the dollar is not being devalued rapidly, but given China’s movement towards gold and away from the dollar I expect gold will lead the international market.

Now that we have inserted the political arena into our thought experiment we only need to look at economic recovery under tax increases and increased government spending.  The bottom line is that recovery is long and slow.  When FDR died and a more business friendly Truman took over it marked the beginning of real economic recovery from the Great Depression. When Ronald Reagan cut taxes even with almost 10% unemployment it spurred economic recovery.  Right now the Democrat controlled Congress is fighting with the Obama administration over how much to increase taxes to pay for the spending they have in mind.  Inflation concerns have pushed international investors away from the dollar and into precious metals to preserve wealth in the face of a falling dollar.  Unemployment is already high and I think it will go higher as inflation concerns grow and markets reach bottom.  My best guess is unemployment will peak between 11.5 and 12.5 percent during the first half of 2010 as the post-holiday fall in employment compounds other contributing factors.

Currently the S&P is on a rising trend, but based on historical data this is either a blip before a deeper fall, or the beginning of “hovering” action as the economy struggles.  Either option pushes economic recovery sometime into the future beyond the scope of reasonable prediction, however if taxes are increased market hovering is the optimal outcome. I repeat markets are chaotic systems which often defy all predictions, but if history has anything to teach us, it's that those who ignore it are doomed to repeat it.
Authored by Simon Jester.

Russia's Gold vs the United States S&P Index; Troubling Tale Unfolding...

POTC is concerned the price of gold will surpass the S&P index soon. Gold has stabilized at historic highs of $1,040/oz today. What IF the S&P breaks below 1,000 and gold sustains above $1,000/oz? This sort of technical phenomenon has never occurred until this year, and we hope it will not become the new abnormal theme. 
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Perhaps gold becoming sticky above $1,000/oz and S&P falling below 1,000 will force Larry Kudlow to take a stronger stance against this Administration. We believe Kudlow is the only cable 'talking head' supply sider fighting for King Dollar. As for Jim Cramer, Capitalist Pig Bob (CPB) views him as a stock market pimp, nothing more. CPB thinks Cramer is selling his soul for a sawbuck and soapbox, but not Kudlow, uh uh, he is too patriotic!
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King Gold in lieu of King Dollar could subsidize Russia's Putin as he becomes the most dangerous dictator on Earth (Medvedev is just a red shirt freshman pawn in our opinion).
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POTC does not want King Dollar turning into Queen Dollar. Yet this Administration's fiscal policies are very anti dollar, causing us to be very suspicious and depressed about the future of the U.S. equity market.
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POTC hopes Obama's advisors do a 180 before King Putin's riches create all sorts of incredibly difficult-to-solve geopolitical problems. We can only hope patriotic fiscal conservatives like Kudlow become more vocal against weak dollar policies, but especially as the S&P struggles to stay above that 1,000 level.

As free-market forward-thinkers, we refuse to turn a patriotic cheek to the potential ramifications of gold prices rising as the S&P and dollar fall, you?
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The Psychology of the Call along with Capitalist Pig Bob thank you for your Wednesday attention.

Tuesday, October 6, 2009

The Geopolitical Misgivings of Money and Banking; Putin's Golden Handshake Invites Scum...


From the U.S. dollar being the world's reserve currency to Russia's Gold taking precedence?
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You decide how damaging this Administration's psychological agenda has been, POTC's Capitalist Pig Bob already has.
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Putin and Medvedev are laughing at America's all around weakness as they experience another commodity spike, this time in gold.
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You think it's just a coincidence the war in Afghanistan is blowing up as gold makes new all time highs, we don't. Russia's dictatorship has been around much longer than President Obama, and that has us concerned. An American president must be steadfast in his resolve to protect allies, yet Obama failed eastern europe and sided with Russia.
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Most talking heads point to Australia's interest rate hike to explain today's rally, yet we believe this rally is an anomoly. As the greenback loses its strength and gold rises, the balance of geopolitical power suddenly shifts toward Russia. A very bad day for free-market capitalists.
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King dollar could be no more Mr. Kudlow, try King Putin's Gold...
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Here's the saddest anti free-market triple top gold breakout (1) America has ever witnessed, as King Dollar crumbles (2) to Queen status:  
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(2)

The Psychology of the Call team along with Capitalist Pig Bob thank all for their trendy tuesday attention.

Sunday, October 4, 2009

The Paradox of the First Half Black U.S. President ..

Capitalist Pig Bob (CPB) is saddened President Obama's actions have been so partisan and blatantly Un-American. His attempts to dilute the free-market system are dangerously irresponsible and bewildering, especially since he is the first half black U.S. president.

Whether through insistence on bigger gov't, higher taxes for successful business owners, gov't dabbling in private health care, Employee Free Choice Act (EFCA), or Cap and Trade (levying unnecessary taxes on businesses, giving polluting countries great cost and hence pricing advantage). Obama is directly infringing on what enabled the United States to lead in nearly every  business sector on earth: Free-Market Entrepreneurship!

The fiber of this great land is being stained and torn. The elemental part of every American man and woman is our ability to dream. Dream of big success in family life (spiritual), health, and wealth, with the least amount of reliance on gov't as possible.

Yet Obama's behavior, time after time, insists gov't is the solution to all our current and future problems. There has been no precedent anywhere in history a more centralized (larger) gov't has contributed to free-market/private sector growth, on the contrary. Thus Obama's bigger gov't aspirations are very worrisome to the disenchanted citizens who insist the gov't stop bullying the private sectors of the economy.     

With all due respect, besides his stance on late-term abortion, Obama cannot be as cold, ignorant and dangerous as his early anti free-market policy actions reveal. Though it's difficult to argue otherwise as he insists on being apologetic to world leaders who would love to see us fail. Shame on President Obama, but especially his black side, as black families are not only very supportive of life, but they love to reap the fruits of free-market capitalism, agree?

President Obama should begin to realize how his black ancestry suffered through 300 years of slavery, indirectly due to the type of control behavior and lack of individual freedoms he is pushing to legislate. Concentrated power opened the door to a small group of mad men from Spain, France, and England, who quickly took advantage and crushed an innocent group of people their ability to dream and attain capital. Dreams of success in family life, health, and wealth were muted. What is President Obama missing about the socioeconomic evolution of the United States of America?

President Ronald Reagan explains what many are starting to understand is a very sad paradox of this first half black U.S. president. Please have a listen to this entire speech, but especially at 2 min 30 seconds, see whether you feel President Obama should listen to these words over and over and over, until they register black & white, before finally becoming - Milton Friedman - crystal clear:
http://www.youtube.com/watch?v=JX8X_FsBCDk

Thursday, October 1, 2009

U.S. Unemployed Stuck at Stupid; the New Abnormal Fear



Today's trailing weekly unemployment number remained stuck at failed policies.
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The U.S. economy cannot recover without job growth, and what makes anyone optimistic it will even get back to a zero weekly unemployment number from today's darkening depths of minus 551,000 jobs for week ended 9/26, prior was minus 534,000. This stubborn spike in unemployment remains a major hurdle for any fundamental stabilization and growth cycle to occur:
http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/claims.htm
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With so many complicated parts at work in today's global economy, we do not envision U.S. unemployment percentage suddenly improving. Many economists agree creating good paying private sector jobs is difficult when the government insists it is part of the solution and continues to spend, spend, and spend.
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Government spending in light of an increasing unemployment percentage is very troubling. This Administration's fatter than butter budget deficit cannot be neutralized from a discouraged work force and falling tax revenues.
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Unemployment will continue to trend higher over President Obama's term if he doesn't tweak fiscal policies in favor of the private sector businessman and businesswoman. We do not feel it's impossible to fix; the private sector's potential needs to be unleashed through cutting back gov't spending and giving red blooded Americans tax breaks. "It's the people who created the federal gov't, and not the other way around". President Ronald Reagan.
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Chairman Bernanke's monetary efforts will not be a panacea for flawed fiscal policies that aim to redistribute America's wealth to the have-nots. We belive in a true free-market system, where losers and winners, IPO's and bankruptcies, troughs and peaks, booms, and busts, and fear and greed all are beautiful components in order for the U.S. economy to cycle and evolve. No Administration should attempt to harness entrepreurship, innovation, and jobs through bigger gov't type aspirations/programs.
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This administration's policies favor larger government at the expense of a struggling and now shrinking private sector. What do President Obama's economic advisors not understand about cutting back on spending and allowing the private sector to create jobs? We firmly believe more money in private hands would ignite entrepreneurship, research and development, and job creation.
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We find it sad most cable talking heads have stopped using the word bottom lately. We think this is exactly when the word should be hotly debated. Bottoms are never marked by smooth "V's" or "U's" without running into any unfortunate left field type events. Thus we believe the recent broad market run-up has been a gigantic technical hiccup and will not last. The fundamental underpinnings of the economy have only been addressed from a bigger gov't standpoint, and gov't has and never will be the solution to our problems.
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The changes Obama has set in motion will continue to devalue what we feel is this Administration's mini mouse dollar. We do not see a safe fundamental floor below in jobs or residential real estate, only a growing list of anti free-market policies bound to derail this impressive yet dangeous technical bounce.
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The new abnormal fear of unemployment being stuck at stupid is upon us. The promise to reign in an era of transparency and nonpartisanship is leaving more and more Americans with loose change and false hope.