Troubled Times

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Here are a few IMO major stories that have largely gone unreported....

1. http://www.safehaven.com/article-12012.htm - For the first time in history, last week the gold basis went negative. In English: anyone holding physical metal could make free money by selling the metal and buying the futures. And, interestingly, they are sufficiently nervous about getting delivery on the futures that they are choosing to stay put!

2. http://www.bloomberg.com/apps/news?pid=206...sI&refer=us - The Federal Reserve is toying with the idea of issuing its own bonds. This, of course, has never been the case as it is the Treasury's job and really makes no sense to me at all. Any ideas??? They don't seem to say why or what for and I certainly can't think of a good reason. The Fed has been talking about buying up Treasuries. So what the heck?

Lots of strange stuff out there.

Thanks Chief. And if anyone has some good blogs for me to through into my google reader it would be much appreciated.

[Polynomial]

People in high places know what is happening.

No, they don't

[ryyannon]

The economy as game theory (attention: deep stuff here):

[HauteHippie]

Thanks Chief. And if anyone has some good blogs for me to through into my google reader it would be much appreciated.

The blogs at lewrockwell.com are a good place to start (there is some really goofy stuff in it, but economic discussion is pretty good and will lead you elsewhere). Also, check out any articles by and/or interviews with Jim Rogers.

A nice clip of Ron Paul in the LR blog today: http://www.lewrockwell.com/blog/lewrw/archives/024370.html

Too bad there aren't 400 Ron Paul's in the House.

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The private sector (financial institutions i.e.) began this by using smoke and mirrors* to deceive investors - and by flagrantly breaking the first law of capital deployment which is "never use short term funds (callable loans) to buy long term assets (illiquid mortgages)". (*Structured products consisting bundled portfolios blessed/branded by AAA or AA+ institutions - but which hid exceedingly dodgy assets, particularly high-risk mortgages that noone had the ability to examine/evaluate on a one-by-one basis.)

Bureaucrats who had (and still have) no clue about what was going on (particularly post Enron), then decided to create a whole phalanx of regulations (Sarbox, Higgs, Solvency I & II and Basel I & II) perhaps not fully appreciating the fact that advisors and institutions make their living by being clever by succeeding in circumnavigating regulations. The reality is you can never create enough rules and regulations to eliminate a lack of integrity. If someone is wholly intent on evil, they will succeed. The whole remuneration system in large corporates has been all about rewarding short term gain - screw the future, for as JM Keynes opined "in the long run, we shall all be dead".

To add fuel to the raging fire, politicians have now decided that it is time to go back to almost pure Keynesian economics - bring the multiplier and accelerator models back into play - but not in the way or to the extent that Keynes could ever have envisaged. From Gordon Brown to Obama, the mantra is lets create more jobs (in public sector - in the old days we used to refer to this as "disguised unemployment") and hopefully these good folk will splash their pay cheques, creating demand for goods and services, which will in turn kick start the economy. But who will pay for all these excesses? Ultimately it will be the wealth creators and businesses. With a global economy and with capital and talent being so mobile, the wealthy and talented will easily go where they are not robbed blind by the government. So increasingly (particularly in the UK), you have an bloated public sector with a declining entrepreneurial economy. Thus, more money will chase fewer real goods and services. The combined effect of declining economic production and spiralling inflation = stagflation. But who cares? The politicians that make the rules have (at least in the UK) their pensions protected like noone else and by the time the reality dawns, they would have left office, be on a speaking circuit and on numerous boards. So why worry?

This is not about economics. It is about short-termism, self serving greed and, of course, corruption.....

I agree with Chief - the government which has consistently proven its utter incompetence at adding value in business - should do nothing to squander what we do not have and which will have to be paid for sometime, somehow. The best thing it can do is unravel the bureaucracies and politically correct measures (welfare state, unions...) that strangle enterprise. Subsidies and protectionism merely weaken the organisms being 'protected'. No pain, no gain.

Will you kindly suggest books, or articles I may read so that I can understand this better. Specifically with short-termism. Thanks in advance.

[Genrep]

Will you kindly suggest books, or articles I may read so that I can understand this better. Specifically with short-termism. Thanks in advance.

My sources have spanned some 30 years reading economics, harvard business review, financial times etc. An excellent introduction to global competition and economics (that though classic is still pretty pertinent) is Michael Porter's seminal work "The Competitive Advantage of Nations". Short-termism goes under other monickers such as "management myopia" - google this and you will find lots of articles and publications. I suppose a key to undertaking causal analysis of events is the understanding that there are no new principles and few really new inventions - only innovations formed by combining different principles and what is already in existence. Cheers.

[baglc1]

Huh?

YOU WROTE IT

[RobbieG]

Wrong thread dude, pick a funny one...

YOU WROTE IT

[baglc1]

Wrong thread dude, pick a funny one...

Gens and fast cars for sale. OH I FORGOT, TROUBLED TIMES, NOBODY WANTS THEM.

Sit back and watch them fall.

[Dexter]

No, they don't

Yeah, they do. They just don't tell anyone.

I'm not talking about politicians.

[Rxus]

I think for the most part (99.9%) of those struggling or soon to be, have no control over this and they never did nor will. If sticking your head in the sand is your way to deflect the hardships of life...well at least you have a plan.

Myself, I love to talk politics and economics among my close friends but I always manage to get others involved just to hear their own opinions and truthfully were not doing that great, no one is really prepared and most a lot of people are living life as if nothing is happening.

The ship is going down and most people are standing on the top deck playing the violin...

our only hope is our savior Obama (additional emphasis on the sarcasm implied by the smiley)

[RobbieG]

+1 on Michael Porter's work. Also I have mentioned it before but you should all check out a book called Traders, Guns, & Money which is a look into the secret wolrd of OTC trading bank to bank. It will blow your mind if you don't really know how banks trade your money...

[RobbieG]

Dude, now I remember you. Look, I posted the thread to address some real problems. Actually, it just so happens that some of these economic events driving news are helping all of my funds smart guy. We trade intraday with entries and exits based on volatilty. To simplify it enough so that you can understand it we are rigged to effectively ride a "volatilty fence" intraday so as to try and not make too much on purpose and not lose more than the decided risk model for the client across all conditions present in each market since the contract inception. We also have a slant toward trading "wide open" in case trensds run big intraday so we can effectively get it all if the market gives it to us. The economic issue don't necessarily effect us all in the same way at the same time. There are a lot of angles, hence many of the responses so far. But since you seem interested in my trading success or failure as it were, fine, I'll share my year with you. Maybe you can set up your own systems and use what I say to make some money for yourself. I hope you do. I hope everyone does. It isn't easy, but I am proof it can be done...

What has happened lately is that we are winning and losing the same percentages (a little less than half) and taking the same number of trades which we should as my systems are robust, but because of the volatility what is happening is we are winning as much as 10 times as much some days because of the incresed volatility. October and November of this year were by far my best ever single months in terms of absolute returns and without effecting the risk models as well I might add. Typically, our Alpha intraday S&P 500 class will make 24-60% annually levered at about 6:1 depending on conditions and was better than on track going into October of this year. And then what happened was really wonderful. We made 81% on the capital in October alone and another 33% in November. 114% in less than 40 trading days! So we will end up with a record year approaching a 160% return in this class provided December stays on track which it seems to be so far. Our max peak to value rolling drawdown capped out at 11% this year with one losing month that returned -5.2% I might add.

So these aren't troubled times for us trading wise, but the world is kind of on the verge of ending and so my ability to make money in futures markets is sort of inconsequential when faced with the prospect of world currencies unraveling and states and countries going bankrupt. But in the meantime I'm sorry to disappoint you, but you won't be seeing any of my watches or cars for sale just yet. I'm set up to handle a lot of conditions and the markets are just playing right into my hand. It is a testament to having systems designed to take what comes when it does, which cannot be predicted and most importantly manage risk which mostly can be controlled - black swans aside. So good for me and good for my clients. Isn't it nice to hear someone is doing well?

But the most important lesson to you is the same one I tried to teach you in that other thread. Don't go judging things you don't know about or understand after reading a few sentences. And also, what kind of person is it that roots for another man's failure or finds it funny? A lot of people are failing at trading these markets brother. It just so happens that I'm not one of them and it isn't because I'm smarter. It is because I have no overnight risk. And things will calm down for us real soon and we will go back to steady returns which are unremarkable just like everyone else. Mother Market is too smart to let anyone exploit such inefficiencies for very long. But what if I were failing? Would that make you happy? I just don't get that. I go out of my way to share my knowledge and spark interesting discussions for everyone's benefit as I appreciate when others do so for me. So show some respect for those not doing well in these markets by being happy that someone is. Why? Because that represents bankable hope in that good things are possible in all kinds of conditions.

And since this is a serious topic and not one of my comedy threads do us a favor and contribute something worthwhile as Chief and many others have or don't say anything at all. These issues affect all of us including you, so again, show some respect to those who know more about it than you do. You just might learn something.

Gens and fast cars for sale. OH I FORGOT, TROUBLED TIMES, NOBODY WANTS THEM.

Sit back and watch them fall.