Financial topics

[Higgenbotham]

I sent this to a friend last week after looking at my March statement. It's impossible for anyone who isn't in my shoes to understand the magnitude of the problem that Bernanke's merry-go-round is generating, or how financial bubbles really work to drain and move money. The statement made in the article linked above that the algos can't be beat by human traders is wrong, but it's getting harder and that compounds the problem.

In my opinion, the algos aren't the problem; the problem is the bubble and how the presence of the algos will change the dynamics of how the bubble breaks. I think the breaking of this bubble will be faster, more furious, more unpredictable, and more devastating than the breaking of any previous bubble. And it can happen at any time, day or night.

Looking at my futures account statement for March,

I did 1236 round turns
Gross profit on trades was 38,806 (that grosses to a mere 31.40 per round turn - razor thin)
Commissions were 15,228 (12.32 per round turn)
Net profit on trades was 23,578

To be clear that is only mitigating the loss on my short position and at this price level my trading profit netted out against my short position is a wash over the past 7 weeks. As you would surmise the net movement of 15,228 was out of the accounts of a few somebodies and to the brokerage industry. And the money flow is out of productive America and into the money centers of New York and Chicago.

[Higgenbotham]

A willingness to accumulate inventories gives evidence of complacency in the business sectors of the economy. The lack of concern about accumulating inventories developed for two reasons: (1) the low cost of financing because of the Fed’s ultra-easy credit policy, and (2) the widespread belief that the Fed’s policies will eventually lead to commodity inflation. Yet, despite these beliefs, deflationary signals appear more ominous than ever. For example, an average of the industrial commodities traded on the London Metal Exchange closed near a 4-year low on Friday. Likewise, agricultural commodities continue to drift lower since recording a high during April 2011. Ocean freight prices show a similar reduction in global trading and demand – with the Baltic Dry Index trading near the low-point of the 2007-09 recession. The Baltic Dry Index often behaves as a leading indicator of commodity prices, and it clearly sends a threatening deflationary message.

The most worrisome aspects of the so-called economic recovery center on employment, welfare, and savings statistics. Over the past three years, the traditional economic statistics sent mixed signals. Consumption based indicators gave evidence of moderate recovery. Conversely, savings, investment, and employment data show evidence of an ongoing and long-term downtrend in economic activity – a contraction now in its sixth year. The average duration of unemployment, still near 40 weeks, failed to improve during the past 3 years. Likewise, the labor market participation-rate fell to a 34-year low last month. The inability of the US economy to create new jobs forces hundreds of thousands of people out of the workforce each month. Some older workers simply stop looking for a job and retire early, while younger workers often resort to welfare programs and join the food stamp program – with participation at record levels.

Over the past several decades, tax laws and ultra-easy Federal Reserve monetary policies favored borrows over savers. Consequently, it should come as no surprise that the US economy has turned form a nation of savers to a nation of borrowers – as shown by the net national savings rate. Inadequate savings are the root cause of the persistent decline in the US labor markets. Until policymakers reverse current programs, the US economy will continue its long-term decline. As usual, the current credit market bubble masks the decline by showing moderate growth in the consumption-based statistics.

[Higgenbotham]

The $1.4 trillion of assets sitting in ETFs act as another huge negative overhanging the market. Because of low trading commissions, ETF investors often behave as high-frequency swing traders. The flash-crash of May 2010 gave the first warning of the disruptive effects on the markets from a high-volume of ETF sell-orders. With ETF open-interest now double that of 2010 (and triple that of 2007), the next significant stock market decline could put unmanageable pressure on the mechanisms programmed into the increasingly electronic marketplace. The odds are high of something developing far worse than the 2010 flash-crash.

[Higgenbotham]

We will get confirmation by the 10th. I tend to agree with his opine.

The new moon is the 10th and bubbles often make their final highs there. There are two lunar eclipses coming up instead of one (along with the usual one solar) and the overlapping cycles might put the high in on a random day. I hadn't thought of that yet in February. The only other bubbles that have topped out near triple eclipses were the Tulip Mania and the South Sea Bubble. The South Sea Bubble seems to correspond most closely to this bubble but there isn't any consistent data on exactly where the share price topped out because the transfer books were closed near the peak.
http://books.google.com/books?id=z7xLh0 ... %22&f=true
In a review of this book, Neal himself said the share price topped out in June and I agree with Neal. The other guy doesn't understand how futures markets work.
http://eh.net/book_reviews/first-crash- ... sea-bubble
Relative to the placement of the triple eclipse, today is the equivalent of July 1, 1720 and regardless of whether Neal is right or not, the top of this bubble relative to the triple eclipse configuration can be in the rear view mirror. Again, I would say if Nenner is a cycles master he may be missing some important cycles here. I remember hearing an interview once where Nenner didn't know what year the Tulip Mania topped out.

[gerald]

http://www.zerohedge.com/news/2013-04-0 ... stead-cash

Portugal considers paying public workers in government treasury bills.

Question, will the government accept their treasury bills for tax payments?

Oh, is is going to be interesting --- We ARE living in an Alice in Wonderland world !

[gerald]

We will get confirmation by the 10th. I tend to agree with his opine.

The new moon is the 10th and bubbles often make their final highs there. There are two lunar eclipses coming up instead of one (along with the usual one solar) and the overlapping cycles might put the high in on a random day. I hadn't thought of that yet in February. The only other bubbles that have topped out near triple eclipses were the Tulip Mania and the South Sea Bubble. The South Sea Bubble seems to correspond most closely to this bubble but there isn't any consistent data on exactly where the share price topped out because the transfer books were closed near the peak.
http://books.google.com/books?id=z7xLh0 ... %22&f=true
In a review of this book, Neal himself said the share price topped out in June and I agree with Neal. The other guy doesn't understand how futures markets work.
http://eh.net/book_reviews/first-crash- ... sea-bubble
Relative to the placement of the triple eclipse, today is the equivalent of July 1, 1720 and regardless of whether Neal is right or not, the top of this bubble relative to the triple eclipse configuration can be in the rear view mirror. Again, I would say if Nenner is a cycles master he may be missing some important cycles here. I remember hearing an interview once where Nenner didn't know what year the Tulip Mania topped out.

So are you saying Astrology and Gypsy fortune tellers have some validity? -- Boy, I better get out the burned sheep bones like the Mongols, so I can make an upcoming financial decision.

Sorry, I couldn't pass it up, My apologies,

Sincerely,

gerald

[Higgenbotham]

So are you saying Astrology and Gypsy fortune tellers have some validity? -- Boy, I better get out the burned sheep bones like the Mongols, so I can make an upcoming financial decision.

Sorry, I couldn't pass it up, My apologies,

I look at all of it, including forum sentiment. Forum sentiment would be the reaction to what is posted, or how the forums seem to be feeling in general. Actually, I've been waiting for a reader who hasn't posted before to pop up and tell me I'm completely full of shit as an indication of a stock market top, but that hasn't happened yet. Your post is the closest we've come yet though.

[gerald]

So are you saying Astrology and Gypsy fortune tellers have some validity? -- Boy, I better get out the burned sheep bones like the Mongols, so I can make an upcoming financial decision.

Sorry, I couldn't pass it up, My apologies,

I look at all of it, including forum sentiment. Forum sentiment would be the reaction to what is posted, or how the forums seem to be feeling in general. Actually, I've been waiting for a reader who hasn't posted before to pop up and tell me I'm completely full of shit as an indication of a stock market top, but that hasn't happened yet. Your post is the closest we've come yet though.

Sorry, I meant to be funny. I did not want to say you are full of it. How can I? After all I have made
important financial decisions ( positive outcome) with " help " from the "otherside". I know of people who used the "Tarot" and their fortunes came true - in a VERY unpleasant way and involving other people. As for Astrology, there has been scientific research indicating a basis for some validity involving the so called "weak forces".

I find your posts very informative.

Wishing you the best.

gerald

[Higgenbotham]

Sorry, I meant to be funny. I did not want to say you are full of it.

The way I would put it is that it's rather obvious that I have been an idiot for being bearish on this stock market for let's say the past 16 months. The regular posters might think that but in most or all cases they wouldn't want to say it. Someone who hasn't posted before would be more inclined to come out and say it explicitly, though, but it doesn't appear that is going to happen.

To me, it's not personal no matter how you meant it, or what anybody else would say. If someone new popped up here and called me an idiot my thought would be that they are just confirming what is already obvious. And confirming the obvious is often a sign that the tide is turning in the other direction. A humorous comment among regular posters to the effect that if nothing else works maybe we can turn to eclipse cycles or astrology might be similar.

My thinking had been that long before any sun-moon-triple eclipse correlation or anything like that were to present itself that the obvious deterioration in fundamentals would mean something, but it hasn't. So I'm not a true believer in correlations with triple eclipses, but here we are. I was aware for years of where the South Sea Bubble popped relative to that, but South Sea shares weren't a huge and intertwined part of the global economy like the US stock market is, so I thought a false bubble in something as large as the US stock market would be impossible to sustain for this long.

[Higgenbotham]

I've noticed in the forums that when people are right about the markets they usually post more frequently and when they are wrong they post less frequently. There are few exceptions to this. My philosophy is to keep slugging it out until the thing turns down, no matter how painful it gets. The past couple months have been very painful, not it terms of my pocketbook but in terms of what it took to keep up with this bubble. I've traded over 2000 contracts and have been up into the Europe open at 3 am many nights to scrape up a few bucks. I don't know how painful this is going to get, but can say I've never seen anything like it. The bubble in 2000 seemed to have some rational basis for it in the sense that it was identifiable as a bubble. This thing is something like Bernanke's own personal Frankenstein - it's not a true bubble in the same way most bubbles are defined or the way bubbles in American history have worked. Here's a quote that captures that idea:

Although traditionally considered a bubble, the Mississippi Bubble wasn’t actually a bubble, in a precise technical sense. A bubble is primarily caused by widespread mania and speculation, followed by a brutal collapse in asset values. In contrast, the Mississippi Bubble was the result of failed monetary policies that caused excessive money supply growth and inflation.

http://www.thebubblebubble.com/mississippi-bubble/

I've always found these 2 themes of the Mississippi Bubble interesting:

In 1705, Law published an academic paper in which he argued against the use of precious-metal backed currency in favor of “paper” or fiat currency, claiming that the use of fiat currency would stimulate commerce.

Soon after (the bubble burst), John Law escaped France, disguised as a woman for his own safety, and spent the rest of his life as an impoverished gambler in various parts of Europe.

As far as parallels, Bernanke's scheme seems more like the South Sea Bubble and the Mississippi Scheme, which ended in hyperinflation, seems more like what is happening in Japan now. I think no matter how fast Bernanke prints, there will be other countries that are forced to print faster in response. Therefore, the hyperinflation will occur somewhere else first, probably in Japan. John Law's actions sent shock waves through Europe in the Summer of 1720.