Mega Moves

Peter Brandt pointed out to me that there are around 8-12 mega moves per year. A mega move is any move that will make you $5-10,000 on the move. He said to me that his goal every year was to only do those trades. He thought that the ideal year would be that he only traded those trades.

Of course, in the real world we can’t just trade those mega moves. We will have other trades that are losers and other trades that will be small winners.

He felt that a year where he did, say, 25 trades in a year but caught all or nearly all of the mega moves would be a highly doable and highly profitable campaign.

Ou focus should always to make these mega moves. They can create wealth that changes our life. Yes, we will have other trades. Some winners. Some losers. But these other trades will not net to anything that will change our lives. The mega moves will change our life.

You may have problems with catching the mega move. Do you feel in your heart of hearts that you deserve to make mega money? Do you get out of your trades too soon to make the mega money? Do you have an entry and exit strategy to ensure that you will be in the mega moves?

Examine your trading. Are you cashing in on the mega moves or is this massive money passing you by?

 

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Why I Think Bitcoin Is Idiotic

Dateline: London

Am I the only one?

The world is ablaze with bitcoin this and bitcoin that. I am often asked if we should trade it or if it will replace the US dollar.

What nonsense!

Bitcoin is fatally flawed and will disappear. What will remain is some of the ingenious infrastructure underlying it.

First, is it money? Generally, money is supposed to have two main attributes, a store of value and a medium of exchange. I argue that bitcoin is neither.

How can we say it is a store of value with the price skyrocketing then plunging. Clearly not stable enough to be considered a store of value.

Medium of exchange? Quick! Go buy a loaf of bread!

Sure, there are a few ways to spend them but come on, it is a pathetic medium of exchange.

Also, the security is way worse than any money. Look at the Mt. Gox fiasco where a large percentage of the total number of bitcoins “disappeared”! Really, come on. And there have been other disappearences too!

Right now, if someone steals my money from credit card, the bank has to make me good. But if they steal my bitcoins, shame on me.

And the supply of bitcoins comes from solving math problems? Clever but stupid. Math problems do not represent a medium of exchange. Real money can be exchanged freely for labor and goods and, in fact, money represents the productive economy. Bitcoins represent solving math problems. Fun! But not money.

I love the idea behind bitcoin. To create an anonymous currency. But aren’t bars of gold or $20 bills also anonymous?

The government doesn’t like that anonymity so they have effectively outlawed the use of cash over $10,000. I keep forgetting that legal tender really means legal tender for all debts under $10,000.

I really want someone to solve this problem but bitcoin is not it. There are way too many problems with it.

 

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Greece: The Worst of All Possible Worlds

Dateline: Nice, France

The situation in Greece is getting worse.

The new government is trying desparately to get it’s lenders to effectively cut the amount owed. It’s called taking a haircut.

So far, lenders are saying, “drop dead”.

Financial Times columnist Martin Wolfe says, “Maximum austerity and minimum reform have been the outcome of the Greek crises so far. The fiscal and external adjustments have been painful. But the changes to its polity and economy riddled with clientelism and corruption have been modest. This is the worst of both worlds. The Greek people have suffered but in vain.”

He is also describing nearly all bankrupt countries which includes all the Southern European countries and France (and many other countries around the world!).

The austerity has been forced onto the people but not onto the governments. Only one country in Europe has cut government spending. ALL other countries have increased spending. So no austerity there.

But many countries, including Greece, have raised taxes thus putting the burden of austerity directly onto the people.

Ruling governments are not willing to take the steps necessary to cure the problem which is overspending by government. They want to keep their cushy jobs.

The insanity is that they believe the solution to the borrowing they did to support government spending they couldn’t afford is, wait for it, to borrow more! Brilliant!

But, of course, the purpose of the borrowing is not to solve the problem but to extend the time that the ruling government gets to delay biting the bullet and cutting spending.

Europe is a basket case. Nonetheless, I am bullish on European equities due to the monetary flood coming from the European Central Bank. The rising tide will float our bank account!

 

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How To Profit From the Boom in India

By Courtney Smith

Dateline: New Dehli, India

I’m here in New Dehli and so is President Barack Obama. I’d like to say he invited me but he has no clue who I am.

He is here to blah blah blah. Snooze. Nothing will be accomplished but there will be some spectacular photo ops. I’m told by Indians that Michelle was presented with 400 Indian saris as a gift from the head of India, Modi. And all I got was this t-shirt.

India is starting to boom. There are two main reasons.

First, there is a very stable and sensible monetary policy under central bank chief Raghuram Rajan.

He has not been on the job very long but he has done a good job in lowering inflation and therefore interest rates.

Second, Modi is very business friendly and this is starting to pay dividends and will continue to pay dividends.

The business history of India is actually quite sad. At independence, the economy was dominated by the thoughts of Gandhi and Nehru.

Gandhi believed in extreme self sufficiency. He believed that everybody should spin their own cloth and make their own clothes. One big effect of this is that India threw up huge trade barriers to foreigners coming to do business in India. But this meant that Indians were not subjected to the rigors of a market economy and never had to compete on the world stage. This left them weak. Rich, because they had a huge captive market, but weak. There are few Indian companies that can compete around the world. Quick, name a product you know about made in India.

At the same time, Nehru was an avowed socialist and made the government of India the owner or controller of all the big businesses in India and created the biggest bureaucracy in the world thus stifling small business.

Over the door at the main government building in Banglore is the embedded inscription, “Government work is God’s work.”

I spoke to a hotel owner recently and he told me that he needed to get 80 permits every year to run his business. And they needed to be renewed annually. He had six people doing nothing but getting permits.

Why so many? It’s 80 new opportunities to collect bribes!

But does a country boom under such conditions? Clearly no.

Modi is looking to reduce a lot of this burden. He is looking to reform many parts of the economy such regulatory and labor reform. He wants to lower the trader barriers and lower taxes.

Some of his reforms have taken place and the economy is starting to grow.

This looks like a great opportunity for us to profit. His agenda is ambitious and deep.

His biggest impact will be on small and medium size companies because they are the ones most oppressed by the government.

The main stock index, the Sensex Index, is up 20% since this time last year.

But I prefer an ETF listed in the US that invests in small cap India stocks, SCIF. It’s up 50% in the same time.

The changes that Modi is putting in are powerful but will never be implemented quickly. So this bull market should continue for years.

I think that there will come a time soon where the market gets disappointed at the slow rate of change and the Indian market drops 20-30%. That will be a great to buy for the monster bull market of the next ten.

Still, I think we can money right now, be a little nimble when the disappointment comes in, and then buy again when the long bull wave comes in.

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Currency War!

By Courtney Smith

Dateline: Bangalore, India

Super Mario Draghi, European Central Bank head, has decided enough is enough.

He sees other countries like the US, UK, and Japan doing quantitative easing. He sees China doing it too. He doesn’t want to be left out so now he too is doing quantitative easing.

Why?

Orthodox economists say that lowering the value of a currency can jumpstart an economy but making the country’s products cheaper for export. True.

Europe’s economy is drifting along at about zero but with unemployment at astronomical levels. Spain alone has 25% unemployment.

So shouldn’t the ECB ease monetary policy and drop the Euro even further?

No.

It is true that exports will be cheaper and exporting countries will be able to sell more goods.

But importing companies will sell less goods!

More importantly the wealth of Europeans is being diminished. The value of the euro is now down almost 20% in the last six months which means that the wealth of europeans has been crushed by 20%. In just six months! Appalling!

So we can see that damaging your currency doesn’t lead to higher growth. It simply takes growth away from importers and the general population and gives it to exporters.

So, what is the real motivation of Draghi and the rest? As the Romans said, cui bono, who profits?

The governments of Europe are the big beneficiaries.

The savaging of the currency reduces the debt burden of the European countries by 20%! Europe is suffering mightily under the yoke of trillions of dollars of debt. Hammering interest rates to zero and debasing your currency are proven ways to reduce the burden of debt.

Further, Draghi says he wants inflation to go to 2% from the roughly 0% currently. Once again, cui bono?

The governments are the biggest winners if inflation moves to 2% because, once again, inflation is a tax on savers. It shift wealth from those who save to those who spend. And European governments are spending like a sailor on shore leave.

Major central banks are engaged in a currency race to zero. Virtually all the major central banks are running monetary policies reminiscent of Zimbabwe or a banana republic. All of them are trying to debase their currency.

They are all trying to push their currency to zero. It is the world’s biggest horse race.

The problem is that the “winner” is the loser. The country that pushes down their currency the most will be the once with the worst economic growth, the lowest standard of living, and the greatest potential for blood in the streets from riots.

The solution? Create a stable currency with no inflation or deflation. Cut taxes. Cut regulations.

This will cause the country to boom thus actually driving up tax receipts. More importantly, it will drive up the standard of living of citizens.

Governments have always debased their currency. Coin clipping is a venerable scam perpetuated by monarchs for thousands of years.

Quantitative easing is just another name for it. And the results will be same as before. There will come a time when there will be a crisis of confidence and a currency will disappear like the marks in Weimar Germany or the dollars of Zimbabwe.

We have not yet reached that level in the major developed countries that it is the inevitable result of currency debasement. We will see savers lose their savings and speculators get rich. But the average citizen will be savaged.

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The Zimbabwe School of Central Banking

The market hit new highs on comments made by presumptive Fed head Janet Yellen. More and more, the market is seeing Yellen as even more radical than Ben Bernanke.

Many people thought that Bernanke was a professor from Princeton. This is true. But few people know that he graduated from the Zimbabwe School of Central Banking. And Yellen got a Ph. D. from there!

I think they also both buy their clothes from Banana Republic!

Enough kidding. This is actually a very serious situation.

Massive easing through bond and mortgage backed securities purchases causes massive distortions but does not achieve what they say they want to achieve, lower unemployment.

They believe that their buying reduces interest rates which therefore causes people to want to buy houses which then leads to new houses being built and therefore unemployment comes down.

The problem is that they are trying to repeal the Law of Supply and Demand.

This sounds good in theory but not in practice.

Certainly, lowering the price of mortgages increases the demand for mortgages. Until May, we were seeing massive amounts of refinancing of old mortgages. The pop up in interest rates has largely ended that surge in refis.

But wait, there was no surge of new mortgages for new houses! How could that be possible, Mr. Bernanke and Ms. Yellen?

The problem is that the price is too low for lenders to be interested. Lenders look at mortgage rates around 4% and know that they cannot make money over the life of that mortgage. Inflation and taxes will eat them alive. Plus, of course, they have to also cover the cost of some of those mortgages defaulting.

So mortgage lending is very very slow largely because interest rates are too low for lenders to want to make loans.

In other words, there is no supply of mortgage money at the rates that Bernanke and Yellen believe should stimulate new housing.

They need to stop this insane policy and let the market adjust. It will heal naturally.

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Notes

Life is good.

I’m hanging at the Blue Water Grill in San Pedro, Belize. Lunch was a nice salad followed by a big fruit plate.

I’m literally on the beach. A couple of kids are playing in the sand. A couple of boats are drifting by in the distance.

Island music in the background.

My eyes are drooping from the relaxation. I feel like I’m going to turn into a lizard if I stay here any longer!

Wait, maybe life isn’t so good.

I’m about to take a plane up to cold New York. Don’t get me wrong, I love New York. But not when it’s freezing. Particularly when I’m coming from the tropics!

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How Binary Options Can Improve Your Trading Skills

I’m always excited to learn ways to improve my trading.

Our resident binary option expert, Abe Cofnas, was just interviewed on how to use binary options to improve your trading skills.

The blog, Trader Tech Talk, just did an interesting interview where Abe talks about binary options. Listen to it for some surprises!

Click here to listen to it: http://blog.tradertechtalk.com
I think you will enjoy it!

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Notes

I just returned from a trip to South Africa again. I was teaching a trading class there to over 350 people. This is a huge size for this class as we normally do much smaller classes in the US.

The point is that this shows how keen South Africans are to learn about trading.

Apparently, there are only a few people who teach investing in South Africa and they are not very good.

I was very impressed with the level of enthusiasm they had for investing. They seemed very hungry for the info!

I’m looking forward to going back there in January to teach two more classes!

We’re really making a push there as the market is very keen for our material. We’ve hired a South African and are setting up an office there. I think we are early to the market there as incomes are still low but I think that they are growing rapidly and I’d rather be too early than too late.

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Posted in Economics, Futures, Investing General, Stocks | 2 Comments

Japan is a Train Wreck

The latest insane policy to come out of Japan is that they are going to raise the countries’ sales tax from 5% to 8%!

Yes, the Japanese economy is starting to grow. But so is inflation.

Yet Prime Minister Shinzo Abe says it is needed. The New York Times reports that he is “citing the need to “maintain confidence” in Japan’s fiscal health and pay for the country’s growing number of elderly citizens.”

From the NY Times:
“If we raise taxes now, would consumption slump, and would the Japanese economy sink back into the deep valley that is economic morass and deflation?” he said. “I pondered these questions until the very end. But there is no road left for us but to grow our economy and to rebuild our finances at the same time.”

By combining a tax increase with government stimulus, Mr. Abe is signaling to global investors that Japan will start taking concrete steps to rein in its colossal debt and that it is prepared to take ample measures to shore up the economy.

Earlier this year, national debt topped 1 quadrillion yen, or $10 trillion, for the first time — more than twice the size of Japan’s economy and larger than the economies of Germany, France and Britain combined. That level of borrowing raises concerns that investors could one day lose confidence in Tokyo’s ability to service its debt, which could set off a crisis with grave consequences for the global economy.”

This will fail.

Yes, the government needs more revenue. But raising sales tax will lead to less sales.

I have a principle. If you tax something, you get less of it.
The principle means that there will be less sales as a result of the tax hike. This means that there will be a near recession coming in Japan after that tax hike.

I’ll monitor the situation closely to see if the staggering of the economy will create a trading opportunity. Normally, I’d be looking to sell the yen, Japanese stocks and buying Japanese bonds.

I’ll keep you posted!

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  Notes    

I’ve never spent very much time in Japan. The weather sucks. It seems like it is always cold when I am there.

Yet, there, in the distance, is the magnificent Mount Fuji. I find my heart leaps every time I see that beautiful mountain.

I love Japanese prints by Hokusai and Hiroshige. I love them for their subjects, color, design, and odd perspective.

Few people realize the impact these prints had on western art.

I saw a remarkable exhibit at the Vincent Van Gogh museum in Amsterdam.

What they showed was early paintings by Van Gogh. What was remarkable were his copies of Hiroshige prints. He literally learned to paint largely from copying Japanese prints! Once you know that, you can start to see the influence even on his later work. Clearly his use of color and texture are very different from the Japanese prints but note that his perspective is very similar.

It gave me a completely different perspective on Japanese prints and Van Gogh. I love them both and the exhibit opened my eyes to a new reality and actually deepened my appreciation of both.

Posted in Economics, Investing General, Politics | Leave a comment

Why The Market is Like a Texas Sheriff

I had long hair and was driving a Volkswagen van. Yep, a total cliche of looking like a hippy. Well, I was a hippy so I guess that was to be expected.

I was driving as fast that that old 1957 microbus could take me which was not very fast.

All of a sudden, I heard the sound of a siren and saw flashing lights in the rear view mirror.

WTF!

I’m not speeding! My VW can barely go the speedlimit let alone speed in West Texas!

I pulled over. The cop got out and sauntered over to my window.

“I want you out of my county right now. Don’t stop driving til you get out of my county.,” he said succinctly.

I mistakenly blurted out, “But I didn’t do anything!”

“Your tail light is busted.”

“No, its not!” and I got out of the car and went to the back of the car. The tail light was fine.

He sauntered back, stopped for a second, and kicked out the tail light.

He blandly looked at me.

“Thank you, sir, for alerting me to my busted tail light. I’ll get it fixed in the next county!”

The point: you can’t fight the market. No matter how stupid, manic depressive, compulsive, or just plain wrong it is.
It will always win. It is too big to beat.

Our job as traders is to simply look the market plain in the eye and say, yes sir, I’ll go short XYZ. Yes, sir, I’ll go buy some ABC.

That is the way to make money in the market.

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Notes     

I was in Hong Kong last week on business.

I was staying at the Hyatt Regency in Sha Tin, which is on the outskirts of Hong Kong.

Across the street is the Sha Tin Race Course. This is the secondary track in Hong Kong.

The biggest race course in the world is right in the middle of Hong Kong. It’s called Happy Valley. Betting here is crazy!

The amount of money bet at Happy Valley in a year is more than all race courses in the US combined! They love their racing here.

I love Hong Kong! I love just walking down the streets because of the great energy on the streets. I’ve only felt that in two cities, Hong Kong and New York. Partially it is the jostling of people on the street. Partially it is the focus of the people on the street. I always feel that Hong Kongers and New Yorkers are on their way somewhere to accomplish something important.

Is this a great tourist town? Not if you want to go to museums. This is a city all about the living. Some people believe this is the best eating town in the world.

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Why The Fed Will Not Taper Soon

The market was shocked last month when the Fed declined to cut their monthly bond buying. The Fed has basically said that the economy, especially the labor market, is not strong enough to stand on its own feet. Inflation is low enough that they feel that they can safely continue to keep money supply growing.

The market had felt that the economy was doing well enough to cut back the stimulus. They were wrong.

After the Fed’s decision to not taper, the market thought that they would start the taper at their next meeting.

I’m coming to the conclusion that the Fed will not taper soon.

The current shutdown of the government will likely go on for another week or so, perhaps longer. The debt ceiling will be supposedly hit on October 17. As the shutdown continues, it starts to run into the debt ceiling. Right now the debt ceiling is not on the radar screen of the Mainstream Media. Only the shutdown counts right now.

But the longer the shutdown continues the more likely it will be lumped together with the debt ceiling fight into a Battle Royale about the role of government and spending policy.

I believe that they will find a solution at or about the date of the debt ceiling but I am afraid that both sides are currently digging in their heels and that will lead to a brutal fight around October 17.

As you know, I pay a lot of attention to seasonal price tendencies. This year, the normal seasonal calls for a 5% decline in October. The fight over the debt ceiling may be the trigger for the decline in the market.

I think the market has discounted the shutdown and it will no longer affect the market unless the shutdown drags on for another two weeks.

I am still long the market and enjoying the ride!

But I’m very nervous about the prospects for a 5% correction. As a result, I’ve got my finger on the trigger of my hedges. I’m using puts on the etf SPY. They are cheap right now. I’ll trigger the hedges if we see a slight drop in the market.

I’m long but nervous.

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Posted in Economics, Investing General, Politics | Leave a comment