America knows how to party

Worldwide Markets Crash ! For days on days without end ! The decoupling theory is dead ! Everybody panic !

The US markets were closed Jan 21 (MLK day). Last week and the week before I said I would sell off some Asia funds. I was just ... waiting for that bounce. I hate mutual funds. I wonder what the NAV will be today. Not pretty. Forget bounces. You can always find safer conditions to make that 4% or whatever bounce. If the thing is moving down, its likely to keep moving down. Yes, there will be a bounce, but only after you sell it. (they can sense fear).

So, the US will crash today. Futures screaming down. Foregone conclusion. Here we go.

On Jan 5th when the jobs report came out way under expected levels (5% unemployment) I just knew what would happen that day. Its would go down. I bought QID (double short the NASDAQ 100) on the open, sold it at the end of the day peak and made $650. Very pleased with myself.

Today, Jan 22nd I figure I'll do the same thing, but you can never be sure. The market opens screaming red, QID already +8%, SKF (short the financials) is +10%. Damn, its already priced in.

Then, Uncle Ben gave us 75 points so we can all go out and get drunk on cheap credit for a little while longer. I understand, he needed to. The stock market may be overvalued, and it may need to move lower, but it can't move lower that fast. That instability will cause financial institutions to fail, and that cascades into the whole economy. Still, I want to short the financials. Just out of ... shadenfreude.

So the market opens and begins to rally.

SKF went from +10% on the open to -10% at one point ! (MBIA) is up +40% because Barrons said "well, they aren't nearly as fucked as Ambac" ! LDK was -15% pre-market, -4.3% by lunch. I did not make any money on these moves.

But now where ? Its lunchtime. Nobody really knows. The VIX (CBOE volatility) is high which means shit is choppy. Right about now I would prefer a nice soft undulating wave in a quiet industry.

But I get the feeling this is the turning point in the plummeting.

The markets (US and Asia) are oversold. Its certainly not the time to short the market. It would be the time to happily take your shorts off the table.

The smartest thing to do now is to buy, but just a bit. The next few days could go up or down. Things may be cheaper later, but they are cheap now. Either way things will go up at some point, and they may even rage up for the rest of the week. So its time to accumulate.

Ron Paul and the Gold Bugs

I am bemused by Mr. Ron Paul. Let's just say more bemused than I was by Ralph Nader, and for that same reason I'm glad that RP is a Republican and not a 3rd partier.

http://www.thestreet.com/s/ron-paul-get-back-to-gold/markets/marketfeatures/10397859.html?puc=_dm

The problem with going back to the Gold Standard (which is not going to happen) is that the global economy dwarfs the amount of physical gold. I think they used to use a factor of "9 times the amount of physical gold". So what would they do now ? 1000 times ? Inflation would still exist.

In the interview, the congressman also said he thought different currencies backed by precious metals should be legalized and allowed to compete with each other. In particular, he suggested that the exchange-traded funds that hold inventories of bullion, streetTracks Gold Shares (GLD) and iShares Comex Gold Trust (IAU), could issue certificates that could be spent as money.

Competing currencies would also legitimize Liberty Dollar, an Evansville, Ind., company that got in trouble with the FBI and the U.S. Mint for making its own solid silver coins, some stamped with the image of Paul. The firm was raided just before Thanksgiving and all materials were confiscated, including the Paul dollars.

Paul acknowledged that competing currencies could only occur with substantial changes to the criminal law and the tax code. Currently, it's illegal to try to spend precious metals coins as if they were currency, he said. The tax code also means that the changing dollar price of gold creates taxable capital gains. That's something which would need to be repealed, he says.

None of that is going to happen. I think he is only running to publicize ideas, which is a good thing.

Maharishi Mahesh Yogi (International Transcendental Meditation, friend of the Beatles) has issued his own Raam currency for many years. It is tolerated in the Netherlands as a small scale alternative currency, though the gov't occasionally warns against its stability.

Hedge funds suck the alpha out of the mutual funds

The crazy volatility we have been seeing over the last year has, I think, been amplified by hedge funds that react very quickly, by automated trading strategies that don't mind taking any trend (up or down) and running with it hard. The quants and the agile and the traders have been making money, and the effect of this is that volatility is increased and encouraged.

Long only mutual funds, buy and hold strategies and index funds are going to suffer badly. Hedge funds will take all of the alpha out of the system. Owners of antiquated mutual funds (the mom and pop retail investors out there) are going to suffer.

But then the market is going down, so they will expect to suffer. They (average people) may not realize until its too late that this really going down.

Traders (like me) will make money. I hold very few things right now. On friday (Jan 4th, 2008) I bought 350 shares of (QID) (double short the NASDAQ) on the open and sold it at the very end of the day at its peak. +$589 for the day. That paid the rent.

I have two asian mutual funds, and I will be selling some of that off. Personally I expect further pullback in China, though the longer term is obviously still up. I'll be there in an ETF when that restarts.

Relatively safe ETF picks for the start of 2008 :
(SKF) short the financial sector
(SRS) short the real estate sector

The Central Banks, how money is created

Here's another must see, a 5 part animation and narration about the history of money, how money is really created and what the dangers are of our current money system.

Suitable for all audiences. If your a free-market-at-any-cost freak, then this will annoy you. Watch it anyway.



The odd thing is that money is created from debt. If you get a mortgage, that money is created by your obligation. The gov't only creates coinage, the banks create the money. Without all this debt, the world would have less money in circulation. So Bush is thinking, "OK, let's make money ..." and gets out Uncle Sam's credit card again.

(Sidenote: serval hundred billion physical US dollars are outside of the US. most virtual US dollars are definitely outside of the US, right ?)

The clincher is when it is explained that this debt only creates the money in the world to pay the principal, and then we all have to squabble to find the money to pay the interest.

So the existence of interest demands the economy grow (or inflate) to meet that. Which means the world has to continually grow its economy. Oh wait, then there's all the fucking, and that 's what creates all these people and really creates the need for growth. Hmm. OK, we have to find new worlds to inhabit.

2, then 3,4,5 :
http://www.youtube.com/watch?v=hfXavRTM4Fg

Market makers vs. the scalpers

This is a demo of FutureScalper software. It reminds me of Harold and the Purple Crayon.



(YM)

The interesting thing to note here is his commentary on what the market makers are doing and how much they are controlling these 10 minute oscillations. They are filling inventory and then selling it out again. They are aware who the retail people are, and yet many of the retail traders can't follow the market maker's intentions. FutureScalper seems to have some way to pick out who is who. I'm not sure how yet.

A friend of mine— a well known acid house producer — surprised me by telling me he used to be a runner at the CBOT. Like actually running back and forth, making markets. He explained that if you had any math skills like say any average drug dealer might, then it was pretty easy to make loot.

Scalping isn't the most glamorous end of the financial industry. They are essentially bandits, enabled by the electronic trading networks. They don't really serve a purpose in the eco-system other than providing liquidity. None of them has any opinion on the things they trade, they go with their friend the trend.

The market makers well organized bandits. They also provide liquidity, and they charge dearly for it by maintaining the bid-ask spread. And they keep things difficult for the scalpers which is good for everybody else. It shouldn't be easy or everybody would be walking off with the world's financial resources. They do maintain order in the markets, but I'm sure they do plenty of dirty work too.

Most stock traders do a lot of analyzing, arguing and fretting. The company's weaknesses get exposed and tested, and that's good. Its like having a lot of very motivated amateurs checking your work for you. Its probably annoying too, but these guys can also get all irrationally exuberant on your behalf, and then you get market cap. Then they sell and walk away.

OK, here's another thing scalpers do: most of them fail or take a long time learning. Many of them fail to beat the market. So the market takes their gambling cash.

In the end the hedge funds siphon off all the alpha anyway. ;) right ?

How big money manipulates the market

Jim Cramer — at least he's honest. I usually see stocks plummet shortly after he gasses them up. Here's a classic clip; he's explaining how some hedge funds operate. If they have options expiring and the underlying is not at the right price, they would try to talk the stock down, and spend some money shorting it ($5 million he says) or get some analysts and press to play up some bad gossip.



He also notes that for not too much money you could get the future market to go up or down in the morning so that the obligatory "futures up, stocks set to open higher" headlines can get run. So pay no attention to those. In fact it might be just to get things optimistic, get the buyers in there and then whoever is running the operation for the day can pull the plug on the market and suck down all the suckers.

Moral:

• If big money is doing something, get out of the way or find a way to ride the wave.
• Don't take news at face value.
• Even if you are only trading equities, you should know what the options markets are doing. A lot of big money is there and it has a deep effect on the underlying. More on that later.

Artha - the pursuit of wealth without attachment

The name Artha comes from one of the four goals of life in Hinduism. It is the pursuit of wealth. Wealth is necessary to live. Splendid things are splendid. Mankind has pulled off some amazing things through Wealth. Good and positive things can be achieved with wealth.

This is a blog about finance, stocks, options, day trading, markets, issues, morals, implications, technique and specifics.

Artha is the pursuit of wealth without attachment; without losing your mind and soul in that pursuit. Greed is not the pursuit of wealth, it is another concept entirely. Greed causes you to make mistakes in a trade because you lose perspective.

Wealth is good. Desire and the pursuit of wealth is good. Its the driving motivating force behind many of the amazing achievements of mankind.

Greed is not good.

One of my favorite slogans: "You don't have to fuck people over to survive." This doesn't mean you don't compete or even aggressively compete. Struggle and competition is part of human existence. If you install a market into a small agrarian economy it dramatically increases the wealth. Trading is everywhere, even in art.

But you don't have to destroy somebody else just to obtain slightly better margins. And you certainly don't need to run an economy based on short term margins while setting the stage for massive financial disaster once you move onto your next job. The finance industry naturally attracts lots of people who really don't get that.

And in case you are wondering, the other 3 pursuits in the life of a Hindu:

Kama - desire, especially sexual desire. There is a book called the Kama Sutra. Perhaps you have heard of it. Desire can also get out of control and transform into lust and make you do all kinds of stupid shit. But sex and desire are a strong component in Love, and people ... Love is good.

Dharma - in this context it means religious duty, or the path that you are obligated to follow to transform your life and your world. It also refers to the technology of freeing yourself from attachment.

Moksha - salvation, the cessation of delusion. aka Nirvana. In the classical life of a Hindi you focus on Moksha in your later years; sometimes even taking a vow of poverty (leaving the Artha to your wife and going wandering with a begging bowl). The experiences of wealth and desire teach you why you need to be unattached, why your head and soul need to be clear. In the world of stock trading this means getting your ass burned by your own attachment and stupidity. That is one reason why involvement in the world is necessary during your life. You can not immediately go for nirvana, you have to live a little, get burned a little, get your heart broken a few times and understand how the mechanism of desire works. Only then can you escape it.

Wealth is not an impediment to self-realization, but attachment to wealth is.