from DeatCatsBouncing

..great article..great analysis..great source..

Recession is spreading faster than Bird Flu…

We have reached a disturbing moment in financial markets, where the noise to signal ratio across all asset classes is probably at an all time high, the August effect notwithstanding. Never has it been more important to adopt a strategic mindset to investing, rather than stampeding after the latest momentum trade without a shred of conviction. I’ve been a skeptic on economic decoupling, and had bet the right way on the dramatic reversal in the dollar (where I strongly suspect we saw discreet US intervention last week, possibly as a quid pro quo to the Gulf States/Saudi for maintaining their dollar pegs after recent visits by Hank Paulson). I’d advised a short on oil and other commodities, where the deteriorating outlook triggered a sudden slump, but I fear that equity markets are still dangerously complacent as to the risk of the brakes slamming on global growth. We will probably reach a tipping point in the next couple of months when the grim outlook for 2009 becomes inescapable and triggers steep earnings downgrades for non-financials and potentially a market panic. I predicted months ago that Japan and much of the Eurozone would be in recession by year end, and that China would see growth slump to mid-high single digits; these views are now becoming consensus. Countries from Estonia to Denmark are now officially in recession, while Spain, Italy, the UK and Canada are a one way bet. Overall, growth is slowing faster and more widely that I had feared, making recent IMF global growth forecasts of 3.9% in 2009 (down from 5% in 2007) look wildly optimistic. I’d take half that and be grateful. Deflation will be the new buzzword before long. The debate as to whether the US is technically in recession using NBER criteria is sterile (I believe one effectively began 6-8 months ago); the key is that recent GDP numbers have stayed positive only thanks to net exports, and exports will now come under pressure as emerging market investment spending slows. Meanwhile, we are at the beginning of a structural downshift in US consumption; personal consumption as a % of GDP reached over 71% in recent years driven by equity withdrawal from housing, against an average from 1975-2000 of 67%; expect at least a reversion to that mean. Policymakers are running out of options; only 10-20% of the recent tax rebate checks were spent, the Fed balance sheet is stretched to its regulatory limit and full of toxic credit sludge swapped by investment banks who are then recycling those Treasuries to feed the leverage appetite of their critically profitable hedge fund clients. The Fed has become the biggest Prime Broker in the world by default. Subsidising overconsumption and overtrading just make the core US economic imbalances worse; ultimately, I’d expect a new ‘New Deal’ involving huge infrastructure/energy diversification spending and $1trn plus deficits to fund it. Having sucessfully traded extreme oversold conditions in financials since mid July, capital preservation will be the priority in the next few months. I will be closing out all my equity positions in into what’s left of the Bear Rally, and buying deep out of the money equity index puts (options are surprisingly cheap given the low VIX), as an insurance policy. If I had to stay invested, consumer staples and healthcare should outperform further. A near term Bull Trap rally in commodities is likely, before the reality of slumping demand in 2009 sees the move I’ve forecast to about half peak levels for most. Agricultural commodities are an exception, having already corrected up to 40% and with structural demand underestimated (see Food: What’s the Chinese for Big Mac?). It is quite possible that incoming housing data will flatter to deceive on the upside, as foreclosure criteria have been relaxed by many banks under regulatory and political pressure, but I’m concerned that the Superprime mortgage market is the next blowup as white collar job losses grow. I’m no Gold fan as regular readers will know, and recent technical damage to the bull case is brutal, but at around $800 those so inclined may well take advantage of the steep selloff to profit from a spike in risk aversion in the Autumn. The wreckage of a real free-fall panic, creating some bargain valuations, will throw up wonderful opportunities for a cash rich investor.

Gooossshhh!

OFFICIALY my demonstration account is already wiped out..

My Risk Parameters were crushed some 450 Pips ago on EUR/USD positions and around 80$ @ Gold.

I had a plan to hedge but changed my plans in-between after opening the hedges and got hooked to my belief that the fundamental factors of the US economy never ever could allow the dollar to rally that much in the last few weeks.

Adding to these immense faults ,I had Price action screaming at me to short the Euro at around 1.5800. I even had a short open but closed it for a lousy 70pips because of the foregoing argument.

In retrospect I could have handled everything in a logic manner as my plans were prepared and sound.But overwhelmingly I feel that one reason stood out the most and that was that pleasure and pain of just being in the market.Like a Pavlovian dog or like a mouse trapped in an lab,I had to get my daily dose and ignored clear signs which were against my “belief”!

To this subject let me quote Jesse Livermore once again from Chapter V of his “Reminiscences of a Stock Operator”

“And right here let me say one thing:  After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this:  It never was my thinking that made the big money for me.  It always was my sitting.  Got that?  My sitting tight!  It is no trick at all to be right on the market.  You always find lots of early bulls in bull markets and early bears in bear markets.  I’ve known many men who were right at exactly the right time, and began buying and selling stocks when prices were at the very level which should show the greatest profit.  And their experience invariably matched mine – that is, they made no real money out of it.  Men who can both be right and sit tight are uncommon.  I found it one of the hardest things to learn.  But it is only after a stock operator has firmly grasped this that he can make big money.  It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.”

I think that I can say without much ego-polishing that I can identify the nature of fundamental trends quite early and my study of price action allows me to see good entry points to make use of them and should be able to make some good money with my forecasts. But being right and then trading right is an entirely different game.Patience is the key..and I have to learn it ..the best way is pain isn`t it ?

For example through my study of monetary history of hundreds of years of mankind marketplaces, I “knew” (very determined) that gold would go to 1k/oz and still “know” that gold will go to new highs a short few years from here.(Preserving wealth and/or enriching it..depending on your leverage)

But life is patient with me it seems and did not allow me to invest money “one cannot afford to loose”.Because now I know I would have lost it..and being right and loosing money is ,in my humble opinion, the worst pain a trader/investor can feel in his breast.

okay lot’s of I’s here :D Please wish me patience for the next try..I need 6 positive month before going live..

I will wait some time for my margin call (which will eventually occur) and then plan for the second public try.

Have a great weekend! I will ;)

Here some statistics for anyone interested..around 50% win/loss ratio in the middle of my second year is not that bad ,isn’t it?

…(of course there are still positions open..maybe they come back ;)

nearly 6 Month of Trading here->

Click Pic to enlarge

“Nobody should be puzzled as to whether a market is a bull or bear market after it fairly starts. The trend is evident to a man who has an open mind and reasonably clear sight, for it is never wise for a speculator to fit his facts to his theories.”

Jesse Livermore

Following News Via Cryptogon ! The folks over there do an superb job and everybody can see it by the height of their monthly donations! I really have big respect for them!

Secret EU Security Draft Proposes Sharing Vast Amounts of Intelligence and Information on Europeans with the U.S. to Form “Euro-Atlantic Area of Cooperation”

China Tightens Currency Controls to Curb Inflows

Data Revision Reveals Almost Half of NYMEX Crude Oil Futures and Options Positions Are Held By Speculators

AIG WHACKED

American International Group Inc., the biggest U.S. insurer by assets, fell the most since going public in 1969 after writing down more than $11 billion of holdings and saying it won’t rule out raising capital.

Jobless Claims Rose to Their Highest Level in Six Years

And here one of the best Articles i have seen since a long time->

via FreetheMarketMan

Getting Closer to Debasing the Currency

by Thorsten Polleit, who is Honorary Professor at the Frankfurt School of Finance & Management.

I really love Rothbards Book! It`s an must for everyone interested in economics!! GO BUY IT!

and finally please watch this amazing trailer->

I made a quick 95pips on a GPB/JPY short today,but my Gold and EUR/USD positions are still way in the red..

After the NFP and Unemployment Rate are now priced in and the Euro showed some strenght after the first sell-off on those news, I added another EUR/USD position.

The longtermtrend is UP and the Cost of bailing out the US Financial System will drive the Euro much higher soon .(in my humble Oppinion!)

I also search for Options to add to my Gold positions..but this could need some more time.

Have a great weekend!

via Cryptogon/Reuters

Check out the chart, if you dare.

Banks borrowed a record amount of funds from the Federal Reserve in the latest week as the year old credit crisis took a persistent toll, while the commercial paper market continued to contract, signaling tough conditions for short term borrowers.

Banks’ primary credit borrowings averaged $17.45 billion per day in the latest week, the second straight week this had hit a record and up from $16.38 billion the previous week, Fed data showed on Thursday.

“It shows there’s a shortage of liquidity in the system,” said Christopher Low, chief economist at FTN Financial in New York.

Secondary credit the Fed extended, which is usually taken out by banks in need of emergency cash, rose to $89 million in the latest week, from $34 million the week before. Although these numbers are still very small compared with primary credit, “What that tells you is that there’s an increasing number of banks that the Fed is classifying as ‘unsound’ or inadequately capitalized,” Low said.

Analysts may watch the trend of secondary credit closely, given the travails of U.S. regional and smaller banks and the likelihood that a continued decline in house prices and rise in foreclosures and bad loans will deepen the difficulties of the banking sector for many months or years.

by Ron Paul who is a Republican member of Congress from Texas.

Statement before the US House of Representatives Financial Services Committee, Full Committee Hearing on “Implications of a Weaker Dollar for Oil Prices and the U.S. Economy,” July 24, 2008

Mr. Chairman,

The root of our current economic malaise, the weak dollar, the high price of oil, and the collapse of the housing market, comes about because almost no one understands what inflation is. Inflation is an increase in the money supply, which occurs by various methods, the printing of currency, low reserve requirements, Federal Reserve open market operations, etc.

In Germany in the 1920s, South America in the 1980s, and Zimbabwe today, everyone recognizes that inflation was caused by the government running the printing presses non-stop, with the resulting exponential rise in prices being the necessary result of monetary growth. Yet somehow, both the empirical and theoretical reality of inflation as a rise in money supply is ignored in this country. Inflation is conflated with price inflation, the increase in the overall price level, and is viewed as something both endogenous to the market economy while at the same time influenced by exogenous price shocks.

Because no one understands that inflation is growth in the monetary supply, no one is able to combat it effectively. We hear all sorts of hand-wringing about increasing inflation, and all sorts of explanations about how rising oil and food prices will make inflation worse. At the same time, the fact that MZM, the closest approximation to total money supply that still is reported by the Fed, is still rising by almost 15% per year and that M2 is rising significantly as well is quietly ignored. The pundits have causation backwards: it is inflation that leads to rising prices of oil and food, and not vice versa.

Until the cause of inflation is understood, no effective strategy can be undertaken to combat it. The problem, however, is that the government does not want inflation to be done away with. Inflation benefits debtors and harms creditors, and the United States government is the biggest debtor of all. The United States government, the banking monopoly under the Federal Reserve System, and politically-connected firms and industries are the first entities to take advantage of new money injected into the system, before prices increase. As the increased supply of money begins to chase the same number of goods, prices rise, and the average American suffers. Poor and middle-class Americans are always the hardest hit by inflation, as the weakening dollar makes the imported goods that many Americans depend on more expensive.

As Chairman Bernanke admitted last week, inflation is a tax, and it is the most pernicious because of its hidden nature. It taxes the very purchasing power of money, and because the inflation rate in recent years has generally been low, its effects often take a while to manifest themselves. Now that inflation is beginning to rise, more and more rhetoric is being spun to hide the government’s role in creating inflation. I applaud Chairman Frank for holding this hearing, as hearings such as this one investigating the link between the weak dollar and the high price of oil are more important now than ever.

3 Quotes this time ->

“With the monetary system we have now, the careful saving of a lifetime can be wiped out in an eyeblink.”

Dr. Larry Parks

“It is natural for man to indulge in the illusions of hope. We are apt to shut our eyes against a painful truth, and listen to the song of that siren till she transforms us into beasts… For my part, whatever anguish of spirit it may cost, I am willing to know the whole truth, to know the worst, and to provide for it.”

Patrick Henry

“If the truth is that ugly — which it is — then we do have to be careful about the way that we tell the truth.
To say somehow that telling the truth should be avoided because people may respond badly to the truthseems bizarre to me.”

Chuck Skoro Deacon, St. Paul’s Catholic Church

All via Cryptogon!

Ford’s Worst Quarter Ever

Homes in Some Stage of Foreclosure Increase 121%, 25 Million U.S. Homeowners About to Go Upside Down 

FDIC SEIZES TWO MORE BANKS: 1ST NATIONAL BANK OF NEVADA AND FIRST HERITAGE BANK

And here the ultimate bad news (and a bit late ;) ->

The overall US Bank Losses of 450 Billion USD are just the beggining.

I assume they will quadruple and more very soon!

National Australia Bank Writes Off 90% of Its U.S. AAA Rated Debt

The National Australia Bank’s decision to write off 90 per cent of its US conduit loans will have dramatic repercussions around the world. Wall Street will be deeply shocked when they understand the repercussions of what NAB has done. It is clear global banks have nowhere near provided for their exposures to US housing loans which in the words of John Stewart are experiencing a “meltdown”.

We are now way beyond sub-prime. NAB says that it is suffering a 55 per cent loss on American housing loans – an event that has never happened in the history of a developed country in recent memory. This is an unprecedented event and means that the cost of bailing out the US financial system is now far beyond the highest estimates. A US recession is now locked in, but more alarmingly, 55 per cent loan losses point to the possibility of a depression.

It means the cost of bailing out housing exposures to the two mortgage insurers will be so great that it will leave no room to bail out anything else and there are several US banks that are now in big trouble. NAB says that the dislocation in the residential market is separate from the corporate market, but the flow on is inevitable.

While global banks have been writing down their balance sheet assets, few have tackled their conduit exposures which are off balance sheet but to which they are ultimately liable.

This morning at around 6am I wrote that we had been experiencing a ‘dead cat bounce’. I had no idea that NAB would trigger the downturn and confirm what I had written. And of course Wall Street will receive a deep shock when it wakes up.