Sunday, October 17, 2010

Asset = Liability, Good = Bad, Wrong = Right, QE = Deflation, Up = Down

Well, here we a world where what thing look like is not necessarily what they, the market is very difficult - it is unable to trend as opening prices and close prices are a virtually identical everyday, we get almost no intra-day direction - just volatility and chop. Moves are generally coming overnight and then chop most of the day.

We have overshot logical and normal resistance levels such as my 1.272 levels at which I look for reversals and gone parabolic. I know that this has been a very frustrating market for people to trade. What is even more frustrating is that the market has actually not moved much either in the last 30 feels like it has made a much bigger move than it actually has. Though on indexes like the Russell and Nasdaq we have had supstantial moves. The market as a whole has not however. Below is a snap shot of a month of trading for the that time all the candles are heavily overlapped and we have risen roughly 30 points...that's a little more than one or two good trading days for the SP...and all this while the largest QE effort in history (not to mention deception) has been in full swing. Impressive, Very Impressive, indeed. Below is a snapshot of those 30ish points:

So, I likely will post some charts later as to what my systems are doing with this market. Currently, daily and weekly systems are short. Weekly's and some daily's added short contracts on Friday, so they are short ES, TF, EMD, EURO and NQ. Also, weekly systems are now long the dollar.

Several interesting points regarding this market. The volatility indexes directly diverged and are not confirming the momentum in the markets - nor is breadth or many other secondary indicators I watch. The reality is that everyone and their brother is now looking bullish over the longer-term and thinks that QE will kill the dollar and create hyper inflation. All I hear about is discussion of "Inflation". You can see what I am talking about by reviewing my post "Some Objectivity" and "Coordinated Deception" regarding David Tepper's CNBS appearance.You can see what has happened to his arguments is the Appaloosa Portfolio and below is a list of holdings.

The reality is the if you refer to my "Ending Well" post...we have breached the primary trend line and Bernake and his accomplices have proven once and for all that they will stop at nothing to prop up inflation assets as the expense of the economy and individual Americans no matter how risky the strategy is.So the stage is now set for the worst case scenario which I was hoping would not happen. So, the downside risk/targets for the markets are much greater accordingly. Trust me, this issue is not lost on businesses and investors who now know that they will have less demand from the consumer combined with higher overall costs if Bernake's plans were to work. I can assure you that if someone were to attempt to do financial mediation for me personally and the result was less income, higher expenses and the small potential that some of my assets would rise in value due to inflation, I would not think very highly of that person. Bernake is an amature and a failure. Please also read (A dog with fleas, Insurance ...scam of our age...)

Now on to the next subject. If QE is really in full swing will it create money? My answer is no. What QE creates is levitating or rising inflation asset prices, in this case nearly ubiquitously for banks and very large corporations and no one else. That money has a very interesting way of vanishing as soon as the mystery buyer is no longer there with a bid. QE would have the potential to create money "IF" it were to create true inflation by influencing the risk taking of individuals and small business. That would have been much easier to do ironically than to prop up banks - and by the way, it would have also resulted in much more support for the banks. But QE is not for individuals its for cronies. The reality is that QE is creating deflation - massive deflation because it is creating more debt and risk on the part of already insolvent and unstable enterprises. There is NO velocity of money and QE will not do one thing to create any. Just like Obama's 500,000 a month job projection that the he and his administration were pumping early in the year...QE will never make it will never happen. In fact, the opposite will happen. Expectation is for inflation or hyper inflation but we will likely get D-E-F-L-A-T-I-O-N and much higher real interest rates! This is what this post is about. Now, the masses and equally the guys with the bazookas think that things will happen that defy reality and that an imaginary outcome can be projected on reality...this will likely be, once again, a sore disappointment. However, I am sure that there will those who will be nicely enriched.

Most of the time in my life when I looked for the answers where I thought they were or followed the crowd, I got exactly what I deserved - nothing, or better, less than nothing. The reality is that if you expect the obvious, you all to often, end up pushing the same stone up the same hill as everyone else...the results are obvious only not to you while you are pushing that stone. One of the things that people are doing now is fearing change overall. I know Obama was supposed to be change, but we can see how that has turned out...more of the same. People are fearing allowing failure for fail. They fear those results rather than allowing things to rejuvenate by being based on a constructive foundational premise. The reality is that I see many people still touting the concept that an asset is valuable and that a wrong can be made right. I think it would be much better to think differently rather than trying to project an outcome based on past experience.

While failures are a primary instigator for innovation. One must first accept the failure and then move on to build an organic and foundational reaction. One must be willing to accept that a premise or expectation may have been 180 degrees off course. That is where we are today - 180 degrees off. This is, ofcouse, because when one looks at the world, there are assumptions that are made that have very little to do with reality. These assumptions are usually colored dramatically by our projections of expected outcomes.

For example, it is easy to expect a dessert to be "good" when you are eating it and looks and tastes well. Yes, its a nice finish to a meal. However, several hours later if you are worshiping a porcelain throne...that same desert seems pretty bad. While we entertain one side of an expected outcome we often are reticent to pay too much attention to the less desirable one that's lurking.

What is ironic about this is that for many years people have played this kind of charade by investing in "ASSETS" that are really liabilities. A house is a liability not an asset. A car, a commodity, a collaboration, a business, a stock, a marriage are capable, with just one slight change in polarity, of transforming from things which you want and view as positive to things that you don't want and that view as negatives and wish you never had.

For example, basic materials companies, well if Apple computer keeps selling computers and people need to maintain, build, expand or renovate facilities that they currently use, obviously companies that own copper, aluminum or steel mines and production will have assets that are required to keep society going. This is a such a fundamental argument that its is incontrovertible. In this case, steel is an asset, aluminum is an asset, copper is an asset and the facilities to mine them, produce them and deliver them are assets. However, as soon as the demand for new materials is reduced, people will rely on existing supply and prices will drop. It has happened many times that core Basic Materials companies have gone bust because the reality is a Mine is not an asset its a liability. When the prices drop below the cost of maintaining that liability, the reality is that insolvency can blow up the strongest basic materials company or emerging markets economy faster than any expectation could envision.

This is where we are, we envision a need for humans to constantly expand, produce and multiply. Those expectations are rather silly when we think about them. People tend to expand and produce and multiply very well after they have consolidated and reset their expectations. That means that, we have the capability to contract, reduce and reuse much more than we think. If that is possible, its also possible for basic materials to drop below the prices of production...which would be gigantic shift in reality...and not necessarily a negative one.

As I see it we need to be prepared for the opposite of our social and governmental expectations or projections. The fed's and government's actions are creating a prime foundation for us to get exactly that. If QE actually increased the volume of money that would be called a success...but what if it were to drastically decrease it? I know that seems implausible because the Fed is printing supposedly new money. But its not new money - its new debt (debt money) and the collateral that is supposed to be propping it up has a funny way of collapsing when there are no more mystery QE is setting us up for the opposite of our most comfortable expectations.
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