Friday, August 27, 2010

Do as they do...media promoting the bullish view again...suprise

James Altucher has to be one of the least thoughtful and insightful media guys out there, apparently he thinks he's a PM (Portfolio Manager) too...I guess he will go the way of Insana, Kudlow and Cramer...PM in the past tense - promoter in the present...Just watch this drivel and be-careful not to pay too much attention.

Thursday, August 26, 2010

SSO 34 RVS 2.0 covers great shorts

The department of Treasury is hard at work...

A Treasury Department inspector general reported in June that, out of 2.6 million applicants for federal mortgage relief, 14,000 "home buyers" wrongly received tax credits and that in fact, 1,300 of them were living in prison at the time of filing, including 241 serving life sentences. Sixty-seven of the 14,000 received tax credits for the same house, and 87 more potentially fraudulent tax-credit applications were filed by Internal Revenue Service employees. 
It is common knowledge that American corporations avoid taxes by running U.S. profits through offshore "tax havens" like the Cayman Islands and Bermuda, but a May Bloomberg Business Week investigation traced the specific steps that the pharmaceutical company Forest Labs takes to short the U.S. Treasury. Although Forest's anti-depressant Lexapro is sold only in the U.S., the company's patent is held by an Irish subsidiary (and since 2005, shared with a Bermuda subsidiary in a tax-code hocus-pocus that insiders call the "Double Irish"), which allows the vast majority of the $2 billion Forest earns a year on Lexapro to be taxed at Ireland's low rate (and at Bermuda's rate of zero). Bloomberg estimates that the U.S. Treasury loses at least $60 billion annually by corporations' "transfer pricing" -- enough to pay for the entire Department of Homeland Security for a year.
So, what should we infer from the above? IRS employees have an reasonable probability of being corrupt and corruption allows large American companies to get around the rules of the US. The reality is that we need a simple tax system that can be stated on one or two pages and we need legislative bills that are not filled with 2,000 pages of special interest elements by corrupt officials...like our current administration and most of the Legistlature, who never read them.

Wednesday, August 25, 2010

The manipulators are at it again...welcome to the next bubble

In the past bubbles have been blown by regulated schemes that are designed to encourage mal-investment, speculation, alternate realities and ultimately wealth transfer. The theory is always that there is a completely new way to ignore a problem, that previous practicality was old fashioned and not reasonable relative to the "new" alternative.

Everyone in America needed to have house, because it was a new paradigm. Under both Clinton and Bush, the financial elite used every regulatory mechanism to force feed Americans real estate and legalized nearly any scheme that would allow the concepts to funnel money to Wall Street and make the inflationary debt money expansion scheme to look like a reasonable idea.

So far, this fine administration has also come out with one scheme after the other. This is not that different from most of the administrations in recent history. However, Obama has topped the list with his crazy Wall Street support, financial and regulatory schemes. 

Clearly, politicians either deliberately seek to mis-underestimate, misunderstand and mis-market schemes that are not good for their constituents but rather quite good for their buddies. The stimulus, FRE and FNM guarantees, bailout of JPMorgan, Goldlman Tax, AIG and other big banks and the absolutely disastrous healthcare plan are examples of deliberate deceptions that are not designed to benefit the people but the special interests and the subversive agenda. Ohh, I forgot to add Cap and Trade (and Tax), that's another Obama and Gore biggie.

I have discussed this issue before and its clearly a fraudulent scheme. There is no way to accurately measure or manage the tradable credits and the related products that will popup within cap and trade plan. There are lots of ways to distort and misuse the credits however and of course, the executives at JPM and Goldman Tax and Gore and Company will get quite a nice bonus for many years to come. I imagine Obama will have a corner office at any of these companies or many of them when he's out. There is no question about it, Obama (and most of the legislature too) is corrupt and his idea of "change that you can believe in" is more like "change only a few especially interested rich guys get to believe in". The rest of us have to pay for the fumblings if one wants to generously call them that. I am deeply disturbed by this president. Cap and Trade is a great example of the very same arguments applied to CDO, CMO, CDS crisis all over again. This is an example of legally regulated and created fraud and deception aimed at encouraging complacency and a false sense of security just like the FDIC, FHLN and Fed...and that has not been pretty so far...it will get a lot worse.

Any wonder how we got fractional reserve banking to be to the point that there are NO longer real requirements for collateral from the banks and turned into a derivatives based ponzi money creation scheme?

This video is a good commentary on Cap and Trade and I thought it would be good to add to this post.

Monday, August 23, 2010

Gerald Celente on the Max Keiser Show

Insurance, insurance, insurance...the scam of our age

Many economic realities have been masked by the illusion of safety and protection...we need health insurance, life insurance, portfolio insurance, credit insurance, pet insurance, municipal bond insurance, liability insurance, default insurance, insurance on life insurance, market insurance, derived insurance, money market insurance, FDIC insurance, insurance on insurance (reinsurance), options on securities, options on derivatives of securities and we need it all to somehow lower the cost and risk of anything that we are considering doing or procuring.

The reality of life is that there are no free exchanges and as Warren Buffett demonstrated with his testimony regarding the ratings agencies, ratings insurance is not free either. Moody's is a schlock outfit with the intelligence of a worm or its got motivations of a snake and the ethics of an ant. If Buffett is willing to scam us with ratings and make excuses for it, what about all the other insurances he is involved with? How about all those "put" insurance contracts he wrote on the SP500 and other indexes? Are they a scam or viable? Can he actually deliver on them and does the money exist?

What about all the insurance that banks are promoting? It was just a few years ago that Lehman Brothers and almost every other investment bank was offering risk free portfolios. As it went: 'We will guarantee that you will get "X" return above "Y" and you can't lose more than "Z" on your investment'...funny how they all ended at ZERO! Most of those portfolios collapsed during the crash in 2008 and the covenants were breached. I am aware of quite a few Europeans who wanted 100% sure things who got 100% sure things - losses!

The idea of evading risk while targeting gains is the quintessential reason that people invest in hedge-funds...but isn't this a play on leverage made viable by others forms of insurance? "Why not trade leveraged short and long or better yet trade derivatives and arb anything we can get out hands on". The words "into a disaster" are the conveniently missing from that equation. But that would ruin the marketing wouldn't it.

The problem in this world is that so many people want something to be something that its not. If you are a male looking for a girl, a transvestite or mannequin should not make a viable proxy...but in the current version of reality, we are willing to entertain any proxy as long as its, accepted, popular or "doctrine". 

If we can further obfuscate a situation by insuring against any unwanted side effects, we can get rid of the problem entirely. The issue with this, is that most risk is not realistically insurable, it just transforms into another risk, usually a worse one...and in reality its cheaper not to insure and instead plan and manage appropriately. The funny thing about "risk" is that it becomes contagious in both directions. One more dangerous than the other.

Insurance is scam of both Wall Street and of Washington. Medicare, Obamacare, Social Security, FDIC, FHA, FHLN, FRE, FNM and the Fed are all examples of failed confidence games/insurance scams that end up ripping off investors and taxpayers and similarly the clients of their plans. The fact is, that when we get so sophisticated that we have to insure and we can obfuscate everything...the activity has almost always been the mask of massive fraud for hundreds of years...but these frauds have always ended the same way...the losers who issue the plans get massive bonuses and the people who buy them get ripped off when they blow up...and someone else get the bill.

There is no such thing as free lunch, yet we as a society these days, are always looking for a free one...we try to pretend that there is a way that someone else can be responsible for OUR problems. That argument does not hold water and I am personally tired of it.

Nearly every-time we take on some credit or leverage, we buy, are required to buy or need to rationalize the risk by buying some sort of insurance. So, how this seems to work, is that whenever we commit to pay some interest on something, we need to pay more interest to someone else. That's a lot of interest and its parasitic when all is said and done. Ironically, it has made us more vulnerable rather than secure. That did not work with AIG, MBIA or Ambac and CDO and other structured products without exceptional efforts by government. Will it work with Goldman Tax and JP Morgan now that these companies essentially buying and selling insurance? Don't bet on it. The feeling of being safe, while it may be nice, is artificial and fosters complacency rather than solid/proactive business decisions and does not offer a foundation on which success can be built!

No serious and productive person relies on someone else to bail them out when they do not produce, nor should they expect someone else to produce for them... it is an organic process. Living and succeeding are based on balance...not ignorance or obfuscation. Things do not get better when you ignore them...nor do they get better when you pretend they are something else. What we have been doing as a society is pretending that money as, illusion, doctrine or debt is ok. That government lies are ok, insurance as a proxy for solvency is ok and that money is real when someone is willing to insure it.

This is why the financial system is not just a place to win or lose...its a representation of the values of society as a whole. Those values are very compromised. They are unrealistic and inappropriate. They are endorsed by the president and his henchmen, but that will not make them successful...and therein lies the problem. At some point "crap" smells like "crap", looks like "crap" and finally when the secret sauce is gone... it is "crap" and can not be called anything else.

Most massive collpases in history have been related to the idea that somehow we can insure against them and somehow use alchemy to turn something worthless (or worse) into "gold". It has never worked, and now, in my opinion, the insurance parasite and the financial ponzi scheme that is built on it is trying to play its trump card...insunace.

Ironically, insurance is the most expensive ever at a time when it can be least afforded...and this applies to most products...including the ridiculous Obamacare venture. The only products for which insurance is affordable, are the ones the Fed is protecting...(remember  Maiden Lane assets (I mean liabilities)) owned by it or the banks that are on the "favorite list".

The jig is up, derivatives will lose leverage,  insurance will lose relevance, and with the collapse in leverage, the money supply will contract way further than the 40% contraction it has made over the last year. Asset values will have to adjust to real values that are not representations of viability due to insurance backing them or credit available to purchase them.

Its a sad story...but insurance is a parasite and creates huge opportunities for malfeasance while contributing little to negative value to society at best. Ironically, banks as regulated by the fed, and the central banks themselves are not storehouses of our money or value, but they are manipulators of insurance trying to use legal camouflage to sell us something we don't need.

Sunday, August 22, 2010

Thoughts and things

The systems covered shorts on Thursday and are setup for a rebound bounce. As I indicated in my post regarding the GM IPO, this IPO needs to go and the idea that the market will "lose a bid" easily is best to be considered with skepticism. By all indications, if the RVS model setups look well, and I personally think that they do, we should see follow through on the upside, possibly enough to get people to forget about those Hindenburg Omen thingy's. It intriguing that when there is a Dow Theory confirmation in either direction the market usually reverses as everyone seems to take the popular position and has to go through some pain first. It should therefore, not be surprising to see the same thing happen with all the negative confirmations occurring over the last weeks. I think that this short setup will be a dynamic trade and therefore, I do want to reiterate the danger in the markets here. I will keep you posted as to what things are looking like. Other than this trade starting to setup there is not to much going on in the markets except for the continued de-correlation of accepted arb trades and the correlation of everything else caused by continued money volume contraction via bankruptcy, fear and de-leveraging. If the market were to totally fall out of bed without this bounce I am expecting that would be VERY negative indeed...and I would also like to be in the trade in a big way...which I am not now.

Last week, we had a very successful release for me and also an achievement that I was not expecting...I have recently completed a large effort to build an array of spline based calculations into my models to assist with dynamic trade allocation, entry methods and many other capabilities. I applied these calculations to the allocation trigger methods as an initial step to implementation and the results were, well, shocking: 100% winning trades Long and Short in the ES since inception on a position basis. The funny thing about this, is that none of the trading decisions changed at all, only the risk assignments and entry methods. Therefore, all the trades that have triggered this year in live trading are still in the model but the model now achieves a much better average position price and that new capability pushes the complete historical trading for the ES to 100% wins for 10 years+. The SPY, SP large contract are in the 98+% level since inception. I have posted a chart below that shows a brief performance summary for the ES contract. This is a live system and is set to trigger live trades as per the new release last week. On a trade for trade analysis, the win rate is 87.5%. This means that the individual entries that are marked with the red lines are calculated as losses even though the over all trade is a profit.

I will be showing a video shortly demonstrating the curve-fit risk for the over all enhancements to the RVS systems, which is extremely low, as the same system shown below, trades many other non-correlated instruments, ETF's and futures with no model changes at all with 90+% winning trades and very consistent equity curves.


I went out on Friday, stayed out a little too late and celebrated, so I had a slow weekend. In any case, I did hear some great Jazz. This pianist Mike Gerber is resident in Miami and is a tremendous talent. He is blind and not insignificantly losing his hearing...which makes him all the more amazing. I heard him play with his trio...the guest drummer was a 16 year old named Nick Neuberg. This kid is going places in the Jazz world. Its really interesting to see these guys interact, explore and learn. Its also a testament to a different type of learning that the creative world brings versus the academic one. We can blame the academic one for our current financial crisis and the adoption of Keynesianism. I think that there are significant parallels to the way that creative thinking works and the concept of how free markets work. Currently, we do not have the right framework for markets because the basis of our thinking as a society is so foundation-ally dishonest and distorted - we also do not have free markets which should not be surprising given the basis. We need to establish that more and that's why I want to spend more time with musicians and working with kids to help them to get more experience with dynamic learning and problem solving via the arts.

I had the chance to hang out with Mike after he played and he is learning as much now as he was when he was a kid. I think everyone needs that in their lives more...when you look at Nick in the video on this post...its just amazing to me that he is so young and able to hold his own with heavyweight talents like Mike Gerber, Ira Sullivan and Jamie Osley.

 
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