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Tuesday, March 18, 2008

Trading and Investing Thoughts for 3-18-08

Challenge Accounts:

Investing Account Balance: $201.46

Stock / Futures Trading Balance: $684.39
Online Savings Balance: $12.07

Personal Trading Thoughts: Cash. No positions. Short - bearish outlook to sell rallies in stock market, but extremely wary as this market remains very volatile. Looking only for long positions in the Commodity Futures arena.

Personal Investing Thoughts: Cash. Bearish outlook for the market. Expecting, by the time this has played out? For 35% drawdown from highs for this bear market. Personal ideas? Open Swiss Bank Account with $10,000.00 USD, and start diversifying into foreign currencies. 1) Yen 2) Swiss Franc 3) U.S. Dollar 4) Euro and 5) Chinese Hyuan


Each day I have a 'header and footer' on my daily blog. I thought it might be time to start including a brief summation for what my own personal thoughts are in regards to the markets for that day, as you can see above.

I've tried to make a video about 40 times (literally) in regards my general outlook for the markets. It always ends up being 10 to 20 minutes long, which is much too long for YouTube, so I end up having to scrap it. The end news is: Not good. The financial markets are in worse shape than they've been in, for nearly 3 decades. Things are bad.

Housing:

The housing market is not coming back anytime soon. Just as we'll never again see $30.00 Oil, (at least for a lonnnnng time and some major discoveries), we're not going to see housing back to the prices they were at before the bubble burst, 'in a couple of years'. Those days are gone, and they're not coming back. At least for another 20 years.

The housing crisis, where I live? Isn't even halfway done yet. It all comes down to the number one rule.

The market is always right.

And in housing, no one is buying. When I say 'no one' - what I mean the buyers in relation to the inventories. It's a classic "bid / ask" spread. For the number of homes out there for sale? No one is buying them. People are renting them out, rather than sell. With no buyers, the housing market will drift even lower. Worse yet, the Bank owns half of them. And there are no buyers. The Bank can't make money (and will lose it) on homes that have no buyers, and they have to sit and hold.

Oil:

The high price of oil is NOT due to some greedy speculator. They are giving you the most fair price, given the horrible supply / demand situation. The middle east has peaked, and everyone knows it. We have tons of Oil in Canada. Canada is now the United States #1 supplier of Oil. More oil is there, than all of the Middle East ever had, put together as a matter of fact. But the problem is the cost basis. I've heard various numbers, but the average number it comes to from both sides is that it costs $50.00 a barrel, just to get it out of the ground. That's our base price. That's where we start off from. But there is no infrastructure to support it. It's not speculation. It's free market at work. Traders are giving the most fair price, for all of the variables with the given supply / demand situation.

I sit and listen to the GMR and FRO shareholder meetings. Everyone of them have made the same comment. They're not concerned about a recession. Why? Demand. China and India can't get the Oil fast enough.

In addition, you have Bernake cutting the rate to help the credit crisis, and further weakening the dollar. Which only increases the pressure on oil.

The Investment Banks:

Of course, I do believe that some Wall Street Moguls brought on Bear Sterns demise with the rumor mill. However the point is not that the rumor mill was the nail in the coffin? But that Bear Sterns had become so involved in a bubble, that they were weakened to the point of being susceptible to such a tactic.

There was a crazy bubble. It's called housing. 1800 sqr foot homes selling for 1 million dollars is a bubble. Not just in California. Heck, I was in northern Nevada last year, and found 1700 sqr foot homes selling for $950,000. Homes in Michigan (which was already in the recession) were 1 1/2 times the value they are now. And Investment banks were knee deep in speculating the mortgages sold. Not only was housing a bubble, but all the investment banks lied through their teeth about how involved with CDO's they were. It spread to bonds. Everywhere.

The market has exposed it's own Achilles heel.

Liquidity.

Let's put it in perspective. JP Morgan is basically, borrowing from the Fed to get this put through. Because it costs so much? Not really. It's not like JP Morgan is rolling in the cash. They are buying Bear Stearns at a price cheaper than the Yankees are paying for superstar Alex Rodriguez.

The Fed:

The Fed is desperately trying to avoid another repeat of the 1970's at this point. And I don't see how it's possible. I heard rumors that they're actually thinking of taking it to zero if need be. Eventually, the Dollar will be so devalued, they will need to do what they did in the 1970's. Fire Bernake, and bring in someone that is willing to raise the rates to 12%. PPI is what? Around 10.4%? How long can the CPI hold off in the low 4%'s? How long can the producers hold off costs from the consumer? I would be shocked not to see 9% CPI eventually.

And just like the 1970's, then the real pain begins. Because just like the 1970's, before the rate hike? Employment was ok. Then no longer. Then we saw unemployment hit the double digits for months on end.

By not bringing out a reasonable recession, and by trying to delay it? The Fed has made the entire situation and recession worse. Heck, this monster is all of their creation as it is with Greenspans irresponsibility. Guy should be brought up on charges.

As far as the broad sector? I'm not a buyer in the market, until two things happen.

The DOW is in, or near the 10's again.

9 months pass.

I need to see time play out, and I need the prices to reflect the ignorant risk that's been out there for far too long. We still don't have all the facts out in the open by all the banks on the credit crisis, and those that need to be eaten by those who can survive it? Need to do so. The weak get eaten in this sort of environment. Not the deathly ill. Just the weak. My largest position remains cash. Back on January 4th is when I figured we were settling into an official bear market. I expect to see the bear pull out 35% drawdown before it's done.

* * *

Investing Account Balance: $201.46
Stock / Futures Trading Balance: $684.39
Online Savings Balance: $12.07


Total Trades and Investments: 3
Largest Inter-trade Drawdown: $86.51
Consecutive Losing Trades (Drawdown): 2
Average Drawdown: $82.56
Average Loss: $82.56
Accuracy Rate: 33%
Average Reward: $179.75
Risk : Reward Ratio: 1 : 2.02

This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research and tolerance for risk.

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