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Wednesday, September 24, 2008

Traders Thoughts On the Current Economic Environment. (Trading Our Way Out of this Mess)

"Shrewd is the one that has seen the calamity and proceeds to conceal himself, but the inexperienced have passed along and must suffer the penalty" - Proverbs 22:3

On March 18, 2008, I had a "Trader Thoughts" video, as well as a blog entry. In it, I discussed the fact that we would see the high 10,000's again on the DOW Jones Index. On March 18th, I stated that we'd see a weaker US Dollar, which we did for the months that followed. On March 18, I stated that the housing market would not rebound. And it hasn't. On March 18th, I said we would see much higher oil prices in the next few months. Do I even need to talk about how accurate I was on that call? I talked about the problem the investment banks were in. Today? There is no such thing as an investment bank. They're all gone. Goldman Sachs and Morgan Stanley? They were the last two standing, and they have now applied for bank status. There's no such thing as an investment bank on Wall Street.

Was I trying to predict the future? After all, I always stress: We're not God, don't try to predict the future. So is that what I was trying to do? No. I wasn't. I was looking to cause and effect. When you see the cause? I knew what the effect was going to be.

But in that video? I did make one statement that was way off, but at the same time? May yet happen. I said: " ... They're going have to bring somebody in that has the guts to take interest rates to 14, 15, 13 percent. And then the real pain begins ...".

I want to revise that statement a bit, because of what has transpired in the last 6 months.

In the last 6 months, thankfully, the US Dollar has strengthened. This is key. Every human being on this planet should want that USD to strengthen. I don't care who you are. Because as goes the USD, so goes the world. The USD is the Fed's "bottom line". It values their own balance sheet. In the last 6 months, the Fed has taken this unbelievable garbage onto their own books. And in the last 6 months the housing market, as I said, has continued to deteriorate.

What is the significance of that?

That is what the real estate derivatives, or as Richard Suttmeier calls "the alphabet soup" is tied to. That is what this leverage is all about. That garbage, the garbage of the "alphabet soup" of CDO's and the like, is leveraged into the real estate market. As long as the housing market continues to deteriorate? The garbage created by this credit bubble? Then those derivatives will continue to deteriorate in value.

What is the significance of that?

The Fed has to protect their own balance sheet. And now they've entangled themselves with this junk. Which leads us back to the US Dollar.

I'm at the same place 'mentally', that I was on March 18, 2008. I'm having to change my entire strategy. I was sort of getting 'antsy' for buying up a lot of stocks in November, December. Now? I'm taking much more of a 'wait and see' attitude. Why? Because as I said Sunday? Traders deal with what "is". Not what they "want". I have to trade my way out of this mess. I have to survive. I can't fall in love with my bias. That's what being a trader is all about. Being able to change your bias, make a decision, and for the love of all that's holy ... control your risk

So how does this all come together? What is my strategy moving forward as someone with a 'traders mindset'?

Well, I'll talk about that in the following video (Video Included) ...

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Note: 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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