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Saturday, October 4, 2008

Week In Review: Living Through Historical Times on Wall Street

"While civilization has been improving our houses, it has not equally improved the men who are to inhabit them. It has created palaces, but it was not so easy to create noblemen and kings. " - Henry David Thoreau

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Challenge Project Accounts:

Investing Account Balance:
$475.75 (Bought 4 shares of KO, with DRIP turned on)
Stock / Futures Trading Balance: $964.62
Online Savings Balance: $52.63

First of all, I need to say that I've updated the "DRIP Portfolio Investment Watchlist" to be found on this blog, further down the page. So feel free to check it out.

Welcome to the week in review. And what a week it has been. We are in the midst of the worst financial crisis to hit the United States since the time of the Great Depression.

As I've already mentioned, the "Rescue Plan" will 'rescue' nothing. I personally believe that the depth of this financial crater is at least two trillion dollars. That's $20,000,000,000,000.00. Why? Leverage! I've said it over and over and over again. And I'm not alone. Anyone who trades the markets understands that this is all about leverage! So spending $700,000,000,000.00 on a $20,000,000,000,000.00 hole? That's akin to spending $700 on a $20,000.00 debt. It's nothing. After that $700.00 is gone? It's nothing more than a monthly installment payment. You're still staring at $19,300 worth of debt.

Now mind you? The leverage rules were deliberately relaxed some time ago. Which again, led to this crisis. Those rules were in place for a reason. So, if the leverage was only 12 to 1? Then instead of this $700,000,000,000.00 paying down 3% of the drawdown possible with these obligations? It would pay towards nearly 10% of the drawdown possible. Still not great. But at least it was manageable. Which is why leverage at one time, was legally restricted to 12 to 1. To prevent situations just like this one.

Adding to the problem of over-leverage; the holders of these bad debt obligation packages? Will now simply be able to legally, fudge the numbers as to the net worth. Which will only delay, and exacerbate the possibility of a disaster. The market as an entity, will discover what the truth is. One way or another. The market is a wonderful truth seeker.

As far as trading, my second CRBC trade didn't turn out nearly as profitable as my last one. Which is infuriating since my profit target was hit. Well ... I discuss the reasons for that, Warren Buffett's latest purchase into General Electric (GE), as well as what I believe we face in the future when looking at the fundamentals, in the following video ...(Video Included)

Have a safe weekend. Since it is Autumn, it is turning cool here in Michigan. I'm going to go over a friend of mine's home this evening, enjoy a fire and have a few cold beers.

On Monday? I'm going to discuss the significance of the DOW Jones Transport Index.

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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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