Exploiting the Market and The Real Revolution (October 14, 2008)
Today let's highlight two more positives:
12. As long as the stock market is open, it allows "small-fry" speculators to take advantage of divergences and discrepancies between reality and the market's behavior.
Last Friday I wrote: (
Complacency and Panic October 10, 2008)
On Saturday I wrote:
Today's Contrarian Entry: The Positives October 11, 2008)
I then disclosed that I bought Anadarko Petroleum shares and call options on Thursday and Friday. Here is why: (Please read HUGE GIANT BIG FAT DISCLAIMER below first):
I notice a lot of reasonable skepticism in the blogosphere and MSM about the quality of this rally. That's good; it makes my life a lot easier. There are many falsehoods and illusions about the stock market which are perpetrated for a number of reasons: one is that the market is a near-perfect discounting mechanism which always looks ahead six months, and another is that markets aren't manipulated, that those are just crazy conspiracy theories posted by losers.
Both are completely false in my view. The market is constantly manipulated, and always has been; and the market has almost no connection to the real economy. As proof please study these two charts from the last two great Bear Markets: 1929- 1944 and 1966-1978.
Note how a "buy and hold" strategy netted the holder big losses. As the real economy foundered in both decades, the stock market rallied again and again, reaping huge gains for those who ignored the real economy and focused only on charts and technical trading.
The danger of attempting to "invest" or speculate based on fundamentals is that much of the information disseminated by the MSM and financial press is either false or misleading.
For instance, all we've heard for months now about oil and natural gas is that "demand destruction" is lopping off huge chunks of U.S. demand for oil, and therefore the price is plummeting.
Nice, but then frequent contributor U. Doran forwarded this article, Shoulder Season Masks Long Term Trends:
The Energy Information Administration last month noted that U.S. demand for crude oil has fallen by 0.5 million barrels per day, but global demand has ncreased 1.3 million barrels per day. Since crude oil is a global commodity, the analysts focusing on demand destruction in the U.S. are only partially correct. Roughly 50% of U.S. crude oil production in the Gulf of Mexico remains shut-in due to the hurricanes as of the first of the month.
While everyone else appears to be skeptical of this huge rally, I am skeptical of reports that oil should fall to $30/barrel because demand has fallen off a cliff even as supply is robust. What if global demand is still strong and supply is faltering? That's something few are considering.
The point is, access to the stock market via inexpensive online trading enables even small-fry speculators with a few dollars an opportunity to exploit the built-in divergences between reality and the market.
If we keep Jesse L.'s dictim in mind, we can easily imagine this rally running higher even as evidence of a weakening economy pile up. Given the general air of disbelief, fear and skepticism, it seems likely that the Dow Jones Industrial Average (DJIA) will run from its current 9.400 level up to 10,700 (previous support) and perhaps all the way up to 11,700.
Once everyone else expects this then I will expect the opposite to unfold, for markets take along the fewest possible participants.
Here is today's second positive:
13. The real revolution is occurring not in the streets or in the ballot box but in
the garden and in the kitchen. BikerNina of the amazing blog
Deep into Artlife West
was kind enough to post one of my own little aphorisms on her site:
It is a rare thing to find someone who describes *exactly* what you had in mind when talking of revolution, and so imagine my surprise when I read BikerNina's post and found myself saying "Yes!":
A friend recently divulged she was about to start taking a new miracle drug to quit smoking. This involves filling out reams of forms for pricey treatment and medical insurance. Predictably, the drug she is being recommended is reported to be something similar to an overdose of pharmaceutical quality PCP tranched with crack.
And while we're on the subject of revolution we control, please read another excellent blog, Freeacre and Murph's Trout Clan Campfire in which Freeacre suggests our only real leverage is as consumers: i.e. "stop buying". This is intertwined with the concept that the only real leverage we have over the out-of-control bailout debt machine a.k.a. "the banking/lending sector" is to eliminate debt and stop using their services such as credit cards. That will eviscerate their fees and income and reduce their once-mighty Empire of Debt to a paltry shadow of its former incarnation.
Recall that all those funny tranched mortgage-backed securities (MBS) were still based on mortgages to real people; without the mortgages and auto loans and credit card debt to play with, the bankers have nothing to leverage.
As a lagniappe, here is another rare treat, a humorous political satire song. You might think it's easy to pen a song lampooning a politico, but it isn't. Here is my buddy Patriot Express singing Sarah Palin, Queen of the Red party. The lyrics helpfully pop up for your reading pleasure. The Wall Street Journal is pleased to mock/lampoon Obama in its "editorial" pages, but without a tune the satire/mockery kinda falls flat.
According to several sources the market for so-called “credit default swaps” last year alone was nearly equal to the total global GDP, around 70 trillion dollars by some estimates. Yet these derivatives have no discernible "origin" or value.
NEW ESSAY: Part II: How the Credit Default Swap Scam Works
(Zeus Y., October 13, 2008)
Instead of asking the obvious, complex, and obscuring question, "What value DO they have?”, one should ask the elegant and simple question, "What value COULD they have?" Even a cursory examination would seem to indicate that the answer is either zero or less-than-zero.
NEW ESSAY: Part III: Credit Default Swaps Create Less-Than-Zero Value
(Zeus Y., October 13, 2008)
Now, how can a supposed “asset” like credit default swaps have a “less-than-zero” (negative) value. First, credit default swaps were insuring debt. Debt is not an asset as I explained in previous essays, but a liability. Mistake number one was to confuse asset and liability.
Part IV: There Is Ultimately No Gaming the System: When the Micro Crash Reflects the Macro Crash
(Zeus Y., September 29, 2008)
"This guy is THE leading visionary on reality.
He routinely discusses things which no one else has talked about, yet,
turn out to be quite relevant months later."
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