We are turning Japanese, I really think so

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Japan had (has?) their zombie banks and their 20 year stagnant economy. We in the US (and world?) are going down the exact same road. It’s because politicians and banks are trying to save face, basically. They made some stupid decisions (from congress, like demanding banks lend to unworthy ‘subprime’ people; and banks, creating the whole CDS and derivatives fiasco) and now they are trying to plow forward and ignore the stupid decisions. The proper thing to do would be to admit failure, take your medicine and restart back with what was working before.

Instead, we are going to slog through all the crap that is required to cover up the stupid decisions and pretend like it’s all water under the bridge and we have to ‘just move forward’. What SHOULD have happened is that the stupid decision makers should have gone out of business and went back to flipping burgers for minimum wage — but instead we funnel money to them from future taxpayer donations and keep them in power. Lovely. Unfortunately, it can’t happen any other way – we are doomed to go down the same road as Japan and maybe worse – all because people want to appear to be smarter than they really are and save face.

“Those that fail to learn from history, are doomed to repeat it.”
? George Santayana

http://pragcap.com/zombie-banks-turning-japanese

Learning discipline

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My last post was one of failure after losing my whole account of $4000 in a week’s time.  Since then, I put in another $1000 and lost it.  Then put in $1600 and lost it.  Ugh…. this is too hard.

But after the last $1000, I collected my last $500 from savings and put it into the trading account.  It was do or die time, and I wrote up a list of rules and taped it to my monitor.  My main problem is what I wrote before, that I have something internal against ‘losing’ — or more specifically making a ‘wrong’ decision and losing.  But trading requires losing and making wrong decisions… so if I am to become successful, I have to tackle that problem and beat it.

The outcome of the emotion of making a wrong decision was to try to make it right as quickly as possible, which involved impulsive and revenge trades.  I realized that what I was doing was trying to ‘erase’ the bad feeling of losing by winning again – something that compulsive gamblers know too well.  So when a losing trade came along, I immediately put on another trade to try to get rid of the frustration and self-anger that I felt.

So with this last $500, I am trying to break that cycle.  I paper-traded for 2 weeks and made profits for 9 out of 10 days, so I know I can technically do the trades.  Then I started to trade live again with my rules list:

1) I am in control of my actions.

2) Only take trades that fit my strategy – no open trades, no trades outside the strategy that worked for 2 weeks, no trades without stop and target.

3) Only open 1-contract futures trades until I have at least $5000 equity.

4) Stop daily when I am at or greater than $100.

So far, so good, if I can keep this discipline.  I have attained my profit goal for 5 days in a row now, just like when paper-trading.  I know I can do it – but man, being consistent and disciplined in trading is one of the hardest things I have ever done!

My trading faults laid bare

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After losing $4000 in one week trying to trade crude futures, I did some soul searching.

There are a couple psychological issues going on in me that do not allow me to accept failure (losing trades). Even if you make it up in the next trade, something inside me fights taking a loss.

The other issue I find in trading is that I like to produce something or help someone. Trading is really doing neither of those things. I find some kind of reluctance or opposition inside me to just trading money to get more money.

These traits seem to be very deep inside me – something I cannot just turn off and on. I really think that the only way I could master trading is to have a 1 on 1 coach that would sit next to me and trade along with me in my live account. The other person would have to act as my conscience and my rational thought process while I went through the process of learning how to accept failure (losses). They really would have to take on almost a psychologist role to work through how a successful trader’s mind and emotions work.

Trading is not easy – at least mentally and emotionally. It takes a certain personality type to be able to deal with the irrational and unpredictable market.

What happened to us?

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I don’t think Ben Bernanke thinks we’ll all perish if he doesn’t print money to “stabilize” things. What I really think is going on is political maneuvering. It’s bad for politicians if the economy ‘looks’ bad (notice I didn’t say ‘is’ bad). I think that the Fed (and other central banks) has been told, maybe indirectly or discreetly, that the public must think that the politicians are in control and everything is OK. I think the worst thing a politician can face is something ‘bad’ that is out of their control — then they don’t get re-elected and their power is gone.

So I think Ben is doing what Ben must do to keep his job. The problem that we peons see from down here though, is that the market is getting farther and farther from its original purpose and from the reality of the world around it. Maybe it will all work out in the end, who knows – in other words, their philosophy is probably ‘the ends justify the means.’

Personally, I would rather have seen companies fail and people lose jobs and a depression form a couple years ago. And in that pain, we would learn from it and do things differently, and rebuild from a more humble position. But our leaders have opted to minimize any pain and try to game the system enough to get out of jail free, as it were. That’s why I’m long-term bearish – we just don’t learn from our mistakes of the past, do we?

At 49, I’ve absolutely seen a change in how our country views itself. And looking back before I was born, it seems to have accelerated after WWII. I know people have always tried to make their lives more comfortable and entertaining, but it seems that comfort and entertainment are now the top priority in many people. Work and productivity are tolerated less and less if there is some other way to get money for our entertainment and comfort. And politicians are only too happy to hand out the money as long as you vote for them and they can control more of your life for you.

I think we’re generally very sick as a culture and have lost our direction on what’s important in life. Our wealth has made us self-absorbed and weak. What would it take for us to get back on track again? Personally, I think that pain is a good teacher – you only touch the hot stove once. But instead, we have decided to insulate ourselves from any pain, which I think will be our downfall.

Taking the Summer off

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Sorry I have not been updating the blog lately. It’s been a busy summer, but I’ll be back in the Fall. Until then, hold on to your hats, because I believe the stock market is in for a wild ride. Foreign tensions are heating up, foreign economies are falling apart, and the US economy is propped up on “QE” sugar and crystal meth. Things could get ugly fast. But watch for politicians and media to do everything they can to spin and prop things up until the elections – the Democrats have a lot to lose if things continue the way they have been.

Daytrading Forex

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I am learning something about how to daytrade. You take a small position when the market is at daily extremes, and wait it out for retracement. I guess this is called “mean-reversion” trading. It’s working so far, as long as I keep my leverage small and wait it out. We’ll see…

Sharks eating sharks

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I posted on April 12 that the market runup since March 2009 likely became a Ponzi game of computers trading among each other.  As retail investors either never invested or are pulling out of equities, the ‘sharks’ have no assets left to eat except their own.  Computers are now selling to each other in a mad dash to get out of the market with their ill-gotten gains.  Notice during the ‘flash crash’ that bids were almost completely removed, as some equities plunged with no one to buy them.  So much for HFTs providing that liquidity.

But our collective consciousness has short-term memory loss, so it will all be forgotten in a week or so.  I am beginning to see why some financial advisors are so conservative, wary and skeptical.  But if they came right out and said that financial markets are no longer for investing in businesses to help produce useful products for economic growth, they would likely lose a lot of clients.  Now, it’s all about trading and quick turnaround, hoping the next guy is just little slower than you.  I don’t see any reason for things to revert back to the ‘investment’ model until a major economic collapse and economic ‘reset.’  Do you?

Nineteen Eighty-Four

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Our financial system (and thus, our lives) is controlled by computers now.  In response to this:

” Buy something, anything! NO RISK

no one cares that gold is at all time highs and liquidity can drop in the market any minute!
no one cares that there is no way out of this mess. worry about that some other day!”
I say this:
“I dunno. I am beginning to think that everybody cares, actually. That’s why volume is so low as long as the market is not going down. The only time people get involved is when the computers allow the market to go down. We are controlled by computer programs now. They are emotionless and don’t care if you win or lose, as long as they win. Although, as we saw last week, when the computers decide to pull their bids, there is a lot of air (vacuum?) underneath that swallows up the market.”
We react to the computers, we follow the computers, we are slave to the computers.  They control our money and our economy.  Only programmers can speak to the computer.  All hail the programmer, the final humans in the human race!

What? The market is down? But why now??

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You know what completely blows me away in all this? It’s that this news about Greece and Spain and Portugal and Italy, etc. was well known and even anticipated many months ago… back when they first started talking about the “PIIGS”. I really don’t think the fact that Greece is insolvent and that Portugal and Spain are next is “new” news to the market.

So… now that it’s news again (and again), why is the market just now feeling some panic about it? I don’t get it. Was all the Fed stimulus that banks were playing with in the market a way to distract from these issues? Were bulls that stupid to think that free money would last forever and the other countries’ problems might just magically go away somehow? I don’t understand that thinking. Or were bulls just playing chicken with each other until one of them blinked and the rest panicked?

I am still (still!) an owner to 1600 shares of SDS and am way (way!) under water on this position.   I guess irrational exuberance is something I avoid, and apparently I like to bet against it.  Too bad irrational exuberance works a lot of the time.  ;)

Do I really want another market ‘crash’?

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I’ve been thinking that, since I’m net short the market, that I want it to ‘go down’.  But do I really want another market crash?

The only reason I ‘want’ a crash is because the economy never got to its ‘reset’ point last March 2009. That crash should have gone deeper than it did, but it was arrested by Fed (or PPT or whoever) intervention. Stock valuations never got “cheap” and businesses that were destined for bankruptcy were given life support. They should have went bankrupt, maybe over an extended period and not all at once, but their leaders should not be leading any more – they screwed up.

But we now have a ‘zombie’ economy that refuses to acknowledge the skeleton in the closet or the elephant in the room, so to speak, which is the toxic assets on the books that they’re pretending are worth what they used to be worth in 2007. That’s why we still need another crash to flush all that out of the system. Pain is a good motivator for change; hopefully change for the better.

Just my little rant. :-)