WSW – Friday, November 6, 2009 (early edition)

Just A Quick Note

It’s been a couple of weeks since my last WSW update, and one is due tomorrow, but things are moving today… So here is a ‘sneak peak’ at what will be presented in detail somewhat later.

No charts or graphs, just my take on things:

I think this is a ‘tradable rally’ off the simple moving average lines, and a “buy if touched” order ought to have ‘bought you in’ to desired positions, but

I don’t like it. There’s something making me feel “off” about it. I need to run all the numbers and charts, but here’s what has me “sitting it out” with about 1/2 my cash right now.

1) Traders I respect (Gartman and some others) are “short this market” and while the news flow had them saying “when the market moves against you, you have to cover your position.” they clearly still have bearish sentiment. Given any weakness, they will be back to short again. And they did not say they were abandoning their shorts, just going to ease back a little for a little while.

2) The volume is light. We’re not getting a lot of conviction. It tastes more like a ‘battleground’ top than a ‘new rally with conviction’.

3) The 10 year weekly chart looks like it is saying “time to trade out”. This often happens just before a major “correction” or just before a new bull market (which I think we are in) turns sideways and waffles for a year or so to “digest” the rapid run up out of the crash bottom.

4) What I’m seeing in the action looks more like “short covering” than “new money”. A short cover rally often fades in day 3 or 4. That would be Friday or Monday. If this IS a valid rally ‘with legs’ there ought to be a nice ‘reentry’ opportunity then. If it is a ‘head fake’ and the 10 year weekly trend moves to ‘be out’, well, we avoided the whipsaw at the top.

So I’m not going to hop on this rally in any big way. I’m holding my dividend payers and my long term positions, but my trade money is going to sit it out until I’ve done the whole analysis. I may miss one cycle of the run up, but I was out at the top of the last one, so I see no reason to put those banked winnings back on the table right now. “Early out, late in is good. -emsmith”. Yeah, some fast money could be make as a day trade, but I’m doing enough other things right now I can’t watch this market minute by minute…

“Manage the risk and the reward will take care of itself. -emsmith”

Right now, the risk is higher than I like and the reward is lower. I’m managing for the risk and letting some potential short term trades slide on by…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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2 Responses to WSW – Friday, November 6, 2009 (early edition)

  1. e.m.smith says:

    Fairly accurate assessment by Societe Generale IMHO.

    A bit “over the top” (and some of the comments are way over the top) on expected consequences, but the ‘problem statement’ is accurate.

    BTW, “fractional reserve banking’ has several ways of creating ‘fiat money’. The FED can issue it. The Treasury can create it with bit twiddling in their computers. Or the simplest, they can just change the “reserve requirement” and so the “multiplier”.

    At it’s simplest: If reserves are set at 100%, you deposit $1000 and the bank has to sit on it. No loans. IFF reserves are dropped to 50%, they can loan out $500. That gets deposited back in some bank that can loan $250… that begets $125 that begat $62, … 31 … 15 … 7.50 … 3 .. 1.50 … So that $1000 gets turned into about $1750 (with some slippage since the deposits are never 100% loaned to reserves limits.

    Make the reserve percent 20% (a relatively prudent value) and now the series becomes 1000 => 800 … 640 … etc.

    Make the reserve percent 0% and you get infinity. 1000 => 1000 … 1000 …. 1000 … 1000 … etc.

    So simply changing the reserve percent mandated can make any quantity of “money” from zero to infinity appear due to “fractional reserve lending”.

    For better or worth, the only thing standing between “your money” and zero value is a setting of a single number by the central banks.

    Why this matters:

    The “debt overhang” is worse than S.G. pointed out, since it also includes “unfunded mandates” that can never be paid. the whole “Heath Crisis” is one. Our Political Hacks have promised nearly free health care to loads of people. (Medicare, MediCaid, MediCal, etc.) There is also the indigent mandate that anyone who comes to an “emergency room” must be treated – money or not. The end result is all this cost gets jammed onto the bill of the folks with money or insurance.

    THAT, has made it an impossible burden for the (ever fewer) folks picking up the tab… And the number and percentage of folks getting “freebies” is going to explode as the Baby Boomers retire and the Genx and Geny folks are too few to pay the bill…

    NONE of those trillions of MEDI-socialism nor of the Social Security bubble that comes with them is in the numbers of the present debt.

    So not only is it not possible to pay off the debt, it is equally impossible to pay the ‘unfunded mandates’…

    The only ‘reasonable’ way out of this box is to inflate away the debts. You will get paid ever dollar promised…. but that dollar won’t even buy a stick of gum. And that can be done as easily as changing a single number…

    The alternative is not possible. There is no political will to repudiate the debt, and it would collapse the system. There will continue to be no political will to repudiate the “free stuff” promises from our congress critters. (They know they will not be elected if they promise “Granny on the street, no food and no medical care”…)

    So there is ONE “easy” way out. Meet the “letter” of every obligation. Default on nothing. Pay everything. All the pretty paper anyone could ever want… But that social security check and $50 will buy a cup of coffee…

    And THAT is why there is so much “hand wringing” over the present “Health Bill”. It is a last ditch attempt to hide the costs of Medicare, MediCaid, Medi-Cal, etc. in an even larger socializing of the costs (and mandates for more taxes and more forced ‘purchase’ of ‘insurance’ that is really just a larger health system tax take).

    And it is doomed to fail.

    But the politicians are either too dense to realize this (“sucking their own exhaust” seems a common affliction these days…) or they know it will fail, but hope it is after they are retired with fat checks…

    At the end of the day, the only way to really “fix” health care is simple: Build more medical schools and unfetter the supply of doctors from the thumb of the AMA. Increase the supply and prices will drop. Eliminate “third party cost transfers” via the present system where the folks paying are not the ones getting the service. (That is, Medicare and YOU pay the same price for a service and folks with NO money either get no service, or have an agency who pays their costs AT THE SAME RATE as any other consumer. One Price per product, no matter who is getting it…) Then let the market level things.

    The present set of promises are impossible: 1) Doctors to get the same pay as always. 2) People to get more care. 3) No more money needed via taxes.

    It is a mutually impossible set. Either the payments per service go down, the number of services goes down, or there is new money sucked into the system. The present abomination in the sausage mill raises more money via tax increases and “mandated insurance” that is just a tax. It also will reduce services (via the government refusing to approve them) but that will happen in the future. And Doctors will be paid less. (See the history of Medicare and MediCaid payment decreases over time as the model that will be applied to everyone).

    This is a microcosm of The Socialism Shiny Thing. The same story is being written in the “home mortgage crisis” where everyone was promised a home via mandated loan availability. Works fine until the ‘third party costs’ come home to roost…

    The same story will be Writ Large with the other payment promises.

    At the end of the day, there is only so much “stuff” made and no more. You can accept that technology advance increases the amount of “stuff” about 3% / year (in good years) and that’s all there is to share. Or you can pretend you can move that 3% around, lose 2% in the process, and end up with 10% more. As silly as it sounds, we are once again trying to do the last of those…

    The end game is a financial panic that cuts that 3% growth to flat or even negative (called a ‘recession’ recently, and called a ‘depression’ a while ago, and called a ‘financial collapse or panic’ some time before that… we keep changing the name to make it sound nicer… it doesn’t work…) until folks get a clue and let go of The Socialism Shiny Thing.

    So that is where we are headed. It will take a decade to get there, but it will happen. Heck, when I was a kid, a loaf of bread was between a nickel and a dime. Now it’s pushing $4.00. So we’ve had a 40:1 erosion of the value of “money” just since going off the gold standard. We’re already 1/2 way to zero… why stop now?

    (Also, FWIW, cars cost was about $1200 and now run closer to $40,000 so that 40:1 is broader than just bread… Gold was $35 / once, times 40 = $1400 and we’re darned close to that right now too…)

    So you see, if they can just stretch it out over a couple of decades, maybe no body will notice (wink wink, nudge nudge, say no more say no more…)

    Given all this, I don’t expect a rapid collapse. But don’t hold cash any longer than you need to…

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