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Mercenary Trader  

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  • Gold Looks Terrible Part III: The Mass Capitulation Thesis [View article]
    And yet one could have made the exact same argument for a collapse of the Japanese Government Bond market (JGB market) circa 1995, and one would STILL be waiting for said collapse to happen.

    "Eventually" is not much of a peg to hang one's hat on when the potential time frame could yet stretch five years, ten years, or more... we are not gold perma-bears, not perma- anything, but the faith-to-evidence ratio in this comment thread is indicative of something.
    Jul 8, 2012. 05:42 PM | 8 Likes Like |Link to Comment
  • Gold Looks Terrible Part III: The Mass Capitulation Thesis [View article]
    Why will QE3 necessarily be "rocket fuel" for gold? If QE3 will be "rocket fuel"... and if the likelihood of QE3 is almost certain... then such should already be priced in, and manifesting itself as a resumed uptrend for gold.

    And yet this is not happening... which was a significant point of the article... something is wrong with the QE3 thesis.

    You say "gold is going up due to its fundamentals" and then say "ignore technical analysis" in the same sentence. But doesn't technical analysis speak to the fact that gold is not "going up" as it should be... that something is not firing right?

    The problem with a lot of true believer analysis, as well as straight-up fundamental analysis in the absence of price action, is that various assertions cannot be falsified.

    If there is no way to prove theory X to be untrue -- to falsify the conclusion or determine its validity / invalidity through empirical means -- then theory X is a dangerous thing to invest on, because you have no means of ever knowing if you are wrong. (Which is convenient for permabulls I suppose... but not conducive to long-run financial health or intelligent risk management...)
    Jul 8, 2012. 05:37 PM | 8 Likes Like |Link to Comment
  • Pension Funds and the Zero Bubble [View article]
    -- The article was an exercise in food for thought. People are entitled to like it / appreciate the insights if they want.

    -- I don't recall any assumption that "all pension funds are Calpers and such public funds." There was not a distinction between state pension funds and corporate funds because such a rabbit trail would dilute the core point -- state pension funds are gigantic enough as it is -- and it appeared obvious to yours truly that other forms of pension fund (i.e. corporate) are not in better shape.

    -- As for corporate pension fund managers, do you really believe they are better off, or are in less trouble? Large corporations have every incentive to play the same games, in respect to underfunding pensions (in respect to liabilities), which can be done via artificially high assumed rates of return, so as to show higher corporate profits via lower contribution costs. And large corporations with heavy retiree obligations are in a similar "under the gun" stance in respect to potential shortfalls on contractual obligations.

    -- Furthermore, with about 10 seconds of googling, here is something from Fortune on the state of CORPORATE pension funds:

    [A Fitch ratings analyst] worries that the response in corporate America will be not to adopt more conservative expectations and pony up cash now, but to join the reach for yield that is characterizing the debt markets now. This could lead to bigger problems later at risk-taking pension funds, should the oft-discussed bond market blowup come to pass.

    "Companies will be challenged to achieve the assumed return targets incorporated into their accounting statements given 2010 year-to-date equity returns and current fixed income yields," the Fitch analyst writes. "This situation could encourage yield chasing and a shift in asset allocation to higher risk asset classes, including leveraged loans, real estate, private equity funds, and equities."

    -- The problem, in other words, is widespread. You are hitting on a distinction that is effectively immaterial.

    -- As for the PBGC... are you kidding me? Need we really go over the potentially disastrous (and again underfunded) state of THAT entity, which is not privy to U.S. tax dollars? Via wikipedia:

    The PBGC is not funded by general tax revenues. Its funds come from four sources:

    * Insurance premiums paid by sponsors of defined benefit pension plans;

    * Assets held by the pension plans it takes over;

    * Recoveries of unfunded pension liabilities from plan sponsors' bankruptcy estates;[4] and

    * Investment income.

    -- All in all, your rebuttal is rather bizarre, in being so weak it almost appears an act of self sabotage.
    Apr 30, 2011. 05:47 PM | 8 Likes Like |Link to Comment
  • Global Macro Notes: Massive Topping Process at Work [View article]
    Re QE3, four, five etc, there is growing evidence that the Fed is both politically constrained and credibility weakened -- note the regime change in Washington and the response of the bond market.

    Re, Fed creating inflation, there is open question as to whether the Fed can effectively create positive inflation without destroying itself (provoking a political loss of independence). The Fed can clearly create the wrong kind of inflation -- i.e. gold, raw materials costs, etc. -- but the helpfulness of this is in doubt. And if $600B was in doubt, what's next? $2T? $4T?

    Further, re, signs of deflation, modest signs of U.S. recovery (note GDP) may count as further constraint (along with growing internal dissension).

    Re, emerging markets, it is not a given that QE sequels help the E.M. investing case. Active dollar debasement policies which fuel hot money flows can be considered inflationary for E.M. markets receiving those flows, which in turn requires a 'slamming on the brakes' on the part of E.M. countries.

    For example:

    Last but not least -- if "Helicopter Ben" remains the core reason for investors to be bullish (as opposed to faith in a combination of valuations and fundamentals), what exactly does that say?
    Nov 24, 2010. 07:52 AM | 8 Likes Like |Link to Comment
  • Gold Looks Terrible Part III: The Mass Capitulation Thesis [View article]
    Sure wish I had a krugerrand for every time a tinfoil-hat wearing conspiracy peddler started out their rant by calling us "unsophisticated"... even though we understand every aspect of the gold argument, including the nuanced and not so nuanced bull cases, backwards, forwards and inside out...

    But again here is what I don't get: If the system is manipulated to the point of hopelessness, why buy gold at all? If what you really need is total system crash, i.e. fiscal armageddon, for your beliefs to play out -- because the powers that be will just maintain control otherwise -- then why not buy stock in SWHC and line your underground bunker with canned food and bullets instead?

    Because if we get a "Max Max Beyond Thunderdome" scenario... which seems to be what the deep conspiracy viewpoint calls far... the big winners won't be the ones trying to trade gold for groceries in the midst of chaos, they will be the organized militia bands taking food, water and energy supplies at gunpoint.

    "Because such a view is idiotic, buy gold and silver now while you can."

    Well now, that's one of the most original investment theses for putting one's capital to work I've ever heard... unless of course you're talking about barter currency for the bunker again. In which case don't mess with the full-sized gold bars, they can be a pain to melt down when you really need kerosene or a new sack of grain.
    Jul 8, 2012. 09:14 PM | 7 Likes Like |Link to Comment
  • Trading the Muni-Meltdown [View article]
    Not a bad idea. I'll put a few of the closed end funds on my radar...

    I'm from the south as well... so I'll reply "That dog will hunt!"

    Happy Holidays!
    Dec 24, 2010. 08:59 AM | 7 Likes Like |Link to Comment
  • Investors Always Get Killed At Cycle Tops, Small Caps Look Like A Trap, And It's Way Too Early To Buy Energy Stocks [View article]
    The traditional money management business is tied down with impossible constraints. Managers are too scared to stray from their benchmarks, which makes it literally impossible to deliver superior performance, and other traditional institutional constraints further make it nearly impossible also. The key things great traders do -- cut back risk in dangerous situations, take outsized positions, make large calculated bets, stay in cash when need be, use leverage when need be, stay flat for long periods, make huge returns in short periods of time -- most money managers can't tolerate.
    Dec 31, 2014. 08:58 PM | 6 Likes Like |Link to Comment
  • Investors Always Get Killed At Cycle Tops, Small Caps Look Like A Trap, And It's Way Too Early To Buy Energy Stocks [View article]
    Haha are you kidding me? A bitter question from someone who likely understands very little about trading... when a skilled trader develops a thesis and a trade, and it does not work out, they lose a small amount, because they never committed a large amount in the first place... the big winners are scaled into as the thesis confirms, always protecting initial capital and building on a cushion of profits... it is precisely by this means of aggressively protecting capital (via excellent risk management) while intelligently building on winners that excellent returns are made. Even Steve Cohen has said his best traders are only right 65 percent of the time. The fact that you would cherry pick an old idea that did not work speaks volumes of your emotional bearing (bitter? angry?) and your lack of understanding as to how real trading works... we had a most excellent year in 2014, up nearly 48% in the second half alone, and had a few losing trades along the way. So what.
    Dec 31, 2014. 08:17 PM | 6 Likes Like |Link to Comment
  • Is China The Biggest Malinvestment Case Of All Time? [View article]
    Are you serious? If one had to choose "poor in America or poor in China" the choice would take about zero seconds. Do you realize what China's social safety net looks like? (Hint: It's invisible because it doesn't exist.)
    Sep 20, 2012. 05:06 AM | 6 Likes Like |Link to Comment
  • Is China The Biggest Malinvestment Case Of All Time? [View article]
    Surely you jest.

    The differences between now and March 2009 are massive. China anounced its crisis-response $586 billion stimulus plan in November 2008. It took time for all that stimulus to be pumped into the system. Of course 2009 was going to deliver a massive response.

    Not only that, but the March 2009 lows were coming off mass liquidation events all across the investment industry, with low-debt companies trading at 4x earnings and less than the value of the cash they had in the bank.

    At the same time, US corporations used the 2008 crisis as political cover to engage in a huge cost-cutting drive, trimming fat and enhancing productivity gains in ways that would have created major political backlash before the crisis presented justification as emergency measures.

    All these things, plus the pure shock and awe of coordinated global central bank stimulus on a scale never before seen in monetary history, produced huge results. Nobody denies that stimulus can have a huge kick in the short run.

    The question, though, is what happens in the long run. 2009 was the start of the radical treatment program - now the patient is many years on, still sick, and showing side effects of the toxic medicine as the impact wears off.

    We actually addressed your basic assertion anyway, re, not fighting bull markets in a piece linked in the article, "Keynesian Psychology With Austrian Tails." Plenty of self-styled pragmatists ignore the macro or rationalize whatever is happening by buying stocks as they go up. We are happy to ride false trends too, as long as we deem them sustainable for at least a short duration. But in the long run, the economics of stimulus and artificial boom simply do not work. They ultimately produce bust.

    And by the way, it is unclear who is focusing on dogma here. We presented some Austrian ideas in a logical explanatory manner - a means of explaining a chain of events as it occurs in logical sequence, then using empirical evidence that supports the notion the sequence is playing out. That is not "appealing to dogma," which would be closer to saying "XYZ will happen because such and such says so." If anything those who have an irrational faith in Beijing are the dogmatic ones, placing their trust in an earthly higher power instead of tried-and-true free market economics principles.
    Sep 20, 2012. 12:23 AM | 6 Likes Like |Link to Comment
  • Gold Looks Terrible Part III: The Mass Capitulation Thesis [View article]
    Thanks for the nice note... and we agree, the long-term bull case is still pretty compelling from a macro standpoint... in fact, that is part of the underlying structure of the argument: If you're going to be in it for the long term, then expect the very real possibility of extreme volatility, and extreme downside dislocation, between here and there -- not a guarantee but something to be wary of, so emotions don't get you at the worst time... planning the investment and investing the plan, same as it works in trading.

    We'll continue to try to be as constructive and objective as possible, and if the time comes to get table-pounding bullish on gold again you can bet we'll be writing about it (and putting our $$ where our mouth is)...
    Jul 8, 2012. 09:44 PM | 6 Likes Like |Link to Comment
  • 'Decision Traps': Improve Your Decision Making Skills to Become a Better Trader [View article]
    Yup -- and on top of that, there is a millions-strong class of plodders and rote instruction followers, all of them resentful of the fact that wisdom and discernment are not equal access commodities.

    And so, where wisdom cannot be had for all, they insist it can be had for none.

    Sadly, this mindset describes academia today...
    Dec 22, 2010. 03:37 AM | 6 Likes Like |Link to Comment
  • The Trouble With Modern Monetary Theory [View article]
    Re, rants etc... if MMT in truth agrees with the points I emphasized, and if the net result is that these points are weighted more heavily in broad discussion, with greater emphasis on the importance of wise policy decisions, the dangers of unproductive spending and the importance of the real economy -- vs. the widely circulated and repeated "different economic paradigm / can't run out of money" stuff -- then the net result can be a win/win all around.
    Dec 20, 2010. 10:41 AM | 6 Likes Like |Link to Comment
  • Time-Tested Wisdom: For Commodity Bulls, 'Don't Fight the Fed' Becomes 'Don't Fight Beijing' [View article]
    Trouble being, a significant currency revaluation is not a palatable option either. Profit margins for many Chinese export firms are already razor thin -- to such a degree that even a 1% rise in the exchange rate could mean the difference between survival and bust.

    Horns of a dilemma indeed... this is what China signed up for when they decided to take a page straight from the Greenspan playbook. A few years of heaven (via short-term monetary policy boom effects) followed up by one hell of a hangover.
    Nov 28, 2010. 07:56 AM | 6 Likes Like |Link to Comment
  • Investors Always Get Killed At Cycle Tops, Small Caps Look Like A Trap, And It's Way Too Early To Buy Energy Stocks [View article]
    Various studies show there is no true correlation between stock market performance and the broader economy. In both the developed world and emerging markets, the assumption of direct linkage between the two is based on false assumption rather than empirical fact. This further makes logical assumption when you think about it. If a strengthening economy means rising interest rates and rising wage presures, with corporate profit margins at all-time highs thanks to financial engineering, then the strength of the economy could actually be a negative for equities moving forward, not a positive, in which expectation of a downdraft in equities would say nothing about one's perception of the economic situation at all. In similar fashion, with emerging markets and economic growth, fast-growing GDP may correspond with heavy reinvestment in capex, and generally low corporate profits, while flatlining GDP may come at a time when all the previous capex investment is providing payback, and thus delivering higher profits. So you can't say which period will have better stock market performance, rising growth or flatlining after a period of investment. Add in government stimulus programs and credit fallout possibilities, running counter to economic conditions or independent of such, and you more market-shaping mechanisms that can function wholly apart from economic expectations. We have opinions relating to the non-sustainability of artificially high corporate profit margins, and the likelihood of severe credit distress and possibly emerging market blowups as a result of the unwind of the multi-trillion-dollar USD carry trade, but these thing are not the same as a translation into directly bearish or bullish economic forecasts.
    Dec 31, 2014. 08:24 PM | 5 Likes Like |Link to Comment