Two points need to be made here. The first applies to the industry and the second applies to everyone with investments in “the market” (all tax-deffered, exempt and non-exempt accounts [ in other words - ALL ASSETS in ALL acounts], some examples include IRA, 401k, 403b, Roth, trust, 529 education, etc.).
1. FINRA Rule 4370 requires broker-dealers to have the “establishment and maintenance of a Business Continuity Plan” (BCP). This rule was a bi-product of 9/11. Where is the BPC for the NYSE et al? Where is the auxiliary plan for the basic monetary infrastructure of this nation?
2. Investors: today and tomorrow are a taste of reality. Your electronic assets are INTANGIBLE and essentially worthless when the power goes out. Want to redeem $ from your account today? Sorry, try again later. How about tomorrow? Sorry, SIMFA cancelled that too. Do you see how quickly and absolutely your life-savings can be wiped out?
Remember, risk tolerance can only be determined when risk consequences are experienced. This is a clarion call to awake from your thoughtless stupor and restructure a legitimate “all weather portfolio.”
The leaders of these countries: Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan will be meeting for two days (June 15-16) in Yakaterinburg, Russia (see map) to create strategies of interdependence that expressly avoid usage of the U.S. Dollar. The reason? Their respective concentrated financial exposure to a recently ridiculously weak U.S. currency exceeds existing risk tolerance.
There is special word to describe a powerful entity that oppresses and controls less powerful entities: hegemony. Loads of places seem to be fed up with answering to and being financially beholden to America. Leadership from Iran, India, Pakistan and Mongolia will attend and monitor the talks.
It boils down to this: America has fallen into the classic imperialistic trap. When the financial strength of Roman Empire failed, its foreign outposts and colonies rebelled. At present, there does not appear to be sufficient mental, social or physical space for America in Asia.
Suppose all of those countries decide to abandon the U.S. Dollar in favor of the Renminbi $CNY – the most likely candidate going into the meeting. Within 10 years the U.S. will lose approximately half of its financing because EurAsian investment interest in U.S. Treasury Bonds will be nil. Suppose all of those countries conspire to default on payments and dump existing U.S. dollars and bonds entirely. Will the U.S. launch a land war in Asia? A war of debt enforcement and compulsory capital cooperation is too politically (and morally) unpopular for a free nation to rationally consider.
Check and mate. The power of the dollar and all things associated with it will fall. How quickly that occurs will depend on the course of action established by the participants of a meeting in Yekaterinburg. If an accord is reached and successfully carried out, the new conglomerate will have assets commensurate to a new world power: oil from Iran, gold from Mongolia, manufacturing and man-power from China, technology and agriculture of India, and military prowess of Russia.
Disclosure: The author does not hold a financial position in CEW, but that ETF offers exposure to three out of four BRIC currencies (Brazil, Russia, India, China).
Want my perspective? The Greeks, the Romans, the British, the U.S. and now EurAsia. Everybody wants to rule the world. Queue the video:
Curtis Faith, one of the original members of Richard Dennis’ famous Turtle traders, noted a quote from the prominent architect Mies van der Rohe when talking about the profitability of trading systems: “God is in the details.”
When it comes to designing sound trading systems, God is in the details but his presence there does not preclude the devil from residing there as well. Many trading systems are created with a great deal of imagination, elegance, and theoretical grace but the only way to tell whether the details are divine or diabolical is through extensive and rigorous testing. In meticulous forward testing the grace of one’s trading system gets put to the test. The most creative plans become mere grist for the mill of the market. Whether theory translates into dependable performance is almost always a matter of details and the only way to cull God or the devil out of their hiding place is through experimentation.
Theoretical Trading vs. Empirical Trading
We have seen many situations in which the difference between stellar performance and steady bleeding literally came down to one line of code; where a fine system that performed beautifully in backtesting got annihilated in real trading while an ad hoc, cobbled-together system showed steady and consistent results; where systems that work superbly in one market get dismantled when applied to a similar but distinct market or when applied to a different time frame.
That is part of the reason why we are suspicious of trading systems that are sold under the premise that they apply to all stocks, all markets, or all pairs. To be blunt, that kind of sales pitch can be nothing short of an admission that no real testing has been done on that system. It may be the most stylish and well-dressed system out there but even the best systems have their Achilles’ heels. For every great performing system, there is a market or a time frame that tends to pick it apart. Even if I have the Michael Jordan of trading systems, why force it to play in Madison Square Garden if I don’t have to? Each dollar used there is a dollar I could use in another arena that produces better results. So what does it tell us when a system is marketed for any instrument on any time frame? It should tell us that it is simply an academic system and is useful only for thinking about trading, not actual trading. It should tell us that it hasn’t been tested for trading, it has simply been designed for selling.
Theoretical Trading: Exhibits conceptual returns and many idealized “what-if” scenarios (“you could realistically do 3% per month with a simple covered call strategy; imagine what 3% compounded over 10 years would do to your portfolio”).
Empirical Trading: Exhibits actual results from real market data. In order of increasing importance, results come from backtesting (strategy applied to historical data), forward testing (demo results in live market environment), and actual results (performance of strategy in live accounts).
Theoretical Trading: Assumes that uncertainty and ambiguity can be removed from the market by trading by its rules. Treats uncertainty as an enemy and feeds into the craven natural tendency to eschew all things unknown. Results are too clean, too mathematical.
Empirical Trading: The unexpected regularly occurs, sometimes in your favor, sometimes against you. Results reveal the consequences of both. Good systems weigh the pros and cons of different methods of trading the randomness of the market. In the end, nothing is certain and nothing lasts forever. Great strategies will eventually wear out. But there will always be a place for innovation and new ideas. Embrace the sfumato. With most humans, ambiguity leads to anxiety. The market, however, is entirely ambiguous. Good traders embrace the ambiguity rather than running from it. Anxiety is the enemy.
Encyclopedic Training vs. Pragmatic Training
Even good training companies tend not to produce good traders. They have great training, just not great results. Why? Because they throw the book at you; actually, the whole series of them. You pay handsomely for tons of information and all of that information makes you a very knowledgeable freshman. You could pass all kinds of tests but you are still not a trader. The only way you are likely going to make money with all of that information is if there happened to be an appropriate category on Jeopardy! (“I’ll take ‘Markets and Economics’ for $400 Alex…”).
Contrast the typical training programs out there with the successful programs that actually produce profitable traders. Both programs have drop outs. There is absolutely nothing wrong or shameful about not making it as a trader (and it may help you to see that there are far more useful and productive ways to employ your talents than by gaming the markets). What is shameful is having it in you to be a successful trader but going through the wrong training program. This is what we see happen to most promising traders. While any training program will have drop outs, the difference between the right kind of training and the wrong kind is simply in the end results of how they define success.
An encyclopedic training program will call you a graduate once you have passed certain levels in their program and you can show that you know how to do iron condors, that you understand descending wedge patterns, that you know what the ex-dividend date is, and can even talk a bit of trader lingo (“I saw the Cable go 6 wide so I knew something was coming and just hit the bid”). They consider you successful because you passed their program. You may know more than 99% of everyone else out there when it comes to the market. Congratulations.
A real training program doesn’t consider you successful until you start making money consistently. Almost every real training program trains you in specific strategies, sometimes just one strategy (like the Turtles). They teach you specific rules. They walk you through the details like trading platforms, execution issues, and so forth (there is a lot more of God and the devil in just those two issues than any guru-based training program would know to admit). They show you what markets are ideal for the strategies you will be trading. And, of course, they have a vested interest in your success. They put their best resources into your training and divulge years’ worth of strategy development and secrets so that you make money – because they will make money when you do.
The business of a trader is to make money, not to know all there is to know about the market. If you want to become an encyclopedia of market knowledge, become an analyst, a commentator, or an economist. There you get paid to know more. Trading won’t pay you for knowing sundry facts and figures. Trading pays you for trading well.
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Good training should be utilitarian. It should align the interests of the teacher and student. Education that merely accumulates knowledge is trivial. Good education should be transformational.
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Brian says: This article reminds me of The Devil Went Down To Georgia. Here’s the vid:
History: Evans immediately began a public inquiry into the cause of the misery of the working man. A report published in the WMA (July 1844) rendered his conclusions. He wrote,
“We are the inhabitants of a country which, for boundless extent of territory, fertility of soil, and exhaustless resources of mineral wealth, stands unequalled by any nation, either of ancient or modern times…. And, yet, we allow those elements to lie dormant, that labor which ought to be employed in calling forth the fruitfulness of Nature is to be found seeking employment in the barren lanes of a city, of course, seeking it in vain.”
The report denied the authority of Congress either to withhold land from citizens or to grant it to well-connected speculators. Such privileged speculators, he claimed, “lay our children under tribute to their children.” They practice “a cruel and cowardly fraud upon posterity.” His solution? To “establish the right of the people to the soil; to be used by them in their own day, and transmitted … to their posterity.”
Sample: (see above)
OR —> Expand the Federal Land Policy and Management Act of 1976 to include John Locke’s justification of ownership; namely, mixing labor with the land. This also RESTORES the inalienable right of life, liberty and the pursuit of land.
See: The Radical, Evans (April 1841),
Land is not the product of labor; property is any thing produced by labor. Therefore, I say, land is not property. A monopoly of land deprives some of their just and natural means of acquiring property; with equal rights (including the right of land) guaranteed, an accumulation of property in the hands of individuals could not prevent others from acquiring property, as it now can; nor do I think there could be any excessive accumulation as there now is.
Charge management fees (like 12-b-1 fees) while consistently underperforming or just lie to investors (Madoff et al).
3. MARKET MAKERS/SPECIALISTS
Keep the spread (diff. between bid and ask).
4. EXCHANGES
Charge participation and transaction fees on everything concievable.
5. CONSUMERS: EXCEPTION TO THE LIST, THESE NEVER BEAT THE MARKET
In general, think of the market as a carnival booth. Like throwing dull and crooked darts at small balloons, or tossing dimes into dishes or knocking milk bottles off a stool with a softball or having a go at the shooting gallery. If you haven’t figured it out yet, the game is rigged and ridiculously expensive. One more example: the claw attached to the crane game. You think you can get the fluffy pink bear in the middle, but you only get stuffed.
6. REGULATORS
Charge regulatory and licensing fees to all of the above and do it with abandon.
Lie about your returns. There’s a sucker born every minute and if you gather a substantial following, you might get bought by a Broker (see entity 1 above).
Stay tuned for next week’s article: The birth of a stock: a story of magnificent mark-ups. Is this series a little too honest? Perfect. That’s the idea. Call me Peter Pumpkinhead.
I saw Suze on Oprah as well. It made me cry. I guess there’s a first time for everything. I don’t admit that easily. After hours of mental and emotional anguish in feeling the pain of the Americans she sold her lies to, there was nothing left to do but weep. She lied poorly, repeatedly and shamefully. She proved herself morally bankrupt and confederate with Wall Street thieves by selling out the little guy. Her performance was unconvincing. The Reverend (in the audience) that she was addressing didn’t buy it either. He scowled. When the camera operator realized this, he panned the audience and, finding no sympathy there, he kept the focus on Suze, Oprah, and the Reverends wife (who was nodding in agreement albeit with a confused countenance).
Suze said to focus on the positive (”You still have half of your retirement account and that is better than nothing.”). That perspective fits hand in glove with the mantra “You are lucky to have a job.”
Those phrases are degrading propagandi directed at slaves. Any appropriately self-respecting person knows that the opposite is true. Specifically, the employer is lucky to have YOU as an employee. Likewise, the nation is lucky to have YOU as a law-abiding citizen. From the stage, Suze got down on her knees with her hands together and plead that consumer investors ”not be angry. Just move on.” But what everyone heard was, “Shut up and take it. You know there is nothing you can do about it and I’m pretending to care for you because the banks are paying me to do this.” In her words and actions, she showed her true colors as an abuser of the gentler and more trusting souls.
I am still noodling solutions for the new freepersons who are rising up through the mist of darkness. I’m extremely close to apprehending a comprehensive new self-sustained community. The missing element is land. It must be gifted or otherwise gained before freedom can be renewed. Ideas on that front are welcome.
Meanwhile, enjoy Reel Big Fish as they sing “Sell Out.”
Meet Jack. He’s a horse (Belgian stallion). He can sense danger before it senses him. He can find his way home through a blizzard on a moonless night. These abilities loosely translate into “horse sense.” According to recent calculations, my content, on average, is six months ahead of the news. Now you understand the banner at the top of this page. Here’s more:
1. Take the consumer discretionary sector ($XLY) for instance: It was $30 when I showed it in August 2008 and it was $20 yesterday. Skip it, that is just a silly stock pick, anyone could have guessed that one. Moving on…
2. Today I heard a popular financial radio talk show host propose the notion of a possible revolution (French Revolution in that case – but it could have just as easily been in Russia or the Congo). Umm, I broke that story in September, 2008. Still not impressed? Try number three…
3. In mid-September, the title of this article includes “My Prediction“ - which refers to this line: “sometimes, just sometimes, economies collapse despite government intervention.” Raise your hand if you don’t see this happening. No? Ok, try number four on for size…
4. My Uncle Hal sent a patriotic chain-email to the family earlier this week. It emphasized a quote from Jefferson about banking institutions being the greatest threat to freedom – yep, the very same quote I published during the elections of 2008. Ok, ok, my uncle’s email isn’t exactly nation-wide “news” – but his recipients think it is and it really bugs me that my ENORMOUS family never reads my blog. Do you know how many Anderson’s there are in this world? (yes Dad, that includes you).
5) $AIG - On November 10, 2008 I predicted that the U.S. government couldn’t be forced to exit its interest in shares of American Investment Groupe. I totally nailed that one!
Now, while we’re on the topic of force, who would you prefer to have standing between you and your stock market investments:
a) A greedy, dishonest, unarmed bank that is self-regulated but also government regulated?
–or–
b) A greedy, dishonest, self-regulated branch of the U.S. Armed Forces?
I’m thinking that the separation of powers has some horse sense to it after all. Reminds me of the tune “Banditos” by The Refreshments. The line: “I’ve got the pistols so I’ll keep the Pesos, yeah that seems fair.”
A word about my other (less accurate) predictions:
1) I predicted that a new “digital standard” currency would be introduced by January 2009, but China’s central bank governor Zhou Xiaochuan didn’t suggest the idea until yesterday.
But I got the pistols so I’ll keep the Pesos and that seems fair.
Post-script: Wife thinks that I should predict that in six months we will own the ranch. So let it be written, so let it be done. Hopefully this prediction happens early – like tomorrow…
Jon Stewart finally jumps on the anti-CNBC bandwagon and makes terrific sport of it. His observations aptly summarize the years of “yucking it up” that I and my “real money trading” colleagues have experienced. When it comes to investing, the first assets you acquire should include:
Only #1 is re-usable, but the success you achieve by avoiding the mistakes you originally bought will help your performance in the long run.
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3 / 27 / 2009 UPDATE:
Diane Garnick suggested that I link to this tasty little morsel:
Liars, damned liars, and all of ‘em statisticians. (yep, just made that up). The best lies ever orchestrated are overflowing with dubious and compounded statistics. In my UofU, Basic Research Methods Course (101), Professor Tufts suggested that the motive and intent of the creator of a study is paramount. He jocularly referred to it as the “sniff test.” In essence, if a study stinks of bias, independant verification is in order. While reviewing the propaganda, my olefactory senses were repeatedly stung by Edelman’s attempts at columny. In fact, the last six paragraphs were the most caustic putrification and adulteration (yes, I’m punny) of information I’ve encountered since Hitler’s typification of Jews.
If Benjamin Edelman (with the collusion of three researchers and complicity of eight consultants) is inclined to craft a study that pretends to assert that prayerful and scripture-studying American citizens are significantly more engaged in pornography (which accusation is patently illogical), I’m compelled to confound his clever complexities with a simple independant verification. Take a few seconds to see how contrived his numbers are and the skew of the press.
He mentioned porntube.dotcom, so let’s go with that one (if you think this is a small sample size, let it be remembered that Edelman only used one company for his analysis – so in his words [and I couldn't agree more], “it is difficult to confirm rigorously that this seller is representative” p.215 ).
He mentioned using Alexa for online data. We’ll try Quantcast’s unbiased stats and inference models.
Ben fingers the educated and affluent as highest subscribers to porn.
Quantcast identifies that it is the less-educated and non-affluent as the highest over-all population of consumers of porn.
The following shows that subscribers to porn are totally different than the population of porn consumers. Almost exactly opposite of what Edelman described.
Edelman made a map displaying payers for porn by percentages.
Quantcast shows a map of the highest populations of non-paying porn participants.
From an economic perspective, it’s pity that Edelman lacked the genius to identify ways to capitalize on the massive market of non-paying porn consumers. Instead, he points out the ridiculously obvious (people with more money [always highly correlated with more educated] are more likely to spend it). Brilliant. Instead he decides to target the variables anathema to the census: religion. Figured out his motive yet?
Ben claims to have included “standard demograpic variables” but omits race. Why? Because that particular truth wouldn’t villainize whom he wanted to smear. Think about it, if he identified Afr.Am. and Hisp. as primary subscribers (as shown above) everyone would say, well, those races aren’t majorities in Utah and Alaska so it appears as though this repugnant, pornography-viewing behavior is confined to a relatively insignificant portion of the population and is therefore irrelevant. But for Edelman’s campaign to take effect, he needed to paint some things with broad strokes and omit color altogether in others.
Edelman has one “anonymous” source for subscription and zip code data. This is highly suspicious. How probable is it that the unmentionable source has a monopoly on smut within the regions he wanted to criticise? It is not unthinkable that organized vice is as territorial as organized crime.
Now, to put this in the proper perspective: If the filth-pettling businessmen who read the Harvard Journal of Economic Perspectives are seeking subscribers that are willing to pay for vice, the more educated, affluent, religious demographic could be their target market. However, if the public wants to know which populations indulge in porn because Edelman and the press have you feeling maligned and grossly misrepresented, now you know their game and have unbiased material evidence that places burden of shame where it belongs.
Please share these findings liberally. Oh, and if you want to be ahead of the curve, apprehend Edelmans creation as a well-credentialed document to be referenced by the proponents of gay marriage. Speaking of, gporntube (“g” is for gay) ranks first in affinity sites.
p.s. If you think this article has nothing to do with economics or finance or the markets – that is exactly what I thought when I read Edelman’s stuff. But it got published in Harvards Journal of Economic Perspectives. I wonder if they’ll publish mine…
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