Tuesday, October 14, 2008

Exploiting the Market and The Real Revolution

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) Am I saying there won't be a rally? No, I expect one now because it is a self-fulfilling mechanism. (I then described how to manipulate the market up or down.)

On Saturday I wrote: Today's Contrarian Entry: The Positives October 11, 2008) As Jesse Livermore (the legendary trader) noted, a Bull market takes along the fewest possible participants. Just as a wild guess, I would say very few will be taken along should the market explode in a counter-trend rally here.

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):

Please go to www.oftwominds.com/blog.html to view the charts.

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: "A healthy homecooked family meal and a home garden are revolutionary acts." (coined May 2008)

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.

If I could make you a boardroom chart here, I would show you visually how these two worlds look in contrast to one another. There is the real world where we quit smoking by deleting cigarettes from our daily routines. Then there is the world of the Illusion where people quit smoking by expensively killing themselves. In the world of Illusion, they create mountains of paperwork in the event they are held accountable for your death by proving legally your signed consent and complicity in the pact. Can you see where I am going with this?

In the Illusion, food shopping means preparing a list in your snappy leather daily reminder, checking your bank balance, gassing up the 4-wheel drive even though you live in gated flatlands just off the ramp onto a flat expressway, wedging ever so cautiously into a parking spot while dodging entire families with meandering children, aunts and uncles, none whom can see you because they are blinded by too many oversize shopping carts, turning on your vehicle's alarm system, selecting an empty cart with advertising plastered over the section you wanted to use for your greeting card selections, squishing out the guilt cigarette you accidentally just lit and entering into one of the millions of towering, metal mega-churches dedicated to predatory nutritional genocide.

Right away you notice the music. Isn't that Bonnie Raitt? Kinda takes you back ... You relax a little and push into produce where a box of salad greens is $6. Ummm, better not, better get the unboxed soggy head of Romain at $2. You move on to coffee.

THIRTEEN bucks? Wait a minute. Bonnie is showing off her guitar chops now as you pick up the cheapo big can at $12.99 and slide over to cereal. By this time you've been asked at least three times by the apron squad if you need any help. Of course you don't because you are in charge of selecting the most nutritional foods for your loved ones.

Since you are also Chef Numero Uno, you begin to look for easy outs, like the music, easy listening. In seafood, you ignore the small type mercury warning and splurge on Salmon fillets, blackening rub and Creole glaze ... and don't you need more plastic bags, self-closing are so much easier than twist ties and hey, paper towels are de riguer! Hey look, sunglasses, and tee shirts and how about a little can of espresso for the road?

Satiated, you wheel up to the checkout counter ignoring the tabloids because you know they are fake, empty your cart for everyone elbowing-in behind you to see what an interesting person you are to have chosen melamine disguised as your grandmother's staples, you rummage for your special person discount card and press the keys on the magic global reader, proving once again you are solely responsible for having willingly blown off the monthly mortgage payment, the 4-wheel drive payment, the health insurance and property insurance payments, the heating and water bills and the stomach linings of all whom you thoughtfully planned to feed. All of this happened in just under one vacuous hour, a fantastical hour, topped off by the crowning glory coupon box spitting out your identity profile according to what is on file in your local fusion center.

In the Illusion, this is all perfectly okay. Its just another day in the life in the fast lane. But in the real world, we don't live like this at all. I can't say I never did because I did and I did it without thinking about what I was doing. Insert Serenity Prayer here. It was only when I drifted off the grid (another story for another day) that I put to use all that faint yellowed information from dusty thrift store nutrition books. Yes, its all there as well as ha, ha "planting your Victory Gardens". Well, I wondered, then, where? On the balcony not even big enough for a cat box? And selected a few packs of instant latkes mix, add water. These instant mixes remind me of the old Chinese paper children's toys that turn into bloated pink tissue animals when you drop them into a glass of water.

In the real world we prepare real food, every single day. This means we don't buy convenience in clamshells not just because we cannot afford hyperinflation anymore, but because our thinking, which is our attitude, changed. In the real world, we wear real clothes that are not celebrity costumes, but older clothes we've managed to care for and repair when they fray. In the real world, we walk out of any situation calling for the filling out of forms which is how the Illusion sucks you into their nightmare. They hate that. They hate you for not BUYING into the instant system. They hate you for your freedoms. They are passionately devoted to their newest Windexer, impeachable governess-you-know-who.

If you happen to have awakened inside the modern western wasteland's dump of bad dreams overlaid atop humanities' earlier bad dreams extending as far as the eye can see, you may very possibly harbor an extremist mindset and will be judged according to the stats collected proving your guilt. It's revealing itself just now in our crystal ball.

By the way, my friend chose to quit smoking at some point in the future without purchasing assisted suicide.

There exists an unimaginable amount of human beings worldwide who are at this very minute living more authentic and fulfilling lives by choice and not just in my own Monkeysphere. The jig is up for the Illusion. Everybody knows except for the slow learners, but expect them to figure it out anyway as soon as they realize they are sharecroppers. We could not go on as we were, choking on hormonally altered powdered phlegm and playing high stakes roulette with Nature.
Today's story explains why I've permanently added Charles Hugh Smith's quote to the top right column of my site.

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.

Reader Essays:

Part I: A 70 Trillion Dollar Counterfeiting Ring(Zeus Y., September 23, 2008)
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)

Thank you, Adam C. ($20), for your much-appreciated generous donation to this site. I am greatly honored by your ongoing support and readership.

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