How to deal with Drawdowns on Systems and Managed Accounts
By matt | July 24, 2008
Drawdowns as defined by Investopedia are the peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.
However what I wanted to address is why drawdowns occur and how they affect traders and investors psychologically.
First of all, regardless of the performance of an investment whether a mutual fund, stock, managed account or the track record of a system whether real or hypothetical - all investments go through periods of drawdowns.
In the case of futures - where a system or a CTA makes trading decisions to go long or short - it requires further explanation.
Here are 2 main reasons for it:
1) Systems can have several indicators that perform well during a particular trading environment (such as trend-following vs. volatility based) and under-perform in a different environment. Typically, trend following systems fail during high volatility and will resume their up trends as volatility subsides while volatility based methodologies may under-perform during choppy periods.
2) No single indicator is perfect. Most indicators are known as lagging indicators (rather than predictive), so before positions turn profitable, often one’s portfolio will be in the red before it eventually goes in the black.
Drawdowns are a backward looking statistics. Therefore, they cannot tell us with accuracy what will happen in the future. However, they are a good way to compare investments and can give us an idea as to what to expect.
You have to examine two factors, the length of the drawdown and the time to recovery.
Good systems and good managers will recover from drawdowns but investors also have to determine ahead of time what their risk tolerance is in the face of adversity.
Past performance is not indicative of future results. There is a risk of loss in futures trading.
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Mid-Week Market Trend Analysis
By matt | June 13, 2008
Mid Week 06.11.08
Jun.11 2008 03:40:16 PM
Weekly Futures Report
6.11.08
Filed 3:17 pm Wednesday
Last 7 days Ago
July Crude 137.00 122.85
July Heat 395.74 358.75
July XRB (Blended Gas) 346.34 324.50
Crude oil rallied sharply on Wednesday, trading more than six dollars a barrel higher than Tuesday’s close by midday on news from the Department of Energy which stated that inventories declined more than expected. Crude oil stocks fell by 4.56 million barrels to 302.2 million barrels. The trade was looking for a decrease in stocks of only 1.5 million barrels. In a related story, China said that imports of crude oil had increased over the past month as it attempts to rebuild from its recent earthquake. Also, tensions between Iran and the US continue. One recent story that is a negative for the complex was that India was withdrawing its subsidies of oil for its population. They should destroy demand in that country. Also, it’s becoming apparent that the Federal Reserve believes that the price of oil will eventually come down due to itself: in other words, the higher the price goes the greater the demand destruction. This may take a protracted period of time, however. Another recent story regarding crude oil and one attempt to explain its historic price movement is that hedge funds approach banks to do swaps to get into the crude oil market. Investment banks are not limited to position size. Therefore, the investment banks can continue to buy oil without limit even though they’re not true hedgers. They’ll never make or take delivery of a single barrel of oil. Crude oil has been very volatile over the last week. For the first two days of the week, crude oil was lower byis down 5.2%.
However, the market is now seemingly trading in a more technical fashion. In other words, prices seem to be more cognizant of pivot point supply and demand areas. One thing the exchange could do to dampen volatility is to change margin requirements so that the initial margin requirement and the maintenance margin requirement are the same. Otherwise, the current volatility virtually demands that all traders become short-term traders. Refinery runs are lower as demand for gasoline distillate contracts. Refineries operated at only 88.6% of capacity, down 1.1% from last week. Margins between the price of buying crude oil and the price received for the refined product continue to shrink making running a refinery a very tricky business.
Perhaps to foster a sense of goodwill more than anything else, Saudi Arabia is going to invite heads of state from OPEC and oil consuming nations along with oil trading banks to a June 22 meeting to discuss the state of the oil market and why it’s trading the way it’s trading.
Support Resistance
July Crude 126.00 140.00
July Heat 368.50 404.50
July XRB 320.00 355.00
*********************
Metals
Last 7 Days Ago
Aug Gold 883.80 883.90
July Silver 16.87 16.75
July Platinum 2038.00 1995.90
Gold finally rallied on Wednesday after being down sharply Tuesday on interest rate outlook. The dollar was sharply lower on Wednesday as the EC rallied on the idea that the ECB would raise short-term interest rates to combat the high price of crude oil. Gold was down $23 an ounce on Tuesday as the dollar gained 2% against the EC on Monday and Tuesday. Even though the chairman of the Federal Reserve talked about the
end of an interest-rate cycle ease it’s unlikely that he will raise short-term rates. The unemployment report showed yet another contraction in job creation for the fifth consecutive month. It’s also an election year. The US housing market continues to recuperate. The more obvious course would be to leave interest rates unchanged. A more credible threat of higher interest rates probably lies with the ECB. Consequently this
would lead to a stronger EC and a weaker dollar based on interest rate differentials and metals would be a direct beneficiary. Also, the price of crude oil continues to be wildly volatile and this has to be viewed as a metal market positive. Even though gold is rallying on Wednesday higher prices are not assured. At least half the rally was short covering from yesterday’s decline. Gold currently looks to be stuck in a trading range between 850 on the bottom and 900 to 925 at the top.
Support Resistance
Aug Gold 850.00 925.00
July Silver 16.00 17.50
July Plat 1950.00 2095.00
*********************************
SOFTS
Last 7 Days Ago
July Coffee 133.50 132.75
July Sugar 10.61 9.64
Traders continue to refer to the coffee market as being in a consolidation phase. Insurance buying has already been seen in the market to protect against a Brazilian freeze. As for now, weather models suggest that even though temperatures may dip below average for this time of year, the crop should not be affected.
Lower prices for cash market Vietnamese coffee have been a negative. Continue to view this market is a trading range affair.Sugar finally broke out of a massive down side channel. This is finally a positive technical development. Sugar never had received buying from ever higher gasoline prices. The supply/demand picture for sugar seems to be turning. Previously demand was overwhelmed by supply, now they seem more in balance.
. Support Resistance
July Coffee 129.0 138.90
July Sugar 9.50 11.92
**********************************************
Last 7 Days Ago
July Soybeans 15.16 13.710
July Corn 7.032 6.092
Soybeans were limit up on Wednesday. A weaker dollar was a positive. Traders continue to fear that acreage may be shifted from corn into soybeans due to the difficulty farmers are having planting corn this year. The end of the latest workers strike in Argentina was a negative development yesterday. Some very unusual issues can affect soybeans at this time of year including “prevent planting dates†that are issued by insurance companies to farmers for coverage on a ruined field. Before today’s limit up performance,
fundamental traders were looking for good two-sided trade. Now that view may have to change. Corn soared to a new all-time high in price yesterday. On top of that, corn was limit up on Wednesday. Farmers having a tough time getting the crop in the ground. Too much water in the soil is preventing planting. Heavy rains are still forecast for major growing areas through Friday. Areas such as Northeast Iowa, Minnesota and southwest Wisconsin are expected to receive as much as 5 inches of rain. Money flow and trend remained positive.
Support Resistance
July Soybeans 13.95 16.00
July Corn 6.85 8.00
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT IMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
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Understanding Trading Systems
By matt | June 10, 2008
By Jake Bernstein
www.trade-futures.com
There are many things about traders that never cease to amaze me. Some traders never seem to learn from their mistakes. Some traders continue to do the same stupid things over and over. Some traders keep throwing good money to bad money. And what’s even worse is that they KNOW they’re making mistakes and keep making the same ones. We have been told that one way to add discipline to trading is to use a totally objective and mechanical trading system. The power of computers has facilitated the process of finding effective trading systems and implementing them in an organized and consistent fashion. Still, however, the trader remains the weak link in the chain. But why? It would seem logical that adding the power and organization of a computer to trading would overcome many limitations and immediately catapult traders from failure to success or from marginal success to outstanding success. But the reality of the situation is that it has NOT done so. Why? Here are my observations as to why:
• Many traders do not understand drawdown: Drawdown (defined as the amount of money lost on a series of consecutive losses) is part of every system or method. Traders are often unprepared to deal with a string of losses in spite of the fact that this is part of every trading system. They often begin with less trading capital than is realistically required in order to survive a period of drawdown.
As an example, the typical behavior of traders when it comes to all of the systems that I have developed and sold is that I rarely hear from anyone when the systems are making money – I only hear from people after a few losses have taken place.
• Most traders do not allocate sufficient capital to their trading systems. They have bought into the idea that success on a shoestring budget will help them achieve the “American Dream”. Yes, some will be lucky but most will fail. If you begin trading a system then begin with the amount of money that the system requires. Doing things “on the cheap” in any business lowers your odds of success.
• The “things are different this time” excuse: This is one of the most common excuses traders use as a means of intellectualizing their circumventing a system. They point to fundamentals that are supposedly different now than when the system was developed. My view is this: if you have done your due diligence in researching and/or developing a trading system. And if you have allocated pure risk capital to the system then let the system do its job. Deciding to override a system that you have developed or studied and that you have concluded as valid is like finding a good surgeon and stopping him or her during surgery. It’s not a good idea and it could lead to death.
• You have to not care: Sounds counter-intuitive doesn’t it! One of the greatest traders I have ever known always told me that in order to make money in the markets you have to not care. By this he meant that you need to be emotionally detached or clinically dispassionate. As soon as you begin to care you have emotional attachment and that means you are likely to make a mistake. I believe
that this is true in all areas of professional life. To be a good actor you need to not care what the critics say. To be a good money manager you need to not worry if you lose money for clients. In my work I have plenty of critics and detractors. Does it hurt when people spread vicious lies about me? Does it hurt when people attempt to uplift themselves by speaking badly of me? Once upon a time it was painful. Now I ignore it and consider it part of the process. The less I care about trading success – the less I care about the critics – the less I care about the lies – the more success I achieve. If you trade a system then you have to not care – you have to be cold and unemotional.
• Study the Details: You need to know your system. By this I mean that you need to know some of the unique qualities of your system. Every system has some characteristics that are unique to that system. As an example, the system may have low accuracy but it makes its money on a few very large winning trades. Knowing this you will be prepared to lose on most trades but you will also know that your money will be made on a few very large winners. And being prepared for this type of behavior you will be more patient and less willing to take small profits since the small profit you take today may be the big winner you should have kept. Another feature of your system is that it may do very well in long positions but poorly in sell trades. You may, therefore, want to take only long positions. And there are other aspects such as these that you need to consider BEFORE you trade a system.
Enter after a losing streak: I’ve found that most traders want to jump into a trading system when it’s doing well. The most conservative procedure is to find a system that is robust (i.e. it comes back strongly after a period of losses) and to begin trading that system AFTER it has had a series of losses. While some people will disagree with me, I have found this to be a very sensible approach.
Past performance is not indicative of future results. There is a risk of loss in futures trading.
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Mid-Week Market Trend Analysis
By matt | June 6, 2008
Mid-Week Market Trend Analysis
Mid Week 06.04.08
Jun.04 2008 12:59:41 PM
Weekly Futures Report
6.04.08
Filed 12:53 pm Wednesday
Last 7 days Ago
July Crude 122.85 130.72
July Heat 358.75 384.10
July XRB (Blended Gas) 324.50 337.90
Crude oil and its products fell on Wednesday after the Department of Energy released its report showing that oil stocks rose by greater than expected levels. The Department of Energy stated that crude stocks were up 2.15 million barrels. Gasoline stocks were up 2.2 million barrels and distillate stocks were up 4.4 6 million barrels. Additionally, refinery runs were also higher than expected. As far as the American Petroleum Institute report, traders were looking for an increase in gasoline of 825,000 barrels but the increase was actually 3 million barrels. Also, both reports indicated demand had decreased due to higher prices. Even with the Memorial Day holiday, gasoline usage was lower than year ago levels. In a related story, General Motors said it was suspending truck building at four different plants and that it may cease production of the Hummer, a very heavy military inspired truck which gets very low mileage. After the release of the news, crude was lower by 1.3%. It’s apparent that gasoline demand will be very poor over this summer. In a related story, major airlines are reducing their fleets due to the high price of jet fuel. Gasoline usage fell 4.7% last week from year ago levels. Prices at gas pumps are at the highest levels in history. Also, the indication from the Federal Reserve that interest rate cuts will be put on hold allowed the dollar to gain some strength against major foreign currencies and this too was a negative for crude oil prices. On Tuesday,
July Crude 121.30 132.50
July Heat 352.50 380.00
July XRB 320.00 344.00
*********************
Metals
Last 7 Days Ago
Aug Gold 883.90 902.70
July Silver 16.75 17.47
July Platinum 1995.90 2078.00
The metals traded lower over the past five sessions due to lower prices for oil and strengthen the dollar against major foreign currencies. Statements by the chairman of the Federal Reserve indicated at more cuts in short-term rates should not be anticipated by the market. Going further, he said he was observing with interest the performance of the dollar against major foreign currencies. This serves to strengthen the dollar which is a negative for commodity markets. Lower oil prices also served to temper demand for inflationary hedges. Also, talk of economic contraction in the euro zone was a price negative. Money flow in both gold and silver remains negative. If the price of oil should start trading comfortably under hundred and $20 a barrel they moved $850 goal would be likely. After that spiked $1-$425, copper is performed like a broken market and is now turning down to $350.00.
Aug Gold 850.00 950.00
July Silver 16.00 19.00
July Plat 1985.00 2200.00
*********************************
SOFTS
Last 7 Days Ago
July Coffee 132.75 135.80
July Sugar 9.64 10.14
Coffee remained in an extended trading range with a downside bias due to dollar strength. This ranges been in place for about 2 1/2 months. There is always the threat of unusual weather in
Long liquidation by funds and sugar is continued over the past five sessions. High ending stocks continued oppression of the market in a fundamental way. Greater scrutiny by the CFTC as to fun position limits and possible price manipulation is a negative for sugar. Remember that funds can establish huge positions both long and short yet never take or makes delivery of the actual commodity.
Support Resistance
July Coffee 130.00 142.50
July Sugar 9.00 11.92
**********************************************
Last 7 Days Ago
July Soybeans 13.710 13.642
July Corn 6.092 5.912
July soybeans and corn were higher than last week’s prices but money flow continues to be negative. These sense that the dollar will maintain strength over the next trading period is a negative. Slow planting for corn to excess rains has led some traders to believe that there may be a late switchover to more soybean planting. Strike activity continues in
July Soybeans 13.25 14.25
July Corn 5.85 6.252
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THERE IS A RISK OF LOSS IN FUTURES TRADING.
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Commodities & Speculation
By matt | June 2, 2008
Q: Do you feel that speculation has played a major role in the recent skyrocketing price moves in energy and agricultural commodity futures? or are food and gas prices rising because of other factors?
A: When Corn was at $2.00 a bushel and oil was trading at $20, were these prices based on fundamentals? Maybe ample supplies and steady demand.
Speculators cannot be blamed for the current values in physical commodities. Fundamental factors are actively at work as growing worldwide population (from 3.5billion to over 6 billion in the last 40 years) and a growing middle class demanding more bread, cars, energy, protein and more continue to grow. Alternative energy is putting pressure on Corn (Ethanol), Soybean Oil (Bio-diesel) and Sugar (Ethanol).
Speculators can cause temporary price distortions and increase volatility by being much more active in a given market (such as we’ve seen in Crude Oil), however speculators cannot cause rising prices year in and year out.
One cannot dismiss inflation (in spite of what the Fed reports), the devaluation of the US Dollar (down more than 40% against the Euro), rising global demand for energy and food from the rising middle classes, particularly in Asia (more than 2.5 billion people in China and India alone) and pin the blame on speculators trying to capitalize on these large moves. Keep in mind that all speculators are not necessarily getting rich.
Q: Would raising margin requirements, as some politicians have proposed, help or hurt the situation?
A: The government and politicians are always only too eager to enact another law to interfere in the markets because they want to get re-elected and not because it is in the public interest. I believe that instead of attempting to appease public opinion by pretending to “do something” about rising oil prices, they should focus on matters that affect taxpayers. The markets are very efficient and the exchanges have done a tremendous job of adjusting margins as volatility increased. Whatever their formulas may be, they work and are justified and not decided arbitrarily.
Politicians should not tell businesses how to run their business; just look at the current deficits.
Manufacturers , distributors and other businesses that use or distribute energy need the marketplace to hedge far out in the future (airlines for example) will be directly affected.
When raising margins, this should be taken into consideration as well.
Q: Should there be an intervention, or will the markets work themselves out?
A: I am not an economist, but history tells us that “the cure for high prices is high prices”; in other words, consumers will slow down consumption, which will drop demand which in turn will force prices lower. I believe that any decision driven by human emotion and over-reaction to satisfy an immediate “craving” will never lead to anything positive.
Q: Please feel free to expound on these topics and provide a little insight as to why you feel the markets are the way they are right now.
A: Last point, the responsibility of the future market is not to keep prices low.
Rather, speculators assume the risk for producers and end users to fix their prices.
Past performance is not indicative of future results. There is a risk of loss in futures trading.
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Optimus Trading Group VideoIntro and Hello
By matt | April 18, 2008
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Avoiding Greed
By matt | April 15, 2008
Looking back at all the recession, depression and other economic catastrophes and as much as people like to believe in economic cycles, I personally believe that the current severe economic downturn started just like all other bubbles - as a result of speculation. It has nothing to do with economic cycles.
Can we avoid cycles like these? Not likely. Can we eliminate greed? Not likely No Fed has the power to do that no matter who s at the helm.
A few hundred years ago it was tulips; then came the stock market crash of 1929 and the not-so-distant stock market crash of 1987; in 2001 it was the internet bubble and today, it s the collapse of Bear Stern s due to speculation in mortgage backed securities. Yes, it was and is pure speculation. In today s scenario, the players are very much the same as in the past. It was the speculation that someone earning $40K in annual income could by some miracle - carry a $500k mortgage Bear Sterns called it High Grade Structured Credit Strategies Enhanced Leveraged Fund . I have to say, that when I read how they named the fund Enhanced.. , I had to laugh at how ingenious marketers can be. If it s Enhanced , it has to be better than the rest?
And the good part is that it was all legal. Executives who caused a complete and colossal economic catastrophe walked away with sick money while the Fed had to interfere to avert a potentially disastrous financial catastrophe with worldwide repercussions. Take for example, Angelo R. Mozilo who received nearly 57 million in compensation in 2007. http://www.forbes.com/static/pvp2005/LIR7G33.html
From Ben Stein s article from NYT on April 6: I am not sure where this has come from-Maybe from media that glamorizes wealth and high-end consumption, maybe from poor moral training. But one thing is clear: Current law does not give shareholders or regulators any tools to rein in executive greed. There is simply no cause of action for pay package that, however obscene, are approved by the board and disclosed to shareholders. Congress could. So could Securities and Exchange Commission
They will try to sell you on the fact that they had no clue, but they knew the risk all along. I know they fully aware of the situation because you and I and every 10th grader saw the writing on the wall. I saw real estate prices go through the stratosphere (just like all the previous bubbles), I saw the speculation and met many speculators - and how people leveraged their home equity to purchase depreciating assets (like cars and curtains) and go on vacation with borrowed money. Did someone bother to tell these people that they were using money from unrealized gains?
Did any banker or mortgage broker ever look up the term Fiduciary Duty ? As defined by Wikipedia: they must not put their personal interests before the duty, and must not profit from their position as a fiduciary, unless the principal consents. The fiduciary relationship is highlighted by good faith, loyalty and trust, and the word itself originally comes from the Latin fides, meaning faith, and fiducia .
Can we avoid being dragged into the next speculative wave and eventual bubble? Of course we can. All we have to do is ask the question: is there any material value in this investment? Value could be not only from material worth, but rather from the perspectives of integrity.
For example, you could ask, is there a value (integrity) in all the small mortgage companies popping out everywhere and giving money to everyone? Is there a value (economical sense) in houses appreciating 30% to 50% in one year? How much more appreciation is left in this asset?
The real problem stems from the fact that our nation has come to rely on debt to generate profits. We no longer produce anything of real value. The largest industries like automakers (GM, Ford and Chrysler) and aircraft (Boeing) were leaders on the world s economic stage. Technology, innovation and quality were key to their growth. Today s leaders are no longer in the US. Our competitive edge has dwindled to make way for credit card companies and bankers continually offering us one more way to borrow more.
It takes nerves of steel and patience not to be dragged into the herd mentality. It means sitting there and doing nothing for years while your investment savvy neighbor tells you how he made 300% last year in the latest craze. The herd starts that way .avoid it like a plague. Let s not forget, value also means quality. If you associate with quality people, quality products, quality friends, your economical life could be great.
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Free Hugs Campaign
By matt | April 8, 2008
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The Latest Commodity Correction
By matt | March 24, 2008
By Jake Bernstein www.trade-futures.com
When commodity prices were in the doldrums of bear markets and there were few “experts” who were willing to express bullish expectations, I told you that big bull markets were coming. All along I advised patience. And your patience was handsomely rewarded if you remained long. When a virtual army of bulls appeared on the scene, all touting the virtues of commodity trading my radar began to tell me that problems were on the horizon. In short, I concluded that commodities were likely to plunge before they went higher again. Simply stated, the newcomers had to get stopped out before the market was purged and ready to rally again. And so, combined with my knowledge of cycles, timing, divergence and several other indicators, I warned you clearly and concisely several times, beginning with my March 1st 2008 Webinar that a collapse was coming in commodity prices. Prices fell sharply the next few days in many of the markets. Then I warned again in my Webinar for Genesis on 18 March 2008 that a severe decline was coming. The very next day prices plunged across a broad front with a number of markets going limit down. Are the declines over? Is this the commodity crash I warned about? Is this the volatility I warned about? Are more rallies coming? Here are my current thoughts on the above (all subject to change depending on the behavior of my indicators).
Is this the “crash” I warned about? No! This was just a rehearsal – a bull market reaction – a correction that has been long overdue. It’s likely that this reaction was just the thing the markets needed in order to stop out those who came to the party too late. I warned you that traders who were new to the game and who used small stop losses would get wiped out. Expect more of the same.
Is this the volatility I warned about?: No! This is just a harbinger – reality check – a warning of what may well make the current volatility look small by comparison? And as I have said before (even though some have taken issue with my conclusion), we have electronic trading to thank for part of this. The others who deserve a note of thanks are hedge funds, sovereign wealth funds, and the army of bullish “experts” who have been promoting the commodity bull market in the media. Yes, there is much more volatility to come.
Are more rallies coming?: I think so. Why? Because bull markets don’t die easily. Global demand for commodities in developing countries and in the hot industrial economies such as China isn’t about to end abruptly. Even though demand may slow, shortages will continue and this will bolster commodity prices. In addition I don’t rule out the power of hedge funds and other speculators to keep prices up. And so I do expect another round of higher prices and this where short term timing will come into play.
What else can we expect?: I have stated on many occasions that there are several markets which have yet to be swept up and away by the bull fever. These are the meats and lumber. I still have my sights set on these as the next candidates of the bull market hunters.
Final word of warning: I try very hard not to listen to the business news such as CNBC, Bloomberg, etc.
Believe me I do not do so out of disrespect for the job the media are trying to do. I do so because I can’t take the chance of having my own ideas and thinking polluted by the constant parade of experts who express an opinion and then leave only to come back months later without any continuity or follow up. All too often they tell us what they expect without giving any idea of risk, stop loss or precise follow up. Such opinions are worthless. Every morning I can get this type of information waiting in line at Starbucks or from taxi drivers. As an example, just in the last few weeks I happened to see at least six experts on gold recommending longs when it crossed the $1000 mark. As I write this report gold has dropped to as low as $935.
What happened to those who took the advice and bought gold at $1015? Most likely they have been stopped out or scared out. A few months from now, if and when gold rallies back over the $1000 mark the experts who recommended it may be back on CBNC again telling people that the forecast was right. In the meantime all but those with the deepest of deep pockets have been stopped out.
My advice: DON’T TAKE ANY ADVICE FROM ANYONE, myself included UNLESS THESE RECOMMENDATIONS INCLUDE THE SETUP, TRIGGER AND FOLLOW THROUGH! As volatility continues to grow you will see more and more media hype, more ads touting commodities and more schemes designed to separate you from your money.
Be more careful than ever before. I have advised you that the big losers in this commodity bubble above and beyond the consumer will be some major hedge funds, some sovereign wealth funds and the small trader. Some things never change.
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How to spot a recession without being an economist
By matt | March 10, 2008
There is a current debate on TV whether we are in a recession or a slowdown. Well, here is my top eight list of how to spot a recession without being an economist or an analyst:
1) When you go to a restaurant and return a week later and there’s a “for lease” sign in the window…we’re in a recession
2) When you see “home for sale” signs on every intersection for extended periods, foreclosure rates climbing, mortgage companies going belly up because customers can’t make their minimum monthly payment…. We’re in a recession
3) When you decide to hold back on some purchases and convince yourself you don’t really need it….we’re in a recession
4) When commodities like Oil and Gold Make new highs and the stock market can’t find a bottom…we’re in an infla/cession (new term… maybe Bernanke will borrow this one)
5) When the banks start to hold back on new loans (the lifeblood of their business)….we’re in recession.
6) When the unemployment rate grows each time the Bureau of Labor Statistics releases its figures…we’re in recession
7) When the US Dollar gets the nickname of US Peso, we’re in a recession
If you’re feeling uneasy right now….we’re in recession
Is there a true and complete disconnect between the government’s definition and what the average consumer defines as a recession? YES.
Bernanke is waiting for an official definition of a recession: well here it is Mr. Bernanke: a slowdown in the growth of the GDP for a period of 2 consecutive quarters.
When he was asked last year whether we are heading towards a recession, his reply was: “Our forecast is for moderate, but positive, growth going forward….. “Economists are extremely bad at predicting turning points, and we don’t pretend to be any better” “We have not calculated the probability of recession, and I wouldn’t want to offer that today.”
So all the foreclosures, rising consumer debt, the rising cost of energy and food…under which economic definition does that belong? If the definition is different for economists and consumers, how do you fight one? I KNOW…you give back $1200 in tax credits for the year…that should really solve everything….
Oh well….Maybe I should ask the same guy that says global warming is just a phase…it will correct by itself.
Ok seriously…I know it must be hard to be the head of the FED, and there has to be guidelines. But I truly believe, that by the time they figure it all out….this cycle will almost be over. It’s the nature of things. By the end of the 3rd Q of 2008, the cycle could start turning around for many consumers and home owners.
No worries, I am not looking to become Barnanke’s assistant…being a commodity broker is enough for me.
Sincerely,
Matt Zimberg
President
Optimus Trading Group
Topics: Economics | No Comments »
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