One thing my Mother taught me was, when you do something wrong, you will always eventually have to pay a price for it. Mom was right.
Just as Governors and Presidents who are unfaithful get caught, so do the unethical, irresponsible, greedy leaders of financial organizations.
We have seen CEOs of some of the most prestigious financial companies be forced to resign for their mismanagement. Now another financial giant, Bear Stearns is about to be brought down. What has these companies stumbling is nothing more complicated than they invested in billions of dollars worth of mortgage backed investment packages of whose true value they knew almost nothing. One infuriating aspect of this is the millions many of these CEOs made, while bringing down their companies. Keep in mind, that each one’s compensation had been approved by a so called Board of Directors. These complicit board members are as responsible as the CEOs for the current state these companies, our country, and the world economy is in.
In a James Bond movie, the villain trying to ruin the world is gone after at all costs. In the real world, the villains are paid handsomely. At the moment, these Wall Street Ben Ladins have done more to hurt the world than our opponent in the War on Terrorism ever hoped to do. I remember as a child hearing Nikita Kruschev saying at the U.N., while he pounded his shoe on the podium, that the Communist World would bring down capitalism without firing a shot. I am sure his ghost is having a great chuckle today.
Whenever we hear politicians, high level bureaucrats, and corporate executives talk in lofty terms about their virtues and wisdom, we should always remember, that in the end, they are made of the same material as the rest of us. There are no messiahs amongst them, and in the end, like the rest of us, they are standing around watching the effects of corruption with little power to correct it. As in all areas of life, things tend to correct to a mid point. Mountains weather down, valleys and rivers fill.
The human desire to go on is the primary driver of the markets. It is this unstoppable force that will bring us through the current mess. We are probably in the midst of electing a fresh group of corrupt politicians, who will appoint corrupt new bureaucrats, to regulate corrupt new corporate leaders. But as millions of us are born, each reaching for our own goals, we will continue to struggle upward.
The charts show that the past week was more or less flat, but the longer term trend downward continues. Until the true value of all the corrupt mortgage holdings are fully revealed, and the losses are taken, and the corrupt companies are closed or taken over, things will probably continue as they have for the past six months. But eventually, our economy will rise like the Phoenix, and due to the growth of the world’s population, and the emerging aspirations of all those folks in China and India, we will probably see a recovery like has never been seen before.
Don’t let the current rhetoric in some political camps about protecting American jobs confuse you. The days of us being able to isolate ourselves from the world’s job and product markets is past. This is the season of “telling them what they want to hear”.
I am remaining in the S&P 500 tracking fund. I believe that great recovery will come sooner rather than later, and I want to participate in it.
However, If I were expecting to need my 401k funds for retirement related expenses in the next 2 or 3 years, I would probably be moving into the money market funds.
In my personal trading, things have been interesting.
I have opened an option position on Apple and after a few days, already have a nice profit position.
I have positions in Microsoft and Yahoo as these two tangle over the former taking over the latter. I have also taken a position in a company named ValueClick. This is an internet marketing company that I believe to be a good takeover target in this climate of merging in the internet space.
Motorola has continued to tumble as no offers have come forth in their efforts to sell off their poor performing cell phone business.
As the long anticipated buy out of Transmeridian Exploration (TMY) has dragged on, the stock has fallen in price. I am still hopeful for a buy out closing soon, but the current climate of tight credit is probably hurting the effort.
I am pursuing new trading interests. I have been doing a great deal of reading to learn about trading Futures contracts and more recently Foreign Exchange, known as Forex or FX.
I have been trading a futures contract based on the Dow Industrial Index. I am currently trading at a 7/3 win/loss ratio. This is very acceptable, especially given that I am risking only small amounts on each trade, and that my exit stop orders on my wins is at a level 1.5 times the stop loss order on my losing trades. I see this as a very conservative way to trade this futures contract. Each time I win, I make $150. Each time I lose, I lose $100. It then becomes a matter of keeping the winning trades outnumbering the losing trades. These trades typically last 4 to 15 minutes.
In the FX markets I am trading the Euro against the US $. This is known as the EUR/USD pair. As the dollar falls in value, the value of the EUR/USD rises. For me, trading this FX position is very similar to the min-Dow futures contracts. My current method is yielding a win/loss ratios of about 6/4. My winning trades yield about $100 each, and my losing trades lose about $50 each. Again, it is a matter of having more wins than losses. One thing I like about this global market is that it opens at 5:00 pm on Sunday our time, and trades continuously, 24 hours a day, until 5:00 pm on Friday. I often place trades just before going to bed and rise in the morning to a nice reward. Fine way to start the day. By bracketing my opening order with orders that will automatically close my position at preset loss or win levels, I can sleep well. These trades typically run a few hours to 2 or 3 days.
Things that are affecting us daily:
Wheat has tripled in price. This is driving up costs of bread and meat products. Italians have demonstrated over the price of pasta flour. Mexican farmers have demonstrated over the low price of U.S. corn due to our government subsidy, which many argue violates the NAFTA. Corn is a staple in the Mexican diet and Mexican farmers are losing business to American imports.
The rise in wheat is driven by the rise in corn prices, which is driven by the volume of corn going into ethanol fuel (a stupid thing to do) as a result of U.S. government incentives to raise corn.
One of the strongest economies currently is Brazil, a socialist state that has used sugar cane for converting most of their national vehicle fuel to ethanol, with no impact on food prices. We could learn a few things from the rest of the world.
Customers in communist China would consume all of Ferrari’s sports car production if Ferrari did not not limit sales in that country.
Gold has gone over $1000 an ounce, twice what it was a couple of years ago. This hurts the jewelry trade, and could hurt those in places such as India that also use gold as a hedge against inflation. Other metals are rising similarly as world growth demands more copper, steel, and nickle for construction and manufacturing.
Oil was over $110 a barrel this week. Some areas in the U.S. already are seeing $4.00 a gallon gas. This will drive up the price of almost everything we consume.
We live in interesting times.
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