Meanwhile…

In the middle of the northern summer now, although we are a month removed from the summer solstice, so at least we’re on the way to autumn.

Markets are as odd as ever, with the horror-show of European banks still leading the news. I really do not understand how this works; central banks print money, buy bonds and push interest rates below zero with the idea of creating demand for money. Cheap money should spark borrowing and then inflation. Is that right so far?

Here in the real world it’s confidence that creates demand for borrowing. If businesses can’t see a return on the money they borrow, plus a bit, they’re not going to. We’ve seen this in big US companies: they borrow only to buy back their own shares, pushing their price north. To Janet and her minions, that’s the real economy.

Meanwhile we have US GDP growth back down to 1%. Uh oh. What do we do now, FedHeads? Lower rates? Negative? Do a Kuroda and buy ETFs? Seems these bozos have backed us all into a corner and still the banks aren’t fixed.

Awesome.

Downside

Optimism is terrific but a mind full of nothing but cheerleading can seriously damage our wealth.

Today I started a new way of trading that will keep me in trades for a longer time. The idea is that the shorter the time frame, the more noise in markets and therefore the less clear the signals. Short term chaos, long term clarity is not a bad watch-phrase.

My absolute profits, profit per trade, profitable trades and (therefore) expectancy will all go up. That’s the optimistic side. The reality is that losses will be nominally larger too, although I am pretty sure there will be many fewer of them.

That’s worth repeating. The dollar amount of losing trades will be larger than I’m used to.

As I have just discovered, sticking with a wider stop-loss point can be painful. To date my exit points have required only a relatively small dollar loss, and the time to either find profit or loss is less. The pain of sitting with a losing position – or positions – is almost greater than that of actually losing money. That’s crazy, of course, because there is no physical pain involved.

Such is trading though. Pain of being wrong, or the possibility of the account shrinking is worse than actual physical pain or real loss. The key is to trust the system and build a base of experience so that when I’m feeling weak, I can stick with it. Spreadsheets are my friend.

Data Dependent

Janet & Co are dependent upon only data, by their own admission. Data implies precision and therefore certainty. Based on these data, the FOMC decides what to do with the interbank lending rate, the Federal Funds or overnight rate.

That’s it. That’s really all they need be doing. Between meetings, they should otherwise concern themselves with their states and regions and updating Facebook status. Read the data, folks, and decide where rates should be. Ten minutes work, tops.

Along comes bearded Ben, who wants to leverage the Fed’s balance sheet like an early 20th century mercantilist. Yep, gotta borrow as much money as we can to get this business really humming. Except…there is no business. All they did was allow banks to borrow money at zero so they could rebuild their own balance sheets, a course made necessary by the schoolboy management of the banks in the first place.

Talk about socialism of losses and privatization of profits. Crap.

Here we are. Janet appears to believe that the stock market (sorry, worldwide stock markets) are the worldwide economy. Ahhhh, nope. Nowhere close. The real economy is automation, driverless cars, smartphones, credit cards and McDonald’s all-day breakfast menu.

Someone should really clue her in.

Wednesday’s Troll Update

More insane jibber-jabber from isolated eggheads today. Fed funds rate: unch.

I find it too depressing for words that the world stops for this nonsense. Actually, the heartening thing is that only the financial world stops: everyone else, you and I, continue with our business.

In a way, that encapsulates the problem. Aunt Janet and her posse think the world is financial markets. That is a direct result of the financialization of everything that moves, which creates an awful feedback loop. Markets must be ginned, so let’s do something, and when they don’t react, let’s do some more, oh wait, they’re over-reacting, let’s do less…until the powerful ignore everything else.

Everything else is what we do. We work, we earn, we spend, we save, we invest, we sell, we start businesses, we attempt to multiply our assets; this is what used to be known as the “real” economy.

Unfortunately, elites find the real economy uncontrollable. Chaos does not react so well to central authority. Much easier for those authorities to focus on simple stuff, like keeping big banks and big business happy. They appreciate much more the gifts Aunt Janet bestows.

Let the peasants sup on what sluices down from the castles. They’ll learn to love it. In time.