No matter what anyone says or does, watch the market action. Only the market action tells you the true trend.
There is so much confusion in regards to the $700 billion bailout. Remember, that it's not written in granite just yet.
Looking at the market action... I have to say that this market is still not healthy and looks as though it will continue to erode the equity markets.
Gold continues to consolidate and appears as though it wants to move higher in the near-term.
What always amazes me, and it shouldn't amaze me anymore as I have seen enough screw-ups in the market, is the government's inability to act before a major financial disaster takes place. This latest rescue plan is a perfect example. Everyone in the industry, and even people not involved in the investment industry knew all about the "garbage" that was going on. Everyone knew except Washington, and in classic Washington style the regulators buried their heads in the sand and just wanted it to go away.
I'm sure you knew folks in your own neighborhood who suddenly became mortgage brokers as that was the thing to do to make some fast money. I wonder what the qualifications were for that job?
I don't want to be too cynical, even though this post will probably put me in that camp, but the facts are the facts... we had incredibly inexpensive money for several years thanks to Alan Greenspan. Interest rates were at 40 year lows and it was so inexpensive to borrow money and basically speculate in housing and stocks. Many uneducated people were sucked into speculating in stocks and real-estate based on cheap money. Imagine buying a house with no money down and no verifiable income. It defies commonsense and logic, yet this was common practice at the height of the market.
Wall Street dug itself into this disaster because of greed. The CDO's and SIV's were the brainchild of someone who had no clue as to what they were creating. These two non-exchange traded and non transparent investments could only spell disaster for the US in the long run. In the market there is no free lunch, and I think that this $700 billion lunch bill is the perfect example that will be taught in financial classes for the next five decades.
I am sure that after things settle down, Washington will once again hold their famous hearings about who did what, when, and who is to blame. While the blame has to go in my opinion, squarely on the SEC and the FED due to their lack of leadership and lack of rule enforcement. I would still love to know who pulled the strings to remove the uptick rule in 2007. I would also like to know why the 1-20 leverage rule was removed in 1999 under the Clinton administration. All these SEC rules were put in place to protect the public and to avoid bear raids on stocks.
Hopefully we can make some sense out of this and get back on our feet as a country and start building products and making things again to make America strong.
Okay, enough preaching... let's look at a recent event in the marketplace.
We received a lot of e-mails yesterday based on the sharp run-up in October crude oil. The reason for this run up was a classic squeeze on the shorts.
We have always advocated you should not be trading in the lead month of any futures market, and certainly you should not be trading on the last trading day for any futures contract. This should be left to the professional institutions, who are either making delivery or taking delivery. This, the biggest one day move on crude oil, was a classic case of a tug and war between these institutions. Today's pullback just shows you the true picture as to what's really going on. I am sure the headlines on the crude oil today will not read ... crude oil down $24 for the day.
Once again, if you are a speculator in futures, do not go into the lead month with a position. It just does not make sense, and the chances of you losing money are very high.
Thanks for taking the time to read this blog posting.
Every success in the future,
Adam Hewison
President, INO.com Co-creator, MarketClub
Very well said.....Shorty...
Adam,
I also agree with what you have written but I believe you stopped a tad short of the bottom line. The two non-exchange traded and non transparent investment instuments you refer to are commonly called derivatives I think. Think about that for a moment. The fact that anyone that would try, much less want, to trade a derivative other than a option to buy or sell something defies commonsense and logic. When you throw in the non-exchange traded and non transparent part you are describing an instument that only a fool would trade to begin with.
Now I get to stopping short of the bottom line part. If only a fool would consider trading the thing then the guys that came up with the idea must be lying thieves that want to take advantage of some poor unsavy, blind, ignorant, novice. The bottom line is that our society has left the part of history that talks about a mans word being as good as gold buried in the dust somewhere. So what if they screw you out of a few million and get a bad reputation. A year or two will pass and another poor unsavy, blind, ignorant, novice with too much money and too little brain will come along and buy some of what you have left over. Look, here comes Uncle Sam now. He has his check book. No, wait, look closer. He has your checkbook and my checkbook. Hell he has a whole sack of check books and he is a known liar and thief that is ready to redistribute your and my wealth. We ought to know him, we elected him and sent him to Washington from our own home towns.
There is no honor, no loyalty, no trueth, no fidelity or devotion, no faithfulness to duty left in business, government, or in our private lives anymore. We deserve to pay for this screwup. We should have done more to know who and what we were sending off to govern us. We should practice the good things that show good character in people and demonstrate truth and honesty.
Ah, that is a nice thought, but, this too shall pass.
Shorty
Dear Adam,
When trading Gold and Silver should we be trading Spot Gold and Silver or should we be trading a futures contract.
I know when you wrote about the crude oil market you said never to trade the front month in futures or the last day because of the large traders who will be actually taking possession or delivering the product.
For clarification purposes, please advise what contracts to trade in Gold and Sliver.
I am a member of your services and the simplicity of your system as well as the accuracy is great!
Thank You
Michael A
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Hi Michael,
The spot gold and silver are the fair market value for the metal. This spot represents the price of immediate delivery and does not include the mark-ups for the insurance, storage, and moving expenses. You should looking the actual futures contract, but not the lead month like Adam discussed in his previous blog.
Let me know if you have any further questions.
Best,
Lindsay Thompson
Director of New Business Development
INO.com & MarketClub
Adam,
Could you point me to a website that goes into more detail about "the 1-20 leverage rule was removed in 1999 under the Clinton administration"? Your posting was the first I heard about this SEC rule change and I could not find additional information to learn more about it.
By the way...keep up the good work.
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Hi John,
I just tried to squeeze Adam for answers and he said that he heard this from an friend who is heavily involved in the large scale investment arena. I tried to find some more information, but had trouble picking out the actual amendment from the SEC website. I would do a little more searching for this... but if I can get a hold of the actual document I will post that. Thanks for your question.
Best,
Lindsay Thompson
Director of New Business Development
INO.com & MarketClub
Adam
Thank you. This is the most substantive comment you have made on the markets as a whole and I agree with you 100 per cent. I am much more likely to follow your lead now than before. I know your algorithms (sp) are solid, but now I know the quality of the mind behind them. They will work, through bad times and good, although traders must be prepared and willing (two different things) to take losses as well as to make gains.
Thanks again.
tango 6