Robert Frank returns to the point he made in Alpha Markets, i.e. that Charles Darwin provides the "true intellectual foundation" for economics. Though the example this time is male elk rather than bull elephant seals, the central point – and it’s one worth giving more thought to – is that "Individual and group interests are almost always in conflict when rewards to individuals depend on relative performance." In these situations, which occur frequently in economic and social relationships, the assumption in neoclassical economic models that the maximization of self-interest is consistent with the maximization of social interest does not hold, and failure to recognize this has " undermined regulatory efforts … causing considerable harm to us all":
Smith’s basic idea was that business owners … have powerful incentives to introduce improved product designs and cost-saving innovations. These moves bolster innovators’ profits in the short term. But rivals respond by adopting the same innovations, and the resulting competition gradually drives down prices and profits. In the end, Smith argued, consumers reap all the gains.
The central theme of Darwin’s narrative was that competition favors traits and behavior according to how they affect the success of individuals, not species or other groups. As in Smith’s account, traits that enhance individual fitness sometimes promote group interests. For example, a mutation for keener eyesight in hawks benefits not only any individual hawk that bears it, but also makes hawks more likely to prosper as a species.
In other cases, however, traits that help individuals are harmful to larger groups. For instance, a mutation for larger antlers served the reproductive interests of an individual male elk, because it helped him prevail in battles … for access to mates. But as this mutation spread, it started an arms race that made life more hazardous for male elk over all. The antlers of male elk can now span five feet or more. And
Obama’s plan to save the housing market (and, with it, the economy) relies on mortgage modifications: Specifically, reducing monthly payments so strapped borrowers can stay in their houses instead of getting foreclosed on.
The Obama program is just a drop in the bucket. About 131,000 mortgages have been modified so far, most on a trial basis (the idea is to test whether borrowers can actually make the new payments before making them permanent). That’s better than nothing, but it’s less than 5% of the 3.5 million foreclosures expected this year.
Mortgage servicers aren’t staffed to modify mortgages…they are staffed to accept payments and/or initiate foreclosure proceedings. Modifying mortgages requires a different skill set, namely underwriting analysis. To modify a mortgage, the servicer has to figure out what payments the borrower can actually afford. So far, they haven’t been in the business of doing this, and it’s hard to turn on a dime. This is why so many homeowners who are interested in modifying their mortgages aren’t getting calls returned.
Some delinquent mortgage owners "self-cure"…so why should the bank give something away for nothing when the problem might go away on its own? Anyone would like to pay less if you offer to let them do so. But if you gently say, sorry, you agreed to these terms and we’re sticking to them, some borrowers will actually eventually do what they promised to do (which is better for the banks).
A $1,000 government payment isn’t enough to compensate servicers for the hassle. A free $1,000 per modified mortgage sounds like a lot, but after one considers the weeks of back-and-forth with the homeowner, the analysis, the paperwork, etc., it isn’t.
If banks modify mortgages, they have to write down the value of the loan. This is a big one. Remember, our bailed-out banks are now telling the world that they’re profitable again. They’re also claiming that their balance sheets have been purged of the godawful loans that they made or bought from 2004-2007. If the banks actually modify a loan, they’ll have to admit to their accountants and the public that it’s not worth
If you’ve been around these markets for a while you generally know by the time the retail investor is piling into a group, chasing huge scores – it’s generally time to run away (at the least) and for the 5% among us who short, begin to think seriously about betting against the small fry. It sounds cold, but this is just the way it tends to work … trust me, I used to be one of these people, so I learned the hard (read: expensive) way. As we read the piece below let us trust in the fact that none of these people were buying in early March, but most likely jumped in when it was "safe" a month or so later.
Contrast the lemmings running into "what’s hot" with what you’ve been reading here – about a month ago I was saying commodities is crowded and I would not want to be exposed highly there. People who heeded that thought process avoided the sand blasting that has gone on for 3 weeks running in this sector. While I do like these emerging markets for the long term, I think they are vulnerable here as well; some are beginning to roll over – Russia has already been in a "technical" bear market (down over 20% from peak). And I am saying the same thing I said in commodities a month ago, now for the latest darling – technology. It is crowded – everyone is hiding there. Beware.
I don’t really talk much bonds but while junk bonds (highest risk) has provided the most juice the past 3-4 months, its basically been a parallel to the stock market. The ‘worst of breed’ has run up the most as green shoots flower across the world. Just as with the green shoots themselves, I find the junk bond love way premature. This economy is stalled and I expect many more companies to suffer – so buying bonds of the worst seems not such a great intermediate term strategy. I’d be more interested
For me, trading is not a hobby, not a game of chance not some intellectual odyssey filled with clashing egos and chest pounding pissing contests. No, for me, trading is a way to make a living, doing something I love and am good at. So my approach is a little different then some of you may be used to.
Yet every so often a communication from one you impacts me with frustration and dismay. By now I would think that if you have been with me for six months, or a year, or longer, you would be making money trading, using some ideas and techniques that I have described over the months and years of writing AllAllan. But I hear something else from these communications, I hear that many of you are not getting it.
Today I am going to present to you three ways to trade using the simplest of strategies based on end of day prices and a minimal of necessary hardware or software. I am going to use an unleveraged ETF and remove all of my more sophisticated (read: expensive) tools, using only Market Club Triangles and 3 Line Break Point charts, both very similar in their construction and entirely objective in their application.
You can trade this going forward on XLF and probably not need anything else to be successful month to month, quarter to quarter and year to year. But it is my hope you will instead, glean from this the very basic premise of a simple rule-based system that can be applied and tweaked to any number of tradables, a simple trend following trading system from which anything is possible if you only have the discipline and desire to make it work.
XLF – Market Club Triangles -Daily Chart
Their are actually two systems shown on the chart:
(1) Enter trades on appearance of WEEKLY TRIANGLES and exit on appearance of reversing DAILY TRIANGLES. If flat, RE-ENTER on appearance of DAILY TRIANGLE in direction of most recent WEEKLY TRIANGLE;
(2) ENTER/EXIT on appearance of WEEKLY TRIANGLES (disregard DAILY TRIANGLES).
Here is gut wrenching story regarding firefighting and the California Division of Forestry.
I work in the aircraft repair/parts industry in California and thought I’d let you onto something. Many vendors to the CDF (California division of forestry) air operations have outstanding bills going back to last year. My company just put all California agencies on cash or credit card only. Many others are refusing to sell to the CDF because of huge amount of unpaid and late bills. We don’t even get Registered Warrants!
Mish, this is scary. I know of one company that is doing repairs knowing they won’t get paid just because they do not want to see fire fighting aircraft grounded!
Vendors must be given payment priority if the state wants to have any police and fire protection! Meanwhile the state is still purchasing new cars! Go figure.
Don’t put my name on this please. Thank you for your good work.
Normally I use initials, sometimes straight up and sometimes reversing them. In this case, I do not want a witch hunt so I will not post any initials at all. Meanwhile, California burns while the California legislature fiddles. Meanwhile Furlough Fridays are in.
California’s fiscal woes are in sharp focus again today, as state offices close on the first of three "Furlough Fridays" this month, idling tens of thousands of state workers; major banks stop redeeming state-issued IOUs at the close of business; and state leaders appear no closer to resolving the $26.3 billion hole in the state spending plan.
IOUs For Sale
The SEC said Thursday the IOUs are investment securities and anyone who wants to buy or sell their notes should go through registered dealers. This could make it safer.
Furlough Fridays Return
Gov. Arnold Schwarzenegger ordered most state employees to take two furlough days a month starting in February. He has since ordered a third furlough day per month, which starts today. The three days amount to a 14.2 percent pay cut for state workers.
The governor also has proposed a 5 percent pay cut on top of the furloughs.
This Is Outrageous
The Land of the Setting Sun
Buddy, Can You Spare $5 Trillion?
There is no doubt that the US is in financial trouble. Those talking of a strong recovery are just not dealing with reality. But the US is in better shape than a lot of countries. This week, we begin by looking at Japan. I have written for years about how large their debt-to-GDP ratio is, yet they keep on issuing more debt and seemingly getting away with it. But now, several factors are conspiring to create real problems for the Land of the Rising Sun. They may soon run into a very serious-sized wall. And it is not just Japan. Where will the world find $5 trillion to finance government debt? We look at some very worrisome graphs. Those in the US who think that what happens in the rest of the world doesn’t matter just don’t get it. There is a lot to cover in what will be a very interesting letter. I suggest removing sharp objects or pouring yourself a nice adult beverage.
This Is Outrageous
But first, I want to direct the attention of those in the US finance industry to a white paper written by Themis Trading, called "Toxic Equity Trading Order Flow on Wall Street." Basically, they outline why volume and volatility have jumped so much since 2007; and it’s not due to the credit crisis. They estimate that 70% of the volume in today’s markets is from high-frequency program trading. They outline how large brokers and funds can buy and sell a stock for the same price and still make 0.5 cents. Do that a million times a day and the money adds up. Or maybe do it 8 billion times. It requires powerful computers, complicity of the exchanges (because the exchanges get paid a lot), and highly proximate computer connections. Literally, the need for speed is so important that to play this game you have to have your servers physically at the exchange. Across the river in New Jersey is too slow. Forget Texas or California. This is a game played out in microseconds.
I'm digging for green shoots but you have to sift through a lot of manure to find them this week!
A few weeks ago I complained that the MSM was irrationally exuberant and I couldn't find any negative articles (outside of PSW, of course, where people thought we were too negative calling for a correction) and now, less than a month later, you can hardly find anyone who doesn't think we're going back to the March lows. I stand by my statement to Members in yesterday morning's Alert where I said: "It’s ridiculous for the Dow to go back to 7,500 and ridiculous for the S&P to go back to 800. While it’s easy to make squiggly lines on a chart show 10% drops ahead (which seems like a normal 50% retrace of the gains overall) I just think it’s dead wrong from a valuation perspective so I’m not inclined to play it, especially when those valuations are about to slap you in the face over the next few weeks. Maybe I’m wrong and maybe earnings will suck and Q2 will be a miss and guidance will be lower but right now I say – Show me the misses."
So I said Cramer was an idiot to be herding his sheeple into stocks when the Dow was at 9,000 and now I am saying Cramer is an idiot for stampeding the herd out of stocks at 8,000? Am I that fickle? Not really, I just believe we are in a fairly tight trading range. On June 17th I warned on June 24th, as the market "rallied" back to 8,500 I warned we were simply in the midst of a "dead cat bounce" – using the following, very descriptive graphic:
These two are the "banking regulatory chiefs" in Congress of course; Dodd in the Senate and Frank in the House.
Both have steadfastly stood beside the banks through this crisis, especially the really-big banks that have given millions of dollars in campaign contributions.
The same banks that lobbied hard to "reform" bankruptcy so you cannot file Chapter 7 any more when you go bankrupt and stick lenders with the bad lending decisions they made of their own free will. That is, your credit and financial life is ruined, but theirs (which should also be ruined) is not.
The same banks that connived with Congress and The Federal Reserve to get the last pieces of Glass-Steagall repealed – the law that, had it been present, would have prevented nearly all of this crisis.
The same banks that (Citi-cough-cough) got Alan Greenspan to approve a merger with Travelers that Greenspan knew was illegal at the time it was consummated – a merger that was then retroactively made legal with passage of Gramm-Leach-Bliley.
The same banks that lobbied to get an exemption from bucket-shop laws and insurance regulation (indeed, any regulation) for credit-default swaps.
The same banks that, post-ENRON when we all learned about the outright fraudulent accounting enabled by "off-balance sheet" games, not only kept doing it but increased the size of such ventures.
And more importantly, the same banks that lobbied hard this spring to get an exemption from mark-to-market accounting for the "assets" they hold on their books – an exemption they were in fact using without having it, as I will shortly illustrate.
Today, Senate Banking Committee Chairman Chris Dodd and House Financial Services Committee Chairman Barney Frank asked the heads of U.S. banking regulators to look into whether their companies are carrying home-equity loans at “potentially inflated values,” which “may contribute to resistance on the part of servicers to negotiate the disposition of these liens.”
Most of these loans are in fact worth nothing!
Here’s the understatement of the year from the same article:
The so-called "green shoots" of recovery are turning brown in the scorching summer sun. In fact, the whole debate about when and how a recovery will begin is wrongly framed. On one side are the V-shapers who look back at prior recessions and conclude that the faster an economy drops, the faster it gets back on track. And because this economy fell off a cliff late last fall, they expect it to roar to life early next year. Hence the V shape.
Unfortunately, V-shapers are looking back at the wrong recessions. Focus on those that started with the bursting of a giant speculative bubble and you see slow recoveries. The reason is asset values at bottom are so low that investor confidence returns only gradually.
That’s where the more sober U-shapers come in. They predict a more gradual recovery, as investors slowly tiptoe back into the market.
Personally, I don’t buy into either camp. In a recession this deep, recovery doesn’t depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.
Problem is, consumers won’t start spending until they have money in their pockets and feel reasonably secure. But they don’t have the money, and it’s hard to see where it will come from. They can’t borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water — owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can’t are hunkering down, as they must.
Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can’t be built on replacements. Don’t expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don’t rely on exports. The global economy is contracting.
My prediction, then? Not a V, not a U. But an X. This economy
Until the July 15th US-backed (or so the Turkish government alleges) coup-attempt to overthrow Turkey’s President Tayyip Erdogan, Erdogan was trying to overthrow Syria’s President Bashar al-Assad, whom the US regime likewise wants to overthrow.
However, Russia’s President Vladimir Putin saved Erdogan’s Presidency, and probably Erdogan’s life, by ...
Please review a collection of WWW browsing results.
Date Found: Wednesday, 09 March 2016, 05:21:45 PM
Click for popup. Clear your browser cache if image is not showing. Comment: According to DoubleLine's Jeff Gundlach, this is his favorite chart - backing his perspective that equity markets have "2% upside and 20% downside) from here. In his words: "These lines will converge..."
Date Found: Thursday, 10 March 2016, 12:46:05 AM
Click for popup. Clear your browser cache if image is not showing. Comment: Where is the End of the Rally? youtu.be/nTDtxNl4Tu8...
By SG Value Investor. Originally published at ValueWalk.
Get The Timeless Reading eBook in PDF
Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.
What is the Greater Fool Theory?
The Greater Fool Theory is when the price of a good is not determined by its intrinsic value, but rather by irrational beliefs and expectations of market participants. Essentially, it is about buying a good at a price then offloading it to the next fool at a higher pr...
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
When one looks back over the past 10-years and compares the performance of Banks to the broad markets, banks look broken. We shared with members last week that since the highs in 2007, banks have under performed the S&P 500 by nearly 77%. Is this under performance about to end?
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer. One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."
Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.
Genetic components are the DNA sequences that are 'inherited.' Some of these genes are stronger than others in their expression (e.g., eye color). Yet, some genes turn on or off due to external factors (environmental), and it is und...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
Note: The material presented in this commentary is provided for
informational purposes only and is based upon information that is
considered to be reliable. However, neither PSW Investments, LLC d/b/a PhilStockWorld (PSW)
nor its affiliates
warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither PSW nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance, including the tracking of virtual trades and portfolios for educational purposes, is not necessarily indicative of future results. Neither Phil, Optrader, or anyone related to PSW is a registered financial adviser and they may hold positions in the stocks mentioned, which may change at any time without notice. Do not buy or sell based on anything that is written here, the risk of loss in trading is great.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Site owned and operated by PSW Investments, LLC. Contact us at: 403 Central Avenue, Hawthorne, NJ 07506. Phone: (201) 743-8009. Email: firstname.lastname@example.org.