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The Cult of Central Banking

Outside the Box: The Cult of Central Banking

By John Mauldin

In today’s Outside the Box, good friend Ben Hunt informs us that we have entered the cult phase of the Golden Age of the Central Banker:

We pray for extraordinary monetary policy accommodation as a sign of our Central Bankers’ love, not because we think the policy will do much of anything to solve our real-world economic problems, but because their favor gives us confidence to stay in the market. I mean, does anyone really think that the problem with the Italian economy is that interest rates aren’t low enough? Gosh, if only ECB intervention could get the Italian 10-yr bond down to 1.75% from the current 1.85%, why then we’d be off to the races! Really? But God forbid that Mario Draghi doesn’t (finally) put his money where his mouth is and announce a trillion euro sovereign debt purchase plan. That would be a disaster, says Mr. Market. Why? Not because the absence of a debt purchase plan would be terrible for the real economy. That’s not a big deal one way or another. It would be a disaster because it would mean that the Central Bank gods are no longer responding to our prayers.

But, he points out, the cult phase of any human society is a stable phase in the sense that, while change may happen, it will not happen from within:

There is such an unwavering faith in Central Bank control over market outcomes, such a universal assumption of god-like omnipotence within this realm, that any internal market shock is going to be willed away.

However, there is a minor catch: external market risk factors are all screaming red.

I’ve been doing this for a long time, and I can’t remember a time when there was such a gulf between the environmental or exogenous risks to the market and the internal or behavioral dynamics of the market. The market today is Wile E. Coyote wearing his latest purchase from the Acme Company – a miraculous bat-wing costume that prevents the usual plunge into the canyon below by sheer dint of will.



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Why Wages Won’t Rise

Why Wages Won’t Rise

Courtesy of Robert Reich 

Jobs are coming back, but pay isn’t. The median wage is still below where it was before the Great Recession. Last month, average pay actually fell

What’s going on? It used to be that as unemployment dropped, employers had to pay more to attract or keep the workers they needed. That’s what happened when I was labor secretary in the late 1990s.

It still could happen – but the unemployment rate would have to sink far lower than it is today, probably below 4 percent.

Yet there’s reason to believe the link between falling unemployment and rising wages has been severed.

For one thing, it’s easier than ever for American employers to get the workers they need at low cost by outsourcing jobs abroad rather than hiking wages at home. Outsourcing can now be done at the click of a computer keyboard.

Besides, many workers in developing nations now have access to both the education and the advanced technologies to be as productive as American workers. So CEOs ask, why pay more?

Meanwhile here at home, a whole new generation of smart technologies is taking over jobs that used to be done only by people.  Rather than pay higher wages, it’s cheaper for employers to install more robots.

Not even professional work is safe. The combination of advanced sensors, voice recognition, artificial intelligence, big data, text-mining, and pattern-recognition algorithms is even generating smart robots capable of quickly learning human actions.

In addition, millions of Americans who dropped out of the labor market in the Great Recession are still jobless. They’re not even counted as unemployment because they’ve stopped looking for work.

But they haven’t disappeared entirely. Employers know they can fill whatever job openings emerge with this “reserve army” of the hidden unemployed – again, without raising wages.

Add to this that today’s workers are less economically secure than workers have been since World War II. Nearly one out of every five is in a part-time job.

Insecure workers don’t demand higher wages when unemployment drops. They’re grateful simply to have a job.

To make things worse, a majority of Americans have no savings to


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Comment by Burrben

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  1. Burrben

    Anyone want to lose a guaranteed 4%? Buy short term swiss gvt bonds. This is what gvt intervention into "free" markets get's ya. How did that currency "peg" experiment work for ya'all?
    https://twitter.com/Sober…/status/558889051663908865/photo/1

    And 100,000 invested for 10 years pays you back……. $250.   Saaaaweet!







Comment by yodi

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  1. yodi

    Brr. You need to decide if you want to gamble or to trade. Trading does give me as well a hand full of work as I do my monthly cheery calls. Gambling with oil is for me like going to the crap tables with 50$ in my pocket and living my wallet at home!







Keep Your Risk Managers Away From Me

The 10th Man: Keep Your Risk Managers Away From Me

By Jared Dillian

This week’s big news, of course, continues to be the massive revaluation of the Swiss franc (CHF). It’s perhaps the first instance of a G10 currency going up 16% in a single day.

From a strategy standpoint, there really is only one way to interpret this, as many people already have: it’s the end of central bank omnipotence.

Central bank says it’s going to do A, does B instead. For investors, it’s much harder to take risk in that kind of environment. So I think the logical thing to do is to look at other pegged/managed currency pairs in the world—like the Chinese yuan, the Hong Kong dollar, and the Danish krone—but also any situation where a central bank has said it’s going to do an unlimited amount of anything, because as you can see with the Swiss National Bank (SNB), it’s subjected to the same P&L forces as everyone else.

Moving right along, I want to talk about the risk management aspect of this trade.

Within a few hours, we knew that a couple of retail currency brokers needed capital. And we learned that Polish and Hungarian folks who took out CHF-denominated mortgages were in big trouble too. But more importantly, anyone who was just plain old short the Swiss franc was also hosed with or without a stop loss, which wouldn’t have made much difference in this case anyway.

I’ve been trading for 15-plus years, and I have never blown myself up. (If I had, I probably would not be writing this.) Don’t get me wrong, I’ve done plenty of dumb things over the years, made lots of bad, even stupid trades, and I have occasionally let my losses run too long. But I have never been hit by a Mack truck—walking into work and suddenly finding myself suffering catastrophic losses.

Knock on wood.

How Risk Managers Can Get You in Trouble

Let’s discuss the margin system that most FX trading shops use (and I use) for a moment. There are a lot of dumb journalists running around saying, “Why the hell are FX brokers offering their clients 25 or 50-to-1 leverage on currencies? More regulation!”

Well, this isn’t anything


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Comment by jmd__

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  1. jmd__

    Phil, looking at ILMN as a long term hold due to what I think is a moat in technology that will be increasingly incorporated with increasing availability to primary testing: genetics. Docs (I'm one) can now order screening tests as to patients susceptibility to various diseases and will soon order tests to determine what meds to prescribe. Any way, earnings Monday; what do you think? Also curious as to what you or pharm or others in the community think of the moat.







Comment by jmd__

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  1. jmd__

    Phil, looking at ILMN as a long term hold due to what I think is a moat in technology that will be increasingly incorporated with increasing availability to primary testing: genetics. Docs (I'm one) can now order screening tests as to patients susceptibility to various diseases and will soon order tests to determine what meds to prescribe. Any way, earnings Monday; what do you think? Also curious as to what you or pharm or others in the community think of the moat.







Thank Draghi It’s Friday

One Trillion Euros!  

It sounds like a lot of money but, already today, it's worth $40Bn less than it was on Tuesday.  Since Draghi's QE program doesn't begin until mid-March, at this pace (-$20Bn a day) by March 20th the whole Trillion will be gone – how's that for a magic trick?

Of course we don't think the Euro will keep falling to zero over the next 50 days but losing 2% per day of your entire net worth, even for just a couple of days, is bound to have some investors jumpy about their Euro-denomiated assets.  That's why the Euro continues to slip towards parity today ($1 per Euro), hitting $1.11 this morning, after opening yesterday at $1.165.  

UUP WEEKLYOur mighty Dollar flew up to 95.77 this morning as investors flocked to safer harbors.  It's really the US or nothing now as Abe has desroyed they Yen and China's Bad-Loan Ratio jumped 10% in Q4, now making up 1.29% of outstanding debt and forecast to climb to 1.6% by the year's end.  

The 0.13 percentage-point increase in the bad-loan ratio was the biggest since the regulator began compiling quarterly data in 2004 and another 0.31% by the end of 2015 will, of course, make this the worst year on record.  

Nonetheless, we are back on a bullish run in the Global Markets as everyone loves free money.  Well, everyone who's rich, anyway – and anyone else doesn't matter, so party on people!  

SPY  5  MINUTEAs I mentioned in yesterday's post, we were long in the morning, then flipped short after Draghi's announcement gave us an initial pop and then we flipped long again at 10:28 in our Live Member Chat Room and you can see how well those calls went for the day.

Those of you who read us regularly know that our long line for Natural Gas Futures (/TF) is $2.825 and we got anoter entry there yesterday as well with a very nice $750 per contract run back to $2.90 yet again (and up over $1,000 this morning at $2.925).  

We had another opportunity to go…
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Comment by craigsa620

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  1. craigsa620

    I look at Accu weather extended forecasts too along with maps. 







Comment by craigsa620

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  1. craigsa620

    I look at Accu weather extended forecasts too along with maps. 







 
 
 

Phil's Favorites

Why Priceline's problems may soon be tech's problems

The recent ascent of the US dollar and weakening of the Euro and Yen have far reaching consequences. For US companies that depend on foreign sales, the consequences can be harsh. Priceline's European assets get priced in US Dollars, making them worth less as the Euro falls. Further, the company's European customers have less money to spend. Sixty percent of Priceline's revenue is estimated to come from Europe. 

Why Priceline’s problems may soon be tech’s problems

By KEVIN KELLEHER at Pando Daily

Excerpt:

Sometimes it seems like the tech industry is its own little world, comfortably insulated from the turmoil that might be happening in other parts of the glob...



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Zero Hedge

Aircraft Carrier Stennis Has Biggest Ordnance Onload Since 2010

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Nearly two weeks ago, we were surprised to read on the Navy's website that one of America's prize aircraft carriers, CVN-74, John C. Stennis (whose crew is perhaps best known for the following awkward incident), as part of an operational training period in preparation for future deployments, just underwent not only its first ordnance onload since 2010, but, according to Senior Chief Aviation Ordnanceman Jason Engleman, G-5 division's leading chief petty officer, "the biggest ordnance onload we've seen."

From the Stennis' blog:

USS John C. Stenn...



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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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OpTrader

Swing trading portfolio - week of January 26th, 2015

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 ...



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Sabrient

Sector Detector: With the Fed fading into shadows, investors look overseas for new catalysts

Reminder: Sabrient is available to chat with Members, comments are found below each post.

Courtesy of Sabrient Systems and Gradient Analytics

By Scott Martindale

Last week, the S&P 500 put an end to its streak of weekly losses, despite giving back some gains on Friday. Thursday provided the big catalyst, with the ECB’s announcement of its bold new monetary stimulus plan. Investors were cheered and soothed for the moment. And U.S. fundamentals still look strong. But with Greece trying to turn back time, with volatility elevated (and likely to continue as such), and with the technical situation still dicey, the near term outlook is still worrisome.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart...



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Chart School

Weekly Gasoline Price Update: Down Another Two Cents

Courtesy of Doug Short.

It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular dropped two cents and Premium three. Regular is at its lowest price since April 2009.

According to GasBuddy.com, Hawaii has the highest average price at $3.23. The highest continental average price is in California at $2.45. Missouri has the cheapest Regular at $1.78....



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Market Shadows

Are You Trading or Gambling?

ARE YOU TRADING OR GAMBLING?

An interview with John Ehlers of Stock Spotter and Mesa Software

By Ilene

Ilene: John, in our last discussion about trading systems in general and yours in particular (Can trading be reduced to cycles, stresses and vibrations?) you mentioned Monte Carlo simulations and their use in measuring performance. Can you explain more about how you measure the performance of a trading system?

John: Let's start with comparing trading with gambling. The two have several things in common.  In both ...



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Digital Currencies

Jitters After Bitcoin Exchange Suspends Services

So as I was saying yesterday (Bitcoin: The Biggest Clown Show In History?), Bitcoin has several obstacles on the path to potential success as an alternative currency. But I forgot to mention hacking and theft at Bitcoin exchanges and other technical problems. This is related to the lack of government backing and the fact that the value of Bitcoins is based entirely on confidence.  

Jitters After Bitcoin Exchange Suspends Services 

By 



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Pharmboy

2015 - Biotech Fever

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

PSW Members - well, what a year for biotechs!   The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down!  The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months.  What could go wrong?

Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.

Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies.  A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly.

Click here and sign in with your user name and password. 

 

...

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Option Review

SPX Call Spread Eyes Fresh Record Highs By Year End

Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...



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Help One Of Our Own PSW Members

"Hello PSW Members –

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 jennifersurovy@yahoo.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.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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