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PSW Wrap-Up Show for the Week

We have a new episode of The Wrap-Up Show.

This time, it’s a quick review of the week’s activity:

Also, as we have a ton of Government Data that will be driving the markets next week, let’s review "How the US Government Manipulates Inflation Data" – just so we remember not to take it all too seriously.  


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  1. Phil

    I really enjoy watching the xtranormal pieces.


  2.  fun!


  3.  Phil:  Youtube movie address changed to http://www.youtube.com/watch?v=XXB4NfFsNKk
    A friend pointed out that one word was inaccurate, so that one word was changed.  The friend also asked permission to show it to the head of the NY Fed this week.  I wouldn’t expect any reaction, but will let you know if I get one.


  4. Phil,
     
    As I stated I am new here and I am trying to learn how you build a portfolio.  I am participating in the 25kp.
     
    First, I am not doing well as I was unable to take the edz trade as I was one whose margin was too high.  Is there another trade that I can put on to hedge the short positions?
     
    Second, could you explain your thinking?  I have always tried to trade with the market (Trend is your friend) and the trend has been up.  I understand your concern about a pull back and a possible strong pullback but wouldn’t the proper portfolio positioning to be to trade bullishly with hedges until the trend was broken?  
     
    I  ask this because this has been my problem, sense December of 2008.  I start looking for the fall and the market keeps going up.  When I finally capitulated the market fell but never as far as I figured so I would miss the start of the rally.  I would miss 2/3′s of the move in both directions. 


  5.  Thanks guys! 

    Wow ZZ, you do a good job with the motions and such but 11 min is a long time to watch a cartoon IMO – you have to try to get to the point quicker.  There’s a reason we put jokes and curses into these things too – you need a humorous break as it’s tedious to listen to the halting speech of the puppets trying to have a serious conversation – it’s not really a format for long-form didactic discussions.  I don’t know about others but I wouldn’t choose a character that looks like Bush to defend Bernanke – makes the whole thing political.   

    As to the point of the whole thing – We did not complain about the dollar peg while China was using it to fund our $5Tn increase in debt during the Bush years.  It would not have been possible for us to go $5Tn in debt if China hadn’t been forced to buy dollars at every auction in order to relatively deflate their currency.  There are clearly two Chinas – the evil communist dictatorship that seeks global domination and the one that is our favorite trading partner.  

    The lifestyle Americans do enjoy depends entirely on cheap, imported goods and one could also argue that, had we not exported 100M jobs to China over the past two decades, we would simply have less than 50% cap utilization in America now with 100M unemployed as it would not have stopped the fairly normal cyclical downturn in the global economy.  We did, in effect, export our depression by tying Asia’s fortunes up with our own and now their governments are forced to take on painful stimulative burdens that would have been ours alone.  

    I find it extremely flippant that you say Bernanke is helping us when his "solution" is to force the devaluation of the dollar to win a trade war the average American does not participate in (again, this is a concept for big business to make more money), which forces the bottom 90% of America to massively disproportionately fund this Corporate war because it doesn’t occur to Bernanke (or you) that US businesses should be kicking in to improve the infrastructure, improve education and creates jobs.  

    The "solution" of forcibly removing the accumulated wealth of the American people through a devaluation of their assets and "getting them used to" far lower wages is a surrender.  Here’s the facts:  We have 300M of the Worlds premier consumers in this country and our economy runs on MASSIVE amounts of oil, which we import at a rate of $1Bn per day, which is $365Bn a year while our net trade imbalance with China (not oil!) is 273Bn a year.  So if we knock down the dollar 20% to reduce our trade imbalance with China by $50Bn, we increase the amount of oil we import by $70Bn an our overall trade imbalance is worse.  Far, far worse as we import lots of other stuff besides oil.   

    The big picture is that we now have just 11M Americans working in manufacturing, down from 42M in 1970, when our labor force was much smaller too.  I think your view is based on a lot of old paradigms, as is Bernanke’s and, like old country doctors who refuse to learn modern ways – you are drilling holes in the patient’s head to cure a headache!  


  6. EDZ/Willie – Well that trade is not bullish at all.  It’s a very bearish play on BRIC markets.  That bearish trade idea happens to be working, is all.  Also, I had noted that, if you have margin issues, you could have simply taken 12 of the bull call spreads and you would have had the same net effect as the main spread but I sure would not chase it.  

    This is not a balanced portfolio.  This is an aggressive portfolio looking for the most bang for the buck in the short term.  We began it at an inflection points, just below the breakout levels so the best chance for a big return was playing for a pullback, which I still think is coming.  Very simply, if you do not believe in the bearish trade ideas – do not tale all or any of them, especially the aggressively bearish ones.  Think of it as a series of suggestions for a small portfolio and if you think I’m too bearish – then ignore the bearish trade ideas but I can only do what I think is going to work best to achieve our goal.  

    As you say, your problem wasn’t so much being bearish into the pullback but your capitulation ahead of the pullback yet you now ask me to capitulate because the market has not gone the way I thought in the 10 trading days since we began the portfolio.  If my timing were that good – we’d be turning $25,000 into $1M in 12 months!  


  7. Thanks Phil that explains a lot.  Also I am not asking you to capitulate, I am only stating what I have done over the last 2 years.  It is why I am here trying to learn a different way to view the market and trade.
     
      As far as the 12 bull calls that answer came too late as I would have had to chase it.  Like you said I don’t have to get every trade. 


  8. The main thing to learn from the $25KP is how to roll and manage trades.  I just did an update in that portfolio so check over there but notice we’ve cashed 3 winners and rolled our losers.  While it is possible that we will remain wrong and keep losing – if you pay attention over time you’ll see that we can absorb quite a bit of damage before capitulating and, more often than not, we capitulate by going long on something else, rather than taking a loss unless we absolutely have to.  As we’re early in the portfolio with less than 40% of our cash deployed, we can certainly afford to give ourselves another month looking for a drop.  

    I wish I could get stupidly bullish – it must be so much fun to not think about stuff!