Common Sense Economics

The market is in very strong hands right now. Unlike the rest of us, the black boxes are never governed by the law of large numbers. Their funding is unlimited. You, mutual funds and everyone else can sell and the market will still go up until some exogenous event rocks the market for a while or until the capital markets are finally destroyed. With black boxes in control, the principles of technical analysis work almost in reverse. A rally like we are currently experiencing, with very poor internals, won’t end as so many expect. As long as volume remains moderate to light it will be squeeze, squeeze, and squeeze indefinitely. Sentiment can be bearish or bullish and it won’t matter. As far as market direction is concerned traders don’t matter, nor do most hedge funds. Supply will never exceed demand until the entire system breaks down. Why? The black boxes have unlimited funds. The more traders there are short, the fewer funds the black boxes have to use anyway.
The black boxes have an additional advantage in knowing that you the technician will place stops and follow established theory. That is all part of the algorithms the black boxes use to exploit the market.

The world is not coming to an end. It is only changing. Markets always clear but government interference makes the process difficult.

Currently there is a huge supply of houses hanging over the real estate market. Without government interference the housing market would clear in a month or two. Even on local levels every effort is made to make sure foreclosures trickle onto the market. Information relevant to buyers is horded. Every asset will sell at the right price. Houses are no exception. An economic recovery will end only when markets are cleared of excesses. Real estate prices still have a long way to fall.
Over the past several decades the financial sector gained enormous political power. As a result, government policy has promoted the growth of large banks, hedge funds, brokerage houses and anything else related to assets and money. The financial sector became so powerful that government became a tool to be used to enhancing the value of financial assets beyond any levels that would occur in a free market setting.

Like any sector that has had government assistance, the blotted financial sector has become is an inefficient use of resources. In a free market setting such a situation would never occur. Wall Street is so blotted that it is self destructive. The financial sector must be cleared of excesses before an economic recovery can begin.
Economic recessions occur naturally as resources are shifted out of poor performing areas into more productive uses. Economic depressions occur because government intervenes and tries to prolong the status quo. Every effort is made to keep markets from clearing. Nothing good happens until the old is allowed to disappear and the new takes over.
In a free market, the good outweighs the bad but only the bad is easily visible. Hence there is a natural tendency to see failing industries without seeing emerging growth opportunities. In the 70s and 80s, it was easy enough to see the declines in the rust belt and labor intensive industries. The emerging opportunities in the computer industry were not all that visible. There is a natural tendency to try to save what is failing but the efforts always prolong economic hard ships.
To experience an economic turnaround markets must clear. Government is prolonging the process.

I have made a point of making it known that I use traditional technical analysis only or the purpose of identifying stocks in established downtrends. I am currently short 56 stocks which are listed below. This list changes over time because I regularly replace the strongest of these stocks with issues that show greater weakness. Timing does not play a role in this system. The world is in such a sorry predicament that there is no class of assets that has much of a chance of increasing in value of even holding value over the next ten years. The solution is to practice what amounts to the opposite of ownership. That is selling everything one owns and then selling what one doesn’t own.

In today’s market, traditional technical analysis is useless. Back in the early days of trading, very few traders studied charts. Those who did were studying the behavior of the majority who were using traditional methods such as fundamental analysis. Long term investors were a large part of the market. Today, traders who relying technical analysis have no chance because they are part of group think and are simply studying themselves.

Further, technical analysis was developed to for use in democratic markets. Today’s market is corrupted by constant government intervention, organized crime and well connected proprietary trading firms, the rules of traditional technical analysis only work accidently occasionally.

The chart below is of the Standard & Poors 500 Index. According to traditional technical analysis the blue lines represent support and resistance. Logically, one would buy if the red line on top was broken and sell if the redline on the bottom was broken.

In the old days, that line of reasoning worked pretty good. Today, if you are using traditional chart analysis, you are not gaming anyone. It is more likely you are being gamed by others who have figured out your reasoning. There is probably an algorithm being used to sell when people think they are doing the smart thing by buying on a price break out. They buy when technitions get stopped out when the trade goes in the wrong direction. For chart analysis to work, you have to be part of the minority, gaming the behavior of the majority. If you are a technician you are part of the majority.

The reasoning behind managing a portfolio of already weak stock is based on a few simple realities. The most important of these is the fact that corrupt markets destroy themselves. The bottom will in fact fall out of the stock market. Stocks which are in their own private bear markets now will probably continue to decline anyway, ahead of the eventual bear market.

My current short portfolio includes the following stocks. and is ahead 38% for the year.

AIXG ANR APKT AUXL AVP BK BRCM BTU BWS CCH CETV CHKE CPLA CRK CSC DCO DGIT DRIV EXH FCS FII FRO FST HUN IDT ITRI KND LAZ LM MAN MCP MDT MS MTW NIHD NUVA OVTI PBI PGR PTNR QUAD RIMM RRD SAI SKM SKX SPLS STRA SUP TRI TWGP UPL VECO VMC X

Despite the fact that I absolutely loathe the Republican Party, I am actively supporting two Republican candidates in their primaries. When I say support, I mean that I make a financial contribution to their campaigns.
I am convinced that Chris Younts, of district 11 is honest. Also, I feel confident that Chris would have a hard time voting for a bill that the majority of his constituents opposed.
As far as I know, Ron Paul is the only true conservative who is currently serving in congress. The Republican establishment has done everything possible to dismiss Paul. Fox does everything possible to diminish him, because he actually is a conservative. Make no mistake. Fox News is a statist news organization. When the big government, group think mindset gets seriously threatened, Fox News is the first to circle the wagon.
There is great fear that Paul will eventually run as a 3rd party candidate. I think he has a good shot at the nomination but if he doesn’t get it, I hope he does run as an independent. There is nothing in the Republican Party as it is that is worth saving. Phony conservatives are far more dangerous than regular liberals.

Roughly three percent of the population is born genetically different than the rest of us. In almost every capacity they look and act like the rest of us. But, they are born with an elevated thirst for power and an insatiable need to control others. They are highly intelligent. They also possess most and frequently all of the characteristics of sociopaths. The sociopathic behaviors most common to career politicians are. 1.) lack of remorse, shame, or guilt 2.) glibness and superficial charm 3.) manipulative and conning
These are the people who would have competed to be kings, queens and chiefs in earlier times. Back then they would have killed their competitors with swords or arrows. In modern times, they compete for power on the stage that democracy provides.
97 % of the population is hardwired to put faith and trust in leaders. Democracy based governments only work well when a significant percentage of the population overcomes the genetic predisposition to follow and thinks and acts independently. In the United States today, independent thought is almost extinct.

Any president will spend as much public money as he possibly can. The dominate motive any president has for running for office is a thirst for power. Once in office, spending public money is the best way to obtain and enhance personal power. Some of history’s biggest spenders have been small government Republicans. Political philosophy always takes a back seat to the personal need to gain power.
I often say that Bush Jr. made Obama’s cake. All Obama had to do is eat it. When Bush left office, the country was in such a state that any president had the chance to spend almost limitless amounts of Public money. Of course, Obama spent and continued to spend until he couldn’t spend another dime. Obama, has managed to outspend George Bush Jr. That is because he had the opportunity to do so.