I’m looking at a performance chart of an MIT graduate/ Actuary/ a couple other things, and I recognize his returns have been almost identical to the S&P500. This is typical for an optimized system and everyone including the largest banks in the world use this concept to some degree. You’ll see in the next year that only small investors use these models because they are destined to fail as soon as the market turns. Conventional wisdom tells us the market trends 20% of the time but if you zoom out to the weekly or monthly chart there should be a trend in place at all times and an optimized system will realize that trend by taking more longs during a long trend and more shorts during a short trend. The result is when the trend changes you take losses on the optimized system. Depending when these characters begin their optimizations they will take their losses at different times. People who are optimizing for the market selloff beginning this year are heavy short and when the market recovers they will be heavy losers until they pull the plug. My prediction that firms will wisen up should be hastened by the next market turn. These guys are scrambling to reoptimize their systems or their systems are auto reoptimizing and they are becoming geared more to the short side of things so when the market rolls to the long side they will begin taking losses as the S&P begins to recover and their investors will not stand for it.
The recent craze of data mining and optimization is nearly over. As with any industry a proliferation and subsequent wash out period must exist. The fact of the matter still remains in trading that a farmer can trade as well as an MIT graduate and I would venture to guess the farmers would out trade the MIT’rs most of the time. My rational for this presumption is simple. While the fools tell you gold is going to $5000 the common sense farmers will tell you if gold goes to $5000 then my corn goes to $25/bushel and that is not possible. Call it what you will; the school of hard knocks, common sense, conventional wisdom. Schools don’t teach this stuff anymore. Common sense would beg the question; why send your kids to school? If common sense had an ego I would ignore its question, but as long as I’ve known common sense there has been no ego; and you know what, it’s been correct a lot more than a particular new grad program at the institute of technology in Massachusetts.
For all those looking for a brush up course on common sense I think they still have them at any local nursing home. Your grandparents wouldn’t mind educating you either. Of course it would be respectful of you to leave a tuition payment on their step similar to your most recent grad program. If you’re wondering why these old folks have the market cornered on common sense; it’s really quite simple. Reasoning and logic come from the frontal lobe of the brain. It doesn’t matter how much coursework you take; your frontal lobe capacity will be limited by genetics and age. As for all those complex equations you learned in that heuristic math class; you don’t need to remember them, because google is just a click away.

 

 

http://www.eia.doe.gov/neic/infosheets/crudeproduction.html “Reservoir characteristics (such as pressure) and physical characteristics of the crude oil are important factors that affect the cost of producing oil. Because these characteristics vary substantially among different geographic locations, the cost of producing oil also varies substantially. In 2006, average production costs (or “lifting” costs, the cost to bring a barrel of oil to the surface) ranged from about $4 per barrel (excluding taxes) in Africa to about $8.30 per barrel in Canada; the average for the U.S. was $6.83/barrel (an increase of 23% over the $5.56/barrel cost in 2005). Besides the direct costs associated with removing the oil from the ground, substantial costs are incurred to explore for and develop oil fields (called “finding” costs), and these also vary substantially by region. Averaged over 2004, 2005 and 2006, finding costs ranged from about $5.26/barrel in the Middle East1 to $63.71/barrel for U.S. offshore. While technological advances in finding and producing oil have made it possible to bring oil to the surface from more and more remote reservoirs at ever increasing depths, such as in the deepwater Gulf of Mexico, the total finding and lifting costs have increased sharply in recent years. World Crude Oil Production Total world production of crude oil (including lease condensate, but excluding natural gas plant liquids3) in 2006 was 73.54 MMbbl/d (preliminary). The top five oil producing countries, which together accounted for about 43% of total world production, were: Russia (9.25 MMbbl/d), Saudi Arabia (9.15 MMbbl/d), the United States (5.1 MMbbl/d), Iran (4.03 MMbbl/d) and China (3.69 MMbbl/d). The Organization of Petroleum Exporting Countries (OPEC), which includes Saudi Arabia, produced 32.1 MMbbl/d or about 44% of the world total.”
	http://www.opinionjournal.com/extra/?id=110006228 “The market price of oil is indeed hovering up around $50 a barrel on the spot market. But getting oil to the surface currently costs under $5 a barrel in Saudi Arabia, with the global average cost certainly under $15. And with technology already well in hand, the cost of sucking oil out of the planet we occupy simply will not rise above roughly $30 a barrel for the next 100 years at least. In sum, it costs under $5 a barrel to pump oil out from under the sand in Iraq, and about $15 to melt it out of the sand in Alberta.”    The article goes on to explain there is a 100 year supply of oil sitting in Venezuela and Canada, and their lifting costs are around $15/bbl. There is no reason for oil to touch $147 for the next 100 years. The CRB index is the basket index for commodities; which is 33% crude oil. Conventional wisdom tells us; when equity markets and home prices (high order consumer goods) are falling; commodities (low order consumer goods) should rally. Oil rallied as the subprime catastrophe began, and it continued to run as the housing crisis became a financial meltdown. My goal in presenting these figures is to highlight when to buy oil again. My standard concept is to start buying oil when it touches $30/bbl because there is equal risk to reward in holding oil at $30/bbl if your profit target is $50-60/bbl. The investment hold time might be 1 year to earn 80-100% return. I feel oil will bottom before the global equity markets so getting in oil first and then diversifying into some equity markets 6 months to a year later would be more profitable. Currently we are in a deflationary cycle as banks collapse and money evaporates. When banks stop collapsing we’ll enter a fast inflation cycle where prices of everything will rise. I’m not jumping on the gold band wagon. Gold will rise just like oil or corn. To say gold should be at $3000/oz is saying farmers should be driving Maseratis. Don’t listen to people preaching high gold prices.

 

 

Where is the money going?
Usually when equities devalue the money has to go somewhere and that somewhere is usually into commodities. These days there is so much fear that money is mainly going into bonds to make just a few % a year. That is a sign of severe fear worldwide. No one is willing to put their dollars or euros or pounds or rupees or yen on the line to make more than 2% per annum.

 

So what is going to stop the fear? Well banks need to gain confidence in one another. Soon enough that confidence shall be bolstered by the Fed as the grand printing press takes a stake in banks themselves. This move will spike confidence instantly; and when confidence spikes, equities spike. We’re going to see bond yields go up as bond prices fall on the avalanche of money into equities and commodities. Since the dollar is set to lose value during that time we’ll see oil spike back to 100+ unfortunately but I’ll go one further and say it won’t go to all times highs again. Oil should stay around 100 and allow equities to gain back their losses in the next year. Oil exporters from OPEC think prices should be higher and they are willing to impose artificial limits of supply to pad their bottom line. Their foolishness and greed are always their demise. When they were convinced to move from dollars to gold in 1980 to avoid losing money on a falling dollar; they lost 80% of their wealth with only their greed and ignorance to thank. Again they have made a foolish, greedy trade into long oil and now are losing their preverbal asses for the second time in less than 30 years.

 

I think the next couple decades will be plagued with frequent downturns like a hangover from massive borrowing and spending never before seen in recorded history. Looking to gold’s future seems bleak or at best range bound. Surely as the dollar devalues again gold will be the winner, but consider that simultaneously fear will leave the market place in record pace just as it entered in record pace. My outlook for gold is unchanged this year; lackluster for the lustrous metal.

 

On the whole we have to consider the behemoth in the East that will demand food and energy at record paces as soon as its shackles are unbound. It will grow at the fastest pace allowed regardless of environmental damage devouring natural resources and exploiting cheap labor to build things that inspire their brethren to continue cheap labor socialistic values. Great things will be built no doubt but it’s just a matter of time before the corruption leads to its demise. Capitalism has been chastised in recent months due to the greed of a few and the expense of billions. These periods are constructed by fiat money and central bankers, but if we look to the alternative in socialism we clearly see a much worse option. History will repeat as it most definitely does and our recession will look like a walk in the park on a sunny Sunday afternoon as the red giant in the East devours itself and spews corruption from its borders. Weaponry will become cheap and accessible again to the radically misled fools and defense spending will be increased in response to the multi faceted threat. No doubt an increase in defense spending will precede the fall of the East as rhetoric of superiority and antagonization will pre-empt its demise. One might consider the US is well positioned to weather the rise and fall of the East with little drawdown.

http://www.ronpaul.com/2008-09-25/ron-paul-my-answer-to-the-president/

 

Ron is mostly correct as usual. My only gripe here is if the bailout passes the equities markets will thrive on other peoples’ money. If the bailout fails real estate and equities will fall very fast, but this is needed. The deflation will spike dollar strength bringing oil down below $60 barrel. We’ll have a more reasonably valued dollar afterward if the bailout fails.

First investment banks talked up the price of oil to $140/bbl.

Then they talked bank stocks down to near zero across the board.

What can we prove?

Who is guilty?

The damage has been done. Millions of citizens have been irreversibly hurt. What is the repercussion of such an atrocity? 

We can prove oil demand did not outstrip supply. That is a no brainer and anyone that says otherwise is suspect in the investigation.

It can be proven that Bear Stearns was adequately capitalized before their rapid selloff. The same can be said for Fannie, and Freddie. I have not dug into Lehman yet. 

Who is guilty? I wrote a post a while back about who is responsible for talking up oil.

The culprits of the financial collapse are more subversive and articulated and infinitely harder to expose.

The punishment is simple. Revoke all personal wealth of any kind claimed by the perpetrators and place it in a fund. Handing out $2,000 checks would help Americans but we would be better served to modernize a third world country and exploit their cheap labor. 

Who's with me? 

The FED decided which banks to purchase and which banks to let die kind of like a financial God. Now the FED is looking to purchase foreign, distressed banks.

Let's observe what got us into this mess in the first place. USA home ownership was at an all time high in the first part of this decade. Greenspan asked George Bush, "Do you want the party to keep going or should be put a wet towel on it?"

George Bush replied, "Let's keep it going, Al."

Greenspan replied, "We can keep the party going by allowing banks to buy CDO's of worthless mortgages. These mortgages are toxic from day one but the banks will never know because these young punks running banks these days haven't seen this ponzi scheme before."

George Bush replied, "Sounds risky. But we'll do it anyway cause I got some wars need fightin'."

And so it was that subprime was allowed to be promoted and abused throughout the land. The FED is the watchdog for the financial sector here in the States. Their silence while subprime loands skyrocketed is very telling. The bubble was being inflated to astronomical proportions and any good investor knows what happens to bubbles; especially big bubbles. Banks were in for a slide that had not been seen since '29. Houses eventually foreclosed at a record pace causing writedowns of 40% on many units. Banks wrote off everything thinking the end was near. Speculators shorted financial stocks; crippling bank to bank credit lines which would ultimately destroy a few large investment banks. Had the speculators not crippled banks there is no objective reason for their failure. The largest mortgage banks; Fannie and Freddie, were far from disaster when their stock began plummeting on speculation they might not have enough money. Rumors started by ex FED president William Poole caused the largest bail out in FED history and it can be proven that both mortgage banks were liquid and ready to ride out the storm. One would assume at such a high level there must be protections in place to prevent wild speculation like this. One would be correct in assuming such a thing, but the SEC president decided to wait until the damage had been done to enact the powerful crisis avoidance systems. The SEC president halted naked short selling of financial stocks and in 2 days the Dow Jones rallied over 800 points. Why did they do that, you ask? Well the dipshits that were short the financial stocks knew the fundamentals did not reflect their positions so they bailed on their predatory positions as fast as they could. 

If you are thinking the FED conspired to purchase a few attractive banks behind the guise of a financial crisis you get a gold star today!

My only question now is who is the FED working with in foreign banks to stir the rumor pot and cause another large bank failure?

The other question is can I hire Chuck Norris to take out these dipshits?

As I re-read the previous post about Johnny Carson's professionalism it strikes me as powerful and simple. "Lead by example." If you want employees to work hard then perhaps a hard working boss is the best motivation. I've employed a few people in the past, and I can honestly say my employees favored the harder working owner. I understand paperwork takes patience more than time and financial stress is... well... stressful, but the owner is supposed to be a pillar of strength. Those employees need someone to look up to. In a few years one of those employees will no doubt own a business and you can bet they'll emulate their favorite boss.

Johnny Carson was immensely respected by his guests for his wit and fairness. His fans included any good hearted soul that viewed him in his 41 year television career. You would think someone that left such a legacy would have more emulators. George Clooney and Barbara Streisand fall near the polar opposite of Johnny Carson’s entertainment professionalism. Mr. Carson stated in an interview that his job was to entertain his fans, and that meant staying far away from political punditry. It seems the new breed would rather consider themselves weekend politicians from their perch in Hollywood. I suppose they think of themselves as invincible. If I were them; I would as well, after seeing Jane Fonda in movies again. Considering the other side of the coin we see certain politicians flying to Hollywood to rub elbows with their drooling, pseudo intellectual counterparts.

Perhaps I’m a rare person. I believe in a little bit of loyalty and patriotism.

Turning the focus of the camera on the populous; where the hell did everyone’s common sense run off to? Why were women so enthralled in voting for the Democratic nominee? What did he offer them that made them mindlessly follow his speeches? In a fence jumping race no less exciting than the equestrian version; McCain selected a female running mate that identifies with most of the level headed women in our country. I hate to say this; but the fact there was a fence jumping avalanche at all proves there was little level mindedness to begin with. I suppose since I’m 6’7” that I’ll just vote for the tallest candidate. Too bad Ron Paul wasn’t 7 feet tall!

I have to take a break at this point because it sounds like I’m a political pundit. I’m registered independent for all those so concerned. The difference between me and the few frustrated readers at this point would be my unbiased, common sensical understanding of the matters at hand. I’m sure the majority are nodding their heads in agreement while also nursing a headache after listening to mindless political dribble from the ubiquitous MTV’ers that soak up so much of our television waves. Speaking of MTV’ers; did anyone catch the first 10 minutes of the MTV VMA’s? This must have been the most politicized VMA’s on record and rightly so it procured the worst ratings in its history. How did the network of ill repute rebuke the facts? They blamed it on Britney Spears! If memory serves; the last time Britney messed up it increased viewership immensely. To quote Bugs Bunny, “What a maroon! What an ignoranimus! Ah hahaha!”

 

Who is the best presidential candidate?

I’m not going to answer that because it’s virtually impossible to avoid hyperbole, opinion and fuzzy math. There are a few qualities you could compare between the two main candidates to arrive at a pseudo-logical/objectivish decision.  Kinda like trading!

Who do currency traders want as president? I like this question a lot more. Currency traders want the Flat Tax, they want to get the hell rid of the Patriot Act or at least allow sovereign money to hold accounts here in the USA without threatening their wealth. For crying out loud a judge can freeze accounts regardless; so why did we need that dumbass scare tactic called the Patriot Act to force sovereign money out of the US at break neck speeds? GET US THE HELL OUT OF THE TWO SIMULTANEOUS WARS!!! I would add another exclamation mark but that is a sign of obsessive compulsive disorder. I can’t stress enough how badly these two wars are crippling our country. If a candidate steps up that will do these things I’ll gladly put a bumper sticker on my car informing the cerebrally, diluted American population that it’s not about gender or skin color. It’s about good ol’ fashioned common sense. It’s something our country lost when we stopped reprimanding our children. I’m stepping down from the soap box now. Hopefully the world of blogging is a little lighter now.

 

Go Ron Paul!!!!

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Crude has formed a new dance step that lightened all of our wallets in the past year. We’re all aware of the meteoric rise in crude oil prices but did you ever stop to notice the rhythm it follows? As a trader we see this every single day. They are called “technicals”. Support occurs when price stops depreciating and starts appreciating and resistance occurs when price stops appreciating and reverses to begin its depreciation. Notice the resistance become support very close to the large round numbers. 70, 80, 90, 100…etc. So now that you know the secrets of day trading; you ask, “What does it all mean?” We’re currently at $120/bbl. Based on technical patterns it would be logical to say price will return to $130-135 area before touching $110. After touching $110 we should see $120 again before we see $100. If you understand the pattern you’re guaranteed to test out of 2^nd grade. Now that you know what makes the world go around you ask, “Why didn’t crude return to $140 after touching $130?” Well as you can see price bounced off $130 for two and a half days, but failed to rally to kiss $140 goodbye. There were so many sellers in the market they quickly ran over the buyers for lower prices. This is where experience comes in to play. In my limited experience on this rock hurtling through space at 18.5 miles per second I’ve noticed a couple things. Right now I’ll spare you everything but my trading experience. When a strong support level is broken traders will usually default to protocol on the next level. Since we broke through $130 like a smoldering lead balloon it would be logical to predict $120 will provide much more support and return us to tempo. Something I neglected to touch on is tempo. Price occurs on a scale of time just like everything we experience in the human condition. Some times are faster than others and some just take too damn long. At present crude has hovered near the $120 support for 5 days. Five days would be a reasonable tempo to stand on support. Price has returned to $128.50 since touching $120. Hey nobody’s perfect. Missing $130 by $1.50 might get you in the top 3 on Dancing With the Stars. The moral of the story is that the odds are stacked in our favor that we’ll see $110 in the next week.

The USDCHF long should be done here.

On the 15minute timeframe it appears long EURUSD at the end of the day and 38% fib is a gimme long at 1.5691. I have a rule not to trade the wild price action of rate adjustments and today was the wildest thing I’ve seen. I’m going to let a sleeping dog lie here and I’ll be back on it Monday pointing out the best swing trades and end of day reversion trades.

 

Einstein said, “The strongest force in the universe is compound interest.”

I wish I could ask him how strong Wall Street’s compound ignorance is. Today Wall Street thought Fannie Mae and Freddie Mac were going bust. On a statement from FED Sec. Hank Paulson essentially saying there will be no change to the GSE’s; Fannie and Freddie, the equity markets tumbled. If one is allowed to clarify Paulson’s comments it would look like this; “There is no change in GSE status”.

The laughing stock of the world also known as Wall Street or “No Talent Ass Clowns” did it again. Rumors running around the pits and through below average IQ’s and over-leveraged investment banks screamed to sell Freddie Mac and Fannie Mae like an over sized SUV during $5 gasoline in the US. Despite Paulson’s bullish comments equities tumbled even more before recovering.

To recap: Paulson’s comments are bullish because the FED is not injecting capital into the GSE’s which means they are adequately capitalized! I’m done ranting. My blood pressure is at dangerous levels.

Here is a good article explaining what is really going on. http://www.bloomberg.com/apps/news?pid=20601103&sid=aIePshn7LFOM&refer=news

Will there be a pot of gold at the end of this rainbow? Depends on your definition. I think so, because we'll have foregone the impending deflationary cycle that haunted Japan for 20 years.

When will the madness stop? Well we should have been asking that when banks were lending for 500k houses without concern for financial credibility. If I start giving money to people that can't prove their worth you better bet I'm going to go broke.
Let me ask another question. Where does a country hide most of its inflation? Stocks and real estate is the correct answer. A country keeps most of its money within its borders and the Federal Reserve was printing money so fast the borders were ready to burst at the seams. The stock market was rallying and home prices shot up faster than anytime in history. The symptoms were there and only a few investment banks saw them. During this time of inflation in housing and equities (high order consumer goods) we saw food and energy (low order consumer goods) stay quite low and affordable in comparison.
These definitions are from http://www.goldonomic.com/
Inflation is not an increase in the price level of goods and services. It is a more than proportionate growth of credit and money supply. The consequence of this growth is mostly, but not necessary an increase in the price level of goods and services.
Deflation is not a decrease in the price level of goods and services. It is a reduction of credit and money supply. The consequence of this action is mostly, but not necessary a fall in the general price level of goods and service.
Considering the definition of inflation we are waiting for equities and real estate to hit fair prices before a rally can resume. Fair house prices would be similar to the cost of building. Fair equities prices might be near the 2002 lows when the Federal Reserve started bailing out banks. Thanks to the credit crunch we are seeing a little deflation to let the air out of the balloon so I'm not anticipating the 2002 lows thanks to our concurrent problem with credit which seems to be a blessing in disguise.
While high order consumer goods are being deflated we see low order consumer goods inherit a lot of their inflation which is why we see energy and food rallying through the roof. At the end of the day when we see housing bottom and equities find fair prices we'll still have this high food and energy bill for a couple more years. It's almost like a tax or interest rate from the drunken debauchery and cheap money lending for high order consumer goods.

Now we have to ask ourselves; is anyone else guilty of similar crimes? The answer is a resounding yes and every developed nation is guilty of doing what the Federal Reserve did.

The USDCHF long should be done here.

On the 15minute timeframe it appears long EURUSD at the end of the day and 38% fib is a gimme long at 1.5691. I have a rule not to trade the wild price action of rate adjustments and today was the wildest thing I’ve seen. I’m going to let a sleeping dog lie here and I’ll be back on it Monday pointing out the best swing trades and end of day reversion trades.

Sweden says 12 years. http://www.treehugger.com/files/2006/01/sweden_raises_t.php

Some industry savants say 20 years for most countries to be oil free. I think the analysts are assuming oil will still be used for aviation, plastics, and some industrial machines depending on cost and location.
I don't want us getting too far ahead of ourselves. Natural gas is 80% cleaner than petro, so I don't think anyone would have issue with trucks upgrading their diesel engines for natural gas which is quite simple and will become very common and cheap as the changes snowball.

Solar is just simply the best possible option in any sane person's mind. The sun delivers 7,700 zettajoules (ZJ) of energy to the Earth per year; of which half is absorbed by its surface components. Humans consume less than 0.48 zettajoules of energy per year. http://en.wikipedia.org/wiki/Image:Available_Energy-3.png

http://www.nanosolar.com/products.htm The guys making it feasible are in Ontario, CA. These guys beat out the iPhone for most innovative product of the year 2007. If you coat your roof with these wonderful panels you'll be getting checks from the power company every month for about double what you currently pay in. Current systems store 4KWH of juice for your house to run and perhaps charge your EV car. If you have 2 EVs you're going to need more than 4KWH capacity storage or charge your cars during daylight hours (not practical for most).

An interesting quote I read recently was it takes 660 pounds of coal to light your 100watt lightbulb for a year. That really pushed me over the edge. I think everyone has had enough with the no-talent-ass-clowns driving up oil prices, but this new concept of burning thousands of pounds of coal per year to keep us blogging is smacking us in the face despite prices. Sometimes it's a luxury to be stupid.

We’re looking to take USDCHF long off the table sometime on July 3^rd. We think that is when consolidation will occur and an optimal exit will present itself. This trade has been plagued by oil and gold breaking highs. This trade is based on mean reversion of currency indices as they are easier to forecast than actual pairs. In the attached image anyone can see the CHF and USD currencies are at extremes. If I show you a historical chart of these indices you’ll quickly see that currencies do not stay at extremes for a long duration and they tend to move up and down for similar durations with similar angles.

You might think the purple currency on the bottom of the screen is ideal for appreciation but that is the CA dollar and it’s the most volatile currency on the index indicator. I’m watching it from the higher timeframes waiting for it to really hit bottom; then we’ll look to the hourly or 15minute indicator for likely entry against the most overbought currency. That should happen by July 10^th and I’m expecting EUR to be the currency we sell against the CA dollar. That trade might be a short EURCAD for 2 weeks duration when we confirm the entry.

 

We are long USDCHF here at 1.0270 because we couldn’t get filled lower despite our charts going lower. Regardless it seems like a solid position and we’ll hold for a day or near close of Friday; tomorrow.

I know I know. Catching falling daggers is not good, but look at what we’re forming down here on S&P. It looks like we’re forming a bottom. If we can hold today’s low and move above 50% of yesterday the trend is dead and we should be looking to buy until we get near 1330. Then reassess. This might be the low of the year right here. If this is not the low of the year I would be looking for it in the next few weeks.

Take note of the grandstanding, political, self-interested icons who claimed oil was correctly priced during this never before seen rally in crude oil.  These people were responsible for their own little rallies inside of this massive oil appreciation over the past two years.  Since we know oil is incorrectly priced; and much higher than fundamentally acceptable, we are taking time to recognize some of the responsible public talking heads.

• T. Boone Pickens has consistently talked up oil and attempted to scare consumers about China and India’s impact on world oil supply by saying oil will go much higher.  Pickens stated several times oil is correctly priced and not manipulated.  Pickens talked up oil while buying a 12 billion dollar wind farm.  Wind generated energy is the most highly government subsidized green energy in the USA.
• Goldman Sachs receives highest honors as rhetorical terrorist extraordinaire.  Wild comments about $200 per barrel oil in the near term economy don’t help anyone sleep at night, drive to work or even hedge risk.  These kinds of comments are purely terroristic to oil consumers and hedgers.
• Warren Buffet has been known for talking up oil while holding significant energy positions.  In Buffet’s defense he’s been an energy bull since long before the speculative run up.
• Jim Rogers predicted the whole bull market in commodities which is highly commendable and fundamentally sound, but his rhetoric on CNBC and Bloomberg talking down the US dollar may have been in an effort to talk up oil; therefore despite my reluctance, Mr. Rogers is noted.
• Jean-Claude Trichet ECB President has indirectly caused the largest rally in crude oil history on reckless comments he may hike rates in July 2008 killing the US dollar in the process and spiking crude oil.  At this time it’s unknown if Trichet is trying to appreciate the euro to reduce the perceived high oil prices, or if he’s trying to place the euro as the default reserve currency of the world by dethroning the US dollar.
• Bush.  One word.  One syllable.  Bush simply supports high oil prices regardless of his rhetoric.  He vowed to veto the Senate’s bill to stop SPR shipments, but was defeated with a veto proof Senate vote which did stop SPR shipments and seemed to pause the acceleration of oil prices.  By continuing two simultaneous wars Bush has contributed more than all previous rhetorical terrorisers [sic] to the depreciation of the dollar and rapid appreciation of energy. 

 

 

Please contact me with more public icons that defrauded us by talking up oil.  The contact form on the right side of this blog can be used to email me your suggestions.  Once we have a good base we’ll host a vote here to see who receives the rhetorical terrorist of oil reward.  The winner will receive a plaque from this blog engraved with their name to immortalize their efforts in talking up and scaring consumers about oil prices and slowing world growth all in a selfish effort to profit from oil stocks, green energy, or commodities appreciation.  After the number 1 terrorist is selected we’ll no doubt have cheaper crude trading on the NYMEX, and we can identify the honest public figure who tried to speak the truth against the terrorists.

All we have heard the past few months is how Hank Paulson wants a strong Dollar.  As the boss of the cartel Hank tells Ben Bernanke and George Bush what to say and when to say it.  GW has increase rhetoric lately to support a strong Dollar.  It’s hard to believe the oil magnate wants a strong Dollar because his friends will take a pay cut on the back of Dollar appreciation.  On the other side of the pond Jean Claude Trichet has been opposing the Fed consistently to prop his currency which he feels should be the reserve currency of the world.  I don’t know; the Euro?  Doesn’t have a global theme built into the name; first off, and furthermore it’s only 6 years old.  Let’s let the grade schooler earn a diploma before we put our wealth in it.

Why does Trichet oppose the Fed?  By talking up his Euro currency he lowers perceived inflation by the countries holding the Euro as their primary reserve.  As the Euro strengthens it can buy more oil compared to Dollars or Pounds.  What else is Trichet doing by opposing the Fed?  He’s pressuring the Dollar and the Fed to hike rates.  I don’t think he’s making a great case for this but it’s an angle he seems to be pressing.  By increasing the value of the Euro he is indirectly hiking oil prices which the USA can’t afford so the Fed will be forced to hike rates to strengthen the Dollar rapidly which will drop the price of oil rather quickly to <$100/ barrel.  If it’s so easy for the Fed to drop the price of oil why don’t they just do it?  The Fed has friends and family in most major banks in the world.  They just bought Bear Stearns through their other major US bank JPMorgan.  The Fed prints the money these banks buy and then sell to you and me.  Essentially the banks in the US have taken a huge hit in profits as the credit market has tightened and write offs plagued bottom lines.  The idea now is to give bank friends and family cheap money until their coffers are filled.  If bank friends and family don’t fill their coffers by September and the Fed hikes rates making money more expensive you and I will see tighter credit markets or at least as tight as they are now with much more expensive loans.

So we don’t really want the corruption extraordinaire Mr. Trichet talking up his Euro much more or the whole world minus Europe will feel the pain in the pocket book which is commonly in the back pocket hence pain in the butt.

Billionaire investor T. Boone Pickens made a self interested statement today commenting that oil is not being driven by speculators to over extended highs but rather it's following fundamentals.  This comment made in the same interview where Pickens announces buying a 640 acre wind farm.  Wind energy is the highest subsidized energy industry in the United States.  The result of his comment was an immediate rally of crude through previous all time highs helping to ensure the need and fanaticism for alternative energy.  If oil were to come down; the government would be hard pressed to subsidize the green industries as they have recently during the speculative rally in oil.  Ethanol garners nearly 50 cents per gallon in subsidies.  What does that mean to you?  Rather than taxing E85 51 cents at the pump like the government does with gas and diesel the government is forced to subsidize the struggling industry with an added 43 cents to keep it competitive with fossil based products.  Thus E85 should be about $1 more expensive than regular 87 octane gas if it were not subsidized out of your tax dollars.

Green energy is a great idea but the technology is not quite here.  Let’s wait until the Google Venture Capitalized company ESolar releases their solar cells that will be embedded in roofing shingles and powerful enough to power a home 100% and pump energy back into the grid among other applications.  We only have a year or two to wait for them.  The wind energy is taking massive amounts of tax dollars to keep going and cost competitive with other energy sources. 

A better alternative for the year 2008 would be to open refuges in coastal states to drill for crude.  In my opinion it’s too late to start construction of nuclear power plants unless we expect to live without a Sun.

If it’s not too much to ask on this blog please write Mr. Pickens a letter thanking him for higher fuel prices whether you use natural gas or gasoline or diesel fuel he just made your day more expensive.

 

Read about T. Boone Pickens here:

http://www.bloomberg.com/apps/news?pid=20601087&sid=avA.9BkHdHb8&refer=home

Forex Fundamental Concepts or Lack Thereof

Why are fanatics usually wrong?  The last one I talked to was today about gold going to $5,000/oz.  It’s interesting to dissect the psychology of the fanatic and use some common sense investigation to see who they are and how they come to their conclusions.

 

Who are fanatics?  Fanatics are a group that gravitates toward the most awesome and outrageous claims.  Fanatics followed the Anna Nicole Smith tragedy daily.  They are the people supporting viewership of End of the World Discover Channel documentaries.  Don’t get me wrong it’s important to extrapolate things to avoid “Black Swan” scenarios like the recent subprime meltdown.  People should have been asking themselves; can real estate really keep growing this fast?  What would happen if these overleveraged speculators went bust due to a real estate slow down?  Is the subprime loan a tool created by the architects of the financial world to profit $500billion in a bubble explosion only they would see coming?  The last question should really get your gears turning because for the most part I believe it’s true.  Subprime loans should never have been allowed to grow at the rate they did.  So we should ask the question; who monitors subprime mortgage loans for risk of upsetting the real estate market?  Well the real estate market is a huge entity and the responsibility for monitoring something so large falls on the Federal Reserve as they loan and control credit to United States banks.  Once banks loosened requirements to write more subprime loans the Federal Reserve should have stepped in to monitor and take action if necessary to slow the exposure to high risk instruments.  There is a ludicrous argument circling that lays blame on consumers for the travesty.  First let me ask; would you rely on trading advisor to keep your lawn green?  Then why would you rely on high risk borrowers to make prudent decisions on mortgages?  By the way my lawn is green and I am a trading advisor.  I’m not saying you the reader expect these people to know what is going or to extrapolate the influence of high pressure sales and last minute modifications to mortgages.  The proof is probably in the meteoric rise in predatory mortgage lawsuits.  We’ve made a case for extrapolating relevant concepts to avoid what the financial world calls Black Swans or unexpected outcomes.

 

So how do fanatics come to their conclusions about the economy or commodity prices?  Well I suppose they are helped by networks pumping fear into the public about potential economic turmoil and insanely high energy prices.  I was watching CNBC mainly for humor’s sake this week when the reporter showed a 20 foot wide and 10 foot high display of gasoline prices steadily climbing.  For theatrical effect he climbed into a scissor lift typically used by construction workers to work on things 20+ feet above the ground and he raised himself about 13 feet in the air to show us where gasoline prices “could” go by next year if they continue at their present unsustainable rate.  He didn’t say unsustainable of course because that would calm the viewers down and they wouldn’t tell all their friends about the circus sideshow they watched on CNBC today showing $7+ gas prices in a year. 

The impetus to fanaticize fuel prices might be supported by the fact that fuel can never be worth zero.  A stock can become worth zero dollars if a company goes bankrupt but oil will always have some use and thus some value so I suppose these people find solace in their speculation that they can never be completely wrong.  Ok that argument is weak.  Perhaps they realize the world is growing and energy usage is growing while oil production is not growing.  That would be a legitimate argument, but they don’t like that argument because then we would have an objective rate of growth and an idea of production to create a legitimate price.  Fanatics find an analyst that talks about the economy in a way that pleases their emotions.  If the fanatic craves conflict and disorganization; which could be defined as a chemical addiction based in hormones, he or she will gravitate toward the drug dealer or financial analyst that gives them their fix.  If you’ve ever known someone who likes to fight a lot it’s most likely because they are addicted to the endorphins released during a fight.  Like any addict they always need more until they are unbearable to be around despite social programming to dissuade such behavior.  Well with financial fanatics it’s socially acceptable to speculate about economies being worth zero dollars or oil being worth $400 a barrel.   

 

Why are they wrong so often?  The market is mostly controlled by fear and greed.  When a trend explodes to the upside greedy people pile on to profit.  When a trend breaks down people sell fearing a collapse.  Fanatics are the cap of a bull market because they don’t get the information about the new trend soon enough to profit.  Fanatics are not good traders because they can’t trade for themselves.  They have to listen to analysts.  Near the end of the bull market analysts begin circus sideshows saying the market could go 50% higher in a short amount of time.  They think since it’s going up it should always go up and so is how the fanatic makes investment decisions.  The next time someone sits next to you saying oil is going to $400 a barrel and gold is going to $5,000 an ounce ask them if they know any rural Nebraska farmers that drive Mazeratis.

 

Here is the content of my post on ForexFactory:

Be reasonable when making speculative claims of $5,000/ounce. Think about it. Is there a global shortage of this substance? Does it follow fundamentals regarding supply? While at $300/oz was there enough gold in the world for everyone to buy an ounce? Would it make sense if the gold miners in Australia and Colorado became trillionaires in 3 years? I assume if gold hits $5,000 then soybeans must reach $60 a bushel? I'm not going to bring up oil because that causes a visceral reaction in the heads of the fanatical. Does it make sense that farmers would be driving Maseratis? Gold is a Dollar hedge so if the Dollar loses all faith/value then Gold would appreciate. Australian Dollars are about 80% tied to gold, so would Australian Dollars be worth $5 US Dollars? I suppose the question right now is; will the US Dollar gain value soon and bring commodity prices down? Jim Rogers said commodity bull market from 1999 to 2009. Jim said he's getting out in 2009. Notice he's been making a lot of appearances talking down US Dollars and talking up commodities and Asia near the end of his investment.
Just put a little perspective on things. I'm all for divesting portfolios, but gold is still a currency. It's a currency and it's money. Dollars are not money despite our common misconception. Gold has intrinsic value and is exchanged around the world as currency therefore is money. Dollars are fabric with no intrinsic value used to buy goods and services based on faith of a bank that prints them therefore they are currency. Fiat currency. If you think markets move according to crowds and psychology then gold should always be worth more than $1,000/oz. If you know there are entities that move the market and own the largest banks in the world (central banks) then you know prices mean very little as all the wealth in the world cannot be traded. Citi was the largest retail bank in the world last year. Citi was and is not owned by the people that own the world. Citi almost went bankrupt this year. The people that profited from subprime have to have an idiot to take the other side of their positions. Gold is less liquid than the mortgage market. Think about that. The US holds about $250billion in gold if we believe the tale they tell which is no longer audited for some reason. Subprime write downs are estimated to be worth $500billion and correct me but I think that's in the US alone and let me highlight that is losses only and not the whole market. Do you guys own real estate? Nothing is bigger than central banks and the people who profit off them.

 

 

From ADVN:

·In energy news overnight Venezuelan President Chavez says that oil markets are well supplied, noting that the country does not have plans to nationalize any more companies. Chavez added that Venezuela would like to continue selling oil to the US. The Wall Street Journal overnight looked at a plan that would give federal regulators oversight of energy markets. The measure is part of the farm bill that the Senate passed on Thursday. Traders cited the move to close the so-called Enron Loophole as a factor behind today's trading in energy markets. Under the government's plan, the CFTC will consider trading volumes and whether contracts are being used to establish a price reference for other contracts; The plan also requires traders to maintain audit trails by supplying reports on any large trades to the CFTC, imposes record-keeping requirements and forces electronic exchanges to monitor trading behavior and prevent manipulation. Lawmakers are also mulling proposals to increase margins on energy futures. The Enron Loophole bill does not give authority to regulators for oversight of foreign trading on US terminals The Wall Street Journal wrote overnight that oil refiners are starting to focus on diesel fuel production over gasoline. Goldman Sachs raised its 2H WTI oil price forecast to $141/barrel from $107/barrel

Jeff’s corner:

What scares me is that Goldman Sachs is still fanatical about oil prices after all that has happened in trying to flush out corruption and over leveraged speculation. Goldman Sachs holds more water than say Citi Group because Goldman Sachs is actually owned by the same people that own the Federal Reserve. (When the subprime meltdown occurred Goldman Sachs made billions while some of the largest banks in the world (that we know of as reported on paper) lost 10’s of billions. UBS is the second largest currency trader in the world and they lost 10’s of billions on subprime because they were not clued in because they are not owned by this group (Rothschilds, Rockefellers). JPMorgan made half a billion. These are the only two I’m aware of in the USA. JPMorgan is also mainly owned by the same group that owns central banks around the world. This is why I’m concerned.) Can Goldman hold the price of Crude up? No I don’t think so. Once panic hits I think they’ll take a beating for a few months as they restructure their risk models, but no doubt the end of the year they will be in the black.

When Goldman talks traders listen. Goldman has been saying these high oil prices for months. They do not have control of the Senate as witnessed by the blockage of the SPR insanity by a veto-proof vote in Senate this week. Now the signing of a bill that helps prevent over leveraged speculating; which is what got us in this mess to begin with, shows that Rothschilds don’t own everyone. Unfortunately there will always be hideouts in other countries that want to do business with trillionaires, so trading accounts will be opened in the Caymans and Switzerland etc. where positions are not reported and leverage is higher.

In the near term I think Senate did the right thing. Oil might chop around here as options expire, but next week we should see $15 drop. Once we see that drop there will be blood in the water; and panic moves the market faster than greed, so you’ll see a bloodbath on Wall Street. It makes trading harder for me too because global risk management software trades Crude next to Currencies as a hedge, so they will be drawing down and losing credit hand over fist which creates volatility as they margin out for 10’s of millions at a time. The market will pop and groan on their massive weight as it enjoys lower crude but takes hits on margin calls from Mid East and Wall Street speculators. I think everyone was right when they said volatility was at historic lows in first quarter 2007.

Forex fundamental breakdown. Crude.

Managed capital.

Forex Trade Calls.  Capital Management Calls.

We are in a wild market.  Carry currency pairs are disconnected from S&P which means global risk management systems are drawing down which means liquidity is scarce which lends to the downward spiral of volatility until something breaks the chain ie. a large news event that straightens the direction of the market and gets everyone on the same page.

Crude has been the driver of most of the disconnect from what I can see.  Global risk systems play crude along with currencies as a hedge so when there are disconnects you can imagine large funds are drawing down as their risk models are blown apart.  As they draw down they lose credit and so the downward volatility continues.  So to restate the concept we are in a muddy time right now which I predict will be resolved during Housing Starts data released from the USA in a few hours.  It’s kinda like the electric shock used to restart a fibrillated heart.

Forex Trade Calls London 11:30am.

www.midwesterncapital.com capital management

FOREX trade calls startup hourly breakdown is very bearish for the day.  A laundry list of news will keep traders guessing every hour today into the NY session.  Fair prices after this meteoric rise are near the 50% retracement from Monday’s low to Wednesday’s high.

Do you need a trading log spreadsheet?

http://tradingspreadsheet.blogspot.com/

Holy Cow!

SPR is shut down until we see $75 a barrel.  WHAT A COINCIDENCE?!!!!!  I just posted my synopsis and I hear the Squawk box say Senate has passed the amendment veto proof to end the Bush madness of buying speculative oil.  This is huge folks.  Expect to see $116.80/barrel after today and expect to see $106 the following day and expect to see sub 100 the following day.

 

Forex trades and crude oil trades

Crude at all time highs again.  Who does this?  When will the SPR get it through its thick skull that speculation is driving this market 100% and they are aiding and abedding the speculators.  When SPR says we no longer honor this price of crude and will only buy at $60 barrel we’ll see a massive selloff in crude and you’ll see several Wall Street speculators blow up to the tune of 10’s of billions.  Crude has been run up on speculation and a weak US Dollar.  There is no merit in 100%+ higher oil prices in one year of rabid speculation.  I’ll make a prediction now.  Sooner or later; preferably sooner, we’re going to see someone do something about this and the crooks are going to get very angry while we watch oil prices gap down 30-50% overnight.  This run up is not going to selloff slowly.  My guess is dealing desks are seeing massive purchases of Crude Put Options right now trying to time the monumental landslide.  Of course those standing next to the SPR might catch wind of the selloff before anyone and overleverage their margin accounts short Crude and stand to make 300% windfall profits in 12 hours.

Forex trade calls and crude oil fundamental analysis.

It looks like we will be going long GBPJPY soon.  Let’s allow a deeper pullback and a bottom formation in the candles before going long.  I’ll most likely confirm with td line break.  This might also end up being the end of our GBPCHF swing trade we made 2 weeks ago at the beginning of these blogs.

Forex trade calls blogs.

Beware of Bernanke Speech.

We will be closing ahead of the speech in less than an hour.  Also watch the 5minute trendlines on the bottom side.  If we break them short this trade is broken and we’ll flatten and wait until after news and Bernanke’s speech.

Forex trade calls USDJPY.  Intraday forex scalping system

 

This is Forex intraday scalping system.  Long at 103.84 on trendline break with momentum.

Buy the bounce at 24 area and scalp it.

The GBPJPY move today was very profitable.  We grabbed pips on the first part of the move with a tight stoploss.

Crude at all time highs.

BoE very slightly hawkish.

ECB confused stating hawkish then dovish and talking way too much.

The way it’s playing out on Wall Street is bearish. We have a legit 15minute close below a td line so we can sell here with a tight stop. I’m always nervous about selling S&P during US session because the Plunge Protection Team at Goldman can eat our lunch if they want to. Mostly I think the market wants to digest these speeches from today as soon as Trichet is done dribbling gobbeldygook.

Update: Forex Trade Calls EURJPY daily chart.

Check out the second picture for the updated scenario. We are working out. It seems we have more upside before the upcoming selloff. Note: this upcoming selloff will be acompanied by S&P selloff.

Looks to me like Crude is ready to sell off today or tomorrow.  We’ve played out a daily ABC pattern perfectly and we’ve broke through a 1hr support vector.  Bottom side support is around 112.50 next week.

110.50 is the objective and should be reached in <30 days.

Automated inter-market systems rule the world.  Banks are looking to hedge off their risk at all times as they profit from spreads paid by you, me, CTA’s and most of the hedge funds playing the markets.

Today we saw Canadian Manufacturing surprise strongly to the upside.  This is the straw that broke the illiquid camel’s back.  You have to understand that when the Canadian Dollar gets really strong it forces US Dollar weaker in initially then based on fundamentals US Dollar will move.  It also buoys the US stock market as automated systems kick into high gear offsetting risk and flipping positions to go long Canadian Dollar, Long Carry trades like GBPJPY, Long Wall Street, Long commodities; all of which funded by the cheaper currencies from Switzerland and Japan.  Consider the Canadian Dollar a currency of luxury that is not needed unless times are good and we can afford to splurge a little.  Then also consider when economic news hits the wires that we are more wealthy than we previously knew there will be buying of diamonds, gold, oil, Canadian Dollars etc.  That’s basically what happened today.  The massive wealth hysteria was perpetrated by a technical formation on Wall Street that caused speculators to buy 15 minutes before the Canadian news release.  Oil was poised to break historic highs which is like a magnet for the attention seeking Wall Street monster.  So in the end we have massive speculation on technical formations and fuzzy fundamental news.  It’s just another day on Wall Street.

I hope you survived it.

We might see a big selloff soon.  I’ll be focusing on breaking lows of GBPJPY around 206.45 with a stop at previous swing highs and a target at 205.94.

 

 

This is the pre NFP gap support on USDJPY USDCHF we were talking about.  So I’m done for the day and I’ll be back for London session at 7am their time.  I think we could start at 6:30am London time tomorrow as a matter of fact. 

Forex trade calls

 

London is out on May Day Holiday and I see JPY will be out as well for Greenery Day.  ForexFactory calendar is a convenient place to digest  what’s going on day to day.  Based on the conflicting 15minute trendline breaks I see it would be safer to return during US session to begin the week.  When I take a 15minute trendline break I confirm with a correlated pair to increase my winning %.  For the most part carries seem to be wandering North as they were in Asian session; however USDCHF is still moving down.  In the images below I like to look to USDJPY USDCHF EURJPY GBPJPY GBPCHF to be in line moving the same direction and EURGBP to be moving opposite carries as a confirmation tool.  For the most part I expect EURUSD and GBPUSD to confirm each other and EURUSD and USDCHF to inversely confirm each other.  I’ll be back in 5 hours to trade the US session.  We have a news event at 10am NY time that should bring liquidity and scalping to the forex market.

 

 

Start your forex engines!  Or commodity or futures.  Whatever market you are trading.  We’ll try to accommodate you.

Sunday evening in the US is when I start drawing my vector or trendlines.  It’s really nice to delete all objects and start fresh from the weekly chart connecting significant highs and lows to form valid trendlines.

At this time gaps from the weekend are visible and attempting to be closed.  At this time I see USDCHF has not closed its gap to the upside.  We’ll look for that gap to close before making any trades, because if a gap is open there is uncertainty in the market.  Since all pairs are related if we went short USDJPY on a trendline break the USDCHF gap might stop us out as it pulls up the USD just to close the gap.  In the meantime carry pairs are wandering north waiting for direction/liquidity to enter the market.

We’ll be looking to enter the market around 8am London time to give the FOREX Capital of the world a chance to decide on a direction.  Feel free to use my trendlines as support and resistance.  Be sure to catch up on our scalping method at the Forex System Blog.  Our main system is found on the Forex Trade Call and Fundamental site as well.  Trade well.