"Invest In Yourself, Not Wall Street"

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Timing matters, as fundamentals have no impact in a euphoric blow-off top or in a panic-driven, bidless crash.

I recently received an email from a reader suggesting I back up my opinions by publishing my own trading positions. The reader suggested that failure to put my money where my mouth is diminished the gravitas of the opinions published here.

He suggested that if I really believed in The Generational Short: Banks, Wall Street, Housing and Luxury Retail Are Doomed, I should bet against these for however long it took the trend to manifest--decades if necessary.

I understand the credibility value of putting my money where my mouth is: without some evidence that the writer is walking the walk, then we assume he/she is merely talking the talk or talking his book, i.e. supporting his positions publicly while he unloads the position in private.

There are fundamental problems with publishing one's trading positions as a gambit for credibility, and it's worth delineating them because they reflect the inherent uncertainties of trading and prognostication.

1. Markets do not trade on fundamentals. Though pundits and punters may refer to various fundamentals (price-earnings ratios, etc.) to justify their expectations of future stock prices, markets trade on emotions and the zeitgeist generated by Central Planning intervention, both publicly announced and secretly executed.

As a result, any analysis of fundamentals is for historical context only. Misguided attempts to predict what the market should do if fundamentals mattered rarely succeed, for the simple reason that fundamentals don't matter. They are invoked after the fact to justify one trend or another.

Here is a chart of the Dow Jones Industrial Average (DJIA). Did the fundamentals of the corporations that make up the DJIA fluctuate as wildly between 2000 and 2014 as the DJIA itself? The answer is no: what fluctuated wildly was the emotions of punters and the risk appetite set by Central Planning interventions.

2. Timing matters. Deteriorating fundamentals have no impact in a euphoric blow-off top, just as improving fundamentals have no impact in a panic-driven, bidless crash.

I'll use coffee to illustrate the point. As a hobby, I watch a lot of markets, and last year coffee started to look constructive after a multi-year decline from over $2.60 to $1.20.

I tend to be early on these kinds of trend reversals, and indeed I was early, as one more low lay ahead in November 2013. The classic "buy" signal occurred in January, when price popped above the 20-week moving average and that resistance became support.

If I'd announced opening a long position in coffee in late July, 2013, anyone following me into the trade would have experienced a 15% decline by November. Had they sold or been stopped out, it was a losing trade.

If they'd held their position for a mere 7 months, they would have gained about 75%-- on an annualized basis, around 120%.

If they'd built a position over time (as many experienced traders do), the rise off the bottom would have afforded a relatively low-risk opportunity to add to the position. The inverse head-and-shoulders (the right shoulder was traced out in late January/early February) offered another relatively low-risk chance to add to the position.

The use of options to add to gains and/or hedge losses would have offered some basic risk management to the trade.

An imperfect entry trade was a loser if sold in November and never re-entered, and a highly profitable winner if held and/or added to. The larger point is that trading requires far more than a commentary establishing the fundamentals. It requires the discipline and experience to construct a trading plan for the position and the discipline to execute the plan. It requires an awareness of risk and the zeitgeist of Central Planning interventions, which work until they don't.

A position sold inopportunely generated a loss while the exact same position generated outsized gains if held or added to according to a trading plan that accounted for the possibility of being early to the trend change.

In my opinion, markets reflect a dynamic somewhat akin to the Heisenburg uncertainty principle of quantum mechanics, which holds that precision is fundamentally limited by Nature: the more precisely the position of a particle is determined, the less precisely its momentum can be known, and vice versa.

In an analogous fashion, the more precisely we can determine the likelihood of a trend change, the less precisely we can determine the timing of the trend change--and vice versa. (I'll call this the Smith Market Uncertainty Principle until someone informs me that others have published the principle under a different name.)

Posting anything less than a full trading plan is intrinsically misleading, and the likelihood of an inexperienced trader following the plan is low. (I know, having been that inexperienced trader many, many times.)

It's possible to be right about the fundamentals and lose money trying to trade those fundamentals. It's also possible to be wrong about the fundamentals and make a boatload of money trading Central Planning interventions.

My own advice that I try to live is: invest in yourself, not Wall Street.

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TeethVillage88s's picture

Sure this will help increase trade or economic leakage


Fifty countries around the globe have already signed on to the Trade in Service Agreement, or TISA, including the United States, Australia and the European Union. Despite vast international ties, however, details about the deal have been negotiated behind closed-doors and largely ignored by the press.

icanhasbailout's picture

Don't invest just in yourself. Invest also in friends, family and neighbors - anyone you'll need on your side when TSHTF.

TeethVillage88s's picture

I enjoyed that. Reminds me of the era of the Marx Brothers.

TeethVillage88s's picture

Thanx 4 Links, good stuff. Sounds just like what we would expect after seeing what happened to Bolivia and if you know

-John Perkins
-Melissa Rossi
-WB Projects in Indonesia
-Economic Hitmen

CPL's picture

Still reading it and modeling it, some of it works.  Some, like two bits of it which have nothing to do with trade and more dispute resolution.  Even then they are kind of lame, none of it answers back to the problems that are only being highlighted by GM's recalls and the other recalls that are probably going to happen because of it.

To break it down from reading it over twice.  The majority of it is boiler plate re-enforcement to the status quo which isn't the direction anyone should be planning.  If people want to go to space and maintain what's most important to them, they are going to have to sharpen the pencil.  Right now it's written in crayon and messy.  If they open it up to public discussion they'll get better ideas.

In IT when we've got a problem, we use crowd sourcing through open source initatives.  Put it out there, make the announcement that an RFC is open until a set date and set a close date.  With all the ideas listed they get through an SDLC where everyone throws in their two cents to the merit of an idea and it's practical application to a functional baseline that anyone can use without bitching too much.

Best thing is if it doesn't work, blame the process then go fix it instead of dumping the idea of business management into the government's lap, which isn't their job.

Right now the TISA as it's built, if it were software, is an application with 5600 buttons that only do one thing with no interdependancies defined.  Single feature and function in an application doesn't help, just creeps people out.  Additionally this will only hamstring the people that wrote it and everyone else using it because their brain power is too narrow and shallow for any of it to be effective.  Plus each 'feature' in the application isn't worth anything to anyone but one person. 

In short they are making the same mistakes again and need to stop being so stubborn on their inability to plan and develop properly and use modern, new and functional tools to build the platform.  Since this is all about people trading, banking, doing business, schooling...maybe they should ask the people that are going to use it how it shoudl function.

TISA is DOA because of the explaination above.  So don't worry about it Mr Teeth, it blows up in their faces if they run it as is.

Atomizer's picture

Always enjoy your posts CPL. Central Planners dictate the use of modern tools. Well, at least that's what they perceive as their primary function.

CPL's picture

Like trying to talk suicidal nutjobs off a ledge on the better days.

Problem right now they are too far away from the problem to understand what they are throwing around is dogmatic horseshit that can't be fixed and doesn't work.  To fix it and see where it's broken...they are going to have to forgo the carriage and honour their feet.  If they are as clever as they think they are, they'll be back on their feet in no time.  If not, wrong person for the job obviously.

This whole situation is well and beyond out of their control at this point and if anyone wants to get out of it, they've got to harness the tools that can help them surf that sea foam.  Because what they've got doesn't work for anyone, not even themselves. 

TeethVillage88s's picture

CPL Thanks.

-Looks like issues of clawback, blowback, back blast, sovereignty, jurisdiction, treaty authority over local government, and many unexpected abuses of authority

1) Think GMO Corporation suing farmers for seed pollen which has crept into his farmland
2) Think Walmart suing a US local town or country to put in a huge regional build for retail Walmart using international trade agreements to do it
3) Think of Bolivia having a revolution since a corporation now claimed all water rights including rain water
4) Think of Failures to Correct Corruption after 2008

I'm not a great reader or activist

- Melissa Rossi has written a book called "What every American should know about who is running the world"
- John Perkins has "Secret History of America", and Confessions of Economic Hitman

What we hear from the Activists seems consistent

-IMF/WB/WTO/GATT/GATS/UN/UNESCO/TPP/TAP/TISA seem to be being controlled or abused by Giant Capitalist

Regulations & Standardization, Standard Accounting Rules, Standard Financial Products seem like common sense. But perhaps the 2008 Financial Crisis and the $1 Trillion of Financial Derivatives is an example of Power where little reform or investigation or prosecution of Fraud is possible in the face of Corrupting Influences (Power).

I like regulations and Simplified and Streamlined legislation and Tax Rules. I don't see how we can imagine a future with Private Banking if we have a Wild Wild West in Finance. Property Rights expansion also seems like an attempt at a monopoly and higher profits under corrupt capitalism.

I'd hate to see US Responsible for selling junk financial derivatives or being part of WB Financial Deals that hurt small countries.

-Can Everything Be Finacialized?
-Can Oil deposits be seen as a reserve or bank (asset)
-Can third world & EU & US Debt be financialized and sold to mean hearted "Rentiers"
-Would TPP/TAP/TISA bring back debtor Prisons

Atomizer's picture

You must stay in the pool until real money exits first.

CPL's picture

Define reality.  lol

Gaius Frakkin' Baltar's picture

"He suggested that if I really believed in The Generational Short: Banks, Wall Street, Housing and Luxury Retail Are Doomed, I should bet against these for however long it took the trend to manifest--decades if necessary."

The reader is obviously clueless to the epic nature of the corruption and the paradigm shift afterward. Such a bet will never be honored for obvious reasons.

gdiamond22's picture

"If they'd built a position over time"

In other words, if you kept averaging down and adding to your LOSING position, eventually you'd make money.

Many experienced traders get out immediately when they are wrong and have the balls to get  right back in if the trade setup presents itself.

In the words of Paul Tudor Jones "Losers Average Losers"

Keep your trading 'opinions' to yourself. No one cares, especially when you have to explain why you are averaging down and what someone COULD have made if they just held on and listened to you.

Big Brother's picture

It would appear to me as pertains to Smith's coffee trade that he made his entry on a break on of a long term trendline and confirmed by a close of the 20 SMA.  Seeing that it didn't close below his stoploss; albeit, it did reverse for a while, he did not exit.  He added to his trade upon confirmation of the inverted head-and-shoulders formation.  His rationale makes sense and he worked his trading plan. 

Personally, I'd need to see an overlay of the ATR to determine my stoploss.  Other than that, it probably was a good trade for him.

Calculus99's picture

Good points Charles. I spent years missing the all-important human emotions concept, now I never take a trade without considering them. Work out the human element and the game gets far easier.

LawsofPhysics's picture

Again?!?  Trying to predict "market" moves is a fools game in today's world.  Simply try and recognize the truth, that "there is no market for true price discovery"

seek's picture

With due credit to the movie Wargames, the only winning move here is not to play.

LawsofPhysics's picture

"Not playing" in life essentially means being a hermit and living under a rock, in so much as one calls that "living".


Sorry, I enjoy pussy way to much for such a lifestyle, but yes, point taken with respect to gambling, which is really what you are refering to.

world_debt_slave's picture

investing in myself would be a waste of time and money

wcvarones's picture

"He suggested that if I really believed in The Generational Short: Banks, Wall Street, Housing and Luxury Retail Are Doomed, I should bet against these for however long it took the trend to manifest--decades if necessary."

The problem with that idea is that they are all denominated in dollars, which are doomed-er-er.

AdvancingTime's picture

How ironic to make a shit load of worthless dollars when everything falls apart. We should not be surprised if this is what happens. The window to convert the dollars into something of value may be small.

yellencrash's picture

Small, but small time in months or years, not hours or days.

potato's picture

A better defense for an economic writer would be that he has the opportunity to invest his money in something that has a higher expected return than the one he or she is writing about. And that would be him- or herself. However, since not everyone has the opportunity to invest at that rate of return, he is positing an acceptable substitute (the one he or she is writing about).

AdvancingTime's picture

These fuckers will drive you insane if you are looking for truth! My latest theory after all I have seen and all the frustrations from both the economy and politics is that things will always more or less move forward. This does not mean that they will not take two steps forward and one step back or that the path will always be smooth and straight. To many the world might appear to be in a state of flux and a colossal mess yet we seem to blunder ever forward. Fear not a systematic failure but instead take heart that the sun will come up tomorrow.

Like the dance band on the Titanic that plays as the ship goes down most the people in this world are often oblivious to what is happening around them. This might be considered more proof that those of us proclaiming doom are wrong and that our moronic cries hinge on a heightened sense of fear. Just because you catch someone in a lie does not mean they will stop lying, often the best way to cover a lie is with another, then another, then another. More on this subjet in the article below.


yellencrash's picture

Things move backwards for about 20 years after 1929.