With the U.S holiday week and no doubt a slow down of career and acceleration of family time and consumerism this week, I wanted to pay homage to a mentor while providing a fascinating look into his wisdom from 2007, when everyone was still drinking the Kool-aid. The euphoria was very similar to today.

I hope you enjoy this conversation on your holiday travels. It is avail to listen offline on major platforms. You can even download the episode here on Substack as well. Click the three dots to the right of the play button to download mp3.

I have written about Bill Cara here many times. I learned quite a lot from this Wizard over a few decades. You can read more about him and his storied career here: https://billcara.com/about

As you know I have this new toy/tool called NotebookLM and I wanted to experiment by applying it to 169 lessons, or “gems” by Bill Cara from 2007, right before the doo doo hit the fan in financial markets.

One of Bill’s readers named Kyle compiled these 169 gems over six months from March 1, 2007 to August 23, 2007.

How prescient, as The Dow 30 reached a high of 14,198 in Oct 2007 and plummeted to a low of 7,033 in Feb 2009.

Now you can listen to AI summarize the 169 gems for you in a podcast format while you drive, ride the train, or fly this holiday week.

Here are the custom instructions I gave the NotebookLM software along with the source material:

Source: “Blast from the Past”

- Of the 169 Gems from the source Bill Cara, find the most repeated themes and summarize into relevant subject groups that are cohesive

- The audience is intermediate to advanced

- two hosts discussion

- Compare and contrast Bill Cara's subjects, warnings, and insights to what actually happened in the financial markets from 2008 to even today

Disclaimer: This podcast was created by Alphabet and their NotebooksLM AI software. The output may or may not be 100% accurate in citing the source material. This AI technology is new and please use as entertainment and a starting point for your own research. At the very least it can help us use our imaginations to see how this new technology will impact us in our lives in the near future.

#1

The point really is that global markets do not operate in a vacuum. Prices are not random. They are pushed and pulled by economic and financial forces. Sometimes we discover later what those forces are. In the meantime, we just have to watch those prices.

And that is precisely why I believe that Relative Strength Index (RSI) is the most important technical indicator available to traders. You see, RSI helps me assess when prices are very high and when they are very low. I believe in the practice of selling high and buying low. Over the years, I found that’s a practice that has never failed me.

But this is also the phase of the price cycle I call the Distribution Zone, which is another word for “extremely over-bought”. That doesn’t mean that it’s time to sell. No, you ought to be looking for a break-down in that pattern. For me (based on a trading time horizon I feel comfortable with), I look for the time when the RSI-7 on the Hourly and Daily then falls below the 70-line and, if so, I look to see how close the Weekly RSI-7 data is crossing back below the 70-line. If it’s close I probably sell.

But I seldom look at a single stock to make any decision. It’s true that the concept of a “broken” company or a “broken” stock occurs at times, but typically the price of stocks move up and down in groups. That’s because traders buy and sell ETF’s, or mutual fund managers tend to buy industry ideas or traders generally play follow the leader. So I look at the market by group, and when I see the RSI-7 going above the 70-line for several or all stocks in the group, and then the RSI-7 falls back below 70, I believe that a sell-off has started.

Posted by Bill Cara on March 1, 2007

#2

These are tense times in global stock markets. Increasingly the quants are crowding out the rest of us with their programmed trading that is causing temporary but extreme fluctuations between futures and cash markets. But at the end of the day, remember, the (intermediate-term) trend is your friend.

Posted by Bill Cara on March 1, 2007

#3

And loans will be called because too many debtors cannot make the loan payments. That’s called debt service, and when it becomes a problem, the banks start calling loans. That’s when things like houses and automobiles and stocks and mutual funds have to get sold in order to pay back the banker.

This might not seem fair, but it is. And every few years, we go through this cycle. As long as we live in a credit-based, sell-side directed society, we always will. What the central bankers of the world need to do now is to rebalance their currencies so that international trade and commerce and cross-border investment can be optimized.

#4

The problem is that academic literature has its place. How many students of the market have learned as much in the classroom as they have in this blog, and blogs like mine? I’ll tell you, there isn’t a week go by that I don’t receive letters from students at prestigious universities wondering why they are paying tens of thousands of dollars a year to learn stuff they are soon going to have to forget because it is useless or flat out wrong.

I may not have all the answers, but I know fraud when I see it, and I see a lot of fraudulent literature taught in business schools today.

#5

So, what I am saying is try not to get pulled into the crowd heading to the exits this morning. Hang back; you are starting to see real fear – the whites of the seller’s eyes – so that means you have to have your finger close to the “Buy” button. That’s not to say you are going to buy stocks today; but, you need to prepare yourself psychologically to do something that doesn’t come natural. You have to stand on the railroad track, knowing those lights are an oncoming train. Maybe you step off, but maybe the train comes to a halt, and reverses. You must focus – not panic — at times like this. Discipline my friends is absolutely necessary to be a successful trader.

#6

The problem is that you never know when a small pull-back (ie, secondary or tertiary wave correction) turns into a big one (ie, a primary correction known as a major Bear).

#7

Readers often ask if my prognostications are intuitive, and while I may not be able to explain them in academic detail, there is a basis for everything I do. At the end of the day, I refer to the market as a dance. And when prices don’t flow naturally, you start looking for reasons. Often the driver is Fed intervention or some other form of manipulation. And when I see situations that I sense are being manipulated (and they frequently are), and I’m a participant (obviously on the outside), I just throw my hands in the air and shout, “I’m out.”

#8

We learn a lot through our failures. Among many other things, we learn to trade less frequently; to consider risk ahead of reward; to take smaller average positions; and to cope with losses. But the most important thing I learned is to apply my sense of intellectual curiosity and to trust the price motion more than any other aspect of the market.

Posted by Bill Cara on March 10, 2007

#9

OPM btw is Other People’s Money. I make the reference because there are gunslinging hedge fund managers today who are prepared to take bigger risks in capital markets than Mom & Pop, and some of these funds are gigantic, and when several combine to use the same tactic, I believe they have the financial resources to overwhelm the Fed — at least until trend followers hop on board. And by then Bernanke’s fate would be sealed. What I am saying is that the volatility of markets today is so great that even the Fed is at risk. So the Fed, which uses OPM, and the hedge funds, which use OPM, are in control during this transitioning phase. That’s not a comforting thought for Mom & Pop because it just happens to be their capital being used in the game.

Bill Cara at March 15, 2007

#10

The point I was making today is that (i) biz school has failed miserably in the field of capital markets, and (ii) they run a racket in selling over-priced texts that often are written by profs who “know nothing” (maybe that’s too strong!) about the workings of capital markets. Most of the academic literature — even the Efficient Market stuff written by experts — is debunked every day by professional traders who need to trade successfully for a living. They laugh at that material. The stuff Cramer talks about in the video, unfortunately, is a much more accurate reflection of capital markets. I want you to know the truth so that I can help you. Sometimes I come on too strong in order to get my point across, so, please don’t take it personally.

Posted by: Bill Cara at March 15, 2007

#11

Just remember the expression, “Things are never that good, and they are never that bad.” As we move forward in time, there is a constant reversion to the mean.

Bill Cara on March 17, 2007

#12

The best financed F-1 racecar teams can engineer the best car and hire the best drivers, but winning the race also comes down to having a good “feel” for the car and the track, and avoiding the accidents. That’s why I spend so much time on the Week In Review – every week is a new race, a new track, a different set of weather circumstances, a car that needs to be set up appropriately. At the end of the day, I am trying to get a feel for what it will take me to win the following week’s race.

Bill Cara on March 17, 2007

#13

When it comes to money, I have a simple rule: trust no one but yourself. I learned that rule after spending five years as an independent auditor. Follow the money; ask the questions. Give no one — and I mean no one — the benefit of the doubt. BTW, I am accusing nobody. I’m just pointing to the charts.

Posted by Posted by Bill Cara on March 21, 2007

#14

Only in America can a distinct negative (ie, a collapsing mortgage financing system and failing housing market) be turned into such a positive. That’s the power of positive thinking — a tribute to America. But it is also testimony that the US authorities are involved in this so-called free market up to their armpits. Alas, I think Charles Dow would turn over in his grave to see such meddling in markets by the US Administration, the Fed, Humungous Bank & Broker and Friends (Private Equity) and Family.

The equity market is not going higher because corporate fundamentals and guidance are pulling it up, but because a very few vested interests are pushing it higher. And they will do it until they can’t do it any longer. But by then they will have rotated their sectors, told their lies, and prepared themselves for the other side of the pendulum’s swing.

For now, being out of the room, out of the deal, you and I have to go along with this stuff. After all, we trade prices. Besides, we are not in a bad position. We have our community to rely on.

Posted by Bill Cara on March 24, 2007

#15

There ought to be a law that when clients get ripped off multi-billions, the guilty party gets to go to jail or at least stopped from trading in securities for a time. Well actually there is a law – one for you and me and a different one for them, the people who run HBB and their friends who make them gazillions in fees and trading profits.

Posted by Bill Cara on March 24, 2007

#16

This story is not about revenue growth or earnings momentum or solid management and so forth. It’s about too many dollars chasing too few high-quality, high-dividend-paying stocks at a time that bonds are in favor because interest rates are artificially too low. This is not news – more like a mea culpa. The real point is that we traders must trade prices. Prices happen for reasons w might not be aware of, or agree with, at the time.

Posted by Bill Cara on March 24, 2007

#17

The point I have consistently made since I started blogging almost three years ago is that markets are not free. Markets are driven by forces that are related to interest rates, economic activity, commodity and forex prices and by vested interests.

Randomness occurs in a vacuum. We don’t live or trade in a vacuum. I have never met a successful veteran trader who suffered from credulity syndrome. In fact, the best of the lot are typically hard-ass skeptics. Rule number 1, 2, 10 and everything in between is, “We trade prices (not stories)”. In other words, success comes to those who don’t care who is operating in a backroom to manipulate prices, just thankful they (whomever they are) do enough to create volatility.

Posted by Bill Cara on March 31, 2007

#18

The problem here is that there is a difference in time horizon. Operations and bookkeeping take forever to roll, whereas the story spinmasters and market prices change as fast as you can blink. If you can just lose that credulity syndrome thing that too many people are afflicted with, then you will see that point.

In other words, when it takes years to cause the balloons to expand and start to burst, a magic solution doesn’t come overnight. Not even when the President, or the Treasury Secretary or the Fed Head or HB&B tell you not to worry, they have all under control. When you have been around the block a few times, like me, you get to recognize the wooden nickels.

Posted by Bill Cara on March 31, 2007

#19

As you know, I happen not to be interested in forecasting price points, which I know from experience is a mug’s game. Our job as traders is to figure out trend direction and to stay on the right side of it.

Posted by Posted by Bill Cara on April 4, 2007

#20

Is this the world we want to live in? You know my biggest complaint with capital markets is that the Buy Side faces impossible disadvantages posed by a Sell Side that can act as both principal and agent in the same transaction, where they are permitted to advise us and also trade against our order flow. Until recently that cock-eyed reality being peddled as a level playing field stood above and apart any other complaint I have. I see evidence of more stupidity, more of the “I’m going to get mine” syndrome that affects society today.

Yes, no longer can we trust the independence, objectivity, privacy and confidentiality of our dealings with lawyers. Rather than just being our agents, provided by law an exalted status unlike any other, these lawyers now want to also be principals.

Posted by Bill Cara on April 6, 2007

#21

The average CEO to average worker pay ratio has averaged between 411 and 525 from 2000 to 2005. When I started my career on Bay Street in 1981, that gap was 1/10 as big. I find the situation today unconscionable. And when the CEOs are “getting theirs”, so too are their friends. This stuff will go on until HB&B, private equity, corporate boards, bought-and-paid-for lawyers and judges, and a few thousand cronies are brought to heel. I can’t say when or how, but I see a crisis coming like the one America had in the 1970’s, with stunning worker wage demands, strikes, riots, and so forth. That period, too, was the last time we had stagflation. Think about it.

Posted by Bill Cara on April 7, 2007

#22

Mark my words that only when a list of these private equity and major IPO deals have been completed by HB&B, the Fed/Treasury will then let the equty market to spin in the wind. Not before then. And Treasury rates will not fall until after there is a stock and bond market crash.

Posted by Bill Cara on April 9, 2007

#23

In case you don’t know, in every case of Pump and Dump, there is a Take-Out 3rd party working the marketplace. The record shows that its very often somebody in media. They manage the sting by starting the rumors, or planting the seeds to get the unwary public thinking about the possibilities.

Posted by Bill Cara on April 10, 2007

#24

Remember, when it comes to your money, there are well-connected people out there who will stoop to no depths to try to take it. They simply say, they want theirs and they take it. Here’s another pathetic example that came up yesterday. These people must think that nobody cares, and if caught they are not going to jail anyway.

Posted by Bill Cara on April 10, 2007

#25

The key job of a trader is to stay on the right side of trend. The essential point is to understand that perception is a greater force than reality, so it’s the cyclical phase of the market that is the one for traders to be positioned for. As I have always said, it’s a mugs game to call a secular Bear because nobody knows if it’s going to happen until the reality hits home that it has.

Actually, as you will see if you look closely, it’s a buy-side issue as well as we take note that their paid-for Talking Heads are sent to Financial TV to try to put on a good enough face that maybe their biggest long positions will get hit less than if they are ignored in any panic rush for the exits.

Posted by Bill Cara on April 11, 2007

#26

So what does HB&B do every business cycle when loan losses become an issue? They tighten lending standards and the Little Guy (ie, Mom & Pop) have their homes and cars taken from them. To compensate, HB&B has turned to the component of Friends & Family known as Private Equity to bail them out by taking in loans that add to bank profitability and using those financial resources to buy out companies at cycle-high prices. Who is selling them that paper? Why it’s the prop desks of HB&B of course because those trading profits also look good on the financial summaries and quarterly discussions by management.

With the added risk, of course, the Fed has to tell its owners, ie, HB&B, that interest rates must rise. Stick it to the customer although it’s not the customers’ fault. Make the Little Guy pay for the failed policies of the bankers and the Administration. What’s new? Nothing. Same old, same old. Every few years for all the 40 years I have been in this game.

Posted by Bill Cara on April 11, 2007

#27

When HB&B gets into trouble, watch the Analyst Upgrades. When you see them happening AFTER a stock has run up +20 pct in a month, I’m not so sure it’s a professional analyst calling the shots. It could be the firm’s proprietary trading desk or the corporate finance dept. You never know what goes on behind the closed doors of HB&B. Do these bankers really permit the public access via truly independent and objective auditors or members of the board?

Posted by Bill Cara on April 11, 2007

#28

You know when I first started writing this blog three years ago, I used to receive many letters that suggested I was being too negative as to the amount of “funny” stuff that goes on in markets. But, I continued the mantra, “When it comes to money, people are “funny” – which is another way of saying that greed makes people do bad things. Now, I think all (or most) of you can see the “funny” stuff that goes on. I submit to you that most of this could be stopped quickly, but the SEC and other regulators know that the perps are industry people, as in “made” persons. That makes it harder for the rest of us. But we shall overcome!

Bill Cara on April 13, 2007

#29

When I was a licensed financial advisor in the 1980’s, I must admit to losing my share too on these penny miners. But, in my case it was because I was getting too close to the situation, and I would hold on too long, always hoping for the next successful drill hole or whatever. Later, I discovered that objective and independent thinking always works best. So, no matter what I knew about a company, I learned that trading prices was the most effective approach. And, in the case of the penny stocks, I found that volume was also a crucial piece of information. That’s not to say I would ever ignore good info from experts – as long as there was a distance between my so-called expert and the hype machine that surrounds all companies in the capital raise-up business.

Posted by Posted by Bill Cara on April 14, 2007

#30

Yes, people say I have passion and go out on a limb when showing it. But I also know right from wrong, which sadly too many people quickly ignore if, as and when they think they can get away with white-collar theft. If being called “eccentric” is the media response for calling a spade a spade, I’ll proudly accept the moniker.

Posted by Posted by Bill Cara on April 16, 2007

#31

Every cycle at the very top, promoters of the juniors get absolutely psychotic in their beliefs that the cycle will not end and that they personally have the world-class asset and best story to tell. Typically, from cycle top to bottom, its a drop of -75 pct to over -90 pct for these speculations. So, I advise being extra careful in the final few months as even turkeys will be flying like eagles. The way to best tell is when the news releases become more frequent and more spectacular but the price stalls out amid very heavy volume days.

The biggest gains are made by nimble and reality-based day traders in the final couple months of the stock cycle for these junior miners. Typically, a trader used to trading in and out of a favorite stock over say a quarter or half year will start to do that over a month and then a week and then days and even intra-day periods as markets become even more nervous at the top. Everybody knows the Musical Chairs game; this is it with real money on the line.

Posted by Bill Cara on April 18, 2007

#32

The real point here is that pretty boy Talking Heads on TV may not be experts in capital markets, not even if advertised as so. We The People need to listen to experts, to ground ourselves in reality.

Trading is not an easy task. If it was easy, we’d all incorporate ourselves as a bank and we’d print money whenever we wanted. What makes our job that much harder is that we never know what the Administration, the Treasury and the Fed are up to. Family and Friends at HB&B do. But nobody here ever said that life is fair: there are haves and have-nots for reasons.

One of society’s great disadvantages is that our elected leaders have personal agendas and financial sponsors they are beholden to. So while occasionally we get taken to the cleaners, those insiders will always be getting theirs. Knowledge is power, as they say.

Posted by Bill Cara on April 19, 2007

#33

In the stock market, the name of the game is “Money, Money, Money”. HB&B is trying to line up new money for Advanced Micro Devices before private equity stops listening to the rumors these bankers started.

It’s a tough business when the Fed tells you to print money and nobody shows up to borrow it at Sub-prime rates. So you tell a few stories and start a few rumors to try to get private equity to bite. (If you have been reading this blog for a while, you know the drill.) And if that doesn’t work, HB&B (JPM yesterday and before that LEH) can always start a well-funded corporate share buyback program. If its not one thing, its another. AMD, Google… whatever.

Posted by Bill Cara on April 20, 2007

#34

“Never” is a dangerous word, but I will never, under any circumstances, respect the decisions of the present leadership of these two countries, or Great Britain, to send our sons and daughters to their death under impossible circumstances as they are doing in Afghanistan and Iraq today. After many difficult years, hoping beyond hope, I finally say ‘Enough is Enough’.

As a capital markets trader, at the beginning of January I sat back to assess the worsening big picture. What I saw was a situation in the Middle East that had become doomed to failure and a political leadership that had lost its moral compass. I concluded that these people – Bush, Blair, Harper, Cheney, Rove, Libby, US Attorney General Gonzales, and the rest, would lie to any extent and take whatever extreme action they deemed necessary, to mislead The People in the hope we would continue to serve the vested interests of their financial supporters. Having totally and utterly failed the people they were elected to represent, they decided to turn over the mess to Goldman Sachs insiders. What a mess they have put the world in.

Posted by Bill Cara on April 20, 2007

#35

What specific driver will ultimately push a major trend reversal in capital markets, I cannot say. However, the credit bubble will definitely pop. In the following months and years, there will be failures of local governments, small and mid-sized banks, housing and mortgage companies, as well as the related service industry (some lawyers, accountants and real estate brokers included) in the US. Unemployment will rise, etc. The hundreds of thousands of returning solders (Middle East and elsewhere) will make for worse unemployment.

I now believe this will be a gradual process of economic and capital market breakdown, something like 1973 and 1974, which just happens to be the poster child for Stagflation. Only this cycle will be worse, in my opinion. Whether or not we are headed for a period to be defined as Depression is something I will leave to people like Nouriel Roubini to argue. I am, however, concerned.

Posted by Bill Cara on April 21, 2007

#36

Government has decided to help their Friends in high places (ie, HB&B and gnomes) “save” the bankrupt mortgage and housing industry. The cost will now be shifted to future generations just like a 20-year home mortgage recently became a 40-year mortgage.

This is no longer a matter of sticking it to your children. Its your grandchildren who will be paying for these miscreants in Washington and their VIP patrons whose greed knows no bounds, it seems. When they want it, tomorrow cannot be soon enough; but when they have to pay it back, why not leave the bill to our kids and their kids, as the logic goes.

Posted by Bill Cara on April 21, 2007

#37

For what it’s worth, I believe (i) there is always an element of truth or believability to a con man or magician’s presentation (ii) the public gets sucked into believing these stories because of hope and greed factors, and (iii) all companies are working hard to create shareholder value, but it is the Wall Street sales machine that makes some of them appear better than others — until of course the storytellers want to move on to a new story (whereupon they dump their inventory positions to free up cash for the next play), not caring who gets left holding the bag. The so-called financial services business is a brutal one. There is no place for traders who are afflicted with credulity syndrome.

Posted by Bill Cara on April 21, 2007

#38

At the end of the day, you will come to see you are not investing (in products or companies), but you are trading prices, and that your motivation is to increase your financial wealth and lower your risk. You will look at trading as a process, a journey which has a right road and a wrong one, and with a few skills, some experience and a bit of determination you can make it on your own, and that you should make every possible effort to do it on your own. It is after all your capital.

Posted by Bill Cara on April 21, 2007

#39

There is obviously no protecting your wealth when white-collar thieves are permitted by the securities regulators and courts to do their nasty work, as I proved in the case of Stelco. You take a company in 100 pct compliance with its financial obligations, in its most profitable year in its history, and you bankrupt it in order to eliminate the rights of bondholders and shareholders, inject a couple hundred million new equity to replace the couple hundred million in lawyers and re-org managers’ fees, and voila: the same billion dollar corporation that existed previously — except you own 100 pct of the new stock. Nice work if you can get away with it.

Posted by Bill Cara on April 24, 2007

#40

You need a plan and to stick to that plan. And I say you need to be patient and let markets come to you. If you want to play tennis with a pro, the only way to win is being on the defensive and hope the opponent makes unforced errors. You are trading against market pros (HB&B) and yet you can’t wait to go on the offensive. That doesn’t make sense. The object of the game is to win.

Posted by Bill Cara on April 24, 2007

#41

Somewhere along the way, I discovered that there is only one happiness we can achieve in life and that is to help others, not to take from them. I learned enough in the boardrooms of HB&B, however, to see that most of those people were not adding value, not building friendships, not helping people, regardless of anything they said.

I have been fortunate not to have been subjected to the unfairness of private equity groups working in co-operation with lawyers and judges, bankers and others hoping to “get theirs”, which means, of course, to take wealth from others. I feel sorry for the steelworkers, the bondholders and shareholders, and the people of Hamilton who have lost so much to those Barbarians. It didn’t have to be that way. It doesn’t have to be that way.

What we need are thousands of people like me working in a virtual network who can independently and objectively bring these kind of situations out into the sunlight. We need people to get angry when their capital is stolen, and we need lawsuits to hold up the scoundrels from a free ride to riches.

Posted by Bill Cara on April 24, 2007

#42

Another one of the market’s unpleasant excesses is centered on the “I will get mine” mantra of corporate managers who, rather than face expulsion by a predator investor, are committing to share buy-backs at a far greater pace than the free cash flow of their companies would possibly allow. So their friendly loan officer at HB&B is opening a window with a smile, and these companies are using the money to restructure their balance sheet.

The problem is that smiling HB&B loan officer is a two-faced snake who is pushing private equity to become corporate predators by easy loans there too. So the market has become a vicious cycle, controlled yet again by HB&B. The sad part is that the HB&B analysts seem to have become more keen on “Mo” (as in price momentum) than actually telling their clients that wealth is not being created as fast as debt, and that is a recipe for disaster.

All through the piece, from Liar Loans to be able to buy houses to HB&B lending for M&A and share buy-backs, there is a common factor underlying the problems with this market: debt and the world’s inability to meet the debt service HB&B will demand when interest rates rise above current levels. I feel like someone watching the members of AA take a swig from their bottles as they enter the meeting. There is a sickness here, but nothing I (or you) could say will change the situation. Only a monster Bear market will change the course of history.

Posted by Bill Cara on April 25, 2007

#43

And we were taught to believe that money didn’t come from trees. How wrong our parents were. And their parents. Paper comes from trees! Millions, billions, trillions. Do people really understand these terms or do they merely take them for words – with no debt attached. Can somebody really print an asset with no debt attached?

You see, unless you discover gold, you cannot print money by itself. There is always debt on the other side of the bookkeeper’s ledger.Now, in time, that asset might grow, or it might decline. It might even disappear. But HB&B will go to the highest court of the land to ensure the offsetting debt does not diminish. We all know that, don’t we?

Posted by Bill Cara on April 26, 2007

#44

Markets don’t move randomly; they are pushed by sell-side institutional account managers selling themes. The theme this week was how the lower $USD and the share buy-backs would boost the US exporter conglomerates. But maybe there was more to the story than that. Maybe these mega-cap concerns are now into proprietary trading rooms that deal in the currency plays? After all, their operating cash flow and profitability is materially affected by currency swings over which they have no control.

Posted by Bill Cara on April 28, 2007

#45

Without war, which is decided by governments, there would never be an inflation problem. If you doubt that statement, simply look at a 250 year chart of inflation and in every case you will link the cycle to a war. Outside of wartime, increased productivity and intellectual property discoveries is a killer of cost and a creator of wealth.

Posted by Bill Cara on April 28, 2007

#46

Now that HB&B gets a chance (the legal right) to see our order flow and our portfolios and financial resources, and trades against us, they dropped our commission cost of trading to pennies, hoping we would trade even more. They would even pay us commissions to trade if we would trade more! With that “unfair advantage” of proprietary trading against client order flow, how can they lose. (HB&B speaking:) “Let’s see; I know I can clip this client for $2 a share, so why not pay him 2 cents commission? You think I josh? (Cara shakes head from side to side)

Posted by Bill Cara on April 28, 2007

#47

Remember, these big guys are no longer mining companies. Xstrata, for example, is a market trader. They buy management control in order to play the resource market. They hire great professional managers, but their head office people wouldn’t recognize a shaft unless they are sticking it to somebody.

Posted by Bill Cara on April 28, 2007

#48

I think by now you get it. The price of assets can be lifted by the creation of wealth or by speculative means. One or the other. The latter is defined (by me in this case) as a ton of debt creating an ounce of wealth and also higher asset prices. This gives new meaning to the expression “lead balloon”.

There is another popular expression in equity markets, which is that “what goes up will come down”. I’m here to say that most of the time that’s really not true. It just happens to be true today — because higher prices today are the clear result of speculation, which in turn has been caused by excessive money printing by the world’s central banks. First it was real estate that has taken the hit; next it will be stocks and bonds.

Posted by Bill Cara on April 28, 2007

#49

Knowing that MBA-PhD’s and CFA’s on Wall Street haven’t grasped what primary school kids are taught, I have this theory that we’re all born as smart people at the end of our lives, and we regress over the years back to birth in the womb.

With age on my side, as it were, I’m smart and I’m just getting started. Unfortunately too many of you have been dummied down in your youth to the point where you believe that (well you know) is the best place to end up. Now, listen up to an old guy. When the ‘x debt versus the .67x asset’ thing happens to some people in real estate, especially those of the LIAR LOAN group, they tend to walk away or declare financial bankruptcy. Of course, in that case, the present US Administration saw it coming and managed to squeeze in new bankruptcy laws before the event.

Posted by Bill Cara on April 28, 2007

#50

Recall my words in a recent WIR, trading is hard. I like to say that if trading was easy, where we just sat around hitting the ‘easy’ button to make money, there would be no farmers, steelworkers and factory workers doing the real work. Trading successfully is a life skill that has to be developed over time. Some people pick it up quickly and others do not. However, I think the harder you work at it, the quicker success will come to you. And once you reach a point where you think you know it all, you realize there is more to learn.

I never stop learning, and I think all of you will agree that I work pretty hard at it. By my showing you how much commitment I have, I hope that I am setting an example to younger people. Yes, if you love trading as I do, this isn’t work, but it is commitment.

Posted by Bill Cara on May 1, 2007

#51

Most of us want to try to do too much. It’s a natural trait. But if we relax, and let the market take the lead, some of us ought to choose a slow dance and let others try something faster. It’s difficult days like these where traders can learn the most. When Bull markets are moving fast, even turkeys fly like eagles. Everybody thinks they are an eagle, but deep down we all know the truth.

Posted by Bill Cara on May 1, 2007

#52

The first Friday of every month, the capital markets (ie, stocks and bonds) are put through their biggest spin cycle of the month. It’s called US Jobs Report Friday. Like CPI, the number is almost meaningless because it is a wild estimate and will almost certainly be revised. What the Jobs data does, however, is to add grist to the sell-side mill. Just a lot more yada yada by smooth talking noggins, trying to convince Joe Public they are “experts” and you ought to be following their advice.

I learned the patter too. I mean, if you want to survive in the securities industry in any capacity from chief investment strategist to mail runner there are a few things you must be prepared to utter when your lips start moving. The US Jobs Report data is at the top of the list. CPI is another. Why? Because all people have a vested interest in their jobs and in the cost of getting to the end of the month, hoping to not be a dollar short.

Posted by Bill Cara on May 4, 2007

#53

Because the playing field never changes, ie, HB&B tilts their casino in their favor so they can sweep the Street daily, sometimes hourly, the rest of us have to learn how to fight like guerrillas. We have to strike at a moment’s notice – before those HB&B computers can smash and grab.

What comes of this of course is something now referred to in the negative as “hot money”. Trust me, its only “hot” because if we don’t move it at something approaching the speed of light, HB&B will grab it. The term “hot money” by the way comes from HB&B – they want us to cool it. That’s their modus operandi. Remember how they frowned on “day trading” and changed the trading rules for public day traders? An innocent bystander would think that a day trader is someone afflicted with aids, laying on a death bed. But who are by far the largest day traders in the world? Of course, its HB&B.

Posted by Bill Cara on May 4, 2007

#54

At the end of the day, it is up to each of us in the trading community to filter out the noise and the story-telling, and to listen to those independent and objective thinkers who put the needs of society (meaning yours and mine) ahead of the attraction of immediate personal gain (meaning theirs). Panzner is a person I believe you ought to listen to. His message, this year, is a difficult one to stomach because the broad market averages are screaming out weekly records, while, far from view, the risks are not so obvious. But the risks are there and credible analysts are telling you that.

Posted by Bill Cara on May 5, 2007

#55

It seems that all anybody has to do to get a short-term boost to their stock is to make an announcement or start a rumor. Why? Because speculators are not giving a second thought that all these deals are going to be done with debt, and the moment that interest rates hike past the tipping point, this equity market is doomed.

It’s tough, I admit for Joe, Joesy, Mom & Pop to not go along with the rising tide. But just remember, when HB&B decides to pull the plug, or gets in so deep they can’t avoid striking the iceberg, our ship goes down. Theirs will be protected by SRO rules, put options, short selling and delays in getting your orders to market.

I don’t care if you have a billion dollars in their bank, don’t for a second believe you are going to beat these people at their game. They have the place wired. All you can do is step out of their casino, for a while, and take a deep breath of fresh air while you await the slaughtering of the speculators that is needed before the market can return to normal. Just be sure to keep your own hands in your pockets and a stiff upper lip.

Posted by Posted by Bill Cara on May 5, 2007

#56

When anybody back-dates a financial record for the purpose of gaining a personal benefit at the expense of others, you are committing fraud. Full stop. And when you state that your insiders have done the research and discovered it was only an innocent mistake, I say you are guilty of lying and covering up, and you all ought to be sent straight to prison.

Posted by Posted by Bill Cara on May 5, 2007

#57

M3 continues to grow at an excessive rate. This money is being printed (i) to pay for a war and for govt deficits not matched by taxes, (ii) to keep private equity and corporations sufficiently well funded to manage takeovers as big as $100 billion, and (iii) to permit corporations, who can’t do it from operating free cash flow, to hike dividends and buy back shares.

The first point is driving the inflation cycle and the next two are driving speculation in the equity markets, now that this capital is no longer going into real estate at such a wild clip as we saw in the past three years. Some of that speculation will stick in the form of higher than necessary inflation, and the rest will send affected traders to the slaughterhouse.

Posted by Posted by Bill Cara on May 5, 2007

#58

I have been busy trying to automate as much as possible. Productivity counts. There has to be a system for everything. Everything has to be logical or I start to feel uncomfortable. You know where I picked that up? As a child. My Dad was an electrician. He believed that if you turn a light on at the entrance to a room that there should be a switch on the wall at the other end so that you turned the light off if you exited that way. Saves electricity. So we had double switches on every wall. It bothers me today to leave a light on if the room is unoccupied.

Another lesson I learned from an Aunt. When visiting as a youngster one weekend, I saw that nobody was leaving the dinner table and they were all looking at me. I had a plate half full of food, and theirs were empty, and so they waited, without saying anything. Until my Aunt told one of my cousins that I just didn’t understand the concept of waste. My wife will tell you that, psychologically, that incident made such an impression that I cannot leave food on my plate. Those childhood lessons have stayed with me for 50 or more years. There are systems and logic and the right way to do things. So when I start something I finish it. I understand why I am doing it.

To this day I have never taken a pamphlet that somebody in the street handed to me. I’ll even let it drop after hitting my chest. Why? Because logic tells me I’d never ask for that pamphlet. So you see why I became such an independent and objective person. It’s second nature to march to my own drummer, to figure out for myself how things work. And if I am curious enough, I will spend forever doing that rather than having somebody explain it to me.

I learned early that you ought to try to do for others what you hope they will do for you, but not to expect it. Most people are too busy trying to seize the day, taking from people, because they never figured out that what goes around comes around. They never learned the importance of logic, and systems, like me.

Posted by Posted by Bill Cara on May 5, 2007

#59

Politics sucks. And when judges get into the game, there isn’t any end to my scepticism. Btw, that judge accepted Stelco’s “bankruptcy” by valuing the iron ore and land assets at book, which is a fraction of the free-market value they are today – with no change at all since they departed his court – and that my friends is why suitors are lined up to pay billions for the so-called “new” Stelco. So most of these M&A deals are set-ups, and, well you know, the dead fish stinks from the head. The aroma of the marketplace today has simply become overwhelming.

Posted by Bill Cara on May 9, 2007

#60

All I’m trying to do is get into a zone where I think the price motion is likely to take us. Sometimes I’m right. One thing I know is that when I stop to think about it, and listen to the noise from talking noggins who don’t know a price from a company, I often go wrong. I need to be totally focused to be fairly accurate. Writing helps me do that because while my eyes are watching something else, I can be typing fast and letting my open mind speak my thoughts.

Posted by Bill Cara on May 9, 2007

#61

I am only pointing this out because it is important to me that you all understand that when I say the most important thing you can do as a person trying to make better financial decisions is to learn how to hunt in the forest, with learned skills and experience, totally ignoring the noise of others who have conflicting objectives. I’m not a “guru forecaster” or entertainer. I’m a teacher with a ministry. Enough said. I concluded yesterday, “Life is a matter of confidence… Don’t ever lose it.”

Posted by Posted by Bill Cara on May 11, 2007

#62

If the US consumer is key to the direction of the global stock market, and I still believe that is the case, then trader be wary.” The Average Joe is not the least bit interested in the take-over deals or the share buy-backs and on and on, which push this market higher. But the personal income, savings and spending resources and habits are key to the long-term picture. This is why I rail when I hear the Kudlow’s saying that because the stock market is rising it means everything is good for the Average Joe. No, it’s good for the Gnomes, who then use their currency to take over yet another corporation whereupon the Average Joe loses his job.”

Posted by Posted by Bill Cara on May 12, 2007

#63

I learned as a kid that without markers, you get lost easy. Some people never figured that out. And too many of those kids were not taught to NEVER listen to strangers. Trust me the market imitates life because the market is us.

Posted by Posted by Bill Cara on May 12, 2007

#64

This is a debt-related issue, and my advice is that one’s assets and liabilities must always be balanced in the worst case, which means, in that case, there is nothing left of equity. Wanting equity is why I chose to kill the liabilities. I don’t like debt, and moreover I know the world is awash in debt, seemingly oblivious to what lies ahead when asset prices sink. Surprise. Those liabilities don’t shrink unless you pay them off. So don’t get caught up in somebody else’s euphoria unless you can afford to pay off those liabilities when the banker comes calling, telling you you’re not as rich as you once thought.

Posted by Posted by Bill Cara on May 12, 2007

#65

I really enjoy the comments, but what concerns me is that readers might be expecting that all this ought to sink in over a short time. Let it mellow. Too many traders are deep into tactics before they understand strategies. Big mistake.

Take your time to look at the inputs that will impact strategies. When you have your strategy set, then get into tactics. When you get into tactics, don’t expect to be 100 pct right, and don’t put all your money on Red 8. Tactical decisions are different than strategies, but they too need a different set of inputs, and a different assessment before moving into action.

The operative words are “Take your time”. Too many traders here are too willing to gift their capital to skillful, experienced traders. You seem to think there is an Easy button. It drives me nuts when people comment, “I put a lot of stock … but I’m worried”. Learn to trade before you make statements like that. Then you’ll see that we are all worried. The minute we think we have the market nailed, it nails us.

Posted by Bill Cara on May 13, 2007

#66

It is a fact of life that capital markets are not free. To accomplish that objective, there would need to be a private sector management of capital market-related decisions made by the public sector. Then, for example, you would not find the so-called Strategic Petroleum Reserves buying/using/withholding buy orders/etc whenever politically expedient. You would not see governments sell all their holdings of commodities like gold, whenever politically expedient. Under private sector control of capital markets, the free market forces (“the collective individual”) would then dictate how government spends and prints money. After all, isn’t that the underlying nature of every democratic constitution.

That won’t happen in my lifetime or yours probably, because we are lied to and dumped on, but the least we as a caring community can do is to laugh in the faces of any elected representative who claims to be working in our interests and saying We The People have been provided a fair and transparent capital market, ie, the so-called level playing field we need. But, we could decide to oppose them, and work together to help ourselves. I’ll give you an example of how that could be done. We need people in our community who have no personal axe to grind and who work on the inside of the public and private sectors where these “government” trades are implemented, to issue alerts every time they do that. Tell the world. Let the real free market respond.

Posted by Bill Cara on May 18, 2007

#67

What we have is a system so conflicted in favor of HB&B that the table is tilted almost upright to facilitate the rolling of our capital right off and into their pockets. We have allowed, since the US Securities Act and subsequent regs of 1933-34, a no-lose situation for HB&B, and it is a disgrace. The conflict of advising the client and trading against the client at the same time, and having self-regulatory powers to resolve the client complaints is so sick that nowhere else in society would it remotely have a chance of occurring.

Posted by Bill Cara on May 18, 2007

#68

The pressure to hold this market from imploding must be fierce. Few people want to read and discuss Michael Panzner’s “Financial Armageddon”, but they ought to. Mean reversion is going to occur. It’s just a matter of when. The bigger the amount of juice injected into this market to keep it growing, the bigger will be the fall to reality. What will do it? The unwinding of the Japanese Carry Trade for one. At some point, the Japanese lenders will raise rates and want to collect on their loans. I suspect some of those loans will never be paid. A bankruptcy here, a bankruptcy there (hedge funds we’re talking about) will soon hit those Japanese banks and then watch how fast rates rise, and how fast the Carry Trade unwinds.

Another driver could be those Credit Swaps that underlie Private Equity’s recent penchant for debt. A failure here, a failure there will send HB&B scrambling. If a two-bit trading floor in nat gas futures has roiled a bank the size of BMO, what would happen if the loss was the size of Amaranth. Yes, Amaranth cost Mom & Pop’s pension funds mega-billions, but what happens when the loser is a mid to large-sized commercial bank? The Hong Kong Chinese can tell you what a run on a bank looks like. The lines around the block stop traffic, and depositors don’t take kindly to police barricades when family wealth is crashing. That’s a crowd that doesn’t need external agitation to erupt. Who knows when or where the problems start? I know I don’t.

At the end of the day, gold will always be good to buy the essentials of life, and to buy asset repo’s from HB&B, like houses and land. You see, you may not, at some point, have enough zero’s on the end of your Dollars, but bankers will always take Gold. They print money (through extension of debt), which is why they put their trust in gold. As soon as you see a big bank fail in North America, you can expect to see two long line-ups at your bank: one to withdraw paper money and another (if your bank offers it) to buy Gold bullion bars and coins. You won’t even be interested in a PM ETF at that point because that’s just paper too.

Posted by Bill Cara on May 20, 2007

#69

I can give two sides to every discussion, which is precisely why every good trader has to stop listening to advocates, and begin to look into the data points themselves for trend reversals they might track back to the price series reversals in the related stocks.

Posted by Bill Cara on May 25, 2007

#70

Crisis equals opportunity. I believe an ounce of gold is worth more than a ton of paper (well maybe a half ton, but you get my point). Is an ounce of gold in Venezuela less than an ounce of gold further down the Guiana Shield in Guyana, a couple hundred miles away? Do you really believe that Chavez will not permit foreigners to mine there and repatriate profits and pay bills, and so forth? If you do, that’s fine. Trade something else, but then forget the issue of KRY and GRZ etc. If you want to mouth off any further, then you are an advocate, and not a trader. Traders are always seeking opportunity. They like to see crises. When desperate or misled people throw away good assets like ounces of gold, traders step in to buy.

Traders know that there will be losses. They simply seek to keep those losses to a minimum and to try to have the average gains larger than the average losses.

Posted by Bill Cara on May 25, 2007

#71

Now, remember, this is not a system per se, but a disciplined approach to strategy where the time series analysis can help you track stocks of good quality companies into their AZ and DZ and to either make Buy or Sell decisions later. There are other factors involved in the actual buy and sell decisions, but these are nuances that depend on the individual’s personality and resources (time, money, experience, info, etc). The key point I make to those who are interested in learning is that market prices move in trends and cycles and it is your job to Buy at the beginning of a Bullish phase and to sell at the beginning of a Bearish phase. If you want to protect your wealth, with hopes of building it when times are good, there is no longer an opportunity of buying and holding forever the stocks of the best quality companies. These are merely prices and we trade prices.

Posted by Bill Cara on May 25, 2007

#72

So let’s call a spade a spade: this equity market is being driven by money that is being printed at a rate four times faster than the economy is growing in the US and well over twice as fast as the global number when you add in the most rapidly growing economies. That has led to a massive transfer of wealth out of North America and Western Europe and into the developing world, which in turn has led to inflation, speculation and corporate take-overs. At the end of the day, the global exchange rates are not stable, the global economy is not balanced, and the most threatening issues that Michael Panzner has outlined, at least in the US, are not being addressed – these being Debt, The Retirement System, Govt Guarantees, and Derivatives.

Posted by Bill Cara on May 27, 2007

#73

And, remember, wars don’t create wealth. In the past 250 years or so, the financial data clearly links war to inflation and speculation, where the prices of energy and metals and precious metals have risen until policy changes by monetary authorities brings the cycle to a close.

Posted by Bill Cara on May 27, 2007

#74

I still say, “The M&A game being played between Bankers and Gnomes is really quite stunning. Apparently there is no size corporation that couldn’t be taken out. The price is never right, but nobody seems to question it.”

Posted by Posted by Bill Cara on May 27, 2007

#75

You see, we all live in glass houses, but if you allow some of us to be self-regulator, you can guess who will be the ones continuing to throw stones, or if you will, steal assets from the rest of us. We the People are getting fed up with the leadership these VIP’s are showing. It’s time these issues were studied.

Posted by Posted by Bill Cara on May 27, 2007

#76

After all, Goldman Sachs has taken control of the US Treasury, the Fed, the New York Stock Exchange and now the World Bank – all since March 7, 2006. Is it any wonder that when the majority of independent analysts figured that the current Bull market had ended in a normal 4 year cycle in May 2006 that along came Goldman Sachs to deem that the equity market would expand and that, with the help of Friends & Family in Humungous Private Equity Corp, they were “going to get theirs”?

Is this concentration of the nation’s financial control in the hands of a single private company what the US Founding Fathers had in mind? Is today’s Congress even the least bit clued in to what is going on here? I think it is time for independent thinkers, bloggers and investment analysts to speak up about this Goldman Sachs issue – now, before it is too late.

Posted by Bill Cara on May 30, 2007

#77

In every case I can recall where capital markets are manipulated by interventionists like Hank Paulson and his Friends & Family, the world has turned against it, and the prices have reverted to the mean, which means that as far as they overshoot on the high side, there will be an equally powerful opposite move.

I’m betting that as soon as Paulson finishes “getting his” — probably timed with the end of President Bush’s term — that counterforces will prevail. I expect the independent owners and managers of capital will feast on the servings of the “G” Team. What I am saying is that put buyers will exploit this melt-up. That move will, of course, be joined by the “G” Team, but the end result will be a terrible record in history for the current president and the “G” Team.

Posted by Bill Cara on May 30, 2007

#78

What the independent trader needs is an independent regulator, not a Bush appointee to head the SEC to take instructions from Goldman Sachs. If I’m the head of that independent market regulator, trust me the options trades in Chinese stocks yesterday would be checked for links to the “Gold”man and the “G” Team.

Not only that, but I would publish the results, transparently, whether I found a link or found there was no link. I would do that to instil the confidence of independent traders. What is happening today is just flat-out scepticism – and that cannot be healthy for capital markets. But it is the sign of a rotting empire.

Posted by Bill Cara on May 30, 2007

#79

I refer to these moves by governments as interventionist only because they trade in capital markets without the same transparency requirement as the rest of us, and for policy reasons that too often are at odds with our need (i.e., the private sector) to trade these markets with conventional portfolio management objectives. I think that is eminently unfair.

I believe a buck is a buck, no matter who owns or manages it, and that we should all play by the same rules, government and the sell-side included. The conflicts of interest in the present system are so extreme that I believe it is ridiculous to call the capital market a level playing field.

You can say that it is what it is, but I can assure you that unfair control systems (“might is right”) didn’t keep the Soviet Empire from collapsing swiftly when the People decided to make the change. We are all entitled to our opinions. Mine is that Paulson’s Pride is going to look like something pretty awful when the coin is flipped. At the end of the day, the People’s interest will prevail, and markets will revert to the mean. Henry Paulson puts his pants on same as you and me. He and his friends at Goldman Sachs are not capable of suspending the principles of financial markets for very long.

Posted by Bill Cara on May 31, 2007

#80

Just remember, wherever there is plenty of ointment around, there is always a fly close by. Ointment btw is that viscous semisolid preparation being spread around the Sell button – just so you might miss it on the way by. Be careful with these stories of capital managers with impressive positions. They have a vested interest to hold their positions until the last moment – and then they simply have too much capital in the market to pull out. I see this every few years, where the track record of these people after the Bear cycle plays out is less than inspiring.

That doesn’t make them bad traders; just traders with a very difficult job. For some reason the media likes to focus on those people – mostly when the Bull has reached an old age and some olé’s are needed to inspire it. Bravo, shouted the cheering section. Right before that final frenzy.

Posted by Bill Cara on June 3, 2007

#81

The bottom line is that I believe the US Admin and Fed are conspiring to keep the price of West Texas Intermediate light sweet crude oil lower than it should be. That skews the inflation data in the favor of these politicos who want to impress traders that inflation is not a serious problem, that interest rates do not have to rise, that equity prices should expand and, last but not least, CPI-indexed Social Security payments can be lowered.

I believe this is a fraud. Moreover, when the Admin/Fed want to kill the Bull, all they need do is start buying more oil for the so-called Strategic Petroleum Reserve, which will push the price into the 70’s, above the Brent (as it should be), which will cause the Fed to say, “We need to raise rates to head off the inflation-push caused by oil” and voila. Dead Bull.

But not before Friends & Family clear their inventory of stocks, and load up on puts. I mean why else would people spend several hundred million dollars to get elected to a job paying a couple hundred grand? It’s called ‘management control’ – otherwise known as an opportunity to ‘get theirs’. And when the equity market finally goes into the can, the Fed can slash their benchmark rate and tell you it was over the economy, stupid. It’s all so predictable. Maybe Disney should take the next Pirates sequel to Washington. Do you think?

Posted by Bill Cara on June 3, 2007

#82

In any event, the economic problems the Administration does not want to address are widespread. Higher energy, food and mortgage costs will break the budget of many Americans this time around. So we are in kind of a transitioning phase where bonds will become more attractive than stocks for a while. After stocks start to fall, the Fed will drop the interest rates and bonds will start to rally. But the momentum of falling stock prices will linger, and that is the time it will pay to be out of stocks and into bonds.

Then at the bottom of the long cycle for stock prices, it will be an appropriate time to switch back from bonds and into equities. Traders who don’t review all these charts every week cannot get a feel for the price motion. You will have an even more difficult time to make such decisions. For sure some CNBC talking head is not going to tell you what to do.

Posted by Bill Cara on June 3, 2007

#83

This is the dance I talk about. The motion is back and forth. Bullish, bearish, bullish, bearish. Once you catch on to the phenomenon, it’s like breathing. Occasionally, you get punched in the stomach by some market interventionist, which makes you scream, but after a while you start to play the game like Rocky. I’m already up to Rocky forty-something (LOL).

If you happen to be managing $10 billion, or more, it is not a fun game. But if you happen to be one of the Little People who has a clue, the whole business of personal wealth management can be as intellectually satisfying as pretty much anything.

Posted by Bill Cara on June 3, 2007

#84

I find it interesting how traders of stock prices can dismiss the fundamental, technical and economic data today in favor of a highly subjective bully pulpit report from the FOMC in order to gather enthusiasm to bid prices even higher.

At the end of the day, if we stick with long positions in the shares of quality companies, adding to these share positions when the prices cycle through the bottom of a bear phase, we will enjoy a solid portfolio growth. And when we speculate about the activities of central bankers, gnomes and politicians, what we are doing is assessing risk to our wealth preservation and growth plans.

There are people out there who would belittle this approach. Ignore them. They happen to be selling something. They might be saying, “Look at me, I have a nice website or the products and services I offer are better than others.” That is all noise, which if you let it distract you from the task at hand, you will likely fail at that task unless you happen to be lucky. Luck however is not a plan.

There are also people out there, including in our community, who are learning about markets, learning about themselves and how to trade those markets. Depending on your level of patience and understanding, you can choose to either help them or ignore them. But don’t let them discourage you, or take you off your plan because when they speak, they speak for themselves and not you or I. They may even be doing what you and I often do, that we must do, which is to try to assess risk.

Just remember, as the owner or manager of capital, your primary mission is to lose no capital.

Posted by Bill Cara on June 3, 2007

#85

What has happened around the world, with growth bursting in most countries – above the target rates — is the result of central bankers printing money at excessive rates to offset the printing by the Fed, otherwise the $USD would drop even faster. The flip side of that coin is that economies grow too quickly and wage and cost of living inflation rises even faster than economic growth rates, and speculative activity abounds. Hence the c.bankers must raise their benchmark lending rates.

What happens then is that rising debt service costs reach a breaking point causing traders to reassess risk. At some point they sell equities in order to lock in trading gains, and that sets off a broad selling wave. Many economists then say that the equity market should not be falling because the economy is expanding rapidly. But the issue is really related to the growing risk associated with the economy’s ability to meet debt service costs.

Every cycle, that risk becomes elevated, possibly extreme, based on the levels of wage and cost inflation, personal savings rates, interest rates, labor productivity, and so forth. In this cycle, because of a situation of far too easy debt expansion (“Liar Loans” it is called in the US) related to house-buying, the risk of credit failures is very high, even with interest rates that are relatively low compared to previous cycle highs.

Posted by Bill Cara on June 6, 2007

#86

The thing is that, at the first hint that profits will come off double-digit growth rates, at a time that interest rates are rising, traders will not stick around to see the forthcoming damage. They will continue to sell stocks and probably bonds, which will drive yields even higher, and stock and bond prices lower. That situation is the Wealth Effect in reverse.

Posted by Bill Cara on June 7, 2007

#87

The bottom line is that all traders need a systematic approach or trading discipline that includes some degree of flexibility. In other words there is both art and science involved in trading for success.

Now, I want to add a teaching lesson. Do you recall a couple weeks ago when I said that traders have to watch the M-W-D RSI-7 start to break down. The Sell alerts were coming at the very top of the cycle as the Daily RSI-7 on these stocks was dropping below 70. There were many of them. Most of you were ignoring them. Unfortunately. That would have been a good time to start taking something off the table in those stocks, or at the very least to put on some puts to protect your gains.

Posted by Bill Cara on June 7, 2007

#88

There is nothing like a punch to the nose to knock you down, followed by a whiff of the smelling salts to re-focus the mind and get you back in the fight. So, let me apply some consciousness-raising analysis.

As I have been saying for many years, the capital markets are not a level playing field. In no other facet of society do we permit such blatant conflicts of interest. I speak of our problem where Humungous Bank & Broker has been permitted by legislation (the US Securities Act and Regulations, 1933, 1934) to act as all of principal, agent, advisor and regulator. In recent generations, the leaders of HB&B have even furthered their interests by (i) advising and directing the affairs of government, including the establishment of a concept known as the Plunge Protection Team (PPT), and (ii) created self-benefiting financial products like credit swaps and ETF’s.

Once upon a time in America, in 1929, there was a great market crash, followed by an economic period known as the Great Depression. What happened then was that the leading capitalists of the day pushed the legislators in Washington to enact the most abusive, egregious piece of legislation the free world has ever known – the Securities Act of 1933.

What happened at that time was precisely what is happening today in that there was a credit bubble (caused by debts to buy homes, cars and stocks) that ballooned to a point where speculation became so extreme that the capital markets became unstable. I lay those problems at the feet of the bankers, as I do today, and when the bubble burst on Black Tuesday October 29, 1929, those bankers lost their wealth and influence over the market. Ergo the legislation of 1933 and 1934, which was enacted to give bankers power to control the owners and managers of capital, their clients.

Is there a sea change in capital markets underway today? Yes, but not in the way most people think when they look at red arrows popping up all over computer monitors. That is a temporary, and fleeting phenomenon, which will be shortly resolved by even higher prices of stocks and bonds.

The sea change underway today is the collective understanding and assessment by the owners and managers of capital that for almost 75 years their market has been hijacked by bankers and they have lost many, many trillions of dollars as a direct result. Even government, as atrocious as the management performance has been over the years, cannot come close to the theft of our wealth by bankers and their Friends & Family.

Just like 1929, we are headed toward a “Financial Armageddon” precisely as described by Wall Street-savvy Michael Panzner in his 2007 book by that name. For 75 years, the clock has been ticking; I don’t think we have ten years left to avoid another Black Tuesday (Oct. 29, 1929).

Posted by Bill Cara on June 8, 2007

#89

What we can do before Financial Armageddon inevitably strikes is to watch prices. We can continue to buy them when they are low and sell them when they are high based on relative historical performance and trading patterns. We can stick to trading the shares of quality corporations and buying risk-adjusted high-performance fixed income securities if that is our need.

We do not have to listen to the random noise that permeates the market place today, having our chain jerked from day to day. If we use preventative measures like put and call option strategies and stop orders, we ought to let a trending market (ie, extreme moves up or down as the case may be) take care of our decisions. That takes a little knowledge and much discipline. Other than writing about these things, I cannot do more.

Posted by Bill Cara on June 8, 2007

#90

Where we are is that some traders are saying, “We can’t time markets,” and that is a pile of rubbish. Would you rather just turn your capital over to the Sell-side, and let them have their way with you?

I suggest that people who talk silliness either do not yet understand capital markets or they don’t have a grip on themselves. For that reason, and thinking ahead fearing I would hear such talk, I decided to step up to the plate and, once again, try to use the market as a laboratory where I can teach and some people can learn.