I sometimes write about the Boyz manipulating the market
like a giant casino and you shake your head in utter disbelieve. Nowhere the
manipulation was more evident than the closing market action of Friday. Instead
of me writing something and doing a poor job of it, let me quote from Josh
Brown of Reformed Broker:
Friday's close was the
most obviously, nakedly manipulated bullshit close I've ever seen. I have no
idea who is behind it but this is not what healthy, well-participated-in
markets do. There are too many real players to allow for this kind of thing to
be able to happen in a real market. This market we have is shady as hell. I
wouldn't even comment on something like the below chart if it were a one-off,
but honestly, this feels like it's all the time.
The market is devoid
of width and depth, you can jerk it around pretty easily - especially if backed
by an institution that borrows free money. And in the meantime, the
powers that be need it to close higher every week to prevent outflows and
redemptions.
So let us start with the analysis of what the manipulators
will do next. In a way the markets did what was expected of it, except perhaps
crude but that I consider more of an exception than rule. Next two weeks are going to be interesting.
However do not expect any crash. As I said yesterday, the BOYZ will create some
confusion and panic to buy cheap. ZH will do its best to scare folks in selling
or shorting. Those who think that they can tackle this market with fundamental
analysis or technical analysis alone, they are in for a rude awakening.
Regarding the long term fundamental analysis let me read the
following in Bloomberg:
Bond Investor
Gundlach Buys Stocks, Sees 'Kaboom' Ahead :
Then it goes on to say some more:
The co-founder and
chief executive officer of DoubleLine Capital LP explains that the first phase
of the coming debacle consisted of a 27-year buildup of corporate, personal and
sovereign debt. That lasted until 2008, when unfettered lending finally toppled
banks and pushed the global economy into a recession, spurring governments and
central banks to spend trillions of dollars to stimulate growth, Bloomberg
Markets reports in its January issue.
In the ominous third
phase, he predicts another crisis: Deeply indebted countries and companies,
which Gundlach doesn’t name, will default sometime after 2013. Central banks
may forestall these defaults by pumping even more money into the economy -- at
the risk of higher inflation in coming years.
Gundlach, 53, doesn’t
know when the third phase will get here, but he tells his audience they need to
gradually get ready for it.
“I don’t believe
you’re going to get some sort of an early warning,” Gundlach, who’s also chief
investment officer at Los Angeles-based DoubleLine, tells his listeners. “You
should be moving now.”
For most parts, Gundlach is correct. The part I disagree is; his
call to buy stocks: because when that crisis situation comes, stocks are going
to be equally badly hit. There will not be any hiding place.
However, I do not want to sound like ZH and I do not believe
that we are going to that bust phase right now. We still have some more time
and we should use that time to make money. It is no point to short the market
when it is going up even if the up movement is temporary. While traditional
investment / trading tools are not going to give you the any early warning, the
cycle analysis will and does give us detailed road map in the future.
It is cycle analysis which had told us that this current
correction is just a correction, not a crash and has kept us focused. While 2012 has been a huge chop for most
parts without clear direction, 2013 shows very clear direction. It is much
easier if we know what lies ahead.
The road to financial freedom starts with a little bit of
introspection. Set out your goal. What are you expecting in terms of your
investment? Are you thinking like an investor or trader? If you expect to
double the money every so often with Options, you are gambling and taking huge
risk. What is your risk tolerance level? Risk is the amount of money that you
will lose when you are wrong. And chances are, we will be wrong most of the times.
If anyone says anything else, don’t believe it. The only “Mantra” going to be
risk reduction. I would love to say ‘risk elimination” but we cannot totally
eliminate risk from investing or trading.
With a 10% compound rate of return, you will more than double your money
in 10 years. Does it sound reasonable? If we can do that consistently, we can
retire happy. Then why can’t we achieve it? Because we chase yield and compare
our return with some silly bench mark or against others. We read that there are
wizards out there whose trading methods gives 80% return in every trade and
chase those mirages. We allow green to overcome logical reasoning.
Therefore dear readers, before the crisis moment is upon us,
just do your goal setting. Where you are right now. What you want? Is that goal
reasonable? How much risk you are willing to take. ( How much money you are
ready to lose if you are wrong) Do these exercise seriously before you think of
subscribing my or anybody’s trade/ investment ideas. Nobody can offer any magic
formula. I will probably help you in preservation of capital and grow it in a
reasonable manner. Sometimes I will not trade for months if I think that the
environment is not right. Sometimes I will go in and out of trade quickly if I
see an opportunity. Sometimes I will take a position and sit on it for months
and years. Whatever it is, the magic has to start with you.
This weekend is a good time to start that exercise. Your
financial freedom is in your hand. Take charge of it.