Monthly Archives: July 2015

Features of the week

We’ve got some great items for you on the economic recovery, the story of the Weimar hyperinflation, strategies and outlook of top-performing hedge funds, and more in this Friday’s “Features”. Enjoy the links.

1. Top performing hedge funds that dodged the crash & rode market rally back turn gloomy – Bloomberg.

2. BBC interviews Adam Fergusson, author of When Money Dies.

3. Read Adam Fergusson’s history of the Weimar hyperinflation, When Money Dies, along with Jens O. Parsson’s Dying of Money online for free – Prudent Investor.

4. Anthony Boeckh on The Artificial Recovery (pdf) – Financial Sense.

5. The Ruling Elite Called… (James Quinn) – Financial Sense.

6. AR TV on the state of the financial world – Abnormal Returns.

7. Breaking down 2Q earnings season – WSJ Marketbeat.

8. Humans are “slightly smarter, pants-wearing primates”: Monkey Economics – Big Picture.

9. Why America locks up too many people – The Economist.

10. Geoff Gannon interviews Jon Heller of the Cheap Stocks blog – Controlled Greed.

Have a great weekend and stop back soon!

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Fading dollar reserve status brings opportunity?

The US dollar’s status as the world’s reserve currency seems to be quickly fading, as our creditors become intensely worried about the nation’s finances and move to diversify out of their huge dollar holdings.

Puru Saxena (hat tip to Bear Mountain Bull) notes that the profligate spending and propping up of failing industries (banking, in particular) with debt-financed bailouts is by no means limited to the US. In fact, it’s become a global phenomenon as governments spend trillions of dollars, effectively implementing a worldwide transfer of wealth from savers to debtors.

“…After decades of excess credit and over-consumption, the developed world is finally being forced to deal with private-sector deleveraging. However, the governments seem to have other plans and they’ve decided to fight these deflationary forces tooth and nail. Their solution – even more credit and even more consumption!

Rather than accept a painful adjustment period, policymakers are desperately trying to revive the party. And in the process, they are making the situation much worse. All over the world, governments are spending trillions of dollars in order to clean up the mess. Unfortunately, the stark reality is that these governments have no money. So, in most instances, these glorious state-sponsored spending programs are being financed by borrowing and money-printing.

Most people seem to forget that these fiscal spending programs aren’t creating any real wealth and are simply transferring wealth from the savers to the debtors. Essentially, governments are taking money from the solvent and re-distributing these funds amongst the insolvent!

Needless to say, by bailing out the incompetent and buying their toxic assets, the governments are cleaning up the private-sector balance sheets but at a huge cost. In the process of saving a few ‘too big to fail’ corporations and their bond holders, policymakers are greatly increasing the risk of sovereign defaults. In a nutshell, policymakers are erroneously transferring private-sector risk to the state… “

Saxena goes on to say that he expects sovereign (national) bankruptcies to follow, and that the reckless money printing and stream of bailouts ensure the die is cast for (over the medium-term) “massive inflation”.

Now where is the possible opportunity in this scenario?

Against this backdrop, Tony Allison (also writing for FSO) suggests that America should take advantage of this small window of opportunity and “build a productive infrastructure before the currency is destroyed”:

“…The clock is ticking on the U.S. dollar, and there is no time to waste. If we are as determined to destroy our currency as it appears, let’s at least build a productive infrastructure while we still can. We cannot afford to blow the stimulus money on political patronage and transfer payments. Those are the traditional political remedies to insure re-election. However, this time re-election may just mean taking the blame for a rapidly-declining empire.

Reserve currency status at risk

Time is critical and common sense is essential. If the U.S. loses its tremendous advantage of having the world’s reserve currency, we will not be able to simply print money and force the world to accept it to service our massive foreign debt. We will be forced to build up our savings and pay down our debts, which will greatly slow our growth rate. With an aging, inefficient infrastructure, this will make the process of revamping and restructuring our economy extremely difficult.

We need to rebuild the infrastructure of this country quickly (very difficult) and intelligently (even more difficult). Mindlessly dumping hundreds of billions into roads and bridges is not thinking strategically. We need a full-court press, all-out national effort to re-build intelligently and focus on areas with the most benefit...”

What do you think? Would an all out effort to spend money (while the getting is good) developing infrastructure and alternative energy help America rebuild for the future? Or is it simply another (seemingly practical) debt-financed scheme to throw money at our problems?

Obtaining the Best Mortgage Rate is Easy

Regardless of whether you are looking at becoming a first time home buyer or looking to buy a town home or condominium, getting the best rate (often the lowest rate) is what everybody is looking for. In a market where the rates are dropping, buying a home is a good idea, but shopping around for rates can be nerve-wracking. In order to ensure that you are going to get the best rate possible, there are a few things you need to do.

What You Need To Do

You need to make yourself look like the ideal client by having a stable job, and business potential as this is what the lender is looking for. If you look like you are a stable person, meaning that you have been with your job for longer than two years, and you have paid all your bills on time, than you are more likely to get offered low rates since you are less likely to default. Business potential on the other hand means that your income is likely to grow, and that you will be looking for bigger possibilities in the future such as a bigger home or home improvement projects. Lenders want individuals who will bring in repetitive business because this is a profitable deal for them.

You also need to maintain and have an excellent credit score. Fixing any errors or misinformation on your credit score is relatively easy to do, and it ensures that everything is in order when you go to apply for a loan.

What Not To Do

One of the biggest mistakes that you can make is to apply for multiple loans within a short period of time. By doing this, it shows up on your credit report, and may tip off a lender that you are shopping around. If this happens, the lender is less likely to give you their best rate because they may believe you are wasting their time.

Developing your mental trading edge

“True self confidence is your mental edge”Dr. Andrew Menaker

While it may not be as glamorous or attention grabbing as a post detailing the latest trading setups, psychology is a very important topic for developing traders.  

Examining one’s trading psychology and dedicating time to self-improvement in the hours after the market closes may be the difference between failure and success in your trading career. After all, the most important battle you’ll face in the markets is not with other traders – it is with yourself. 

So with that in mind, I’d like to share a video with you from trading psychologist, Dr. Andrew Menaker, that addresses this very topic. But first, a few more quotes – from experienced, big-time traders –  to help convince you!

“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.”Victor Sperandeo

“Unfortunately, most aspiring traders find out far too late that the act of trading is 20% intellectual and 80% psychological.”Michael Martin

“I haven’t seen much correlation between good trading and intelligence. Average intelligence is enough. Beyond that, emotional makeup is more important.”William Eckhardt

Now, on to the webinar: Develop Your Mental Edge with Dr. Andrew Menaker. 


A few key ideas and tips from Dr. Menaker’s presentation…

1). The typical trader who is struggling will look for outside information that completes the puzzle or “holy grail” of trading. Go and look at yourself in the mirror. This is the missing piece in the trading puzzle.

2). Mental rehearsal (of both positive and negative scenarios), positive imagery, inducing a relaxed state of mind, and developing daily rituals can help put you in the flow state of mind for trading.

3). The most important question a trader can ask: “Am I acting in my own best interest right now?”. Menaker explains why this question will help you define your risk and maximize your opportunities and trading results.

4). The very largest traders are focused primarily on risk management. Accepting and managing risk is a big part of trading. Some traders have difficulty following rules in this area. We should spend time learning about the mental biases humans have against suffering losses (see: Prospect Theory) and become aware of these showing up in our trading. Keep a trading journal to highlight awareness of these events.

5). “If I was forced to rank the importance of [various aspects] of trading, setups would be at the bottom of the list. Position sizing, risk management, and psychology are really what’s going to keep you out of trouble and ahead of the game. The best traders understand this and have internalized it.”.

6). You need to learn to do more of what works and less of what doesn’t. While it sounds obvious, many traders have difficulty with this as their unmanaged emotions are interfering with their perceptions and trading process. 

Enjoy the webinar, and I hope these lessons help you in your trading! 

Related posts:

1. Overcoming Your Fear of Pulling the Trigger (Trader Interviews).

2.  Lessons from Hedge Fund Market Wizard, Steve Clark.

3. The Inner Voice of Trading: a lesson on ego and risk.

Marc Faber on Lateline Business

Marc Faber speaks with the Australian Broadcasting Corporation’s Lateline Business program (8/26/09).

In this interview, Marc questions the sustainability of the recent economic rebound, which has been fueled by monetary easing and US’ stimulus packages.

Tune in to hear why Faber thinks the recent recovery may actually continue for another 12-18 months, and why another set of problems may arise from future government actions.

Related articles and posts:

1. Marc Faber on McAlvany podcast – Finance Trends.

2. Marc Faber on US & emerging markets – Finance Trends

Good quotes about losers (and losing)

Great collection of quotes on losing from Jeff Watson’s blog (Updated link). 

You’ll see that many of these observations apply to trading and business. Here are a few of my favorites:

“A loser doesn’t know what he’ll do if he loses, but talks about what he’ll do if he wins, and a winner doesn’t talk about what he’ll do if he wins, but knows what he’ll do if he loses.”
Frustrated Gambler painting Christie's

“One of the first businesses of a sensible man is to know when he is beaten, and to leave off fighting at once.” –  Samuel Butler

“There may be as much nobility in being last as in being first, because the two positions are equally necessary in the world, the one to complement the other.” – Jose Ortega y Gasset
“Wise men never sit and wail their loss, but cheerily seek how to redress their harms.” – Shakespeare
“When wealth is lost, nothing is lost; when health is lost, something is lost; when character is lost, all is lost.” – Motto 
Head on over to World Quotations to see the full (bookmark-worthy) list. Do you have a favorite quote on winning and losing that’s not on the list?

*Photo credit: The Frustrated Gambler, via Christies.com

Altucher: Things I learned from Vic Niederhoffer

When James Altucher mentioned (on Twitter) that he was preparing an article about lessons learned while trading for Victor Niederhoffer, I knew that was one essay I’d be looking forward to.

Here’s James on, “Ten Things I Learned While Trading for Victor Niederhoffer”:

I traded for Victor Niederhoffer for about a year starting in 2003. I was up slightly more than 100% for him, primarily trading futures using a quantitative approach. During that period I had one down month: June 2003.

Victor was a top trader for George Soros before starting his own fund in the ’90s and then writing the classic investment text “Education of a Speculator.” He then suffered one of several blowups in his career when his fund crashed to zero while on the wrong side of a couple of bets during the Asian currency crisis in 1997 (most notably, he was short S&P puts when the market crashed that year).

Despite that, Victor has consistently traded his own portfolio quite successfully and is one of the best traders I’ve seen in action. He still posts his daily comments on trading and the markets at his site dailyspeculations.com.

Here are 10 things I learned during my time trading for Victor: …”

Read on as Altucher talks about the importance of testing your ideas, optimism, fearlessness, and protecting your downside (there’s a lot more here too). Enjoy the essay and the lessons.

Happy Halloween! Welcome Great Pumpkin

Earlier in the week I noticed we were suddenly getting a batch of Google image search traffic into our October 2007 post archive. When I looked at the link, I was quickly reminded why: “It’s the Great Pumpkin, Charlie Brown!”.

Since watching the Peanuts Halloween special is a Finance Trends tradition going back to 2006, I had to update the post’s video link and, of course, watch it again for myself!

Let’s all watch it together and find out if the Great Pumpkin appears this year. Enjoy the show!

Jim Grant on CNBC: get set for inflation




Jim Grant joined CNBC for an in-studio appearance Wednesday and left the network bubbleheads with a few things to think about.

Big topic of discussion: inflation and its appearance in the US following the recent raft of money creation by central banks, the Fed in particular.

Grant notes that many in the US believe that inflation will not flare up due to “excess capacity” in the economy. However, Jim points out that measures of “output gaps” in the economy are not a useful leading indicator of inflation, and he reminds the assembled crowd that inflation is simply a product of “too much money”.

At some point, that money will begin to chase something, be it consumer goods, services, commodities, and those price rises will signal the arrival of inflation as measured by CPI.

Always good to hear some thoughts from James Grant, especially since his equally thoughtful contemporaries, Marc Faber and Jim Rogers, have been notably absent from CNBC America lately (probably due to their rather dour outlook on the US).

Hat tip to Todd Sullivan at Value Plays.

Related articles and posts:

1. James Grant on Bloomberg TV – Finance Trends.

2. Federal Reserve audit support surging – Huffington Post.

Dambisa Moyo on Charlie Rose

Dambisa Moyo sat down with Charlie Rose last week to discuss her views on African aid programs and her new book, Dead Aid.

Thanks to John at Controlled Greed for recently highlighting this Charlie Rose appearance, as well as the recent Wall Street Journal piece by Moyo entitled, “Why Foreign Aid is Hurting Africa”.

We first mentioned Moyo here last month in a “Features of the week” item highlighting a recent New York Times interview about the “Anti-Bono”.

As you can probably tell from the article titles mentioned above (and you will know from the video interview), Dambisa Moyo takes a very skeptical view of the conventional foreign aid money drops which dominate the Western world’s playbook of “assistance” to the African continent and its people, or rather, its corrupt politicians who tend to benefit most from these monies.

I have not read her book, so it is difficult for me to say much about the proposed solutions she offers in place of conventional aid money. But for now, it’s good to hear another clear, intelligent voice offering up a much-needed counterargument in this debate.