Insight

Here's an insight that I solely agree with:

No one can predict a market trend, you can only react to them! Trend following never anticipates the beginning or end of a trend. It only acts when the trend changes. However, there is no need to figure out ‘why’ a market is trending — just follow it. You don’t need to understand electricity to use it.

 Also, next week we will be in a shopping spree once again for our LMP portfolio. There are some really great companies out there, although more and more this market is getting more expensive by the minute ! 15 up close days in a row? Now that's a record !

A little chart

Just a quick update...

I noticed we now have some bearish divergences going on the indexes. This may be a first signal of a reversal around the corner.

February Performance and review

With February behind our back, the performance on my trading was a bit disappointing. Not because of the numbers per se but due to my execution. I made too many errors on my trading this month and it cost me the difference of either being profitable or not.

On a mark-to-market basis, the account closed -3.2% for the month. I estimate my mistakes to have cost me around 10-15% which if I hadn't made them I would've end up deep in the green for the month. Mistakes were attributed to poor execution of my part, and one of them that cost me a loss of 3R (so the loss was 200% bigger than what I was willing to lose) was due to a price movement where it went well above my exit point, in which I forgot to put a stop in place.

Another mistakes were that at particular times on a few trades I got a bit biased. Especially in the currency market, where as all of you know I've been incredibly bullish for the dollar for quite sometime, so I underexposed myself on some trading signals just because they were against my bullish view of the dollar. Just because my system as telling me to go short dollar, because my bias was bullish I cut my risk to half, which is a mistake, since it was a decision based on my bias.

For this month, execution has to be key ! And later in the month we'll also have again a new shopping spree for our LMP portfolio. The portfolio is still beating the crap out of S&P, although as expected has been down as a whole since the peak of the market in January. We'll see how the month goes, and my bias tells me that in 4 weeks or so, we'll be a lot lower on the markets. This week should be the starting point of one severe downturn in my opinion. Indexes are at the brink of a new decline from the looks of it, which if confirmed, should take the S&P towards the 993-1000 points level.

The Jaguars and Deflation

I hear every time, that the Fed control's whatever it wants and that itself would avoid any deflationary scenario.

I disagree. The Fed controls nothing. It is subject to social mood forces, and their actions are the reflection of the current mood of the public. It's a cause-reaction kind of thing.

For you to understand more how could deflation prevail even with the Fed as the main character and Bernanke as the star, here's a nice little explanation that EWI put up a very long time ago and it has resurfaced again:

"The Fed Will Stop Deflation"
I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let’s try one.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyone’s delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy. Sales again slow, so it lowers the price to $900 each. People return to the stores to buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn. Finally, the country is awash in Jaguars. Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory -- ironically now made fact -- the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving, the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don’t care if they’re free. They can’t find a use for them. Production of Jaguars ceases. It takes years to work through the overhanging supply of Jaguars. Tax collections collapse, the factories close, and unemployment soars. The economy is wrecked. People can’t afford to buy gasoline, so many of the Jaguars rust away to worthlessness. The number of Jaguars -- at best -- returns to the level it was before the program began.

The same thing can happen with credit.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing credit and providing it to as many people as possible. To facilitate that goal, it begins operating credit-production plants all over the country, called Federal Reserve Banks. To everyone’s delight, these banks offer the credit for sale at below market rates. People flock to the banks and buy. Later, sales slow down, so the banks cut the price again. More people rush in and buy. Sales again slow, so they lower the price to one percent. People return to the banks to buy even more credit. Why not? Look how cheap it is! Borrowers use credit to buy houses, boats and an extra Jaguar to park out on the lawn. Finally, the country is awash in credit. Alas, sales slow again, and the banks panic. They must move more credit, or, according to its theory -- ironically now made fact -- the economy will recede. People are working three days a week just to pay the interest on their debt to the banks so the banks can keep offering more credit. If credit stops moving, the economy will stop. So the banks begin giving credit away, at zero percent interest. A few more loans move through the tellers’ windows, but then it ends. Nobody wants any more credit. They don’t care if it’s free. They can’t find a use for it. Production of credit ceases. It takes years to work through the overhanging supply of credit. Interest payments collapse, banks close, and unemployment soars. The economy is wrecked. People can’t afford to pay interest on their debts, so many bonds deteriorate to worthlessness. The value of credit -- at best -- returns to the level it was before the program began.

Jaguars, anyone?