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I Say Lower Rates Below 0%!

Richard Russell can write:

“The big advance from the May 2009 lows was a bear market rally. The good economic news of the last few months were a mixture of hopes, BS government statistics and rosy propaganda from bleary-eyed economists and the administration. There’s no point in my going over all the damage — the plunge in the NASDAQ, the crash in the Stoxx Europe 600 Index, the smash in the Morgan Stanley World Index, the gruesome fact that at 1071, the S&P 500 is 24% below its level of ten years ago. The damage in dollar terms is reported to be $5.3 trillion. That sounds to me to be a sh– load of money. And the tragedy is that our government has spent two trillion dollars in a vain attempt to halt or reverse the primary bear trend of the market. I said at the beginning, “Let the bear complete his corrective function.” One way or another, it’s going to happen anyway. Better to have taken the pain and losses — than to push the US to the edge of the cliff. Now with the stock market crashing, the national debt is larger than ever. In fact, it is so large that it can never be paid off, regardless of cut-backs in spending or increases in taxes. Had Obama or Summers or Bernanke understood this, they never would have bled the nation dry in their vain battle to halt the primary bear trend. As I’ve said all along, the primary trend of the market is more powerful than the Fed, the Treasury, and Congress all taken together. Our know-nothing leaders have boxed the US into a situation that is so difficult that, for the life of me, I don’t see how we’re going to get out of it. Well, there’s always one way — renege on our debt. Can a sovereign nation renege on its debt and in effect, declare bankruptcy? Sad to say, I think we may find out. One basic force that the world will have to deal with is deflation. This is the monster that Bernanke is so afraid of. To fight inflation is easy — you just raise interest rates and cut back on the money supply. But deflation is a totally different animal. Interest rates are already at zero. The money has been passed out by the trillions of dollars. The stimuli have been issued. What can Bernanke do in the face of deflation?” (more…)

DON’T FIGHT THE MARKET

Fighting the market is not good for two reasons.  First, we lose money.  How much we lose depends on how well we are managing our money and controlling our risk.  Second, fighting the market affects our judgment, and causes us to try to confirm that our judgment is correct. Some very high level market analyst will persist in fighting a trend so that we will eventually be proved to be correct.  They figure that if we persist long enough, no matter how long it takes, we will eventually be right. In some cases the “technical price” level is so far away that by the time the forecast is negated, the inventor following the advice will have lost a large sum and missed a fine opportunity on the other side of the forecast!

By analogy, there is a reason for leaving your car downstream, launching your canoe upstream, and paddling downstream.  It is much easier and eminently more fun to go with the flow and paddle downstream.  We could do the opposite and paddle upstream, eventually we may even get to our destination, but the cost would be substantial.  It would take much more time, more physical and emotional stamina, and we would be constantly fighting the current.  Reaching the goal would not be worth the cost.

From a system trading point of view, it is seen from a different set of constraints. The technical or priced based strategy that gets you into a trade also has a priced based signal that says “the strategy is wrong get out ” or “the strategy is wrong reverse your positions”. The problem with relaying on price to tell you that you’re wrong is that the market does not care. So like the unmoved market analyst that says “it’s only a bear market rally”, at some point money management, risk manage has to come into play, It is a necessary evil.