F U Fed

Gold and gold stocks have been holding up, and today, finally, they traded counter to the trend of the market.
When you saw gold pop this morning, the correct reaction was to cover into the morning sell-off, and go long. It meant the Fed was in there somewhere.
I had calls on the VIX; I sold them for a nice profit, and bought some puts. The puts ended the day a little bit underwater, but I expect to be collecting on them soon.
I'm also going to be figuring out ways to get back into the market, having been flat for a few weeks by now in my spec account. Gold is already my largest holding in my long-term account, so I was happy about today's action from that account's POV as well.
Finally, in my 401k, I'll be getting out of Treasuries and into the Rus2k, which was the best performing index today, and which I expect will continue to be the best performer in the next interval, since it reacts very well to declining short-term rates. Fed cuts are the best thing that could happen to small businesses, who mostly borrow at terms based on prime, and who therefore will feel very direct effects from any cut in the Fed Funds rate, since most prime rates are tied to a fixed spread over Fed Funds.
And that, folks, is, IMHO, the correct way to approach today's action. Wallowing in fashionable hostility towards the Fed may make you feel good, but it won't make you a dime.
 
the average joe investor dollar cost averages into mutual funds

which is a more successful strategy than the vast majority of traders, since it's positive expectancy and has never been a losing strategy in any 20 yr period in US history
 
Quote from whitster:

the average joe investor dollar cost averages into mutual funds

which is a more successful strategy than the vast majority of traders, since it's positive expectancy and has never been a losing strategy in any 20 yr period in US history
More...

I would agree that "investors" outperform "traders". Given that 95% of short term traders fail, the investor faces a low hurdle in the comparison.

I would disagree about "positive expectancy" though. There's numerous fallacies in that argument. I'll give you one great fallacy about dollar cost averaging. "The market doesn't spend the same amount of time at each price." Meaning that if SPX is at 1500 for 20 contribution periods and then 1200 for one period my average isn't 1350 it's 1493.
 
The problem with the Fed's action is that it will merely encourage the same kind of behavior which got the banks and funds into this mess in the first place. There's no liquidity? My ass. There's no liquidity at the prices (unrealistic) that people still want.

No market for sub prime? I'll buy all day at .10 on the dollar. I have no sympathy for funds that have pushed prices in commodities and assets sky high because of cheap money only no to turn around and say that there's no liquidity. Theres always liquidity, you just need to find the right price.

The Fed alone cannot contain this problem by injecting liquidity, which they'd rather do than lower interest rates. All this is doing is allowing the hot potato to move along until someone else gets stuck with it. The BOTTOM LINE is that prices and expectations are still too high. Unfortuanely, the only way lessons are learned is ususally by the most painful lesson.

Why is Jim Cramer crying about the FED instead of advising people to go short?

I be short.
 
Quote from Pa(b)st Prime:

I would agree that "investors" outperform "traders". Given that 95% of short term traders fail, the investor faces a low hurdle in the comparison.

I would disagree about "positive expectancy" though. There's numerous fallacies in that argument. I'll give you one great fallacy about dollar cost averaging. "The market doesn't spend the same amount of time at each price." Meaning that if SPX is at 1500 for 20 contribution periods and then 1200 for one period my average isn't 1350 it's 1493.
More...

Investors outperform traders? No surprise there. So why does everoyne assume otherwise? And what is the poitn of trading when investing makes you more money for less work?
 
my point was the slag on "joe investor"

joe investor does MUCH better than the average RETAIL trader

however, trading is like any business.

most people who start a business fail.

most people who trade - FAIL

but those of us who succeed make a great career of it

but they are two TOTALLY different things, even though they use similar means (buying and selling things), they are very different.

it's an apples to oranges comparison in many ways.

and my point stands - statistically about DCA'ing into mutual funds.

the #'s don't lie. there is not ONE 20 yr period in history where this wasn't a positive investment and in many it beat most other asset classes.

i love trading, and it's how i make income. but i don';t think for a second that an INVESTOR (which i am too -in my INVESTMENT accounts) is comparable to a TRADER.
 
Quote from Pa(b)st Prime:

I'm short 90% of the time so I share your frustration but in reality the Fed was within their bounds.

This wasn't some stealth, mid session rate cut that blows out a dozen locals. Rather this was the Fed doing what they're supposed to do, keep the Federal Funds rate at it's 5.25% target. This morning Funds were as high as 6%.

Bottom line: The Fed frequently does what it did today but no one cares or notices. Only because of the hyped media/crash environment was this action a headline story.
More...

They did get a bit creative with it though. Typically it is my understanding that they will only take Govt backed security pledges for loands, but the last few days they have not taken those, claiming that the market for Treasuries is strong due to flight to quality and they don't want to drive it higher, so they allowed a lot of firms to use subprime backed securities as the collaterol on the monies put out. If my understanding is correct, that is at the very least a little "creative" and might show a little bit too close of a relationship between Wall Street & DC (CEOs going off to work in top positions in DC, only to leave and go back to the Street, then back to DC etc) They might have the most powerful loby of any industry out there.
 
Quote from Pa(b)st Prime:

I'm short 90% of the time so I share your frustration but in reality the Fed was within their bounds.

This wasn't some stealth, mid session rate cut that blows out a dozen locals. Rather this was the Fed doing what they're supposed to do, keep the Federal Funds rate at it's 5.25% target. This morning Funds were as high as 6%.

Bottom line: The Fed frequently does what it did today but no one cares or notices. Only because of the hyped media/crash environment was this action a headline story.
More...

Another post to you, sorry for so many. It's kind of a question/comment and observation. Do you think that the Fed could truely lower rates? I mean anyone who is out in the real world can see that prices of goods are still going up, no matter what the fancy numbers DC comes out with say. Also the dollar is in terminal meltdown, if we still had any nationalistic pride we would all be hiding our heads in shame over the state of the Greenback - at some point it might be worth converting your dollars into Argintine Peso's at this rate. So you have a number of things saying "raise rates", but on the other hand the excess liquidity that has been put into the system over the last several years (maybe decade or so) has created a situation were everyone and his dog is leveraged to the hilt, and now many are paying a steep price for that. If it starts to effect the average middle class American family too much (and its starting to at the lower end) you could have a real populist mess occur and that would not be good for anyone. The only real thing the Fed can do for this is quick fixxes and delay delay delay, but they can only do that by bringing rates down, which for the reasons I stated above I don't think they can do. I guess my thinking is that the Fed is stuck in a Mexican Standoff at this point between inflation and the Credit mess and the tools they traditionally have employed might not be available to them right now. What think you?

Brandon
 
Quote from whitster:

my point was the slag on "joe investor"

joe investor does MUCH better than the average RETAIL trader

however, trading is like any business.

most people who start a business fail.

most people who trade - FAIL

but those of us who succeed make a great career of it

but they are two TOTALLY different things, even though they use similar means (buying and selling things), they are very different.

it's an apples to oranges comparison in many ways.

and my point stands - statistically about DCA'ing into mutual funds.

the #'s don't lie. there is not ONE 20 yr period in history where this wasn't a positive investment and in many it beat most other asset classes.

i love trading, and it's how i make income. but i don';t think for a second that an INVESTOR (which i am too -in my INVESTMENT accounts) is comparable to a TRADER.
More...

I agree with your point here, but when "joe investor" tries to time the market, he usually gets it wrong - buys at tops, sells at bottoms. And Joe sure is doing a lot of selling lately as evidenced by the mutual fund flows. That was my main point.
 
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