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Data, Info and News of Life and Economy

Monthly Archives: February 2012

US Household Delever

Household deleveraging slows economy.

Household deleveraging

Market Trading Thoughts

10 lessons of Jeremy Grantham

1. Believe in history
“All bubbles break; all investment frenzies pass. The market is gloriously inefficient and wanders far from fair price, but eventually, after breaking your heart and your patience … it will go back to fair value. Your task is to survive until that happens.”

2. ‘Neither a lender nor a borrower be’
“Leverage reduces the investor’s critical asset: patience. It encourages financial aggressiveness, recklessness and greed.”

3. Don’t put all of your treasure in one boat
“The more investments you have and the more different they are, the more likely you are to survive those critical periods when your big bets move against you.”

4. Be patient and focus on the long term
“Wait for the good cards this will be your margin of safety.”

5. Recognize your advantages over the professionals
“The individual is far better positioned to wait patiently for the right pitch while paying no regard to what others are doing.”

6. Try to contain natural optimism
“Optimism is a lousy investment strategy”

7. On rare occasions, try hard to be brave
“If the numbers tell you it’s a real outlier of a mispriced market, grit your teeth and go for it.”

8. Resist the crowd; cherish numbers only
“Ignore especially the short-term news. The ebb and flow of economic and political news is irrelevant. Do your own simple measurements of value or find a reliable source.”

9. In the end it’s quite simple. really
“[GMO] estimates are not about nuances or Ph.D.s. They are about ignoring the crowd, working out simple ratios and being patient.”

10. ‘This above all: To thine own self be true’
“It is utterly imperative that you know your limitations as well as your strengths and weaknesses. You must know your pain and patience thresholds accurately and not play over your head. If you cannot resist temptation, you absolutely must not manage your own money.”

Source: GMO Newsletter


Five Signs of Mature Traders

1. Are Self Reliant
When you stop asking other people: “What do you think of the market?” While I respect the opinions of my colleagues, I DO NOT rely on them. I prefer to do my own homework, research and analysis. I LET THE MARKET tell me if I’m right or wrong. The ultimate goal for traders is to make confident decisions on your own and trade with complete independence. You should not have to rely on the opinions of others because you should have conviction in your OWN ideas.

2. Stop Celebrating Winners
When you stop feeling the need to pound your chest every time you make 30 cents on a stock. (It is the flip side of not getting depressed over every loss). Recognize what you did correctly and move on to the next trade. The great Pittsburgh Steelers coach Chuck Noll used to say, after you score a touchdown there’s no need to start dancing. Simply hand the ball to the referee, head back to the bench and “Act like you’ve been there before!” Same thing goes for the stock market. Don’t act like you’ve never had success trading before.

3. Let the Trades Come to You
When you stop feeling the need to trade every day and you get over the “fear of missing out.” This is the downfall of most traders. It took me a while to shift my focus from worrying about “missing out” to playing great defense. Once I did this, I noticed an increase in my confidence level as a trader. Keep in mind, there will ALWAYS be opportunities and it’s okay if you miss a few.

4. Feel No Need to Brag
Those traders who compulsively tell everyone about every winner are over compensating for their insecurities. It is a sign of lack of confidence. When you make a good trade or a good call on the market, and you don’t feel the need to remind everyone — its because that is what is supposed to happen. The key is to be consistent and to separate your ego from your trading. If you are doing a good job, people will notice.

5. Loss Management
When you learn to cut losses without hesitation. No one likes to lose, but cutting losses is part of the game. I have studied the best traders throughout history and they all have the same number one rule: CUT YOUR LOSSES! Learn to accept when you are wrong and move on!

Source: The Big Picture

Global Debt-based Economy

Paul Marson of Lombard Odier points out that global credit market debt stands at $220 trillion, having grown by 11% annually since 2002, versus 8% nominal GDP growth.

Global Debt and Debt/GDP Ratio

It takes greater amounts of debt to have the same marginal impact on GDP. The marginal effectiveness of debt has collapsed during the period since the end of the Second World War.

In USA, 1 unit of debt generated 0.63 units of GDP between 1953 and 1984; that same 1 unit of debt generated 0.24 units of GDP between 1985 and 2000; since 2000, 1 unit of debt has generated just 0.08 units of GDP.

The modern, debt-based economy requires constant economic expansion if only to service all that debt.

US Housing

House prices fall to new post-bubble lows in December, 2011.

The National Composite Index fell by 3.8% during Q4; year over year changes were down 4.0%. The 10- and 20-City Composites also fell by similar amounts, falling -3.9% and -4.0% versus December 2010, respectively.

Nominal House Prices (Indices)


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In real terms, all appreciation in the ’00s – and more – is gone.

Real House Prices (Indices)


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Price-to-Rent (Indices)


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Note: January 1998 = 1.0

Total Housing Activity from 1999


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Homeownership Rate


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Shadow Housing Inventory

Percentage Difference Between Housing Starts and Completions


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Assets of US Federal Reserve System

University of Michigan Consumer Sentiment

University of Michigan Consumer Sentiment


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A World in Debt

CNY vs. EUR and USD

See related post:

Nasdaq Composite Index

The index closed at a multi-year high of 2905.66 on Friday, 2/3/12.

6-month Daily

Weekly

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5-year Weekly

Monthly from 1990

Monthly from 1970 to 2005

Baltic Exchange Dry Index (BDI) Charts

The BDI falls to a 25-year low 651 on 2/2/12.

World Trade Volume (3-month Rate of Change)

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The BDI sets a multi-year new low of 726 today (1/27/12).

BDI Daily

Ed Yardeni recently addressed this big drop of BDI with the following comment:

A few years ago, there was a big shortage of these large ships, and BDI soared…The response to the soaring freight prices was for shipping companies to order new vessels from shipbuilders – orders that were placed before the 2008-09 recession that hammered shipping rates. But because of the lengthy manufacturing cycle for large freighters, many of those ships are only now being delivered. Now, we have a glut of capacity for these commodities.

Weekly from 2006 to 2008

BDI and Gold

BDI and CRB

BDI and Crude Oil

BDI and Copper

BDI and Treasury 10-year Note

BDI and S&P500