ZenTrader

I haven’t been blogging much as I’ve had a lot going on and just haven’t had much time. It’s not that I don’t have much to say, it’s actually quite the opposite. I’ve discovered that when I have a lot going on in my head that I want to share I end up writing nothing because I feel so overwhelmed . Add in the fact that these past few months have been very challenging for me on the trading front, taking the time to do a post hasn’t exactly been one of my top priorities. It’s not like blogging offers much in the financial reward category, so sometimes it’s easier to add it to the bottom of the list and focus on more pressing matters.

But what blogging does offer is much more rewarding that money. It’s a chance to shares thoughts, engage in conversations, and raise awareness on different issues that I feel are important. I received an email today from a reader of Zentrader.ca and frequent commenter that is currently gathering signatures for the congressional ballot in 2010. I wanted to give my stamp of approval and wish him the best in this first step of attaining the required 5000 signatures. Nicholas is a stand up guy, brilliant, and if any of you are registered voters in Florida District 24, follow this link to give your support.

Now, onto a random thought I had the other day that I wanted to share and get some feedback as to whether it’s a crazy or potentially great idea. All I’m asking is to stop for a moment and consider the pros and cons and weight in. Politics can be just a hot topic to discuss but it doesn’t have to be. I’m neither a Republican or a Democrat as I feel that they are one and the same. They appear to have different agenda’s but they’re really just the same when it all comes down to it. I’m also not a fan of the current structure of Government and here is a quote that is highly relevant in these times of unprecedented spending and to big government getting bigger.

“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with a result that a democracy always collapses over loose fiscal policy, always followed by dictatorship. The average age of the world s greatest civilizations has been 200 years. These nations have progressed through the following sequence:

• From bondage to spiritual faith;
• From spiritual faith to great courage;
• From courage to liberty;
• From liberty to abundance;
• From abundance to selfishness;
• From selfishness to complacency;
• From complacency to apathy;
• From apathy to dependency;
• From dependency back into bondage. “

 
– The Decline and Fall of the Athenian Republic,
Alexander Fraser Tyler (1748 - 1813) 

So the other day I was thinking about the President’s 4 yr term, voter turnout, and campaign spending and how they’re all connected and wondered if it would be such a bad idea if the President’s term was two 6yr terms instead of two 4 yrs. This is of course strictly from an economic standpoint and here are some pros and cons that I’ve come up with and would welcome additional feedback.

Pros.

1. It would cut down on unnecessary campaign spending. We all know Obama practically bought his ticketto the White House. While the US economy was going down the toilet and people were losing (and still are based on the job numbers yesterday) their jobs at an alarming rate, Obama managed to raise close to 700 million to spend on his campaign. What a huge waste of money that is. By have 2 elections every 12 years instead of 3 it would cut down on a lot of wasteful money spent on campaigns. There should also be a limit as to how much can be spent on campaigns in an attempt to make it fair. Electing politicians isn’t about how many national televised spots you can buy. It’s about how these politicians are going to serve their people.
2. People may actually put more thought into who they elect because they know they’re going to be stuck with that candidate for the next 6 years. Now before anybody says that 6 years is a long time, consider that we just endured 8 years of Bush, who had one of the lowest approval ratings of any President. Like I said, it may cause people to take a little more interest in who they elect in office. Who knows, after 6 years in office people may have realized that Bush isn’t the answer and got him out of office sooner.
3. 4 yrs in reality is too short of a time to accomplish much. By the time you appoint all your minions and get settled into you new plush pad, you starting to think about your upcoming reelection campaign and not focusing on the job at hand. Yes this can be a double edged sword as it could allow a really bad candidate to stay in office for 12 years. However, it they’re really that bad there are other ways to get him out of office (Nixon).

Cons.

1. People remain apathetic towards Politics and inept leaders stay in office too long.

Our current Government is pushing our great country into bankruptcy and is no longer working properly in my opinion. Between the great ponzi scheme disguised as a Wall St. bailout and trying to fight wars we can’t afford, Obama was right about one thing. We need change. I’m just afraid that he’s not the kind of change we’re really in need of. I could probably think of more reasons, but I’d rather just hit save, spell check, and post and see how the discussion unfolds.

By Shah Gilani
Contributing Writer
Money Morning

With its regulatory overhaul of the U.S. financial system, the Obama administration has granted the federal government new powers to take over systemically important businesses, but has done so in a way that may well mask a potentially dangerous drift toward American state capitalism.

The administration’s 88-page “white paper,” released last Wednesday (June 17), goes a long way in identifying most of the weak links in the regulatory chain that was supposed to protect America from a financial freefall. But, as always, the devil is in the details.

In 85 of those 88 pages, extensive fixes are put forth in an attempt to create additional financial institution transparency, to bolster consumer protections and to enhance supervisory oversight. But, in fewer than four of those pages, without any detail, the white paper calls for a  “regime” to “provide for the ability to stabilize a failing institution by providing loans, purchasing assets from the firm, guaranteeing the liabilities of the firm, or making equity investments in the firm.”

The blind spot in the need to create such a “regime” if it isn’t intentional – is the missed assumption that all of the reforms supposed to constitute “A New Foundation” will still not be enough to arrest the failure of systemically important firms. The black spot on the administration and legislators’ records may ultimately be their complicity in not breaking up so-called “too-big-to-fail” institutions, Instead, the current and past administrations and elected officials coddled these firms and allowed them to continue to grow in both size and influence, to the point that they became large enough and important enough – as well as frail enough – to end up as assets in an American-style, taxpayer-funded sovereign wealth fund.

A Threat to the Economy’s Free-Market Foundation

Democratic capitalism – the foundation of our economic system – has two inherent characteristics that, if left unimpeded by government interference, result in almost-certain economic success. The first is the ideal of free markets and the other is the notion, popularized by Austrian economist Joseph Schumpeter, of creative destruction. Building from the foundation is a straightforward process: Free markets will themselves engender creative destruction, maximizing the ability of innovative entrepreneurs to destroy the hegemony of existing companies by creating and delivering new and better products and services to a free-to-choose public. Government coddling or the takeover of failing institutions destroys both of these foundational principles.

Keeping our eyes on the prize necessitates not impeding free markets or the process of creative destruction. And while prudent regulation is absolutely necessary to check and arrest the ever-present bad seeds from choking our field of dreams, allowing the pendulum to swing too far in the direction of government control subjects the democratic capitalist model to attack by socialist influences. And that assault is already underway.

In the face of financial devastation in America and throughout the world, government intervention has been a welcome intrusion meant to lessen the pain of lost savings, foreclosed homes, violated security, broken dreams and the horrendous fear that many of us will never rise out of the hole created by the implosion of trusted systems we rely upon for our way of life.

The danger now is that welcoming the seeming suave of government intervention may embolden some misguided politicians and the vested-interest big-government/big-money crowd to permanently corrupt our once free markets. Government intervention has the potential of destroying the creative processes by undermining entrepreneurs and small businesses to protect an emerging and quickly growing portfolio of government-controlled assets.

If it’s not intentional, why does the administration’s regulatory reform package lead us directly down this path?  By leaving in place discredited supervisory bodies and the failed regime of ineffective regulatory officers and soldiers, does the assured future failure of protected and coddled firms signal a policy paradigm shift towards more government intervention, control and ownership of giant, systemically important firms? Are we headed towards a more socialist economic model?

I brought these concerns to Bill Singer of BrokeAnd Broker.com, a partner at powerhouse law firm Stark & Stark, a veteran regulatory lawyer, staunch advocate for the rights of smaller broker-dealer firms, registered persons and defrauded investors, and a regular commentator on television and Forbes.com panelist.

“Look, I’d love to rail against creeping socialism and state capitalism, and you may well be right – that may be the sad legacy,” Singer said. “While it would be expedient to say that I don’t like it (and, frankly, I truly don’t), I like the concept that someone, somewhere has a cord to pull in the event of an emergency – the problem is whether there is anything at the end of that line when it’s pulled, or whether it merely sets off a series of contingency steps that will only reach some final stage long after the harm is done.”

When Too-Big-To-Fail Becomes Too-Big-To-Succeed

Whether it is an intentional shift towards a more socialist economic model, or the drift from the fallout of well-intended government assistance to save jobs, firms or industries, there’s an easier, more familiar and well-proven path that should be cleared and undertaken. Start by looking backwards. If too-big-to-fail firms constitute systemic threats, don’t allow firms to get too big. It really is that simple. There is no need and no place for socialist tendencies in this country if we already know that free markets create a level playing field for all willing participants and then take steps to make sure that they are not crowed out by vested interests that are backed and protected by the government.

Regulatory reforms must ensure that free markets remain free. Part of what’s necessary is to reform the tendencies of firms to overdo the concept of economies of scale. Bigger isn’t always better if it crowds out the processes of creative destruction, the drain in the tub that can overflow and undermine the floor and foundation of democratic capitalism.

It was big banks, big super-regional banks, big investment banks and big mortgage originators that deposited us into the economic sinkhole in which we’re presently mired. Community banks and small loan originators didn’t conceive of the weapons of mass destruction, but they were forced to compete with the big brothers of business by engaging in many of the same practices and investments as a way to remain competitive or be destroyed by the sprawl of bigger, bolder, and badder brethren. Why not disallow firms to get so big they swallow or destroy all competition?

To those that argue that larger and better-capitalized foreign firms will command the high ground, I say nonsense. If we want to compete with outsized international firms, we already have a mechanism to do that. For example, banks already syndicate large loans. By having even more banks participate in syndicated loans, it spreads the credit risk across a wider array of institutions. And maybe if our automotive industry hadn’t been allowed to get so large and cumbersome, we’d have more auto firms offering more innovative products and supporting a more robust industry of manufacturers, dealers and suppliers.

There’s a Way, But is There the Will?

Of course, without being overly protectionist, prudent legislation and regulation could easily control the sprawl of overly ambitious monster foreign interests. As politicians look at the power and potential of sovereign wealth funds, there may well be an inclination to compete with them by facilitating America’s own version of such a fund. Without enunciated exit plans from the asset control and ownership now enjoyed by the U.S. government, we’re going to move in that direction. A U.S. sovereign wealth fund can carry another name – state capitalism.

By keeping the old guard on duty and only giving them new binoculars, we may well see the next set of failures on the horizon – but will be powerless to stop them. Whether intended or unintended, the result will be the destruction of free markets and entrepreneurship.

We would do well to express our outrage at the prospects of such an outcome long before the debate goes behind closed doors and we end up with an oligopoly run by a cadre of self-serving officers.

Or, as best put by Singer, the veteran regulatory attorney: “Unless we are prepared to clean house – to purge ourselves of the majority of politicians now in power and to substantively overhaul the boards of directors of most public companies into meaningful, hands-on overseers, then we’re just deluding ourselves,” he said. “This isn’t merely a battle to re-start American capitalism; it is a battle for the heart and soul of our way of life.  While it would be popular to suggest that we still have a fighting chance, I think we also need to wonder whether we have the political will to implement the wholesale changes that are necessary.”

[Editor's Note: Is it a new bull market, or just a bear-market rally that's going to separate investors from the last of their cash? For the shrewdest investors, it may not matter. A new offerfrom Money Morning is a two-way win for investors: Noted commentator Peter D. Schiff's new book - "The Little Book of Bull Moves in Bear Markets" - shows investors how to profit no matter which way the market moves, while our monthly newsletter, The Money Map Report, provides ongoing analysis of the global financial markets and some of the best profit plays you'll find anywhere - including such markets as Taiwan and China. To find out how to get both, check out our newest offer.]

There are a number of bullish signs that point to a move higher, and I’ve not included the 30 minute chart that looks very good as well. However it pays to be aware of both scenarios and should this chart breakdown from this wedge formation it would be much lower prices. UNG continues to be a difficult trade because of how erratic it moves. Often times I just stay away, however I may try a trade long here as many stars seem to be aligning up.

1. Constructive bullish wedge forming with chart appearing to bounce off lower trendline
2. RSI in a very tight range, and a BO either way is coming soon.
3. ADX is at very low levels and right now it’s not showing it’s hand which way it’s going to break, but trust me when I say a big move is coming. The last time it was this low (January) and the ADX started to move, it went from $24 to under $13.

From a poker pdf I read awhile back. I substituted a few words and you’ll see how useful these guidelines can be for traders.

1. Actual winning/losing of a trade is unimportant.
2. Each well executed trade, win or lose, is a victory.
3. Each poorly executed trade is a defeat (even if you make money).
4. Each move or action lacking discipline can eventually cost much more money than the original trade in the form of monetary/emotional loss.

Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

Right now, there’s more than $9.5 trillion in cash on the sidelines - or more than twice the amount of money currently invested in stock mutual funds, according to MoneyNet.inc and the U.S. Federal Reserve. Private equity firms alone are believed to hold as much as an additional $1.3 trillion.

While I’ve always doubted that the “money on the sidelines” argument is really all it’s cracked up to be, one can hardly argue with a recently released report from Harris Private Bank of Chicago [part of the U.S. arm of the Bank of Montreal (NYSE: BMO) that notes that stocks have rallied for the next two years whenever money market assets have exceeded 25% of the capitalization of the Standard & Poor's 500 Index. According to the Los Angeles Times, that figure is now 43%, down from 58% after having peaked in December - and that's even after the 30%-plus run-up in the S&P 500 since March.

What's interesting is that many investors holding large cash positions view their money as an asset, when, ironically, it's really more of a liability at this stage of the game.
Some might take issue with that statement. After all, even we at Money Morning have counseled readers that cash - correctly deployed - can allow an investor to sidestep the worst stretches of a financial crisis, like the one from which we're currently attempting to extricate ourselves.

But when the markets are as beat up as they as they have been, history suggests there's probably more upside than downside - even if we haven't bottomed out yet.
And there's a broad body of research to support that contention - including our own newly created "LSV (LIBOR/Sentiment/Value) Index" (published as a part of The Money Map Report, the monthly investment newsletter that's affiliated with Money Morning).

There's also data sets widely published by others, such as Yale Economics Professor Robert J. Shiller. Shiller has found that when you look at 10-year periods of Price/Earnings (P/E) data dating all the way back to 1871, the markets tend to rise when the average P/E is low, as it is right now. Conversely, when the average Price/Earnings values are high - as they were in late 1999, and again in 2007 - a decline in stock prices is much more likely.

There are obviously no guarantees that history will repeat itself. But if it does, the same data implies we could see real returns of 10% a year or more "for years to come," as Shiller noted in a recent interview with Kiplinger's Personal Finance.

My own research seconds the general-market-increase theory, but I'm much more conservative in my expectations of returns and think that returns of 7% are more likely.

Perhaps what's more important right now is that inflation typically accompanies growth - and with a vengeance. And that means that investors who are sitting on cash "until the time is right" may have their hearts in the right place but are relying on the wrong protection strategy.

My recommendation is a four-part plan that can help lock in the expected returns you want, while also protecting your cash from the ravages of inflation. Let's take a close look at each of the four elements of this strategy:

• First, protect your cash with Treasury Inflation Protected Securities (TIPs). Even though the trillions of dollars the Fed has injected into the system seem to be having some effect on the critically ill patient the U.S. central bank is trying to fix, we're likely to pay a terrible price in the future. Forget the hyperinflation scenario so many people are hyping at the moment. While that's certainly possible, it's not probable. However, what is likely is a dramatic realignment of the dollar and a general increase in worldwide living expenses.

If you're based in the United States and have mostly U.S. assets, you may want to consider something as simple as the iShares Barclays TIPS Bond Fund (NYSE: TIP) to offset this risk. The TIP portfolio is chocked full of inflation-indexed securities, but it also offers a healthy 7.46% yield. If you've got international exposure, you may also want to consider the SPDR DB International Government Inflation Protected Bond ETF (NYSE: WIP). It's a collection of internationally diversified government inflation indexed bonds that provides similar protection. Make sure you talk with your tax advisor about both, though. Depending on your tax situation, you may find that because of the tax liability on inflation-related accretion, these are generally best held in tax-exempt accounts.

• Own some gold but don't go crazy. Despite widespread belief to the contrary, gold has never been statistically proven as an inflation hedge. But the yellow metal has proven to be a great crisis hedge because of the 10:1 relationship between gold prices and bond coupon rates - which obviously are directly related to inflation. Over time, the two move in such a way that having $1 for every $9 in bond principal can help immunize the value of your bond portfolio.

So to the extent that you own gold, do so not because you expect it to rise sharply, but because it will offset the inflationary damage to your bonds. A good place to start is the SPDR Gold Trust (NYSE: GLD) because it's tied directly to the underlying asset without the hassles or risks of direct personal storage associated with bullion.

• Consider commodities. It's too early to tell if the so-called "green shoots" that everybody is so excited about are little more than weeds. Therefore, it makes sense to concentrate on picking up resource-based investments. History shows that these things are less susceptible to downturns, but more importantly, rise at rates that far exceed inflation when a recovery begins in earnest.

I prefer companies like Kinder Morgan Energy Partners LP (NYSE: KMP) that are less dependent on the underlying cost of energy than they are on actual growth in demand. That way, if energy prices don't take off immediately for reasons related to deflation or stagflation, those still will benefit from demand growth. It's a fine point, but one that merits attention for serious investors. KMP, incidentally, yields an appealing 8.68% at the moment. 

• Short the dollar to hedge your bets still further. Not only is the government going to borrow nearly four times more than it did last year, but when you add the complete federal fiscal obligations into the picture, our government owes nearly $14 trillion. This makes the dollar, as legendary investor Jim Rogers put it, "a terribly flawed currency" that could fail at any time.

To ensure you're at least partially protected, consider the PowerShares DB U.S. Dollar Index Bearish Fund (NYSE: UDN), which will rise as the dollar falls. It's essentially one big dollar short against the European euro, the Japanese yen, the British pound sterling and the Norwegian kroner, among other currencies.
In closing, there is one additional point to consider. You rarely get a second chance to do anything, especially when it comes to investing. So act now before the markets make it cost-prohibitive to protect yourself. When the economic recovery gets here, you'll be glad you did.

[Editor's Note: Fourteen trades. All profitable. Since launching his Geiger Index trading service late last year, Money Morning Investment Director Keith Fitz-Gerald is a perfect 14 for 14, meaning he's closed every single one of his trades at a profit. And he did this in the face of one of the most-volatile periods since the Great Depression. Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, and has created a completely new set of rules that investors must understand to survive and profit in this new era. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index.]

The monthly RSI has just rolled over and will most likely head down and form some type of double bottom. The last time the Transports fell so much and touched it’s long term support in 02′-03′ it formed this type of bottoming pattern and then went on a major bull market run. This would fit into my belief that the markets need to correct and shake out all this “green shoots” nonsense and maybe the markets will be able to move higher then.

Six parts in total, but well worth the time investment as it covers many various topics like the Government’s confusion between the concepts of regulations vs control, online poker’s recent legal troubles, cops choking ambulance drivers, and how Ayn Rand is suddenly cool again. The government ultimately feels that this whole crises is our faults and that only they can save us. How laughable. Bascially they think they are the only one that can save the free markets from their own freedom.

Question everything, including the nature of reality.