“The first casualty of war is the truth.”
This famous quote accurately recognizes the challenge of needing to look at both sides of the equation during times of crisis. Some people attribute the quote to Aeschylus is 550 BCE. Others claim it was proclaimed by Senator Hiram Warren Johnson the Governor from the State of California in 1918. I’ve been pondering this statement over the last several weeks and make sense of the proclamations of many market gurus.
We live in very interesting times.
One of the age-old truths related to trading is that human nature never changes. Markets oscillate between extremes and in so doing create massive fear, greed, and hysteria among its participants. Good traders must always know where we are in the Fear, Greed, and Hysteria cycle to make sure their decisions are focused on what is really occurring.
What I have always found to be helpful is developing a trading thesis that allowed me to see and understand the bigger macro picture and then I could drill down to create trades that aligned with that perspective.
Over the last few weeks whenever I turn on the financial media, it reminds me of my early days when I was learning how to trade. As a beginner trader, I placed a tremendous emphasis on the good opinion of others and my own wishful thinking. This created a lot of pain in my trading account primarily from the perspective that I refused to take a loss. As a trader, this is the recipe for ultimate destruction. Because of this, I learned some very profound lessons which I apply to my trading today.
- Bad traders focus on what “SHOULD” happen.
- Great traders focus on what “IS” happening.
When “IS” and “Should’ meet, some pretty explosive things can happen and that is where we ultimately want to be as traders. But our focus has to be on what “IS” happening.
Turn on the financial media today and their format is to draw parallels to previous episodes in market history in an attempt to draw technical similarities towards what is happening today. In my opinion, it is wishful thinking of the highest order. At the core of this financial programming is the messaging of what “should” happen next in the markets. It is analogous to praying to the ticker gods hoping they will bestow good fortune.
What is happening today in finance and economics is that money is being redefined. This is so obvious, yet it is not being discussed. Over the last 50+ years money essentially became the printing press of governments. Today, critics of fiat currencies and the massive debt which they create are challenging the monopolistic powers of government control of money. This is happening in Crypto, and we are seeing activity with some nation-states returning to something close to resembling a gold standard.
This is the financial story of our times. In the background, Central Banks are rushing to introduce Central Bank Digital Currencies in the next few years to retain their power and authority over how money is defined.
As a trader, it is important to recognize that the current monetary establishment is being challenged.
This is vitally important because all of the ways that value has been defined in the past are being questioned and re-evaluated. In other words, everything that is traditionally is defined as good or bad for markets is being re-evaluated. The long and short of it is that change is happening quicker and quicker. At the top of the traders list needs to be an effective means of defining risk and recognizing extremes. As traders our only loyalty is to the trend. It is the trend that will make you wealthy or poor.
Stories are a dime a dozen. All we want to know as traders is where are the strongest trends that we can take advantage of.
Over the past 9 months, there has been plenty of data showing that Corporate Insiders were liquidating their shares. You can read our article from December 9 2021, Inflation, The Fed, and Corporate Insiders – Are We Witnessing A Major Stock Market Top? Did you hear any of the talking heads discuss that?
In February of 2021, 92.1% of all stocks were trading over their 200 day moving averages. This is not trivia. It is an important historical fact. During that time frame what was the focus of all of the headlines in the financial media? One word: STIMULUS. The Fed and Treasury were doling out trillions of dollars to support the economy and markets.
To paraphrase Charlie Munger here: “Capitalism without failure is like religion without hell.” Since the Great Financial Crisis, the Fed has not allowed any large company to fail.
Compare that metric to today only 25.9% of stocks are trading above their 200 day moving averages.
The 200-day moving average is a popular tool among traders, as it can be used to determine the long-term trend of a security. If the security is trading above the 200-day moving average, it is in an uptrend, while if it is trading below the 200 day moving average, it is in a downtrend.
Traders will often use the 200-day moving average to determine whether to buy or sell a security. If the security is in an uptrend, they may buy it, while if it is in a downtrend, they may sell it. However, some traders also believe that the 200-day moving average can be used to identify opportunities for mean reversion. That is, if a security has fallen sharply and is now trading well below its 200-day moving average, they may believe that it is due for a rebound. As such, they may buy the security in anticipation of this rebound. Ultimately, the 200 day moving average is just one tool that traders can use to make decisions about buying and selling securities.
What is the difference between February 2021 and today? One word. STIMULUS or better stated, the lack thereof. The Fed has proclaimed that starting this month they will stop buying Treasuries and will begin liquidating the 10 trillion that currently resides on their balance sheet.
Over the past 6 months the markets have been digesting this tidbit.
- Who buys the 10 trillion in Treasuries that the Fed is planning on selling?
- In the absence of stimulus, what makes the markets move higher?
- In an economy where we have higher inflation and lower growth how do we define success?
The financial media refuses to address these questions and instead focuses on any glimmer which offers hope the markets will stop falling.
I recently looked at a listing of former Wall Street darling stocks just to put my thesis to the test. The graphic below shows you all of these mid-cap to large cap stocks that did extremely well in the “STIMULUS” bull market era that lasted from March 2020 to November 2021.
Look at where they are today.
These declines are shown as percentage decrease from their all time highs.
Does this look like a Bull Market to you?
But here’s the challenge.
Where are you placing your money today to avoid the carnage?
Trust me. That is not an easy question to answer.
If you stay in cash you lose 8.5% to inflation every year.
If you move into Treasuries you pick up 3% return before you lose to inflation, and incur the risk of default.
There are no safe havens.
I am not saying this to alarm you. It’s tough love, rooted in the reality of the financial markets.
When tough markets arrive the most empowering question a trader can ask is, who is winning? Or… what is working?
When I analyze the who is winning question, it paints a picture for me that confirms some very, very alarming things regarding de-dollarization. I first wrote about this on March 31, 2022 in an article titled, What Effect Will De-Dollarization Have? At that time, I watched the Russian Ruble recover after the world had imposed harsh economic sanctions on Russia. The media was filled with pundits who were proclaimed that the sanctions were necessary and would break the Russian economy.
Over the last year, the Russian Ruble is up over 24% against the U.S. Dollar in spite of those harsh sanctions.
How could this occur when the superpowers of the world imposed the harshest of sanctions upon them?
Mr. Putin decided to back his currency with Gold and all trading partners must pay in Gold or Rubles to purchase anything Russia produces.
This is one example of how money is being redefined.
It is worth pondering because the success of the Ruble over the last 3 months is clearly a vote against the monetary printing presses that the Western Democracies have been using to try and solve economic problems. Putin has made it evidently clear that paper money backed only by political promises is unacceptable to settle payments with Russia.
Russia has de-dollarized, and they are urging other nations to follow suit.
Money is being redefined and like it or not, your portfolio and the decisions you make are clearly in the cross hairs.
How do you protect your purchasing power in light of this type of madness?
The reason that prices are going up is because the value of the currency is going down. Value by many market participants is being determined by real hard assets. Yet precious metals prices are not rising.
The reason so many stocks are falling is because in the absence of stimulus and Federal Support they are not viable.
This is such a touchy topic because when a currency is decreasing in value, citizens will purchase any good they can afford to get out of cash. This becomes a vicious cycle where people quickly rush to acquire more goods because the goods hold their value better than the paper money. Look at any country that is ravaged by inflation and you will find a citizenry that is distrustful of government because they have seen their money evaporate right before their eyes. The inflation occurs always because the currency is being debased at the money printer.
As an investor and trader, how do you go about making sense of it all?
As a trader, the most important question on your mind is “How do I protect the purchasing power of my portfolio?.” You need to become obsessed with who is winning and what is working. That is how you develop your fierce loyalty to the trend.
Everything else is just noise.
Finding value is becoming a completely consuming activity on the part of traders and investors. The target moves quickly based upon too many factors that remain unseen to the naked eye.
It’s all about getting on the right side, of the right trend at the right time.
Most traders have problems with the timing of their trades.
If you want to win, it’s all about who has the best tools. Artificial intelligence excels at keeping traders on the right side of the right trend at the right time.
We live in unique times. The Printing Press is diluting the value of our money and ruthless dictators whom we completely disagree with are backing their currency with hard assets in their attempt to destroy the effect inflation will have on their citizens.
Everyone is aware if the money supply grows 30% you must grow your portfolio by that amount just to break even when you look at your purchasing power.
The only way to make sense of the madness that is our current economic environment is through the power of artificial intelligence, neural networks, and machine learning. In trading, the only thing that matters is price. It is what creates wealth or devastates your trading account.
My reality is always formed by what I see, hear, feel, and understand. This is why I use artificial intelligence, neural networks, and machine learning to guide my trading decisions.
Are you capable of finding those markets with the best risk/reward ratios out of the thousands of trading opportunities that exist?
Knowledge. Useful knowledge. And its application is what A.I. delivers.
You should find out. Join us for a FREE, Live Training. We’ll show you at least three stocks that have been identified by the A.I. that are poised for big movement… and remember, movement of any kind is an opportunity for profits!
Discover why Vantagepoint’s artificial intelligence is the solution professional traders go-to for less risk, more rewards, and guaranteed peace of mind.
Visit with us and check out the A.I. at our Next Live Training.
It’s not magic. It’s machine learning.
Make it count.
DISCLAIMER: STOCKS, FUTURES, OPTIONS, ETFs AND CURRENCY TRADING ALL HAVE LARGE POTENTIAL REWARDS, BUT THEY ALSO HAVE LARGE POTENTIAL RISK. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THESE MARKETS. DON’T TRADE WITH MONEY YOU CAN’T AFFORD TO LOSE. THIS ARTICLE AND WEBSITE IS NEITHER A SOLICITATION NOR AN OFFER TO BUY/SELL FUTURES, OPTIONS, STOCKS, OR CURRENCIES. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED ON THIS ARTICLE OR WEBSITE. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.