July 2012


I’m adding to my position. Performance to date, woeful.

The goods, will depending on the type or order of good, dictate where it is stored… until you finally track back to the factors, land, labour, and capital.

I was thinking more in terms of ownership…in whose factories and warehouses are these goods piling up? Not, in general, those of the ones making the ‘hoarding’ decisions.

Any individual can decide to add to his cash balances, or “hoard.” As we are all producers/consumers at any given point, the point is unimportant.

And so you accept that the consequences of this hoarding may be idle land, labour and capital? If so, is there a maximum period this can last for? (This is a different question from asking what mechanism will bring it to an end.)

Yes, I accept that this may be a possibility. As to a “maximum” period, I have no idea, and nor does anyone for that matter.

As services are not tangible…there is no real way to measure their “saving” except in money terms, as a loss of revenue.

Would you try telling a businessman that his ‘loss of revenue’ was really ‘saving’?!

Of course not, and that is not what I actually said. If I lose revenue, or income, I will be forced to adjust the ratio of my consuming/saving/cash balances, as would any individual.

This is the point that the Keynesian’s love to harp on about: they then move to an aggregate, if on aggregate consumers reduce consuming, and add to their cash balances, their hoarding reduces on aggregate the incomes of others, who, must now do the same.

They then make a jump. If on aggregate, hoarding, reduces incomes, then, the answer must be to encourage, or increase consumption, which will then, on aggregate, increase incomes. The problem is, that this jump in their argument misses the tracking back, the actual reality of the situation.

We all consume at some level. Mortgage, rent, food, utilities, fuel/energy, etc. What changes when we “hoard” is not that we stop consuming, its that our diminishing marginal utility for money changes: holding money becomes more important. Thus, consumption, is reduced, and specifically consumption that is less valuable than holding additional cash.

In this way the free market re-allocates capital to supply societies most urgent needs. That may very well mean that certain providers of specific goods/services go under, that is the nature of the free market. Do I really need a $10K Rolex, or can I survive with a Tag Heur?

The second, and more important consequence, which is rather than “hoarding” which tends to occur in financial panics, where the banks have over expanded credit, as they always do, is the normal activity of “saving.” Saving is investing. Investing is a function of time preference. Investing & time preference are the method through which capital/capital goods are saved, and production takes a longer, more roundabout process, which increases the production of the good in question. The new higher supply, lowers the price, which, raises consumers standard of living.

When you say “precisely” do you mean to the penny, or a looser metric?

How long is a piece of string?! Total control is total, unless it isn’t…and then how partial is it….?

Come now Dr.D., it is unlike you to be so slack. The context:

Government exercises absolute control over the institutions and individuals whom it allows to create/expand the money supply.

To the extent that it decides by precisely how much they create/expand it?

Two different statements. The first statement: control over the monopoly, the second, regards the quantity of money that is created. My answer, obviously related to the question of quantity, not the question of control. But of course you already knew that. Simply, you do not actually have a valid argument to put forward.

Like any other contract, the terms and conditions of that contract, of the property involved, can be subject to the law governing contracts.

I think you place too much faith in m’learned friends if you think all business disputes and failures can expect happy resolutions in court! Or to put it another way, a bankruptcy is a bankruptcy and that business ain’t coming back with any more revenue for its creditors.

Considering that the Justice system is currently another government monopoly, actually I have pretty close to zero faith in the system. It is crystal clear that the “Rule of Law” does not apply. Simply look at recent events, plenty of evidence there. An egregious example from history, President Ford pardoning President Nixon. Of course, it happens in every administration. Tony Blair and his war on Iraq? The examples are endless.

It would be good to see a free market legal system where the “Rule of Law” was applied exactly as it was intended to apply. The corruption at the top is sickening.

This from flippe-floppe:

Howsoever, based upon the untenable laws of mathematics, my favourite pick here is VXX.

The graph compares VXX in black vs. VIX in yellow, since July 21st. VXX has pared a jaw-dropping 45%, while VIX has lost *only* 20%. That’s incredible when you consider VXX should only move about half of VIX on a give day. That guideline has apparently only worked on up days, and we have not seen too many of those in VIX since July.

So let’s say you were unlucky enough to own VXX back then, at 27. How far would VIX have to rally to get you back to even?

The VXX is subject to tracking error. That means even if the VIX jumps “X” that the VXX may not, and probably will not, follow.

Now we’ve been down this road before. flippe-floppe got absolutely smashed in VXX the last time, the previous time to that…Every time in fact. So why re-enter a position in a “product” that essentially you don’t even understand how you make or lose money?

That must be the very definition of stupid. Coming as it does, from a “professional money manager” it starts to scream fraud.

Nice to see the pop higher.

From the comments section, I have Gregg, who has a number of issues with the free market.

Interesting, you would get rid of the government that prevents the excesses of the free market and ignore the religious constraints on greed so that the “free” market predators can pillage at will. There has never been a free market and never will be due to the very real existence of greed. Once the free marketers are unleashed, they will strive for total monopoly and destroy the very thing they once claimed to support, the “free” market. The free market is a myth ranking right up there with the Easter bunny.

So far you have disproved nothing and disproving one point does nothing to disprove any others! So pick one and we’ll see where it goes.

So, I get to choose. Very well. Let’s go with the “religious” argument first, as this is potentially the most contentious, and while I do not really seek to prove/disprove anything at this point, it is a good starting point.

There are only three real ways that the laws can either be discovered or created:

[i] From custom and tradition
[ii] From arbitrary ad hoc pronouncements from those who control the apparatus of the State
[iii] From reason and logic, deducing from axioms, the natural law.

It was Lord Acton who clearly the deep flaw in the Greek and their later followers conception of natural law political philosophy was to identify politics and morals, and then to place as the supreme moral agent – The State. This as you see is exactly Ritholtz’s position.

From Plato and Aristotle, the State’s proclaimed authority or supremacy was founded in their view that morality was undistinguished from religion and politics from morals, and in religion, politics and morality there was only one authority.

Acton saw that any philosophy of natural law would come into direct conflict with custom and positive law , this Acton urged was the essential attribute of classical liberalism. For Acton then, the individual, cognizant of natural law principals and morals, was in a strong position to analyse and criticise positive law and by direct association, the State.

After the fall of the Roman Empire, the Church emerged as the power that through religion, controlled the moral base of individuals, seeking to centralise that control to the Church via the Papacy. With the re-emergence of Kings, via Charlemagne, the Church retained its power, only really being challenged through Henry VIII many hundreds of years later.

Of course the modern State has assumed total power, sidelining the Church in the Western world and economies, which has broken the religious – moral – political nexus that existed prior to the monopoly of the State in assuming all moral authority.

I am to a certain extent talking my book here, as I hold US Steel at various prices between my initial purchase price of $42 odd, and my last purchase price of $18.21. Currently, my holdings, are down 35%. While I am not exactly joyful at this, neither am I overly concerned. I will trade my position, and I will turn this into a profitable position. It may take a little while I grant you, but it will happen. Generally US Steel is a pretty volatile stock, it has been pretty quiet as of late, but, that mat be changing.

Divergence. If there is any technical indicator that I love to trade, this is it. Divergences tend to turn out really well. I will be in this stock a while, but, I’m looking for a run to start my climb out of the basement.

So let’s talk results. To date, 12.5%. That is capital gains. It does not include dividends, and it does not include the cash flow from selling OTM Calls/Puts on the position. Marketocracy does not support Options strategies, so there is no third party accounting with regard to the returns generated from selling the Options.

No trades have been made since the position was opened December 21 2011. That does not include the Options trades, but again, m@rketocracy does not support Options transactions. The brokerage costs, are therefore low. This is not a hyperactive day trading methodology, nor even a swing trading methodology.

It is however most definitely not a “buy & hold” strategy. It is predicated on timing the market. It however requires significant price movement, either higher or lower, to trigger a trade. The methodology is designed to buy low, and sell high, the very definition of stock market wisdom.

If you were to subscribe to the newsletter, you would receive background material on the methodology, and instructions on how to follow the system. Of course, to date, there is only a limited track record, and certainly to market decline of the severity seen in 2008. I can understand therefore the natural scepticism that individuals must feel when evaluating the methodology.

If that is you, simply monitor the progress of the methodology. I will continue to post the ongoing results, which in time, will without a doubt, convince you of the profitability of my methodology. I will also track the Option generated cash flow, although I have not a true transparent process for this. I post the trades, prices etc, these would need to be independently tracked to confirm their veracity.

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