For our readers in India:
Ray Barros has been scheduled for interview:
CNBC-Awaaz (India)
Fri 2nd Jan 2009 @ HK time 12 noon (IST 9.30am)
I borrow this piece from my mentor Ray Barros : we will overcome ……………hopefully.
Also at:
http://www.facebook.com/album.php?aid=54553&l=cec57&id=659616546
Dr. Annette Colby http://www.AnnetteColby.com
So many of us want to become successful traders but never quite make it. We either keep doing the things that lead us to fail or we go away defeated.
But there is another way – the way of the hero.
One of the great things about a hero is he always manages to lift up from life’s troubles. While the rest of us mere mortals would curl up in a dark corner, the hero commits fully to the journey ahead and finds a way to restore the world’s balance
If we look closely at the making of a hero, we notice that initially the hero is reluctant to take on the challenge because of personal fears or insecurities. For a short time, the hero faces doubt and perhaps even a momentary meltdown. The hero may panic or break down in a fit of despair or passing hopelessness.
But that’s just in the short-term. Overall, the hero doesn’t check out until the bad things go away. The hero doesn’t give up and run to the nearest fast food restaurant to escape from life in a double cheeseburger and fries. And the hero doesn’t permanently give up and drown in a bottle of whiskey.
Life as a Hero
We all experience challenges, misfortune, and hardship that demand we grow beyond our current abilities. These changes require that we step beyond our comfort circles and explore new avenues of self-expression.
Are you the confident hero of your own life, leading yourself compassionately and decisively — not only when things are smooth, but especially when the going gets tough?
Look closely at your trading and life you face the challenges and goals most important to you. How do you solve problems? How do you respond to pressure? How do you interact with yourself when facing difficulty? What motivates you to stay focused to achieve your goal to great success?
To become a confident heroic leader in your trading, follow this empowering checklist:
There’s a hero that is always with you, when you are in joy, in pain, or in fear. That hero is your spirit of hope, imagination, and persistence — and that hero lies within you. Follow the above and release your hidden inner hero!
Triple Witching Day
By Alex Tajirian
Definition: “Triple-witching” day is the third Friday of the month that ends each quarter. It marks the simultaneous expiration, at the close, of stock options, index options and index futures.”
Implications: The impact of “triple witching” has been associated with increases in the volatility of the market. The increased volatility increases the uncertainty about prices of the underlying stocks.
Stock options that are exercised, or the underlying stock bought/sold, creates large additional volume. With unwinding large volumes of stocks, there is an increase in index arbitrage (i.e., the simultaneous purchase of index futures and the sale of a basket of stocks, or vice versa, when the values of the index and the underlying stocks become “out of wack” with each other). Meanwhile, some investors are trying to unscramble whether to, say, buy/sell a position, in options or futures contracts, similar to their current ones (i.e., roll-over the existing contracts) or get into different ones.
The increased volatility has prompted the options industry, with the blessing of the SEC, to take some action. Although options on the S&P 100 and on stocks still expire at the close, S&P 500 options and futures have been moved up to settle for cash based on opening prices on expiration Friday, according to Barron’s June 24 (1996) edition.
There is one other reason for the increase in volatility that the article did not even mention. The composition of the Russell 2000 index, a barometer for small-cap stocks, is reconfigured each June by Frank Russell Co., which created the index. Thus, there is added trading activity in the delisted stocks (i.e., removed from the index) as well as those added to the index.
Timely that all credit cards come under close scrutiny:
Some good news for consumers: The feds have finally set some new rules that will protect consumers from credit card companies increasing interest rates on their existing balances. You can read more about the new rules here, but here are the top reasons why I think this will benefit consumers:
1. Longer grace periods. Card issuers must mail statements 25 days before the due date. Today, some mail them 14 days before the due date.
This gives cardholders time to make their payments from paycheck funds instead of digging into savings. This will also result in fewer late payments and help consumers to maintain or improve their credit scores.
2. Fair allocation of payments. Now issuers will have to apply over minimum payments the balance with the highest rate instead of being at the issuers discretion. This will help them to maintain some control over balances and allow consumers to pay down the more expensive balances faster.
3. No more universal default. Issuers won’t be able to take adverse actions against consumers if they make unrelated late payments on other accounts. This would be prohibited under the new rules. Many issuers publicly object to universal default yet practice it.
4. Fees will be reigned in big time. No more “fee harvester” cards that take advantage of desperate consumers looking to get a card at any cost.
In many cases these cards have low credit limits that can be largely used up by the fees even before the card is used.
5. No more double cycle billing. This is already a thing of the past but the new rules will officially retire the practice. Double cycle billing is the practice of an issuer calculating interest on a daily balances from more than just the previous 30 days.
The bottom line is that while the new rules are going to help many of us, they don’t go into effect until July 2010, although I predict many will comply much earlier. The need for these new rules underscores the importance of maintaining zero balances on credit card.
Published on Tue, Jun 10, 2008 at 10:48 , Updated at Wed, Jun 11, 2008 at 12:12
Source : CNBC-TV18
Ray Barros, CEO of Ray Barros Trading Group said that a close below 4,453 would indicate start of the bear market. He feels that India’s chart is not as bad as China’s, which is in a bear market. According to him, there is a need to break 4,453 – 5,545 range on the upside for reversal. If we close above 4,590, Nifty may bounce back to 5,000 levels, he said.
Crude is forming a temporary top, it will not see USD 150-200 levels soon, Barros said. US stock market is likely to enter a bear phase in next few months, Dow’s close below 11,635 would signal a bear market, he added.
Excerpts from CNBC-TV18’s exclusive interview with Ray Barros:
Q: Crucial question on the Nifty and where you see that headed?
A: Let’s have a look at some critical levels. To me, Nifty had this low coming at 4,453. The Nifty then rallied back up to 5,545 – they are the two sides of the equations. If we get a close below 4,453, that would be a preliminary indication that the bear market has started. A subsequent close below 4,300 will confirm that in the Nifty the bear market has started.
Q: We will come back to, but China was the market that we were talking about. That’s down 6% this morning and India and China have been falling hand in hand throughout 2008. How is that looking?
A: The Chinese market is looking pretty awful. Last year I had said that it would drop 50% but I didn’t expect it to drop 50% in quite a short time that it occurred. Market then rallied about 33% retracement level and it’s on the way now to challenging those lows. I would like to be a bit positive here; I would like to see those lows hold. If they can hold then we will form a trading range between the reaction high and the current low. If that level breaks we do not have much support and I would even begin to hazard a guess where the bottom might be found.
Q: When you look at the entire Asian pack, do India and China look like among the weaker charts because they have been the under performers in 2008?
A: India’s chart doesn’t look as bad as the Chinese. The Chinese are clearly in a bear market, the Indian one still has some chance. If you look at the Sensex, we have the low coming in at 14,677 levels and we still haven’t closed below that low. If Sensex can rally from here, it might continue to form this trading range between 17,735. So to me the Indian market is not quite as weak as China. The China market is clearly in the bearish market and is struggling to find a base. For the Indian market, the bear market hasn’t officially started.
Q: We made a new low for the year yesterday, if you do play for some kind of strength or a bounce back on these markets, how high do you think it could go?
A: I think a closing low is far more important. Yesterday Nifty made a low below 4,453 but then closed well above it. And if Nifty can have a close above 4,590, then it is good to run to 5,003. If it clears that level, then investors are good to run to 5,545. And if we can clear that and close above 5,760 then investors may have a run to 6,300.
I am overall bearish on world stock markets. I think any run in the Nifty will be contained by the 5,545 area. I am just not convinced that the Indian market is ready to break. We would need to see a close below 4,453 and then a close below 4,300 and that to me would confirm that the bear market has started in the Indian stock market.
Q: What about crude?
A: Crude is an interesting situation, I am probably little bit contrarian here. The correlation between crude and the stock markets of the world has been of a recent phenomenon. When I did my correlations stories, I found that the correlation is relatively weak. The reason I say this because crude is in the process of forming a temporary top. People are talking about USD 150-200 per barrel by the end of the year but I just don’t see that happening at this stage given the price action. The price action, which spiked up USD 16 per barrel for two days and we are well below it now, off the highs. To me all that is a sign of a topping process.
Either the market is going to go sideways from USD 140 per barrel down to USD 125 per barrel or might even come down to about USD 115 per barrel. We may see USD 200 per barrel in the years to come. But I don’t think it’s going to happen in the short-term. Having said that, I still believe that the US stock market in particular is going to enter a bear phase very shortly, within the next three months and that is what I am looking for in those markets.
Q: What’s the Dow looking like or the Standard & Poor’s (S&P) in the US? Are you getting a sense that that market might slip off?
A: Absolutely and there are couple of reasons why I say this. Let’s just look at some levels at which the Dow hit a top on the October 11 at 14,198 levels came to a low of 11,635 and then rallied. The important thing for me then is off, this high of 13,137 the market has come off and two significant things have occurred – one, we didn’t get the window dressing in June and we actually had a lower close in the month of June and that to me is a fairly significant seasonal thing. Generally speaking we should see an up close in June. Two, we had huge move the other night; volumes, advance-decline and all the various indicators that I look at, all signal a very strong move down. The rally yesterday wasn’t of much note.
I don’t think we are going to see much before the Consumer Price Index (CPI) and if that CPI comes in higher than expected, as I expect it will be; The Dow will be heading towards the critical levels of 11,822 to 11635. Any close below 11,635 for me, will mean that this bear market has started for the US stock market.
The critical level for S&P is 1,258-1,255 to about 1,270. If S&P closed below 1,255, then like the Dow, we will see the start of US stock market going into a bear phase.
Holiday calendar from DT:
christmas-2008-and-new-years-2009-holiday-schedule
Key economic data for the week starting December 22nd, 2008. Numbers shown are consensus estimates (market anticipates this value) and prior value.
| Tuesday: | |
 |
08:30 GDP-Final Q3 -0.5% -0.5%
10:00 Existing Home Sales Nov 4.93M 4.98m 10:00 Mich Sentiment-Rev. Dec 58.6 NA 10:00 New Home Sales Nov 420K 433k |
| Wednesday: | |
|
08:30 Durable Orders Nov -3.1% -6.2%
08:30 Initial Claims 12/20 NA NA 08:30 Personal Income Nov 0.0% 0.3% 08:30 Personal Spending Nov -0.8% -1.0% 10:35 Crude Inventories 12/20 NA NA |
On Tuesday the Federal Open Market Committee is widely expected to cut its target rate for fed funds. That rate currently stands at 1.00%. It should soon stand no higher than 0.75% after Tuesday’s meeting.
For the record, the fed funds futures market places a 68% probability as of this posting on the likelihood that the fed funds rate target will be lowered 75 basis points to 0.25%.
That’s an incredible expectation when you stop to think about it. We haven’t seen a fed funds rate below 1.00% since 1958 (0.63% is the lowest it has ever been in the post-World War II era)!
This expectation fits with the day and age as the worst financial crisis since the Great Depression has invited a lot of twists and turns in Fed policy that haven’t been seen in decades — or ever in some cases.
Extraordinary Times, Extraordinary Measures
The force of the credit market bubble popping has necessitated the drop in the fed funds rate, as well as a massive amount of fiscal stimulus on top of it. The question is, will it work?
The answer is yes, with the caveat that it won’t be a perfect solution. Arguably, the hard part of monetary and fiscal policy is yet to come.
In times of distress, it is easy to throw money at the market and taxpayers. It’s not so easy, and certainly not popular, to manage the process of taking it back without creating a whole new set of problems for the economy and investors.
We digress. Today’s reality is that the global economy is in need of the stimulus. The U.S. economy certainly is as we roll through a fourth quarter that is apt to produce a real GDP decline of at least 4.5% on an annualized basis by Briefing.com’s estimate.
This brings up the question of whether a cut in the fed funds target rate is really going to accomplish anything. After all, the target rate has been slashed from 5.25% over the past 15 months and we’re still staring at a fourth quarter GDP decline of serious proportions.
Things would no doubt be worse if such aggressive action had not been taken, but is the Fed simply pushing on the proverbial string at this point?
A Rate Cut? Yawn.
As a practical matter, banks are already borrowing overnight from each other at rates below 1.00%. The effective funds rate is at 0.15%, as funds are readily available due to the massive liquidity injections made by the Federal Reserve. In fact, the effective funds rate has been below the target rate since October 9, 2008.
That low rate, however, hasn’t stimulated lending to consumers and businesses like one might expect as banks continue to hoard cash to deal with losses associated with troubled assets and year-end liquidity needs. Furthermore, lending standards have tightened, so the pool of qualified borrowers has shrunk.
Cutting the fed funds rate Tuesday will help if banks lower their prime lending rate. Many lines of credit are tied to the prime rate. For existing borrowers then, monthly payments for outstanding balances will go down, which leaves more disposable income. Of course, the economic impact will be muted if that extra income is saved instead of being spent.
Still, lowering the target rate won’t move the needle for the banks themselves, which are borrowing at an effective rate that is already below what the new target rate would be should the Fed give the fed funds futures market what it is expecting.
The Real Story
The Fed can create the conditions that encourage more lending, but it can’t force the banks to lend the money.
Mindful of this (or perhaps fearful of this), the Fed recognizes other approaches can be adopted to try and stimulate the demand and extension of credit.
The unconventional approach is referred to as quantitative easing. This line of attack involves, among other things, an approach whereby the Fed could buy a significant amount of long-term Treasuries or agency securities in an effort to drive down borrowing costs.
Fed Chairman Bernanke has already discussed the availability of such an option and has already established a program for buying agency securities.
A cut in the fed funds rate target will get the general media’s attention, but a nod in the directive that points to an increased likelihood of a quantitative easing approach would be the real story coming out of Tuesday’s meeting.
Given the emphasis in the banking industry on balance sheet repair, a cut in the fed funds rate these days just isn’t what it used to be from a headline, or economic, perspective.
Today I’d like you to welcome Dr. Duru from Drduru.com. I’ve known the good Dr. for a while now and spending time on his site has really given me a great perspective on the markets. I contacted him and asked him if I could use his article from a few months ago as it’s very timely. Please enjoy!
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I originally wrote this two months ago, but I believe it is worth repeating in light of the Fed’s historic actions on Tuesday.
“…the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation…If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.” – Remarks by Governor Ben S. Bernanke Before the National Economists Club, Washington, D.C. on November 21, 2002: “Deflation: Making Sure “It” Doesn’t Happen Here.”
We should find it odd that we are in a deflationary-style panic when our Federal Reserve has a chairman in Ben Bernanke who is absolutely committed to printing as much money as it takes to prevent deflation. Then again, our Treasury has a leader in Hank Paulson who is a former CEO of Goldman Sachs…and that did not prevent the investment banking universe from completely blowing up.
An old high school friend of mine pointed me back to Bernanke’s famous remarks from 2002 (thanks, Mitja!). It made for a fascinating read given the current financial crisis. (I am embarrassed to admit that I always thought Bernanke was the originator of the concept of dropping dollars from a helicopter, but it was actually economist Milton Friedman. Bernanke referred to Friedman’s helicopter in this speech). In this 2002 speech, Bernanke explored several novel academic ideas that he now has a chance to test out in real time. Many of the creative ideas that the Federal Reserve has cooked up to battle our financial crisis seem to have had their genesis in Bernanke’s scholarly endeavors. Bernanke could never have guessed what was in store when he warned his audience that “I should emphasize that my comments on this topic are necessarily speculative, as the modern Federal Reserve has never faced this situation nor has it pre-committed itself formally to any specific course of action should deflation arise.”
Bernanke’s hypothetical exploration was focused on the tools the Federal Reserve might wield when reducing the target for the federal funds rate to 0% failed to arrest a deflationary spiral. I think it is fair to say that the Federal Reserve is currently stretching policy remedies as far as they can go BEFORE being forced to drop interest rates this low. To date, dramatic rate cuts have only served as temporary and fleeting relief with no imminent prospect for solving the fundamental problems of a crisis in confidence. Soon after Bear Stearns failed, I am sure the Fed realized that rate cuts had become largely ineffective. Indeed, over the course of the last three scheduled Fed meetings, rates were held at 2% even as the credit markets continued to deteriorate. Last week’s globally coordinated rate cut signals that the U.S. will not slip down the path to 0% interest rates alone. True to form, this unprecedented move did nothing to relieve the system’s stress. The S&P 500 has so far fallen another 10% since then and credit markets have continued to worsen. At this point, I have to wonder whether the central bank authorities will even bother pushing rates all the way to zero.
What makes the current crisis so particularly difficult for the Fed is that some of the basic requirements of a functioning economy have been wiped away. Back in 2002, Bernanke noted that even after the deflationary shock of the burst tech bubble and 9/11, the fundamentals of the economy remained sound: “A particularly important protective factor in the current environment is the strength of our financial system: Despite the adverse shocks of the past year, our banking system remains healthy and well-regulated, and firm and household balance sheets are for the most part in good shape. A healthy, well capitalized banking system and smoothly functioning capital markets are an important line of defense against deflationary shocks.” It of course turns out that the regulatory regime was NOT sufficient. Bernanke went on to note that “The Fed should and does use its regulatory and supervisory powers to ensure that the financial system will remain resilient if financial conditions change rapidly.” Needless to say, the Federal Reserve is now struggling to keep up with the pace of change in financial conditions. The Fed has had to stretch and creatively interpret its legal powers in a desperate effort to keep up.
The Treasury has also joined the Fed in this mad dash, jumping from one proposal to the next. The latest switch features Paulson coming around to the idea of buying stakes in banks and putting the $700 billion “Troubled Asset Relief Program” on hold. This represents a complete turn-around from Paulson’s earlier comments to the Senate Banking Committee on Sept. 23, 2008: “Some said we should just stick capital in the banks, take preferred stock in the banks. That’s what you do when you have failure. This is about success” (from the New York Times).
So, we face a lethal combination of never having experienced anything quite like the current financial crisis along with agents of governance who have been forced to make up rules and create solutions on the fly as we descend rapidly. Add to this wicked brew an intricate web of volatile global dependencies. We should not be surprised that the crisis of confidence remains so deeply entrenched.
Someday, we will achieve financial stabilization. When we get that relief, we will finally be able to focus on the future, a future in which we reconstruct our financial systems to prevent this kind of disaster from ever happening again. Perhaps we can even think through how to prevent the creative geniuses of financial engineering from dreaming up new pending disasters. In 2002, Bernanke recognized that the best approach to dealing with deflation is not allowing it to happen in the first place: “The basic prescription for preventing deflation is therefore straightforward, at least in principle: Use monetary and fiscal policy as needed to support aggregate spending, in a manner as nearly consistent as possible with full utilization of economic resources and low and stable inflation. In other words, the best way to get out of trouble is not to get into it in the first place.” Today, this statement almost sounds naive given the tsunami of events that have overwhelmed our financial watchdogs. Today’s basic prescription of prevention would have been to stop the growing bubbles in credit and in housing before their inevitable collapse triggered a perilous deflationary spiral.
Unfortunately, Bernanke’s predecessor, Alan Greenspan, absolutely refused to acknowledge definitively that a housing bubble existed. By the time he expressed any concern, the housing bubble had already reached breathtaking levels of madness. Greenspan was also a big fan of complex derivatives and debt securitization because they supposedly were so effective in spreading risk around. Instead, they have been very effective in spreading the contagion of panic and collapse. Greenspan has recently tried to defend his legacy, and I have written critically of his defense. One of Greenspan’s fundamental problems is that he under-appreciated just how extreme the bubble mentality can get. In an interview with the Financial Times, he admits that financial modeling has failed to account for “…the innate human responses that result in swings between euphoria and fear that repeat themselves generation after generation with little evidence of a learning curve.” (This suggests that future generations will learn little from the fall-out of our latest bubbles just as this generation has learned precious little from past bubbles!)
Most importantly, Greenspan has long argued that there is nothing the Fed can or should do even if it could recognize a bubble. He repeated this claim in his interview with the Financial Times: “But if, as I strongly suspect, periods of euphoria are very difficult to suppress as they build, they will not collapse until the speculative fever breaks on its own.” This philosophy may finally be changing. Back in May, the Wall street Journal reported that Bernanke has started research into methods for preventing bubbles. Until some solution is found, the main tool at the Federal Reserve’s disposal will be to print as much currency as it takes to smooth over the pain from the collapse of bubbles…and thus sow the seeds of the next financial calamity.
I am not sure what magic moment will finally pull us out of this financial downward spiral. But I can look ahead to that day when we achieve stabilization in the financial markets and recognize all the massive amounts of liquidity sloshing through the system. Will the planet’s central banks be able to withdraw these supports in time to avert massive inflation? I doubt it. I am skeptical because no one will be sure when the crisis is absolutely over. Caution will rule the day and supports will stay in place far longer than necessary just to make sure no risk remains of falling backward. By then, a lot of clever people will already be far down the path of devising new ways to put excess credit and liquidity to work. So, looking further (into an unknowable timetable), I want to be positioned for a day of surging reflation, and perhaps even rampant inflation. Famed commodity bull Jim Rogers suggested something similar when he made “inflammatory” remarks about future inflation risks on CNBC International on Thursday night (click here to watch). America is committed to printing as much money as it takes to prevent deflation. I am willing to bet that there is enough paper and ink in the world to make it so.
Be careful out there!
By Dr. Duru
December 18, 2008
Posted by ray under Psychology
Yesterday, in Emotions: Their Role in the Decision-Making Process, I looked at some of the comments D’Amasio made in a recent interview. Today I’d like to look at some of the ramifications arising from the interview.
Firstly, the comments validate the findings in The Cambridge Handbook of Expertise and Expert Performance.
The Handbook studies suggest that mastery is optimised when we engage in:
In turn deliberative practice can be broken down to:
All of the findings are in line with D’Amasio’s findings about the role of somatics.
Secondly, the work of D’Amasio contradicts the idea we trade best as emotionless robots. Indeed in one work (I can’t remember which one), he states not only is emotionless decision-making not possible, it would not be desirable even if it were possible. Somatics have an essential role to play in the decision-making process.
Emotions warn us long before reason when danger lurks. Sometimes however, they may react to ‘danger’ not present in reality but rather in our imagination. To harness the power of emotions, the keys are when feeling strong emotion:
In my view, the best way to manage our emotions productively is with thorough preparation which includes visualization. Since our mind cannot tell the difference between what is real and imagined, a mental rehearsal will blunt a possible traumatic event so that we can deal with it effectively should it occur.
Finally in the interview, D’Amasio suggests that because somatics take time to form, the speed of 21st century life blunts our conscience. And, when that happens, – when our reason is cast adrift from our emotions – we are left free to justify any act. Perhaps that explains why Madoff thought he could hide the US$50B theft.
With all the Forex talk on the web and TV, Adam decided to make a video that looks into the details behind Forex. I doubt you know, but Adam has actually written books JUST on Forex, so he knows what he’s talking about. The title of this video is: Trends and Market Timing in the Forex Markets.
By Adam Hewison
In this week’s video, we will be exploring the world of foreign exchange.
It is also commonly known as the forex market to industry professionals.
http://www.ino.com/info/268/CD3131/&dp=0&l=0&campaignid=3
The forex market is the biggest market in the world with trillions of
dollars changing hands everyday. This truly is the most fluid and liquid
marketplace on earth. This market trades 24 hours a day, 6 1/2 days a
week and it is traded by every major bank in the world.
One of the cool things about forex is the fact that markets tend to trend
very well and therefore they are very suitable for technical analysis and
the use of trend following techniques such as MarketClub’s “Trade Triangle.”
Today, we will be focusing in on the EUR/USD exchange rate. As of right now,
the dollar continues to be gaining for the year against the Euro. However,
we still have about another week left to trade in 2008 and we could see the
USD end up being flat for the year.
This gets back to a point I have made before…never buy-and-hold a security
or a currency as events are constantly changing in the financial arena.
My new video runs about seven minutes. In the online video, which you can view
with my compliments, I will show you step-by-step exactly how we approach both
trends and market timing in the forex markets.
http://www.ino.com/info/268/CD3131/&dp=0&l=0&campaignid=3
I think you will get a lot out of this video as it will teach you how we approach
the currency markets. If you have any questions please feel free to call our office
at 1-800-538-7424.
Every success in the coming year and every success in trading the forex markets.
Adam Hewison
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