Dr Mickson

GOLD AND SILVER HAS BEEN THE KILLER

2011-08-20T20:15:00.001+10:00

AUTOMATED TRADING SYSTEM EXPERIMENT

2011-08-20T20:10:00.001+10:00

I have embarked on automated trading system (ATS) experiment whereby I leave a bot to do all the trading and money management for the whole week. I turn the machine on Sunday and off on Saturday night, all the rest is done by the bot.

I will post regular performance updates, here is the first, as you can see we are currently losing $87k. Not a good start.

http://screencast.com/t/VQJAxmH1Bf

DO REITs OFFER DIVERSIFICATION

2011-07-15T11:44:00.001+10:00

Wednesday, July 13, 2011 2:45 PM ET
To reap real estate's full benefits, investors need more than REITs, academic says

By Tom Yeatts

If you're looking to capture the full benefits of real estate investment, you'd be wise to venture beyond REITs. That's the finding, at least, of Andrey Pavlov, associate professor at Simon Fraser University's Beedie School of Business, whose recent research has led him to the conclusion that the asset class alone does not fully reap the advantages of diversification, real estate's real draw.

"It was my hope, and many other people's hope, that now that we have REITs and they're well-developed, all you need to do is invest in REITs and that gives you exposure to real estate," Pavlov told SNL. "Regrettably, the data so far is showing that that's not as true as we hoped."

Pavlov, with Susan Wachter, a professor at The Wharton School at the University of Pennsylvania, recently conducted research to broadly determine the relationship between REIT valuation and the underlying real estate. To what extent are REITs' stocks driven by their holdings, and to what extent by other factors?

Utilizing the Moody's/REAL Commercial Property Price indexes, Pavlov and Wachter created a "shadow" portfolio that matches the property type and regional exposure of the REITs. Over time, they determined that, for each of the property sectors except office, there was no "statistically significant" relationship between the return of the REIT and that of the underlying real estate. And the other sectors — retail, multifamily and industrial — offer only "very weak and insignificant" correlation.

"This finding suggests that direct real estate investment or investment through the property price index derivatives cannot be replicated using REITs," Pavlov and Wachter said in a paper, published by at the end of June, titled "REITs and Underlying Real Estate Markets: Is There a Link?"

Notably, they found that when market conditions were favorable — low interest rates, rising property values, increasing industrial production — REITs across the board performed well. But in a down market, there was real separation and, accounting for all the variables, the management component made the difference.

"In economic stagnation … only the best managers do well, thus the value of management increases," they said in the report. "This increase dampens the negative effect of the economic downturn and weakens the relationship between the REITs and the real estate properties they hold."

So why the relatively strong correlation between the performance of office properties and the REITs that hold them? Pavlov offered the effect of agglomeration, or homogenization, as a possible cause. He noted that many of the office markets where REITs have exposure, particularly the central business districts, are densely packed, and property values move together.

For retail centers, which are spread far and wide, the situation is precisely the opposite. "You don't want any agglomeration, because to you, agglomeration is competition," Pavlov told SNL.

So there are two possible explanations for the relatively strong correlation between office REIT stock performance and the return on the underlying real estate, Pavlov said: "Either REIT management matters a lot for retail and less for office. Or, it matters the same, but we are better able to capture the returns to real estate in the office space that we can't really do all that well in retail."

Either way, Pavlov is firmly convinced that REITs, though they represent a solid, maybe even an essential, component of real estate investment, do not alone fully capture the diversification benefit.

"REITs alone don't do it. They're still better than nothing; if you're only going to do stock market-type investments, REITs do offer diversification. … But if you want to go even more into real estate, you have to buy direct assets or the indices."

AREIT FORECASTS

2011-06-29T15:15:00.000+10:00

Lets start with a look at the dividend yield on its own. What is interesting from this chart is that Australian REITs look expensive on a historic basis.

However, it is important to give dividend yield context to the interest rate environment currently prevailing.
Here we look at the spread of the 10yr government bond as well as the 3m shorter term government bond.

The long term spread is also on the marginally expensive side of things, as well as the short end of the yield curve.

Interestingly the shape of the yield curve is exceptionally flat with long term yields only marginally higher than the short end. What is clear from this chart is there no inflation being priced in.

When I look at the total return index we see a very sick looking chart, despite the recent capital raising shareholders who entered the AREIT sector in late 2006 are so far under water that it will take a lifetime to recover this investment. What I take away from this chart with its Bollinger Bands narrowing over a sideways moving market is that a breakout movement is probably fast approaching. Unfortunately which way the market will break is less clear.

Finally from a trending perspective we are at a very important level. We have the 50day exponential moving average about to intersect with the 200 day EMA, a break of the 50d above the 200d will be a bullish signal with a movement of the 50d below the 200d will be bearish. There is however an extremely rare occurrence with the actual index intersecting the "Death Cross" described below. This tells me that we are probably at an extremely important point, whereby the sideways movement of the last year or so is about to be replaced with a firm trend.

AND YOU THOUGHT RISK WAS A CONSTANT

2011-06-28T21:36:00.002+10:00

GLOBAL REIT COMPARATIVE PERFORMANCE

2011-06-28T21:34:00.001+10:00

Every time I do this analysis, it blows me away how Australia probably the only half decent economy in this bunch continues to be the worst performer by a long shot.

Mike

US REIT MARKET FORECASTS

2011-06-24T12:59:00.000+10:00

In this post I will take you through a few basic valuation and technical indicators of the US REIT market as represented by data from SNL.

Lets start with a chart of the dividend yield. What I find very interesting is that we are at the level of dividend yield that preceded the financial meltdown in 2007. This chart on its own is extremely bearish from a valuation point of view but no doubt the bulls will say that we are at record low interest rates and this dividend yield is being viewed out of context.

So lets see whether the relative interest rate argument stands up to scrutiny. In the plot below we take a look at the spread between the REIT dividend yield and the 10yr Treasury Bond yield. The red line is the median with the blue lines representing 1 std deviations from the median. what is apparent from this metric is that although we are on the slightly expensive side, we are by no means at any valuation extreme. (in case you were wondering the pink line represents 2 std deviations).

Now there is an argument to be said that shorter term interest rates are at historic lows and this is creating the liquidity in the sector, or maybe better expressed the positive spread. With risk hurdle rates so low the incentive to invest in assets with a reasonable yield is extremely attractive, assuming the risk is being adequately priced into the asset. In the chart below we look at the spread between the REIT dividend yield and the 3month government bond yield. Here again the valuation is only marginally on the expensive side.

Something investors need to take into consideration is that the short term spread has very little room to move with the yield almost 0%. The longer term 10yr bonds are also near historic lows. Against this backdrop surprises are to be on the upside (if that is a surprise), meaning we are likely to see higher interest rates across the yield curve, which assuming dividend yields stay constant will see a compression in spreads, driving valuations to extremely overbought.

OK, we now have a general valuation landscape in place but what about the momentum we have enjoyed since the market bottomed in March 2009. In the chart below we have the total return (price+dividend) comprising SNL US REIT index. The red line is the 50 day exponential moving average(EMA) and the blue line is the slower 200d EMA. A good guide to longer term momentum is when the 50d EMA > 200d EMA it is bullish, which is currently the case, and bearish when the moving averages are in reverse order. A potential note of interest is the Relative Strength Index diverged when the index made its recent high. This could reflect a waning in the upside momentum with a potential reversal around the corner ((a clue not a sign); extra brownie points for those interested in the collective unconscious see Carl Jung's "Collected Works" to understand the difference between a symbol and a sign).

The last chart in our bag of tricks to consider today is the mean reversion characteristics in the medium term. I like to use Bollinger Bands set at 2std deviations of the 50 day look back window to see if there is a breakthrough. As you can see these bands have been able to contain at least 98% of the movements even through the global financial crisis. From the chart in its present form the market is certainly not pushing any momentum extremes.

Summary
I think it would be safe to say that the interest rate environment holds the clue to how the US REIT market will unfold from here. We are a week away from the end of QE2, how will the bond market react to the biggest buyer(s) in the market leaving. In this instance I am ranking Bill Gross's PIMCO behind Ben Bernanke's US FED. If one goes through John Hussman's brilliant analysis, the math points to the definite increase in rates in order for the FED to reduce its balance sheet and base money in circulation. There are very few who can explain things like Hussman.

Even a "moderate" program of $200 billion more Fed purchases would simply create even greater extremes, and would compound the already enormous difficulty that the Fed will face at the point that it attempts to normalize Fed policy in the least. Below, I've updated the liquidity preference schedule, reflecting nearly 70 years of monthly U.S. data. Notice that the willingness to hold base money is tightly related to the level of interest rates. More importantly, notice the non-linearity of the relationship. In order to achieve a non-inflationary increase in short-term interest rates to even 0.25%, the Fed would effectively have to reverse the entire amount of purchases it executed as part of QE2. Extending this policy to QE3 would only amplify the disruptive effect of any future Fed unwinding.

(This chart is the property of Hussman Funds)

Geek Note - R code:
The charts in this post were generated using the following code, this is my latest passion but I am a beginner so this may be very primitive, also I haven't included the manipulation of the data into zoo object:

library(zoo)
library(xts)
library(quantmod)
library(PerformanceAnalytics)

# Analysis of the dividend chart.
m<- median(dividend)
sd< sd(dividend)
chartSeries(dividend)
abline(h= m, col='red')
abline(h= m+sd, col= 'blue')
abline(h= m-sd, col= 'blue')
abline(h= m+sd*2, col= 'pink')
abline(h= m-sd*2, col= 'pink')

# Analysis of the spread of the dividend and short end of the bond yield curve.
m<- median(spread.SNLind_3m)
sd<- sd(spread.SNLind_3m)
chartSeries(spread.SNLind_3m)
abline(h= m, col='red')
abline(h= m+sd, col= 'blue')
abline(h= m-sd, col= 'blue')
abline(h= m+sd*2, col= 'pink')
abline(h= m-sd*2, col= 'pink')

chartSeries(SNLindex.price)
# Analysis of the spread of the dividend and long end of the bond yield curve.
m<- median(spread.SNLind_10y)
sd<- sd(spread.SNLind_10y)
chartSeries(spread.SNLind_10y)
abline(h= m, col='red')
abline(h= m+sd, col= 'blue')
abline(h= m-sd, col= 'blue')
abline(h= m+sd*2, col= 'pink')
abline(h= m-sd*2, col= 'pink')

# Analysis of the shape of the bond yield curve.
m<- median(spread.10y_3m)
sd<- sd(spread.10y_3m)
chartSeries(spread.10y_3m)
abline(h= m, col='red')
abline(h= m+sd, col= 'blue')
abline(h= m-sd, col= 'blue')
abline(h= m+sd*2, col= 'pink')
abline(h= m-sd*2, col= 'pink')

# Analysis of Mean Reversion
chartSeries(SNLindex.price)
addBBands(n=50, sd =2, ma = "EMA")
chartSeries(SNLindex.price)
addMACD()
chartSeries(dividend)
addBBands(n=50, sd =2, ma = "EMA")

# Analysis of Different Trending Patterns
chartSeries(SNLindex.price)
addEMA(n=200, wilder= TRUE, col= 'blue')
addEMA(n=50, wilder= TRUE, col= 'red')
addRSI(n=16, wilder= TRUE)

VAN THARP ON TRANSFORMATION

2011-06-24T09:23:00.001+10:00

Our Mission at the Van Tharp Institute: Part III of Trading through a Financial Metaphor

by Van Tharp, Ph.D.

In the last two weeks, I have written about the mission of my company: transformation through a financial metaphor. The Van Tharp Institute actually offers three levels of transformation with the first two being transformation of the trading game and transformation of Self. Now we come to the final level of transformation: Changing Your Level of Consciousness. This kind of transformation is initiated during the Oneness Awakening Course, the Advanced Peak Performance 202 Workshop, and Peak Performance 203: The Happiness Workshop. Transformation at this level allows people to move toward a level of consciousness in which happiness and abundance are the norm.
I think this third level happens in two stages, so I broke it down into two sub-levels:

1. Raising one’s consciousness dramatically, which I have seen already in some of my Super Traders.

2. Actual awakening, which I have yet to see.

Level IIIA: Raising Your Consciousness

Dr. David Hawkins was one of the most successful psychiatrists in the world. He had a very high level of consciousness and performed miracle cures on his patients. He eventually closed his practice to pursue a Ph.D. in psychology in which his thesis was on levels of consciousness.

In his book Power Versus Force, Hawkins describes human consciousness using a log scale from 1 to 1,000, with 1,000 being the highest level of consciousness achievable by a human being.

I’ve included Hawkins’s consciousness scale from Power Versus Force here.

Hawkins postulated that only a few (i.e., Jesus, Buddha, Krishna, etc.) ever achieved the 1,000 level. He goes on to say that human consciousness as whole is just below 200—200 is the level that separates the positive from the negative. According to Hawkins, Gandhi had a consciousness of 700 and was able to defeat the British Army whose collective consciousness was 175. That’s the power of the log scale difference between power (high consciousness) and force.

Our goal at the Van Tharp Institute is to help traders take large leaps forward in consciousness. Think about last week’s article on beliefs and imagine again the impact of getting rid of around 5,000 non-useful beliefs in a year. That probably would raise your consciousness several hundred points.

A few of my Super Traders have reached such levels. Without going into too much detail, I’d like to share some of their experiences.

Super Trader Transformations

I had one Super Trader—through an exercise in one of our workshops—reach a deep, profound state of mind. When she told me about it, I suggested that she trade through that state. Just by trading in that state, she was able to make 134R in the month of November 2010. During that month, she made money on 86% of her trades and she made no mistakes.

Another Super Trader entered the program with a Ph.D. in engineering. He completed the psychological portion of the program in less than a year and through his personal evolution his concepts of trading became simpler. Furthermore, his purpose totally changed from making money as a full time trader to spiritual evolution with trading success being a metric for his spiritual advancement.

One of our Super Traders also became one of the first Oneness trainers and he was a co-trainer for the first Trading in the Now Workshop during the Super Trader Summit last year. After becoming a trainer, he went from 70% efficiency in his trading to better than 95% efficiency. He fulfilled his longtime desire to quit his job and trade full time.

There are a number of others I could talk about, but I just selected these three as examples.

Level IIIB: Awakening

I once had dreams of forming a company with a few other like-minded people to change the world; however, those dreams faded quickly. At some point, I realized that nothing would change until I changed; this is the basic idea of performing well in the matrix and going beyond it.

In the process of my personal transformations over much of my adult life, I have pursued many directions and methods of personal development. Most recently, I became a Oneness Blessing giver and Oneness trainer a few years ago. Nothing I’ve done in my 30 years of personal transformation has been as powerful as my experiences with the Oneness Process over the last few years. Now, most of my staff members are blessing givers and while all this has been happening, the business has grown in success

I originally had no intention of making Oneness part of the VTI curriculum. All this seemed very “far out” to me when I started, but for some reason I was drawn to it. I’m constantly looking for what works and helps people. And as I’ve watched the transformations that have occurred as a result of the process, I’ve been amazed. The few articles that I have written on the topic were among our best received articles ever. In addition, most of our Oneness Awakening workshops have sold out and some traders are making it the first VTI workshop they have ever attended. Moreover, people are reporting significant changes through the blessing and that’s why I offer it for those who are interested.

The final level of transformation is simply a state that I aspire to attain: awakening. In this state, the following are true:

Thoughts occur but you do not identify with the thoughts at all.
Seeing and listening occur but there is no one there as the seer or the listener.
Doing occurs but it is automatic, there is no doer.
The body is there but you realize that it is not you. You are not your body.
The mind is there but you realize that it is not you. You are not your mind.
Everything happens automatically.
You understand that you have (or had) many personalities (what Libby Adams calls little i’s) but none of them are you. In fact, you now understand that there is no person there at all.
You are existence, consciousness, bliss.
The whole world is your family.
And when I say “you” in this statements, it is misleading because that is just who you formerly thought you were. You no longer exist because you are one with everything.

If you want a perfect example of how an awakened being lives, read Byron Katie’s A Thousand Names for Joy.

I am now a Oneness trainer and we offer the Oneness Awakening Course through VTI. Through it people become Oneness Blessing givers—meaning they are channels for the energy (from the divine), which accelerates transformation. Right now I know of about 20 people who have permanently awakened through this process, although I am sure there are many more. I feel like I’ve seen glimpses of awakening in myself as well. My internal guidance, which has become very strong and personal, assures me that I will be awakened through this process.

What’s important about this level of transformation is that anyone who achieves this (and it’s not so much an achievement as a realization) will be able to trade effortlessly and make money easily. However, by then, money will no longer have any importance.

My next book will be about trader transformations. The book will cover the three levels of transformation and include stories from five or six different people who have accomplished a major transformation on each level. We are accepting submissions now, and we’ll be paying $250 for any chapter that we publish in the book. If you think you’ve made a major Level III transformation, as described in this article and would like to write a chapter-length article (3000-6000 words), we would love to see it. Submit articles in MS Word to book@vantharp.com.

About the Author: Trading coach, and author, Dr. Van K. Tharp is widely recognized for his best-selling books and his outstanding Peak Performance Home Study program—a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp at www.vantharp.com.

Dr Bob's 10 Rules

2011-06-16T11:25:00.001+10:00

The Kirk Report

Dr. Bob's 10 Rules

Posted: 15 Jun 2011 07:59 AM PDT

In looking for paths to improve myself and to help those who I'm privileged to mentor, I have been reading a number of books and articles regarding applied sports psychology. Many of these books can offer more perspective and guidance regarding the mental aspect of trading much better than most books I have read that focus exclusively on trading and the markets.

Traders and investors, after all, have a habit for making things far more difficult than they really need to. And, as many of you are aware, the biggest challenges in the markets usually come from within and not from the market.

One of my favorite in the applied sports psychology realm is Dr. Bob Rotella. Dr. Bob is a sport psychologist for many professional golfers and is considered one of the best in his field. He has written a number of terrific books about golf and trading. In fact, if someone in the trading field simply performed a search and replace feature for the word "golf" with "trading" I think many would think these are some of the best books about the mental side of trading ever written.

To give you some idea, a couple of years ago Dr. Bob wrote this article to help golfers achieve better performance. The concepts outlined there are as helpful to a golfer looking to win as it is a trader looking to achieve peak performance in the market. To see what I mean – let's review each of Dr. Bob's 10 rules and my own interpretation of Bob's comments as they relate directly to trading:

Rule 1: Believe you can win. If other traders can do well in the market, so can you. However, if you don't have enough courage and confidence in yourself, you will never achieve success. The events over the past few years have tested many people in this way and many now believe the game is rigged against them and, even worse, that no matter what they do, in the end they will ultimately fail in the markets. In my experience, nothing could be farther from the truth and those who will win in the markets first start by believing they can do it. Of course, those who do create success also must back up that belief in themselves by working hard and show consistent determination to find, develop and exploit their trading edge.

Rule 2: Don't be seduced by results. You must stay in the present and focused on executing each trade to the best of your ability. Don't let yourself think about how much you hope to win, but instead focus on both proper and consistent execution and risk management. Do this and the results you desire will follow.

Rule 3: Sulking won't get you anything. One of the worst things you can do for your prospects of winning is to get down when things don't go well and market conditions are not favorable. If you start feeling sorry for yourself or thinking the trading gods are conspiring against you, you're not doing your job by focusing on the next trade. Good traders readily accept and realize their mistakes, they learn a lesson if there is one to be learned, and they quickly move on to the next trade. They don't let a series of bad trades or mistakes carry over to the next.

Rule 4: Beat them with patience. Every time you have the urge to make an aggressive trade, especially out of emotion, take a step back and reevaluate. The moment you get impatient, bad things tend to follow. In tough markets, stay patient and let others beat themselves in order to be ready and fully prepared to pick up the low lying fruit from the sheer destruction and capitulation from others.

Rule 5: Ignore unsolicited advice. You will have lots of well-meaning friends and experts who want to give you advice. Don't accept any of it. In fact, stop them before they can say a word. Formulate your own opinions and generate your own analysis and you'll do far better as your skills develop and improve. In life, as in trading, to succeed you must find your own way as no other person no matter how much you may want them to is going to take you where you really want to go.

Rule 6: Embrace your personality. The key is to find what works best for you and this can take years to discover. There are many good approaches out there, but in reality there is only one trading approach that will best utilize your skills, talent and personality to create and sustain your profitable edge. One of the most common mistakes a trader can make is to try to embrace or copy a strategy of someone else. Like a fingerprint, your strategy and focus should be unique to yourself. Yes, learn as much as you possibly can from others who are successful, but still understand that in the end your priority is to develop your own strategy toward the markets and that path will be unique and unlike any other.

Rule 7: Have a routine to lean on. Every trader should follow a mental routine on every trade. It keeps you focused on what you have to do, and when the pressure is on, it helps you manage your emotions and nerves. While none of us have any control over the markets, we all have control on how we trade and the decisions we make. Having a solid routine will inject consistency that will keep you calm under pressure. No matter if the market is up 2% or down 2%, your routine should look exactly the same each and every day.

Rule 8: Find peace in the market. The market has to be your sanctuary. Yes, you will experience both good and bad times (everyone does), but through it all you must learn to enjoy and revel in the journey. It is the path you take that will provide the most content, not the end destination. In time, you must also learn never to trade for emotional or ego satisfaction, but instead, trade because you enjoy the challenge.

Rule 9: Test yourself. Don't look for easy trades and setups at all times. Test yourself by working challenging trades and difficult markets in order to test and improve your skills. For example, if you're uncomfortable and not skilled in trading options, spend a month just trading options. If you're uncomfortable with shorting stocks, spend a month just shorting stocks. We only have the opportunity to improve if we constantly test ourselves and work on things we find most difficult. If you don't learn to work on your weaknesses, sooner or later they will catch up to you when it will hurt the most.

Rule 10: Find someone who believes in you. Having confidence in yourself is important, but it helps to have someone who believes in you, too, whether it's a spouse, a friend or a mentor. No man's success can be entirely attributed to his own actions. You must surround yourself with people who believe in you and will hold you accountable for your progress.

As you can see, this is a very powerful set of rules that will not only help you trade better, but also to help you find more success and contentment in any challenging endeavor.

CRB INDEX

2011-06-16T09:58:00.001+10:00

Guys, you probably won’t like my views on the CRB Index. Against a global economic slowdown and possible US deflation, commodities could have seen their best days for some time.

Independent Trading: Pros & Cons

2011-06-07T10:42:00.001+10:00

On rereading these I thought I must post them on the blog if I haven’t already.

Independent Trading: Pros & Cons

Sunday was "Independence Day" in the United States where we celebrate the birth of our country and declaring independence from Britain. It also got me to thinking, as I usually do on market holidays, how fortunate I am to be doing what I do for a living in this country. While America faces many, many challenges and uncertainties, I'm proud and happy I live here and thankful for the opportunities this country has provided me and my family!

In fact, there's probably no better time than the present to talk briefly about the pros and cons of being an "independent trader."

As someone who has worked independently for most of my professional career, you can say I place a tremendous value on "doing my own thing." As I've often said, at least for me it has been a combination of personal choice (what I want in both life and career) and also necessity (as I don't play well with others). Indeed, there are some tremendous positives for trading independently. After all, I wouldn't be doing this if there were not some significant advantages from doing so!

Here are a few things that first come to mind:

As an independent trader, I set my goals and I'm in charge of my own destiny. I don't rely on any other person for how much money I make or how I make it. Other people's opinions of me are irrelevant to my own destiny. At the end of the day, bottom line trading results (not office politics) are all that matters.
Most people in "normal jobs" don't have the opportunity to set out on their own and do something they really want and love to do and also make plenty of money doing it.
I spend most of my time every day doing things I really like to do (trading, reading, researching, running screens & mentoring others). These are things I would do even if I were not paid to do them because it is what I like to do the most! Every day I plan my work on things I want to work on, not what others want me to work on. That level of professional autonomy is rare.
The sense of accomplishment when you achieve success in the markets independently is unparalleled. There's nothing like finding and taking a good trade that produces lots of upside gain. This is especially true when that trade is unpopular and unforeseen by the herd.
Through my research I've been able to learn about many things, many industries, many countries, and many people. At this point, I can have a conversation with just about anyone no matter what they do for a living or where they live because I know something we can probably talk about based on what I've learned and know about others.
It is always interesting and I'm NEVER bored. It is so true there is no better drama on Earth than following and being a participant in the markets daily.
There are no meetings. People, often in corporate America but in many walks of professional life, waste so much time on so many irrelevant things like business meetings. At least if I'm going to waste time, it will be something worth wasting it on!
There is no commute or dress code. I fall out of bed at 5AM and go to work in shorts and a tee shirt. I don't have to dress up or even take a shower. In fact, I only own one dress suit and that's because I may have to go to an occasional funeral or wedding. Finally, I don't have to spend an hour or more in the car every day just going to and from work. That's a good way to live and work!
I can live and trade from just about anywhere in the world. Although we have found a little slice of heaven living here in Southern Utah (Cedar City) where the people are nice, the weather is great, housing costs are low, plenty of excellent golf courses nearby, we have dozens of national parks for hiking within a day's drive, Vegas is not too far away, and so on - if and when we tire of it, we can move anywhere we want to and I can still earn a good living.
Trading independently offers level of personal freedom that isn't present in most jobs. If I want a day off to play golf, help a friend, visit with family, I do it. I don't have to ask anyone for permission! However, offering a paid members-only website places some severe limitations on that freedom!

So, now I've talked about the positives, what are the downsides to trading independently?

While many people think I have a dream job and, in many ways I do, there's no career choice that doesn't also have its own set of unique negatives. Frankly, if most of you actually had to do what I do every day to reach your financial and career goals, I think quite a few of you would begin to question whether "trading for a living" is really the right way to go.

There are many misconceptions about trading out there primarily due to shady marketing practices by those who sell investment services and trading products. Many in this business unfortunately propagate to their own benefit the view that trading for a living is an easy way to get rich without any time or effort. The truth is that it can often be, and has been, a challenging career choice and one frankly that is less than ideal for many people I encounter.

As for the downsides, here are a few you should be familiar with if trading for a living is a career you seek:

You've got to bring your A game to the table each and every day. There is no sitting in a cubicle playing solitaire, visiting with facebook friends, talking with others in the break room about fantasy football, etc. that is going to get the job done for you. Your efforts, whatever they may be, will be directly related to your bottom line returns!
Past success means absolutely nothing. You are only as good as your next trade, your next week, your next quarter, etc. In addition, what you do next always has the potential to unravel whatever success you've acquired previously. Few careers offer you the potential for self-destruction so quickly the way trading for a living provides.
The pressure to perform will create unbelievable amounts of negative stress and energy you'll have to deal with daily. Most people don't have to worry or fear that being wrong will cost them their paycheck. After all, just look at economists, bankers, and politicians!
There will be little to no respect or understanding for what you do for a living. People will assume you're a "day trading gambler." Or, in my view, which is even worse, many idiots will express the view that they could also "trade for a living" if they decided to. This is true even in by those who've shown no consistent success in the markets on a "part-time basis."
Working in isolation you'll often miss close human interaction and the lack of a competitive "team" like atmosphere. Also, building and holding outside friendships, especially for men later on in life, are often very difficult for those who don't meet a lot of people through their jobs.
Sitting 12 hours a day every day at the computer will wreak havoc on your overall health and fitness. Many traders are overweight, have back issues, eyesight problems, etc.
Like many highly skilled professions it requires constant education & learning. In many, but not all careers, once you've acquired a certain amount of skills and knowledge, little more is expected of you. In trading, you've got to always be in learning mode. In addition, what you think you know right now and what is working for you, will not someday in the future. That's the way of constant evolutionary state of the marketplace.
You've got to be a jack of all trades. I've often said that if trading was the only thing I had to do, my life would be a whole lot easier. Instead, independent traders must spend time serving as their very own tax accountant and tech support guru. In my view, there's nothing worse than a hardware or software issue that takes you away from concentrating on the markets.
There will be very long work days and work weeks. Those who say you can trade successfully in 10 minutes a week are liars and charlatans. Most independent traders put in between 50 to 60 hour work weeks and are considered "grinders" rather than trading "wizards." Remember, there are no holidays or weekends for professional independent traders - only more time to devote to charts, scans, research, and strategies!
You've got to have money to make money. There are very high capital requirements involved in being an independent trader as it takes a lot of money set aside from your personal assets to produce a living wage for yourself and your family.
Your "salary" will vary considerably based on things outside of your control like overall market conditions and how your strategy is in sync with the market. It is true, you'll make 90% of your income in 10% of your time. However, overhead costs will remain constant and there's nothing worse than having to grind out trades in an unreceptive market to "make the mortgage."
Even when you make a lot of money and have experienced tremendous success, you've got to still live like a pauper. There are no golden parachutes, annual bonuses, etc. that are going to save you when you screw up in the future. And, trust me, you will screw up. You will make bad decisions. You will be on the wrong side of a trending market. It happens to everyone and it is never fun or profitable! Which is why when the sun is shining, we've got to always prepare for those future rainy days.
Personal, family relationships can be difficult. Like most people, when things aren't going well, many will look for others to blame and take it out on their spouses and family members. Divorce rates are high among independent traders. The only way around that is to find endeavors that release this negative energy (like golf, hiking & daily exercise). In addition, I seldom see successful independent traders who don't also have a very strong family support structure in place. If your life is a mess, your trading will often be as well.
Distractions at home will be both numerous and frequent. As independent traders who work from home, everyone else will think you can spare time for doing other things during the normal work day (i.e. like going to the grocery store, getting the house worked on, taking the cars in for repair, mowing the grass, taking kids to the doctor, doing laundry, etc.) In addition, there are things you'll want to do as well (like playing golf) when you should be looking through charts that are going to distract you constantly from achieving the results you desire.
As an independent trader working a "zero sum game," nothing you do every day as a trader other than making money will be a benefit to others or society in general. While you will have plenty of opportunities to donate to charity in order to give back something, independent traders must work really hard at finding good and effective ways to make a "real difference" for other people. My late father once said to me that "when you die, the good Lord will ask you who on Earth you really helped freely and without personal gain. You better have a lot of names to give to him or you're going to be in big trouble son!" It is true - we all get caught up in our crazy game of beating the markets that we forget how others have to really struggle to "work for a living." Also, even the best of us fail to do enough to make a true, positive AND lasting difference in other people's lives beyond just donating some of our profits to charity.

While I know I've missed a few of the negatives and positives, I think this at least offers some perspective on what it means to trade independently as I have all of these years.

All in all, I have no regrets and I'm happy today as I've been in the past to do what I do for a living. Whatever you do, I hope you feel the exact same way and, if you don't - you have both the courage and conviction to make a real change for the better. Life is far too short for anything less than that!

The great thing about this country is that whatever you want to do, you're still free to do it. It is my most sincere wish that you enjoy and take full advantage of that freedom!

Posted by Kirk at 12:26 PM in Education | Bookmark | Feeds | Link | Email This

ONCE AGAIN THE DEBT MARKETS ARE LEADING THE WAY

2011-05-27T10:02:00.001+10:00

I wrote this without thinking just feeling, it is what it is and I am not going to edit and check it:

I get the sense that trouble is around the corner, you are seeing with big time yield spikes in bonds across the globe, also you are seeing it with default insurance, I just came across this one

price of insuring against a potential U.S. default is spiking. Big-time. The one-year cost of insuring U.S. Treasuries is now over 0.37% — or 37 basis points.

My point is this feels like 2007 all over again, just like you had the calls saying that housing was a bubble, eventually you started getting people acknowledging that there was a problem but nobody was prepared to accept a worst case scenario, all the predictions were that there will be an adjustment but nothing epic. And so the reversal gathered momentum.

You get the same feeling at the moment with the sovereign debt crisis, everyone knows that it is there and that it is likely to be a problem but everyone just keeps thinking that someone else will solve the problem, like China is the cure for everyone or emerging markets are the future. Bulls…t Emerging markets are so far behind the technology boom all they have going for themselves currently is commodities and large uneducated populations.

Do me a favour one significant pullback in commodity prices will send these emerging economies back to their 3^rd world status, with disease and poverty and the all to present crime wiping out large portions of the population.

Sorry for my bleak outlook, but trouble is around the corner on an epic level. All that happened with the GFC round 1 was people became aware of tremendous financial insolvency. However, it only placed as a reference point to people changing their lifestyles it didn’t really have a meaningful impact in actual practise. The reason being, as people started comprehending the insolvency the central banks and government treasuries were able to create an optical illusion that kicked the can further down the road to serfdom. When the public who were awakened to the reality of insolvency in round 1, realise that all they have been living though is a failed Chapter 11 then the finale, round 2 of the GFC is likely to finally penetrate a much deeper level in the collective wisdom of the world.

A period of incredibly difficult restraint is almost upon us, yes there was always going to be a contraction in the global economy much like the business cycle to the Austrian economist is like night following day. The problem now is that by postponing the inevitable we are likely to experience a cold dark winter (metaphorically speaking) that is the only way to wash away the excesses brought about by a credit induced ailment of living beyond our means.

There is still way too much money in the hands of the rich relative to the poor for emerging markets to experience a true middle class boom. We also need to ask whether a middle class boom financed on credit is worth the bust that is inevitable. We are well passed the fancy economic theories of monetary and Keynesian economics or any such theory for that matter. We have entered the real world where theory has little place to answer someones need for food, shelter and clothing. It is time for common sense to prevail for leaders to dig deep and prepare their flock for the coming misery.

I live in the stable, commodity rich country called Australia, I live in a beautiful first world city called Sydney. This place is fast becoming unaffordable. No let me correct that it has been unaffordable for a long time, without further credit greasing the engine for growth there simply will not be room for the status quo to remain. Free society with the belief in mans ability to enjoy whatever he or she wants has placed an extremely onerus burden on staying on course. We have substituted a life of moderation for a life on a treadmill that is far more glamorous than middle of the road. The treadmill has every changing scenery, but it is all a façade, in fact it is worse it isn’t even real, it is borrowed, it doesn’t belong to us, we have stolen from the future. Almost as if we believe we are able to stretch forward in time and take hold our future and enjoy it now.

But there is a problem here, just like when one is being naughty, deep down we stir feelings and emotions we know are not right, we don’t feel comfortable with it so we force ourselves to enjoy it while it lasts and therefore our feelings become ever so myopic as we fear the future and chose to enjoy the present. These contrasting emotions to our unconscious selves leave us wounded on a psychic level that just like Jung demands the individual to go through a process of individuation so too are we as a society to go through the collective individuation process as we experience the need to correct the wrongs of our past.

THE MIND

2011-05-09T17:16:00.001+10:00

Having read quite extensively on the field of psychology I found myself struggling to find a unified model that can explain the “mind” or psyche. I have found many appealing theories but most don’t try and explain the psyche in a complete form, they touch on parts of the psyche and then conflicting theories touch on other aspects, so I have felt a need for some time to join a school of thought, that is just simply the way my mind works.

After reading quite a lot of Carl Jung in the original I found myself more and more drawn to his approach and his theories. He presents a wonderful topographical description of the mind which I find most useful, and as the father of “Analytical Psychology” he has left us with tools to reconcile many psychic / spiritual phenomena into our daily existence.

I recently came across a Jungian analyst John Betts http://www.jungian.ca/ who has the most fantastic well presented series on Jungs works, you can download his podcasts for free on his site or you can download them via iTunes app store by typing in his name or Jungian.

FW: I DO LOVE ACERBIC WIT :D))

2011-04-20T21:25:00.001+10:00

What this country needs are more unemployed politicians.
        -Edward Langley, Artist (1928 - 1995)

"If you don't read the newspaper you are uninformed, if you do read the
newspaper you are misinformed."
        -Mark Twain

Suppose you were an idiot.
And suppose you were a member of Parliament....
But then I repeat myself.
       -Mark Twain

I contend that for a nation to try to tax itself into prosperity is like
a man, standing in a bucket and trying to lift himself up by the handle.
        -Winston Churchill

A government which robs Peter to pay Paul can always depend on the
support of Paul.
        - George Bernard Shaw

A liberal is someone who feels a great debt to his fellow man, which
debt he proposes to pay off with your money..
        -G Gordon Liddy

Democracy must be something more than two wolves and a sheep voting on
what to have for dinner.
    -James Bovard, Civil Libertarian (1994)

Foreign aid might be defined as a transfer of money from poor people in
rich countries to rich people in poor countries.
    -Douglas Casey

I don't make jokes. I just watch the government and report the facts.
        -Will Rogers

If you think health care is expensive now, wait until you see what it
Costs when it's free!
        -P..J. O'Rourke

In general, the art of government consists of taking as much money as
possible from one party of the citizens to give to the other.
        -Voltaire (1764)

The inherent vice of capitalism is the unequal sharing of the blessings.
The inherent blessing of socialism is the equal sharing of misery.
        -Winston Churchill

The only difference between a tax man and a taxidermist is that the
taxidermist leaves the skin.
         -Mark Twain

The ultimate result of shielding men from the effects of folly is to
fill the world with fools.
        -Herbert Spencer, English Philosopher (1820-1903)

A government big enough to give you everything you want, is strong
enough to take everything you have.
        -Thomas Jefferson

interesting article on life cylce of a crisis

2011-04-11T13:23:00.000+10:00

Welcome to the Market Psych Report

A key factor in investing success is the ability to recognize what other investors are thinking (Bruguier et al, 2010). The MarketPsych Report analyzes the mind of the market using our proprietary sentiment software. Our software performs language analysis and quantifies specific sentiments (such as fear and excitement), topics (such as management changes and layoffs), and tones (such as uncertainty and urgency) in investors' online comments, the financial news, and executive interviews. This language data powered our outperforming MarketPsy Long-Short Fund LP, and we are launching this newsletter to share our accumulated insights with the investment community. Readers will find investment recommendations and trading insights to help grow their bottom-line. Today's edition focuses on optimal trading strategies after unexpected catastrophes like the recent Japanese earthquake. We hope you enjoy!

The Market Psychology of Natural Disasters

At 1:40am on March 11, 2011 federal tsunami warning radios bleeped to life along the Pacific coast of the USA. The voice on the radio reported an earthquake off Japan and warned of a tsunami estimated to arrive in Santa Barbara at 8:24am and in Santa Monica at 8:39am. This tsunami was the direct result of the largest earthquake to ever hit Japan, and the fourth largest to strike the earth in recorded history at 9.0 on the Richter scale.

Dr. Richard L. Peterson MD
+1 (310) 573-8523
info@marketpsych.com

April 6, 2011
Report No. 1

That morning TV viewers watched a 30 foot wave washing over coastal villages in Japan. Entire towns were lifted and crushed by the wall of water.

Given that Japan is the third largest economy in the world, you might think that U.S. traders and investors would rush to sell risky shares, buy puts, hedge, or reposition until they could make sense of the damage.

Not so. By the close of trading on Friday March 11, 2011, the Dow Jones Industrial Average was up 60 points for the day.

What were investors thinking?

This question, and the opportunities it creates for investors, are discussed in today's MarketPsych Report.

An image of our MarketPsych Fear Index, showing the spike in investor fear due to the Japanese radiation scare, is below.

Bullish Sentiment and Momentum

The Japanese earthquake occurred in the context of recent middle eastern instability. Even as the governments of Tunisia and Egypt were overthrown by popular revolution in January and February 2011, the S&P 500 continued to move higher (represented as the blue line in the 9-month chart below).

Investors' lingering negative sentiment - a hangover from the financial crisis - declined to pre-crisis levels in 2011. Investors were expressing very little negativity about the economic recovery or the future of stock prices, and, overall negativity expressed in investor conversations (measured in social media) reached a 9-month low in mid-February 2011, as depicted in the chart below.

Unfortunately, a monumental amount of energy was about to be released in an earthquake beneath the waves off Japan's northeast coast.

Chart of S&P500 (SPY) Blow-off Top

Uranium Stock Investors Anxious after Core Meltdown

Following the shock of the Japanese earthquake and tsunami, most investors' initial reaction was one of denial. The bad news was thought to be isolated. However, over several days fears of radiation release grew, leading to investor panic.

Particularly hard-hit in the panic were Uranium stocks such as Cameco (CCJ), a Saskatoon-based Uranium miner and nuclear power generator. Fears of increased regulation and slowed approval of nuclear power projects frightened CCJ investors. But as I noted above, investors had a few days to exit Uranium stocks prior the meltdown in their share prices: see the "Sentiment hits new lows before price tumbles" comment in the CCJ chart below.

Observing the column on the right side of the CCJ chart below, you can see a list of "Language Alerts." Language Alerts represent a large surge in a particular sentiment or topic in investors' conversations. in this case, high levels of anxiety were being expressed by CCJ investors in mid-March. This is expected given that the future of the company is now less secure.

"But I'm a contrarian," you may be muttering to yourself, "does such high investor anxiety mean I should buy Uranium stocks while other investors are panicking?" Short-term perhaps, long-term no. The reason not to buy in this case is that 1) Investors' fears are grounded in a real shift in fundamentals, and 2) Investors who bought at the top will gradually turn sour as the price does not recover, and their selling will create a cap on CCJ's long-term price recovery.

Ironically, in the CCJ chart below, you can also see that both flags B and C (investors discussing a share buyback) on the red line correspond with the price peak.  Wishful thinking for a stock buyback is symptomatic of investors' excess optimism (a contrarian indicator of a top).

Preceding the bull run in the below CCJ chart is a series of positive sentiment spikes. When a series of good news events occurs in succession, investors create a new mental "set-point" of where they think the stock price should be ("going up!"), and positive price momentum often ensues, pushed by optimism-fueled buying.

Commentary: The Market Psychology of Unexpected Disasters

As can be seen in the CCJ example, It wasn't until Monday March 14, and again on Wednesday March 16, that investors reacted to the risks - such as radiation - that had emerged from the Japanese earthquake and tsunami. "What took them so long to wake up to the risks?" is a fair question to ask. Below I explain the psychological stages which drive investors and financial markets after unexpected events such as natural disasters and terrorist attacks. The psychological response to such events follows three stages.

Stage 1: Underreaction.
In this stage people don't realize the scope of the disaster. They believe the stock rally will go on as is, and they believe the official assessment of the situation - that all are safe. This is a good time to be skeptical and to sell or short.
Psychological Driver: Cognitive Dissonance and Denial. People have trouble processing new information that is out of their comfort zone. They need time to reconcile new facts with their established habits and beliefs, especially if they do not feel an immediate ongoing threat.

Stage 2: Reaction. .
Investors realize that significant dangers have emerged, and they take action. The Nikkei drops 14% in one day. The S&P 500 sheds its 2011 gains. This occurred in the second and fourth trading days after the earthquake. Fund managers sold the stocks of companies that were likely to be impacted negatively by supply disruptions and bought shares of those likely to benefit.
Psychological Driver: Rational Reappraisal and Arousal to Action. We incorporate the new facts, and revalue securities accordingly.

Stage 3: Overreaction.
This is where the situation gets interesting. Uncertainty and fear color investors' assessment of the facts. Due to rapid changes in the nature and immediacy of potential threats, investors indiscriminately unwind their risky positions. Stress hormones narrow investors' abilty to see long term, and they begin to follow every news announcement with increasing worry. Stocks sell off, Potassium Iodide (KI) sells out off store shelves in California, and people sell their stocks because prices are dropping and the situation is unclear. This is when indiscriminate risk selling occurs.
Psychological Driver: Fear, uncertainty, and feeling out of control. Radiation cannot be seen, is widely feared, and may spread beyond Japan. Perhaps most worrisome to investors, during the crisis there was no trusted authority who could explain the facts coherently - the Japanese government appeared to either not understand the situation or to be trying to prevent panic by hiding the true impact of events. All of those factors led to loss of trust and overreaction. Such overreaction usually occurs about 4-5 days after a crisis and is seen as panic, when all risky assets are sold and safe assets are hoarded (even iodized salt sold out in many parts of China). Real investment bargains emerge at this time. it was a good time to buy Japanese construction and insurance stocks.

While we've explained the stages of such a crisis, and the opportunities that emerge in each, our thoughts are with the victims in Japan. We extend our sincere condolences to all whose family, friends, or lives have been affected by this terrible series of events.

RUSSELL

2011-04-07T10:55:00.001+10:00

Yesterday he flip flopped and claims to have mistakenly called this a bear market rally in a secular bear market.

Could it be the legend has finally thrown in the towel at precisely the wrong time??

April 6, 2011 -- Operating in the markets often comes down to managing your risks. I've made mistakes in the past, and doubtless I'll be making mistakes in the future. Whenever I recommend anything on these sites I always gauge the risks, just in case I turn out to be wrong. In other words, what are the consequences if I am wrong.

There are two kinds of mistakes. One is to be wrong about the market or a stock and to miss a profitable advance. By far, the worst kind of mistake is to be wrong about an impending or ongoing decline, and then to fail to correct your mistake. This kind of mistake is the costly kind, and, in a way, it's stupid and unforgivable.

It irks me to make a mistake, any kind of a mistake. Thus, I keep mulling over my mistake in not "ordering" my subscribers to buy the DIAs back at around the November low of 2009. What was I thinking? I had my mind fixed on the great post-1929 recovery which followed the crash, a recovery which saw the Dow climbing back to within shooting distance of its 1929 high. That rally turned out to be a false move that had many investors thinking that it was a return of the bull market. In the end, when the market turned down in 1930 the market (it was a bear market) embarked on a vicious decline: More people were hurt in the 1930 bear market decline than were hurt during the 1929 crash.

I've often stated that my PTI "is smarter than I am." Subscribers may remember that my PTI never broke down and then headed persistently lower during the 2007 to 2009 market collapse. I ignored my PTI, and I ignored the persistently bullish Lowry's statistics during the 2007-2009 collapse. My mind was centered on the 1929-1930 situation, and I did not think buying at the 2009 low was worth the potential risk.

Happily, in another area my subscribers were building profits in the precious metals bull market all during 2007 to 2009, and that helped to assuage my damaged ego.

Correction lows can materialize suddenly, often in a single day, at a time when literally everything plunges to frightening lows. But major tops are another species. Tops are usually characterized by extended periods of distribution. Unlike bottoms, tops are seldom identified by a single upside climactic day. Tops are formed through a process that sees stock after stock top out, until such time as the entire structure of the market gives way, and the big stocks (the Dow) finally join the majority of falling stocks as the top is completed.

Where are we now? My studies tell me that we are still in a primary bull market. True, there is a good deal of deterioration going on, but I see nothing to suggest that the bull market is actually over.

If this market is going to turn primary bearish, I would want to see an orthodox Dow Theory bear signal. This would include a secondary decline, a good after-bounce, and then a second decline in which the two Averages (Industrials and Transports) smash below their preceding secondary lows, preferably on expanding volume.

TODAY"S MARKET ACTION:

My PTI was up 6 at 6270. The moving average at 6216, so my PTI is bullish by 54.

ARTICLE ON INTUITION

2011-03-31T09:34:00.000+11:00

Guidelines for Inner Listening and Intuitive Access

by Lee Coit

Lee is an author and lecturer on the topic of spirituality and awareness. Van has been friends with Lee for decades and in the early 90s, Lee taught the Mental Strategies Workshop with Van. While the content of this article should be familiar to long-term Van Tharp readers, it comes from another messenger and is always worth repeating.

Intuition is knowledge that you can access; however, it is not contained in the logical part of your mind. The logical part of your mind has been over-trained while the other valuable part of your mind where intuition resides most likely has been overlooked. I believe all aspects of your mind have valuable and unique functions, so I’d like to share with you some ways you can increase access to your intuitive abilities.

Quiet your logical mind. Your mind’s intuitive aspect will not overpower the logical side because you currently give more credence to logical thinking and the feeling of being in control. You can encourage access to the intuitive side, however, by creating a tranquil atmosphere in which you remove stimuli for the logical part of your mind. In the process, however, be sure that your logical mind does not become involved analyzing the beauty or activity that is happening around you.

Sit in a comfortable position: one in which you can relax but won’t fall asleep. There is no mystery in meditation; you simply create a neutral situation which does not stimulate your logical brain. If you find it difficult to sit and meditate, try doing something you love such as gardening or walking. When faced with very difficult situations, I find it helpful to do something with enough physical effort involved to keep my mind busy. If this does not work, I increase my physical activity until I get tired. Then I sit down to meditate. One sure way to access your intuitive mind to place yourself in a situation in which there is no seeming logical solution. An example would be one of imminent danger. In such situations the logical mind gives up after running out of solutions, now the intuitive mind can be heard. As effective as it is, I do not recommend people pursue imminently dangerous situations as a meditation method.

Watch your thoughts as you meditate. Do not try to consciously stop thinking or try to block out thoughts. This will only raise your anxiety level. Close your eyes and watch your thoughts but do not hold on to them. See your thoughts as a moving billboard, observe them and let them move on. As you do this, you will eventually come to a place where you are not aware of thinking. A helpful adjunct to this practice is to watch your breathing. Inhale deeply and then let the breath out slowly. Repeat this procedure for several minutes remaining aware of the inflow and outflow of air in your body. If you get to the place where you see colors, hear sounds or buzzing in your ears, or are startled by the realization that you have not had a conscious thought for some time, you are doing very well.

Create a routine for your meditation. It is best to meditate early in the morning before the "busy-ness" of the day intrudes on you. You can start by meditating for just a few minutes and then extend your time to 10, 15, or even 30 minutes. It is good to keep a note pad beside you for both interrupting thoughts and insights. If thoughts occur to you as you meditate, write them down so your mind can let them go. You may want to follow up this meditation time with a few moments of writing in a daily diary. This can create a nice stream of consciousness for future reference. Read what you have written down the following day.

Read from a spiritual or personally meaningful book before you enter mediation. This helps to set your mind in a good place and to create a theme for your meditation that day.

Write down insights that you receive during mediation or later during the day. This gives the insights more validity in your mind. Whenever possible, act on these intuitive thoughts or at least take steps that will lead to their incorporation in to your life. Meditation will always be a game if you treat it as such. If you have questions that you want answered, write the questions down before the meditation and ask to have clarity concerning them. Do not let them become the only reason for your meditation as this can focus your logical mind on problem-solving. Your logical mind would love nothing more than to interrupt your meditation as it struggles to solve the problem.

Don’t problem solve while mediating. Meditation is for quieting your mind and creating a clean slate on which you can receive new information. The answers will come in their own time and in their own form. They may or may not come in meditation and you may or may not recognize them when they arrive. Have faith that intuition works and that solutions will come. Often it has been my experience that I receive an answer in a very different form than what I expected. For example, I often find that the problem for which I am seeking a solution is not a problem after all. I can assure you that intuition works very well. Most of the great discoveries and technical breakthroughs are the result of intuition and not logic or formal experimentation. As Einstein said, "You cannot solve a problem at the level of the problem." Intuition and creativity are ways of rising above the problem so it can be seen in a new light and from a different viewpoint.

Intuitive solutions are different from logical solutions. As I said before, intuitive solutions come in their own time and cannot be rushed. You may think you need to have an answer but intuition does not provide the solution until all aspects of the "problem" are ready. Intuition taps into universal knowledge and universal timing.

The intuitive solution is inclusive and universal—the information you receive includes everyone and everything involved. If you prefer, it is a cosmic or macro viewpoint. Logical thinking tends to look at the "problem" from your individual or micro point of view. Creativity looks at all aspects and all viewpoints and tends to see the total picture and not just one viewpoint. Logical thinking can seem much more appealing because it gives us the feeling of control while the opposite is true of intuitive thinking. Since intuition includes everyone and everything in the situation, you may feel like you are involved in something larger—something knowable but not controllable. The intuitive solution is quite different in form; it takes practice to recognize and utilize it.

Use your intuitive senses in small ways. As you put intuition to use in your life, you will begin to see the benefits it brings to you in terms of abundance and happiness. These benefits will increase your confidence in your intuitive ability. As you use and learn to trust this ability, it will become more natural for you to use it in more complicated situations. Again I caution you to not make this a game, a way of showing off, or a new form of behavior justification. Keep your intuitive sense to yourself and nurture it through application and commitment.

Be alert for intuitive information from all sources, all the time. I call this inner "listening" because all the time I am "listening" for messages, clarity, and insights. Discerning when you get these insights can be quite a challenge. The audio example I use is of an "Aha!" and the visual example is that of a light bulb going on. These are positive experiences as if one is suddenly aware of a new twist or dimension. They come as clarity or as all the pieces falling together in your mind. The information may be in a stream of meaningless material of which one part sticks in your mind or carries a very definite image. The source can be from what you may consider positive, but it also can arrive in a negative form. Inner "listening" is not the same as a fearful or cautious thought, though it may be in the form of taking care and not proceeding with a project. The hardest part is to differentiate between fearful or limited thinking and real intuition and insights. The first is based on past experiences; the source is your limited mind reminding you of potential pitfalls. Insights and intuition come from your contact with the unlimited source and leave you with a feeling of clarity and awareness. When I say be alert all the time, I mean while you are awake. Do not forego your sleeping time. If you have a strong or reoccurring dream, "listen" to its message. Make an effort to recall dreams in the morning and during meditation to ask if they held any messages.

Awareness is the key to inner "listening." Honesty is required of all who choose to follow the intuitive path because most problems, while seeming to be outside of us, come from our own blocks to receiving the unlimited potential awaiting us. It is very easy to blame our problems on others or the current economic situation. If we do this, we will never hear the answers that come to help us change our thinking. We must also realize that we have the power to change our thinking and thereby our experience of any situation. Intuition and inner "listening" show us the mis-thinking that caused our problem, but only if we are willing to honestly assess how we created the results we have.

"Accepting" is an important step towards happiness and abundance.

Lee's books are available on Amazon.

About the Author: Lee has written books about his metaphysical journey, called Listening, Accepting, Being, and Awakening. Van wrote the foreword to Lee’s newest book Awakening, and we currently have some in stock in the office at $10 each. (Please email to order, info@iitm.com).

I HAVE QUOTED THIS BEFORE

2011-02-20T15:33:00.001+11:00

By 1939, Treasury Secretary Henry Morgenthau conceded to Congress: “We are spending more money than we have ever spent before, and it does not work... After eight years of this administration, we have just as much unemployment as when we started... and an enormous debt, to boot.”

BREAKING RECORDS

2011-02-20T15:32:00.001+11:00

As of this week, the S&P 500 has doubled from its March 2009 low, the infamous 666.
The Wall Street Journal was quick to note that it took place in just 707 days -- the fastest doubling of the S&P since 1936. Back then, it was a mere 501 days.

The Dow has a few hundred more points to go before it reaches the same milestone… but it’s climbed in less than two years from a low of 6,547 to 12,318 today:

I REALLY LIKE DAN'S DIAGONAL WAVE COUNT

2011-02-07T20:45:00.001+11:00

http://2.bp.blogspot.com/_TwUS3GyHKsQ/TUxz86APCKI/AAAAAAAAImU/U64IxHFFEhg/s1600/spx5.png

this stat was before the trade on 19 Jan 2011

2011-01-20T10:57:00.001+11:00

The current buying stampede is legend with the DJIA experiencing no more than three consecutive days on the downside over the past 93 sessions

HOUSE PRICE DEFLATION NOT OVER

2011-01-13T17:02:00.001+11:00

As per David Rosenbergs site today, I found this most interesting. Especially as I am a reversion to the mean type of guy.

Brilliant Essay by Van Tharp on Beliefs

2010-12-24T12:27:00.003+11:00

What Most of Us Believe Is Probably Not Very Useful

by Van K. Tharp Ph.D.

How human beings work has always fascinated me. I received my bachelor’s degree in psychology in the 1960s when the field of psychology was dominated by behaviorism. The mantra was "Understand the stimulation one receives and you can figure out the responses you'll get." I, however, found this idea limiting; I didn’t believe it showed how we really work.

I pursued a doctorate in biological psychology to go beyond behaviorism, but I found out that behaviorism dominated that field also: “Stimulate this part of the brain and notice the responses you get.” “Cut out another part and notice the differences.” It was more of the same! I wanted something more.

Upon graduating with my Ph.D., I discovered it’s easy to get published if you write a paper that agrees with the scientific community, with perhaps a slightly different take. But if your ideas are too different, then getting published is very difficult. I remember reading, The Structure of Scientific Revolutions, which helped me make sense of this phenomenon. It detailed progress in science and how that usually comes from someone outside of the primary area of research, usually with great resistance.

While working as a researcher, I came across Neurolinguistic Programming (NLP). How people thought and acted finally made a lot more sense to me after that. As I had suspected, thinking and behavior had nothing to do with stimulus-response relationships. I discovered that that anyone could learn to do what others did through the process of modeling. Modeling requires that you find successful people in a particular area and learn how they think and what they do. By finding the three common elements in these people's tasks, an NLP practitioner can model and teach the same process to other people. The ingredients (i.e., the sequence of our thinking), for those of you who have not read The Peak Performance Course, are beliefs, mental states, and mental strategies.

Over time, I've modeled trading, wealth accumulation, system development, position sizing™ strategies, and even how top brokers perform. And I came to the conclusion that most people believe the opposite of what is necessary for success.

As an example, let's look at a few of the beliefs of mainstream versus successful traders.

Old Belief/Mainstream	New Belief/Success Modeling	Area Modeled
Learn how to pick stocks well.	Understand reward-to-risk ratios.	Trading
Asset allocation and diversification are critical.	You achieve your objectives through position sizing strategies.	Position Sizing Strategies
There is a magic system.	You need trading systems that fit you and the current market type.	System Development
Winning the money game amounts to having a lot of money.	When your passive income is greater than your expenses, you are infinitely wealthy.	Wealth
Analyze the markets well.	Analyze yourself well.	Trading
Risk it all under the right conditions.	Find a position sizing strategy that fits your objectives.	Position Sizing Strategies
Find high probability entries and setups.	You make money through your exits.	System Development
You can afford it if the down payment and the monthly payments are small.	What you own tends to eat you financially.	Wealth

I could go on and on, but you get the idea. Remember: you don’t trade the markets, you trade your beliefs about the markets.

After many years of study, it’s obvious to me that beliefs create your reality. It's as if the movie, The Matrix, has come true. Society tends to program you with certain beliefs, most of which are not true, at least as measured by their impact on success. Thus, taking the "red pill" amounts to determining how you shape your reality with your beliefs, which allows you to discover beliefs that are not useful and then reprogram yourself to have more useful beliefs.

As I began to understand the impact of beliefs, I also learned about belief hierarchies, which indicate that certain types of beliefs carry significantly more weight than others. Beliefs about yourself tend to be very influential as they determine your sense of "who you are." Beliefs about the universe tend to be even more important because they shape your reality. For example, if you believe the universe is a friendly place, you are open to everything because you are not afraid. If you believe that the universe is a dangerous place, you'll isolate yourself and build defenses to protect yourself.

When I studied psychology as an undergraduate, psychology was trying to be a science. In fact, it was modeling itself after Newtonian physics even though quantum physics as a general model had already displaced Newtonian physics. I pursued my Ph.D. 40 years ago so I recently spoke to a new psychology graduate to determine if the study of psychology had changed much since then. My first question was "Is psychology still trying to prove itself to be a science?" Her response: "Oh, we are a science." That response prompted me to check some of their assumptions, so I asked, "Are you taught that our beliefs shape our reality?" She responded, “Oh, I don’t believe that.” I didn’t bother to ask any more questions; nothing has changed.

The Belief Examination Paradigm

Since beliefs create our reality, I have a general set of questions you should ask yourself when examining your beliefs that I call the Belief Examination Paradigm.

1. “Where did the belief come from?” It’s often useful to know how you came to have a particular belief.

2. “What does that belief get me into?” And you should be able to list about 10 things that happen when you have the belief.

3. “What does that belief get me out of?” Most people have trouble with this because they are stuck in the belief. Another way of saying it might be, “Who would I be without this belief?”

4. “Is the belief useful?” and “Does it have charge?” If it’s not useful and doesn’t have charge, it is easy to change the belief. If, however, the belief does have charge, you must release the charge before you can change the belief.

It used to be hard for many people to change their beliefs. But people’s level of awareness has increased dramatically over the last 20 years and now most people can understand, for example, how some of the old trading beliefs in the above table are not nearly as useful as the new beliefs.

Let’s go a little deeper. What happens to you when you wear a belief? Here is an example of a belief that a trader might have:

“I’d be a great investor if I could just pick stocks like Warren Buffet.”

Let's run it through the Belief Examination Paradigm.

Belief Examination Paradigm

1. Who gave it to me?

a. Probably the media or the titles of various books. It’s what’s taught generally about investing: Warren Buffet is the world’s greatest investor. He’s a stock picker, so in order to be great, I need to pick great stocks, too.

Is there evidence for it?

b. Well, there are a lot of books promoting this concept. And Warren Buffet is a great stock picker… according to these books.

2. What does it get me into?

a. It gets me into trying to pick stocks.
b. It gets me into reading books about how to pick stocks.
c. It gets me into finding good criteria to pick stocks.
d. It gets me into wanting to be like Warren Buffet.
e. It gets me into buying Berkshire Hathaway stock so I can go to the annual meeting and hear Warren Buffet speak.
f. It gets me into thinking there is a magic formula for picking stocks.
g. It gets me into watching “stock picking” shows on the financial news media network.
h. It gets me into thinking that when someone’s picks don’t work out that he is a poor stock picker.
i. It gets me into thinking that I’m a poor stock picker because most of mine don’t work out.

I could go on and on, but you get the picture. Now let’s look at the third question.

3. What does it get me out of?

a. It gets me out of looking at what else might be important to trading:

i. me
ii. exits
iii. position sizing strategies
iv. reward-to-risk ratios

b. It gets me into thinking that Warren Buffet is a total genius and out of looking at his failures.
c. It gets me out of thinking short term.
d. It gets me out of thinking, “How would I know if I were wrong about this position?”
e. It gets me out of critical thinking.

Again, I could keep going. Most people have a lot of trouble with this question because they have trouble stepping out of themselves and seeing what life might be like without the belief.

At this point, you would answer the last question one of two ways: ”Yes, it is useful,” if you think that stock picking has something to offer to success or “No, it’s not useful,” if you really realize that other factors are more important.

I’ve seen people take beliefs, that almost everyone else would recognize as limiting, and defend them with every ounce of energy that they have. It is that important for them to be right. So when I say one of my criteria for a good trader is the willingness to work themselves, what I’m looking for is an openness to examine everything, including rigid beliefs at the identity and spiritual level. And this doesn’t mean that they accept my beliefs, it simply means that they are open.

Personal Responsibility and the Belief Examination Paradigm

I’ve always said that personal responsibility is the most important trait any trader can have because personal responsibility gives you the power to improve. However, there are many levels to this.

At the first level, personal responsibility means that you are responsible for your reactions to whatever happens to you. For example, you might notice that you get angry when the market does X. Well, not every trader gets angry when the market does X and that probably isn’t a useful response. When you are able to accept this, you can use the techniques we teach to change your beliefs and mental states.

At the second level, personal responsibility means that you create your reality through your beliefs and emotions. This idea has been around throughout history and it’s been recently popularized through Rhonda Byrne’s The Secret. If you take personal responsibility to this level, you literally believe you create your own reality. And obviously, if you realize this (and believe it), then you can create an amazing reality. And if you believe that you don’t, then you won’t, which means that you did. (That, by the way, is a paraphrase of one of my favorite quotes from Harry Palmer and it really fits here). Can you notice how important the word "belief" becomes in this context?

At the next level, if you believe that we do create our own reality through our beliefs and thoughts and emotions, then also we do this collectively in our cultures and societies. The reality we create is a collective illusion—one that is full of separateness and judgment. At their core, every spiritual path recognizes this illusory world.

Quantum physics offers an intriguing idea for this level—there is no difference between matter and energy (i.e., E = MC2). The universe is an unlimited field of pure potential through which creation happens. Neo came to understand the possibilities of this idea at the end of The Matrix when he suddenly realized that he could go “beyond the Matrix.”

When you begin to take personal responsibility to this level, all sorts of changes happen. You take trading to another level and at the same time trading itself does not even matter. But that’s another story.

I’d like to conclude with an excerpt from a beautiful PowerPoint full of quotes from A Course in Miracles. It’s called Jewels: http://www.youtube.com/watch?v=vzGFvb-IjuY

Part if of it goes as follows:

The oneness of the Creator and creation is your wholeness, your sanity, and your limitless power. This limitless power is God’s gift to you because IT IS what you are. If you dissociate your mind from it, you are perceiving the most powerful force in the universe as weak, because you do not believe you are a part of it.

If you have trouble taking personal responsibility to this level, then “you are perceiving the most powerful force in the universe as weak, because you do not believe you are a part of it.” And you don’t even have to believe that, at least for now. You just need to be open to the possibility.

ONE of MY GURUS

2010-12-24T12:27:00.001+11:00

I have been following Dr Van Tharp for years, he is one of my gurus, and I was lucky enough to do one of his workshops, one of the most spiritual insightful courses I have ever been on. Talk about getting emotionally exposed in a group environment like none other I have been on, hey and I am an open guy.

What Most of Us Believe Is Probably Not Very Useful

by Van K. Tharp Ph.D.

As an example, let's look at a few of the beliefs of mainstream versus successful traders.

Old Belief/Mainstream	New Belief/Success Modeling	Area Modeled
Learn how to pick stocks well.	Understand reward-to-risk ratios.	Trading
Asset allocation and diversification are critical.	You achieve your objectives through position sizing strategies.	Position Sizing Strategies
There is a magic system.	You need trading systems that fit you and the current market type.	System Development
Winning the money game amounts to having a lot of money.	When your passive income is greater than your expenses, you are infinitely wealthy.	Wealth
Analyze the markets well.	Analyze yourself well.	Trading
Risk it all under the right conditions.	Find a position sizing strategy that fits your objectives.	Position Sizing Strategies
Find high probability entries and setups.	You make money through your exits.	System Development
You can afford it if the down payment and the monthly payments are small.	What you own tends to eat you financially.	Wealth

I could go on and on, but you get the idea. Remember: you don’t trade the markets, you trade your beliefs about the markets.

The Belief Examination Paradigm

Since beliefs create our reality, I have a general set of questions you should ask yourself when examining your beliefs that I call the Belief Examination Paradigm.

1. “Where did the belief come from?” It’s often useful to know how you came to have a particular belief.

2. “What does that belief get me into?” And you should be able to list about 10 things that happen when you have the belief.

3. “What does that belief get me out of?” Most people have trouble with this because they are stuck in the belief. Another way of saying it might be, “Who would I be without this belief?”

Let’s go a little deeper. What happens to you when you wear a belief? Here is an example of a belief that a trader might have:

“I’d be a great investor if I could just pick stocks like Warren Buffet.”

Let's run it through the Belief Examination Paradigm.

Belief Examination Paradigm

1. Who gave it to me?

Is there evidence for it?

b. Well, there are a lot of books promoting this concept. And Warren Buffet is a great stock picker… according to these books.

2. What does it get me into?

I could go on and on, but you get the picture. Now let’s look at the third question.

3. What does it get me out of?

a. It gets me out of looking at what else might be important to trading:

i. me
ii. exits
iii. position sizing strategies
iv. reward-to-risk ratios

Again, I could keep going. Most people have a lot of trouble with this question because they have trouble stepping out of themselves and seeing what life might be like without the belief.

Personal Responsibility and the Belief Examination Paradigm

I’ve always said that personal responsibility is the most important trait any trader can have because personal responsibility gives you the power to improve. However, there are many levels to this.

I’d like to conclude with an excerpt from a beautiful PowerPoint full of quotes from A Course in Miracles. It’s called Jewels: http://www.youtube.com/watch?v=vzGFvb-IjuY

Part if of it goes as follows:

WE R SO VERY CLOSE

2010-12-22T22:01:00.001+11:00

http://1.bp.blogspot.com/_TwUS3GyHKsQ/TRE9141YW4I/AAAAAAAAITU/oEHQq7IqSoc/s1600/spxdaily.png

TRADING THE BIG ONE

2010-12-21T11:53:00.001+11:00

“Do you have the mental fortitude to accept huge gains?”

“This comment usually gets a hearty laugh, which merely goes to show how little most people have determined it

actually to be a problem. But consider how many times has the following sequence of events occurred? For a full year,

you trade futures contracts, making $1000 here, losing $1500 there, making $3000 here and losing $2000 there. Once

again, you enter a trade because your (trading) method told you to do so. Within a week, you’re up $4000. Your

friend/partner/acquaintance/broker/advisor calls you and, looking out only for your welfare, tells you to take your

profit. You have guts, though, and you wait. The following week, your position is up $8000, the best gain you have

ever experienced. ‘Get out!’ says your friend. You sweat, still hoping for further gains. The next Monday, your

contract opens limit (down) against you. Your friend calls and says, ‘I told you so. You got greedy. But hey, you’re still

way up on the trade. Get out tomorrow.’ The next day, on the opening, you exit the trade, taking a $5000 profit. It’s

your biggest profit of the year, and you click your heels, smiling gratefully, proud of yourself. Then, day after day for

the next six months, you watch the market continue to go in the direction of your original trade. You try to find

another entry point and continue to miss. At the end of six months, your method finally, quietly, calmly says, ‘Get out.’

You check the figures and realize that your initial entry, if held, would have netted $450,000.”

“So what was your problem? Simply that you had allowed yourself, unconsciously, to define your ‘normal’ range of

profit and loss. When the big trade finally came along, you lacked the self esteem to take all it promised . . . who were

you to shoot for such huge gains? Why should you deserve more than your best trade of the year? Then you

abandoned both (trading) method and discipline. To win the game, make sure that you understand why you’re in it.

The big moves in markets only come once or twice a year. Those are the ones which will pay you for all the work, fear,

sweat, and aggravation of the previous years. Don’t miss them for reasons other than those required by your

objectively defined method. The IRS categorizes capital gains as ‘unearned income,’ that’s baloney. It’s hard to make

money in the market. Every time you make, you richly deserve. Don’t ever forget that.”

. . . Robert Prechter – the Elliott Wave Theorist (1992)

QUOTE OF THE DECADE GOES TO ..

2010-12-17T10:09:00.000+11:00

Ben Bernanke back on October 31, 2007 (when the housing and subprime crisis were going to be “contained” — remember that one?):

“It is not the responsibility of the Federal Reserve - nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions.”

FED WATCHING

2010-11-21T13:14:00.002+11:00

I think Bob Prechter says it best

The latest book everyone is raving about.

2010-11-17T17:27:00.001+11:00

Absolutely loved this account, memo to self by this book.

A Day In The Life

Hedge funds are an emotional experience

EXTRACTED FROM MONEY MAVERICKS: CONFESSIONS OF A HEDGE FUND MANAGER BY LARS KROIJER

October 2010

The following represents my experience of a typical day as a hedge fund manager.

6.15am
Wake up. I am using my mobile as alarm clock and since it is in the charger 10 feet away, the snooze button is out of reach. Swiped alarm clock off the night table a while back and broke it. Those who say you get used to the early mornings are filthy liars.

6.35am
Leave home for a brisk walk from Notting Hill to Mayfair through the park. Often hope for rain so that in good conscience I can take an eight-minute £7 taxi ride to South Molton Street coffee shop for my espresso fix instead of walking, before heading to office.

7.10am
Arrive at Holte Capital. Turn on my three computer screens and the world of finance springs into life. All the news sources are set up on my screens so I know within seconds what’s happening in the world and in the markets. Our stocks have tickers entered so flashes will appear if there is any news on them. Within a few minutes I will have an idea of what is going on including checking subject lines of emails from brokers. Nothing. So could have stayed in bed longer. Good joke from friend with link to YouTube which I check out when nobody sees me doing it.

7.50am
Contact our trader to send orders that we want to work today in case they reach the prices we are looking for. Settle down to read a large industry report on oil rigs that I have been looking forward to.

7.52am
Another phone call from broker to go over daily news, which I know already. I don’t need this, and tell him so.

8.00am
Opening auctions for most European markets.

8.07am
Trader tells me one of our stocks is acting funny. Up a lot on heavy volume. Both she and I start calling around to hear what is going on.

8.12am
Excellent. Up $1.2 million. Nice – at that rate I will be Bill Gates by the afternoon even if the profit is less than 0.5 per cent of our current AUM.

8.27am
Company that was up a lot denies local radio rumours that they will be taken over; they want to stay independent. Stock in freefall and I am pissed off that I missed an opportunity to sell some shares.

8.32am
Down $500K on the day now. Nothing good lasts forever – or in this case, more than 20 minutes. I try to go back to reading rig report in slight annoyed state, but phone keeps ringing with people trying to tell us that rumours of takeover are not true. Make a call to my contact at the company to hear if their tone has changed over being open for a takeover, but end up leaving a voicemail. He always told me that some of the other senior people seemed keen to cash out and I want to know if that has changed.

9.00am
Potential recruit John is here on time. We are trying to hire an analyst and this one has a decent résumé. I like him, especially his story about climbing Mount McKinley in Alaska, something I always wanted to do. Ask why he left his previous hedge fund and John tells me that although his performance was excellent, he quit because he and the portfolio manager wanted to focus on different things. Why does nobody ever admit to losing money or getting fired? I don’t catch him out on the bullshit story because he has some interesting trades he is talking about. Besides, I know John’s former boss and can get the real story if we move down the road with him. Doriana knocks on the glass walls of the conference room to gesture that I should take a call. I bid John goodbye and call in Alberto. Alberto is our pit bull who loves digging into the analytical skills of recruits. I get to play the nice guy and have Alberto find out if they can add and subtract or know how to do a cash flow analysis.

10.20am
Was I in there for over an hour? Must get more focused. I start going through the 15 emails that made it through the filter since I went into meeting and print out three reports to read later. Our trader Sarah asks if I want to change the limit on one of our trades since it is so close but we are getting nothing done. I tell her to use her best judgement. Also return call to our lawyer. He wanted to tell me about the latest tax planning scheme. I hear too many of those and thankfully have Brian to sort through them.

11.00am
We are just about flat for the day so every couple of seconds P&L is blinking with a small black number to say we are up, then with red numbers to say we are losing money. Black – red – red – black – black. It can become hypnotic. I turn off the automatic update function on my computer and now it will only recalculate the P&L when I hit F9. I still hit F9 much too often. Only on page seven of the rig report which is 42 pages long, but now I am making progress.

11.30am
Leave for noon lunch in the City with company management for Dutch IT provider. I am heading there with Andy, a friend who works at a large US fund in Mayfair. We chat about trades in the taxi and discuss the crazy housing bubble in London. Something is going to have to give and I would not want to own a mortgage bank when it does. Lunch is near the top floor of Tower 42, one of the tallest buildings in London. It has a beautiful view south across the River Thames and all the way to green hills where the world of finance does not dominate every second of the day. I recognise a couple of faces and we nod acknowledgement. The CEO basically reads from the presentation and some of the guests have a hard time staying awake, including me. I should have had them come to our offices, but I sometimes like going to the group lunches so I can hear the questions from other managers and see how management presents.

1.30pm
Back in the office. P&L now up $500K which is better, but does not rock my world.

1.35pm
Call Puk to tell her that I will not be home for dinner. She told me I had promised to have dinner with her and her mum who is visiting town. I say sorry and promise to make it up. ‘You always say that,’ she says.

2.10pm
Resume my rig report, but Oliver wants to talk about a new banking trade. If you eliminate the listed US and Polish units from Bank of Ireland, the remaining Irish domestic businesses trade much higher than their local competitors despite a very similar business profile. We could short Bank of Ireland, go long the two subsidiaries and the cheaper Irish competitors to lock in the spread. Sounds interesting, but Oliver has been on a bad run of losing trades and I need to look at this more closely before committing. ‘But it is at such good levels now,’ he says, still standing by my desk. I stall him again, then wonder whether I should go through Oliver’s analysis before finishing my rig report. I don’t want him to think I’m ignoring him.

2.46pm
I have a headache and try to kill it with my fifth coffee of the day. I can’t focus on my report and keep getting my semi-submersible oil rigs confused so I take a ten minute Internet ‘break’ and check out CNN and an interesting article in NY Times magazine. Bloomberg is great for that. Even if you are reading a Bloomberg article on football, the screen setup looks exactly the same as if you were reading work stuff and nobody can tell you are not working.

3.15pm
Analyst for one of our bigger investors calls for a quick update. Just wants to know what made and lost money last month so he can put it in his internal report. I worry slightly when he tells me that a lot of other funds did similarly to us last month. ‘We don’t want to correlate,’ I think. He tells us again that they would be keen for us to take more risk.

4.05pm
Zach, another of our analysts, tells me he is ‘200% certain’ that a German company will dividend out their large cash holding and that the resulting entity will be bought by Deutsche Telecom and that we should act now. A couple of days ago he was only 110% sure of something that did not happen, so 200% is clearly better. I once told him that I considered something 90–95% likely and he clearly understood that to mean a 50/50 chance. I enjoy making fun of each other over the way we express things, but get annoyed when it leads to misunderstandings in real probability calculations.

4.25pm
Closing auctions start. Quiet day, but we ended with a small $250K profit. Not quite a rounding error but close. There won’t be many trades for Doriana to book into the system, which is just as well as we have a cake surprise ready for her birthday. I doubt it will be a real surprise as she is normally the one to get the cake when it is somebody else’s birthday. Means I will have to skip my closing bell Starbucks run.

4.47pm
Sit down with one of the guys to discuss insurance trade. We have kept track of the portfolio of a UK insurance company and notice that the value of their investment portfolio has fallen far more than the value of the company. We study in detail the duration of their bond portfolio as we think there is a mismatch with the company’s longer-term insurance liabilities. We also note that they are involved with all sorts of default swaps that they have no business being involved in – typically a bad sign. We agree that there is a trade here at some point.

5.55pm
Brian asks me to sit in on a call with Morgan. Someone there says he has a philosophical issue with reducing a certain fee even if it is easy in practical terms. I tell him that I doubt Credit Suisse has philosophical or other issues with it and he reluctantly concedes the point. Probably a good thing we now have two competing prime brokers, even if it means our relationship will be less close.

6.30pm
Leaving the office to have drinks with a friend before dinner with a broker. I managed to read 32 pages of my rig report, which is better than some days. My friend is thinking about starting a hedge fund and tells me how he plans to raise $50 million through friends and family and then build a track record before going to $400 million and up from there. I am irritated by the implication that, ‘If you could do it then surely anyone can.’ If I had a dollar for every time someone has told me that exact plan...

7.45pm
I go back to the office to pick up the other guys and we go to dinner at a nice French restaurant with a Swiss broker who turns up 10 minutes after us. Why do these dinners always have to start at 8pm when most of us finish our work day at 6.30 or 7pm and are keen to get home on the early side? It’s almost as if the broker does not think we can have a good time unless we leave the restaurant around 11pm having drunk too much. Really nice guy though – knows how to keep conversation flowing easily. Brought along a couple of younger guys who are clearly being trained in client entertainment. Main guy talks about a couple of trades, but those we are interested in we already know much better than the 30-second spin he gives us, and the rest are not really what we are looking for. Worth a try though.

11.30pm
Home in bed. Fall asleep before I hit the pillow.

The above account represents a hypothetical composite day, drawn from real experiences. While it gives, I believe, a realistic flavour of the daily Holte Capital routine, it fails to convey that one of the great things about running a hedge fund was enjoying the diversity of challenges that each day brought. And it only hints at the higher personal costs. When my wife Puk gave birth to our twin girls, Anna and Sofia, in December 2004, I was back at my desk within 48 hours and for the first three years of their lives I rarely saw them between the time we tucked them in on Sunday night and the moment we woke them the following Saturday morning. I left the house before they got up, and returned in the evening after they had gone to bed. Some Saturday mornings in the early days, my daughters would give me the puzzled look they would normally reserve for strangers, whereas friends of mine would proudly describe how close they were to their kids. Running a hedge fund was obviously a 24/7 proposition, but I was also guilty of being unable to disconnect. When we took our rare holidays I would constantly be on the computer to deal with some real or perceived crisis at the office. I would frequently find excuses to call in to hear what the daily P&L looked like. Eventually I decided that the best way to save me from myself was to go west for family holidays. In the Caribbean, the London trading day would be half done by the time we got out of bed in the morning and despite my best efforts to ruin my own holiday there were only so many hours left in the day to do so before the markets closed for the day. By contrast, if we were in Egypt or Dubai, Puk would comment on how I seemed absent-minded as we sat down to dinner – while I was thinking about the closing market auctions that would be going on right then.

Although the stress of running a hedge fund was unusually high during the week, the working hours were no longer than those of my peers from business school and I would rarely work weekends. Comparing this with my investment banker or consulting friends, the whole thing was really a bit of a breeze...right!

Despite the predictable sacrifices, I loved the freedom my job offered, and considered myself incredibly lucky. I did what I found interesting instead of being a cog in a corporate wheel where my time would effectively be allocated by others. I remember often laughing to myself at the stark contrast between my time at Holte Capital and my early days as an analyst in the dungeons of Lazard Frères when my typical day would go something like this:

8.30am
Turn up in your sharpest suit ready to be one of this generation’s masters of the universe. You hope nobody notices you are wearing the suit for the fifth day running.

If busy or caught not looking busy:

9am–11pm or later
Get screamed at by sadist superiors often out for revenge for the torture they endured while they were in your lowly position a couple of years ago. Make small formatting adjustments in the endless spreadsheets you produce at their pleasure. If I never see another 50-page Excel model with thousands of numbers in varying colours and shades again it will be too soon. Pressure slows when your immediate boss checks out around 10pm, his boss having checked out at 9.30pm, leaving you to complete ‘something we need for tomorrow’.

One night around midnight after about eight months at Lazard I was frantically trying to complete a spreadsheet. I knew the partner on the deal was waiting impatiently in his office. Twice already my phone had rung with the phone display screaming: ‘BRAD EVANS’. What it should really have said was ‘BRAD EVANS. ANGRY PARTNER. EATS BABIES FOR FUN’. He was not happy being kept in the office by a young analyst when he should have had an associate and vice-president buffering his exposure to my youth and inexperience. I finished the last part of the analysis, did a quick double-check and ran downstairs to present my work with the printout still warm in my hand. Brad took the analysis from me without uttering a word. He seemed content as he went over the numbers. Suddenly his demeanour changed to a dour expression and he pulled out his calculator. ‘Oh no,’ I thought, knowing what would come next. He circled a number with a fat blue pen and in pre-rage mode said between gritted teeth: ‘This number is wrong. You’ll need to do it again.’ ‘Sorry,’ I said. ‘There must be a bad link in my spreadsheet.’ ‘SORRY!?’ he yelled contemptuously, before screaming, ‘DON’T BE SORRY. BE RIGHT FOR FUCK’S SAKE. IF THAT NUMBER IS WRONG HOW DO I KNOW THAT ANY NUMBERS ARE RIGHT? THIS IS USELESS SHIT, LARS. BAD, BAD, BAD.’

At this point I was already leaving his office half-expecting him to hurl something at me. Ten feet from his office was where the night-shift word processing staff was sitting. Most of them were aspiring actors or musicians who took the job to pay the bills. A couple of them had been working on the supporting slides for our presentation. They all looked at me as I approached them after my verbal beating and the first guy I approached said, ‘Dude. Nothing can be worth that. He talked to you like you were a dog.’

Note to self: despite putting needles in voodoo dolls of my immediate bosses at the time, I can’t believe that some of those slave masters from the dark side are friends today . . .

If not busy:

Rule number 1: look busy

9am–6pm
Same shit. We did not yet have Internet access in 1994 so we could not surf the net. Bummer. One guy read War and Peace inside a research report.

6pm–7:30pm
Go to the gym. Leave your jacket on the chair so it looks like you have just stepped away for a moment and make sure your screensaver is deactivated. These were the premobile phone days so once you escaped the building you were safe.

7.30pm
Order food. Make sure you order with people who will be too busy to eat so you can use their dinner allowance and get yourself some nice sushi and the miniscule pyrrhic victory that comes with eating well alone in a dull conference room.

9pm
Order car. Take the fire escape stairs down a couple of floors so nobody sees you leaving the office early and thus avoid the 5pm call from the staffing person on Friday telling you that you have been put on a new project.

Lars Kroijer is the author of Money Mavericks: Confessions of a Hedge Fund Manager, published by Financial Times Prentice Hall

WHAT A RUN

2010-10-19T11:47:00.000+11:00

From March 13, 1930 to the final high on April 17, 1930, the market was up on 21 of 26 straight days and never on two consecutives days. Over the last 38 sessions, the Dow has experienced consecutive daily declines just three times.

RE: [Dr Mickson] STOCKS FINALLY FEEL LIKE THEY ARE TOPPING OUT

2010-10-15T10:45:00.000+11:00