Todd Harrison writes:

“I’ve maintained throughout our time together that the mother of all bubbles—debt— would be the final frontier before free market forces shocked asset classes back towards equilibrium. With total debt-to-GDP stretched towards 400%, we reached the zenith of that elasticity in 2008 and the system unwound with great vengeance and furious anger; the gig was up. It’s hard to say what would have happened if we let the market do what the market was in the process of doing. It could have created a domino effect that toppled corporate America from JPMorgan (JPM) to General Electric (GE) to Target (TGT) to Goldman Sachs (GS) to AT&T (T); the commercial paper market was frozen, payrolls would have halted and citizens may have taken to the streets to feed their families. We’re talking potential anarchy here and I’m not prone to hyperbole. The alternative scenario—the one the created a chasm of discord throughout the land—was the evolution of the last gasp bubble, that of Government.com. $800 billion here, $1 trillion there, numbers so enormous they seem silly; the reality is they’re anything but. While we remain in the eye of the storm—the relative calm between the banking crisis and the cumulative comeuppance—a simple yet scary truth remains. We haven’t cured the disease; we’re simply masking the symptoms. I will again remind you that the opposite of love isn’t hate, its apathy. We’ve noted the lower volume during rallies and the higher traffic during the declines—a sign of distribution—but a simpler truth may be emerging, that of burnout. After four—or five, or six—bubbles and bursts, folks are both bitten and shy by the gamesmanship in the marketplace.”

You can’t trade off that writing, but it does put events in context nicely.

Source.

While driving today a caller on some radio show was ranting about how the stock market went from 3000 to 9000 in the nineties and then attributed tax increases legislated by government as the REASON for huge stock gains. Asinine thinking. However, that got me to thinking about the events since November 1994 (a start of dot com craziness). Let’s be frank: we had two massive bubbles in a row. Stocks and then real estate (with stocks to some degree again).

No politician on the right or left started those. No party fixed either situation. Politicians were irrelevant. Animal spirits, human behavior drove it all. We had two massive speculative manias and both sides want to find a way to explain them to their advantage, but they are all con men.

Bottom line, if you can find yourself coming around to the realization that politicians are full of shit hucksters pushing insane amounts of white noise who simply want to get elected (or reelected) — you will be on the path to success.

From the article:

“In studying how to respond to the recent crisis and create a more stable system, central bankers, international officials and others have been focusing on a concept known as “systemic risk.” That’s the type of falling-domino problem that allowed mortgage defaults in the United States to lock up the global financial system because of the complex connections among banks, investment companies, insurers and other firms around the world.”

“Studying?” Nice! It continues:

“Still, some central bankers and regulators are devising ways to try to control systemic risk, and one of the things they are focusing on is its connection to fast run-ups in the prices of real estate or other investments, or a quick expansion of credit and lending.”

Ridiculous. Not going to happen. This is happy talk for those too stupid to know upside or down. Why will this never happen? Regulators can’t stop people from seeking easy riches.

Richard Donchian blazed the trail with the straightforward notion that trading many markets at the same time with the same rules — works:

“When I first got into commodities, no one was interested in a diversified approach. There were cocoa men, cotton men, grain men … they were worlds apart. I was almost the first one who decided to look at all commodities together. Nobody before had looked at the whole picture and had taken a diversified position with the idea of cutting losses short and going with a trend.”

Don’t get hung up on the word “commodity.” His quotation is probably 60 years ago. The key is the STRATEGY, not the INSTRUMENT.

Source.

While John W. Henry seems to be much more focused on his baseball team these days (hey, after 25 years and a billion bucks who can criticize?!), he has some great trading lines over the years:

“I know that when the Fed first raises interest rates after months of lowering them, you do not see them the next day lowering interest rates. And they don’t raise rates and then a few days later or a few weeks later lower them. They raise, raise, raise, raise…[PAUSE]…raise, raise, raise. And then once they lower, they don’t raise, lower, raise, lower, raise, lower. Rather they lower, lower, lower, lower. There are trends that tend to exist, whether they are capital flows or interest rates…if you have enough discipline, or if you only trade a few markets, you don’t need a computer to trade this way.”

Source.

From my 2nd book:

“A movie studio will fund ten movies. A book publisher will fund ten books. In both cases, the producers or publishers often have no idea which one exactly of the ten is going be successful. In fact, they might be lucky if one of the ten is successful. Since they don’t know which one is going be successful, they still have to fund all ten. If nine of those books aren’t successful, well, the publisher is only going to print a small batch to begin with — that equals a small loss. If those movies or books don’t do well, fine. They’re done. The companies cut their losses and get out. However, the movie or book that does really well, the tenth one, pays for the losses from the nine losers. [Trend followers] think of themselves as the publisher, the movie studio, or the casino ‘house.’”

Not everyday talk.

I generally like Fareed Zakaria, but check this out:

Regardless of Buffett’s bailouts, etc. — doesn’t everyone think it is a little odd that anyone would question his ‘money’ acumen? He did after all make a few billion last I checked. And even if he is wearing a beat up tie, telling him to go spend on a new one is the EXACT reason in many ways why we are in the mess we are in!

From NYT:

LONDON — To some, he is a real-life Willy Wonka. To others, he is a Bond-style villain bent on taking over the world’s supply of chocolate. In a stroke, a hedge fund manager here named Anthony Ward has all but cornered the market in cocoa. By one estimate, he has bought enough to make more than five billion chocolate bars. Chocolate lovers here are crying into their Cadbury wrappers — and rival traders are crying foul, saying Mr. Ward is stockpiling cocoa in a bid to drive up already high prices so he can sell later at a big profit. His activities have helped drive cocoa prices on the London market to a 30-year high.

Let me get this straight. One guy bets his left nut to try and make a buck and “rival traders” sit back like sheep complaining that he is trying to make money? What are they trying to do? Lose money? The article continues:

Mr. Ward keep tabs on major cocoa crops. [He says:] “We even have our own weather stations — our very own that no one else has in some parts of the world…”

You don’t need weather stations to trade cocoa. You just need the ‘price.’