Saturday, July 19, 2008

Everybody Gets a Beating...

"Man can be beaten but not defeated." -Santiago- The Old Man and the Sea

A friend of mine by the name of Randy told me how he keeps a record of the winners and losers in the stock market... Interestingly enough, he writes the names of companies on the back of a wooden Phoenix. The Phoenix known as the mythological bird that built its next of cinnamon twigs is engulfed by flames and reduced to ashes. From those ashes a new Phoenix regenerates. The Phoenix was said to heal itself when wounded creating an aura of invincibility.

This Saturday morning I find myself in a very similar position of the Phoenix. Wounded, wiser, and learning some lessons from the University of Wall Street. The lessons learned fall into two categories: 1. Things that I had Control Over. 2. Things I did not have Control Over

Things that I have Control Over:
1. Rule number one, I am trading to make money... and should book winners and cut losers on a regular basis.
2. Rule number Two, never forget Rule Number One!
3. Continue to see the Big Picture in finance and politics... and know that it impacts the small and large investor differently.
4. At the end of the day, I am responsible for my success and failure.

Things that I have No Control Over:
1. Practices like naked-shorting are supposedly illegal. It is interesting that the SEC disallows that practice for three days (three days where the financials got a 25% boost). Now, the SEC is allowing the practice again because it may hurt the overall efficiency of the market... Click Here for more information.

2. From tax payer funds to bailout Freddie Mae, Fannie Mae, Housing Bills, Federal Reserve Powers, and other trends, I am extremely concerned that the rules of a Capitalist Society do not apply to all of us. Click here for a better understanding of the term Moral Hazard

In a recent conversation with an accountant in Cherokee, NC I suggested there was a more complicated problem where there is no failure in the risk-reward scenario of big business. Unfortunately, we are becoming a Communist-Socialist Oligarchy where government stands poised to bailout big business on every turn... terms like "Too Big to Fail" or "May have a Dramatic Effect on the Economy" have become common place. While the Democrats can be accurately accused of handing out bread to the masses, the Republicans are just as guilty of handing out bread to the corporate world.

When I started blogging several months ago, I submitted an article called "The Market Domino Effect". This article suggested that continued bailout of big business coupled with massive entitlement programs will erode the value of the U.S. dollar. While some implications in that article may deserve additional attention, the bottom like is that the conclusions are as fundamentally sound today as they were when the article was published.

Weekly Wrap
The profits from my portfolio were severely eroded this week. I have gone from close to 100% profits to somewhere in the area of 17%. I will try to break things down when I get a chance... This article has taken a bit more time than anticipated... I would prefer to enjoy the last day of vacation. As for my positions, I am still short on this market as I truly believe the more the powers that be tinker, the more volatile it will become. Some parties will be entitled to free bread, others will not. The probability of the financial sector to make good news out of bad, and the losses of companies like COF will still create a downward trend. I don't think there is a plan to bailout credit cards and auto loans....yet.

Thought of the Day
The Bible is often misquoted as saying money is the root of all evil. According to the Book of Timothy 6:10 "The love of money is the root of all evil."

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