Wednesday, March 4, 2009

Had Enough?

"FDR - does it look like systemic financial collapse is close? - because it's starting to look that way to me."

First, as you know I think the future is grim and have said so long before the band stopped playing.

Be that as it may, why do you feel stress right now? Here is the deal, people don't feel stressed out at random moments, nor do they feel euphoria by accident. Your brain is invoking a flight response. That is ok, sometimes, it actually is time to run away, sometimes it is not.

This response is not logical, it is visceral.

This is CRITICAL to understand, so let's talk more. Let's say you go to Vegas with $1,000 bucks. You lose your first round of whatever. $25 bucks gone in an instant. Have you had enough?

You lose your second round. Have you had enough?

Third. Gone.

Fourth. Gone.

And so on...

Ask yourself this question, "At what point, exactly, have I had enough?" The exact answer is not obvious, and it is why so many people lose in the stock market. The correct answer is pretty mind boggling. Are you ready for the truth? Can you handle the truth?

The correct answer is that you have no say in the decision, because the decision is not yours. You have been programmed by your DNA. You have no choice. You feel what you feel.

Ok, as crazy as that sounds to some, others will probably buy the idea with some skepticism. But so what?

So what??

So you are a millionaire. If you are programmed and have no say in your emotional reactions, then others are too. So you can train yourself to "know" (not feel) what is going to happen next. It is true.

Every one hits their personal threshold of "had enough" at exactly the same time, plus or minus a little bit of offsetting error.

Training yourself to recognize a deep urge to do something based on some stimulus, or long train of incremental stimuli, is probably the hardest thing to do in trading. When it happens, stop. There are millions of others with their finger on the mouse button. If you "feel" like going all in or throwing in the towel, so does everyone else. You are putting yourself in a big boat and big boats always sink.

Try to do the opposite when your threshold triggers. Can you? Let your brain have control and try not to "feel" anything. It's hard. "Feelings" are the absolute best trading instinct you have - if only you do the opposite, most of the time.

Take note of what people around you are saying. Watch them. There is a common limit to what people will take. This is not art, it is science, as we'll see in our next Elliott analysis, coming soon.

***** TRADING ALERT *****

This leg is not done. We should expect a sharp retracement (in the up direction) at some point, since the last correction was sideways, but the low is not yet in.


  1. Very Interesting. Markets are UNINTUITIVE. Meaning, if you heard it in the pub, it's too late.

    FDR, what do you think of this analysis I just read

    "20k DOW is not so far fetched a possibility when you examine all the inflation that is currently building up in the money supply and is about to be released through quantitative easing. Everything the Fed and Obama's economic team are doing is highly inflationary. Many believe the destructive forces of deflation can not be curbed and will only worsen as the economy contracts. These people do not understand the difference between loose monetary policy in a fiat system which creates bubbles built upon debt (debt is money in our fractional reserve system) and the reckless running of the printing presses engaged in during a monetary hyperinflation.

    This is why I think gold is THE investment of the early twenty first century. The central bankers have the bulk of the world's gold, they currently value the gold they have at $42 dollars an oz. and with all these bailouts and government guarantees against all the financial industries worthless paper assests the central banks will have no choice but to devalue the dollar. They will do this in one of two ways. They can simply revalue all their gold certificates to say 10grand an oz. if they then leverage their gold at say 7 to 1, verses the 50 to 1 they need to leverage their assests right now in order to stand behind all the bad debt they have, and are still currently taking on, this will right the ship of global finance. A de facto gold standard could very quickly restore order and confidence in the banking system they would now own through the various European, British and American governments following nationalization of the west's banking system.

    The other way they can revalue the dollar to gold is by destroying it. The Fed is currently playing a very tricky game in the world's bond and currency exchange markets. They are proping up the dollar but starving regional banks (even the healthy ones) from lending into the real economy. They can support the dollar and maintain hegemony over all markets by artifically holding up the treasury bubble or they can use that money to try to jump start the American consumer economy and debase the dollar in the process. The level of the money supply currently sequestered in treasuries, and other more complex currency exchange markets (which I admit I don't fully as yet understand) is unprecidented. Once too much of that liquidity is released into the fractional reserve lending system hyperinflation could set in very quickly. It is a very fine line keeping the dollar strong enough to push China and Russia around while keeping enough money circulating through main street to keep the U.S. economy from going from critical condition to flat line....

    It doesn't matter if the central bankers do it on purpose or by losing control, the result will be the same.... The price of gold rising exponentially verse all the world's currencies until the U.S. and/or her competitors reinstate a gold standard....

  2. After being in cash the last year I was thinking of putting some money back into the market. Several people at work that pay no attention to their 401Ks are now thinking of pulling out. They've been asking me for advice. Should I pull the trigger and buy?

  3. FDR

    You say this leg is not done yet. Does that mean you no longer think that the market is going mildly higher from 6500 in your long term forcast ?

  4. I should have been more clear. I mean this leg down is not done. The low is not in.

    6500 was an estimation, once we get a little closer to the low we'll have to see how the leg unfolds to call the exact low. I'll post how you know when the low is in, later.

    I do expect the market to go mildly higher after that.

  5. "6500 was an estimation, once we get a little closer to the low we'll have to see how the leg unfolds to call the exact low. I'll post how you know when the low is in, later."

    Thank you FDR

  6. To the first poster...

    I think FDR has been so crystal clear on the gold issue that you are simply beating a dead horse.

    I myself called the gold top last week pretty much exactly.

    Deflation is deflation is deflation is deflation.

  7. To the last poster.

    Hello, I am the first poster.

    Thank you for verifying it. The thing is, as humans, we know nothing of ravaging deflation. Nothing.

    We can read, and we have books, and books tell us something, but only from the 1930's, when there were not such things as "screens", and the war to end all wars had been and gone. Therefore, it is difficult to know what to do or look for, and so it is very natural for people to still keep seeking verification from other learned people as this catastrophe continues to unfold. By its very nature, this is a rare occurrence in terms of man's life expectancy, and not even you have experience in dealing with such economic conditions, however smug you felt about calling the gold top. My bet is that it was not your first call.

    Indeed, there is no guarantee you are right on gold, or even if they do get rid of the FED, or even if the banks do decide to cancel all debts. We just don't know, and so there is no such thing as flogging a dead horse on this one. It is a continual process of verification and progressive understanding.

    Secondly, there is an important message to get across to people, which includes the abolition of the FED. How are you supposed to get the message across if you take your rather pompous and juvenile attitude. "Oh my, look at stupid in the corner, doesn't even know that yet" is not going to win converts.

    Lastly, I had directed the article to FDRAOA, and I am sure he does not need a spokesperson to talk on his behalf at this early stage of his journalistic career. Where will it end? Are you to send out an automated reply? "FDR is not in his office today, but on his behalf I would like to refer to the gentlemen the reply I gave some moments ago. Thank you for your interest in the economy, ..............

  8. Actually, the second poster has a point. FDR in this blog and in MW repeated his views on gold countless times. The fact that you are asking means that you are either stubborn or too lazy to read all the previous installments.

    I'm sorry but it just gets tiring listening to the gold bugs again, and again, and again.

    You can ask 1,000 times but the mid-term trade remains the same and will not change due to your "verification"; namely deflation. Deflation applies to all assets. Most readers of the blog agree and are trading this trend precisely because it is persistent and will last years.

    I am not a spokeperson, just a guy who does not want to see the same arguements repeated 1000 times. I suspect that FDR does not either, and that this is one of the reasons he left MW. Everyday there was somebdoy asking about gold, or asking for a definition of debt based currency.

  9. I'm left confused with all this talk on physicological stuff.

    So, we as humans act because of emotions and feelings, instead of thoughts and critical thinking??

    In order to be good at trading, you need to manage and avoid all feelings?? How can that be achieved?? Like becoming a robot??

    Could you please explain this post again?? It's a little difficult to understand.

  10. I will make this as simple as possible. FDR - You Rock!! I appreciate the fact that you do not engage the whiners(weiners?) who sometimes comment. Anytime. Anywhere. Thank you for helping us.

  11. I posted a link to your Dow 800 call on another site. A person responding with this:

    the FDRalloveragain column is wildly irrational on its own terms. First the claim that the Dow is 97% inflation. That ignores lots of factors. First, it assumes the Dow was correctly valued when it was at 40. No evidence for that. It assumes that growth is 3% every year compounded. False. It assumes that growth and profits (the Dow measure) are identical, obviously wrong as productivity and other factors are involved. So, irrational.

    More irrational is the claim that past inflation means we won't have inflation in the future. No rationale for that whatsoever and historically disproved. Historically, past inflation means future inflation is more likely, not less.

    I stopped reading after two such flagrant errors.

  12. I think we should talk about irrationality.

    If I say I believe in God everything is ok, and I am accepted. If I say the contrary I am now in trouble. If I say I believe in aliens whom I have never seen or talked to the masses think I am out there. The question now is have I talked to God? Have I seen God? No, I haven't but it is ok to believe in Him, right? I think by definition if I could prove God exists then I could prove aliens exist also(He would be the first one)
    When I was a child my parents told me the story of the tooth faerie. They also told me about how Santa clause brought me gifts every Christmas. One day as I was growing up, I found out they had lied to me. I ran to my mother and I said, "I take it there is no tooth faerie either". My mother replied no. I said and what about "God?". She said yes there is...

    It is irrational to not be able to discuss common held beliefs when in reality all we are doing is searching for the truth. Must we scorned those who dare to talk about ideas contrary to popular held beliefs?

    Hollywood makes movies with a common theme good always prevails. Why don't they start making more movies based on reality? It is simple they wouldn't sell. People like to believe that if they are good they will succeed(I am not promoting evil, just talking about reality) We certainly love faerie tales.

    Do we still believe that oil, gold and stocks movement depends on supply and demand forces alone? I would say those forces might be some of the least at work!

  13. Chocolare Man

    Who even cares? The posters here do not, and FDR's spokespeople think he is far too intelligent and far too busy to engage with others these days. These people have stopped engaging an audience, as the above posts verify.

    It makes you wonder why he still even blogs, considering that this superior band of elite economists have obviously "Had enough" of other posters who do not ask the right questions.

    Indeed, as there is space here for questions, one wonders why they even bothered.

    If the questions are old, then I apologize, but for sure, the blog has nothing new to say either.

    Used to read, but my advice to others is to not bother reading this site. It is just an arrogant elitist list of snobby economists with similar attitudes to life, liberty, and others as your average central banker.

    Really very annoyed at the attitude here of the group. Elitism, smugness and arrogance has set in. American values has just evaporated. Really so so so sorry to have bothered you gentlemen (you are certainly not female) and you can all go back to counting your money in your mattress and your 15% gold backed portfolio.

    My, aren't we fantastic, and even better as the others are just fools and idiots.

  14. cman

    You used a lot of words to say nothing

  15. Chocolare Man,

    You're right. Have fun with that fount of knowledge that is MarketWatch. Substance abounds there.

  16. sorry FDR - looks like the mindless dribble you were hoping to escape has followed from MW to your blogsite.

    I hope this does not discourage.

    One thing I've noticed lately is an increase in Internet posters to start vilifying anyone with suspected wealth, as if somehow that is inherently unfair, regardless of the circumstances each individual has in their financial state.

    I see this as one step closer to rationalization for outright confiscation.

  17. Personally I prefer that any squelching of posts come from FDR until he wants to delegate that.

  18. How long until we start having bank holidays? Should be soon I would think.

  19. What we know: FDR's views and opinions can be controversial, even outrageous to some. He realizes that and even mentions it. But I have been downright amazed at the accuracy of his statements and predictions. His calls have been spot on.

    Whether or not you want to believe him, that's up to you. I read all sources, filter out the garbage, take what I can. I feel that I have learned the most from FDR; he is a great educator.

    Bottom line: has your portfolio done well during the past year and a half? Have you safeguarded your assets? Will you and your loved ones survive this once in a lifetime disaster?

  20. I don't feel smug about calling the gold top. I only announced it to my wife. The point is that it is pretty obvious that FDR is correct about deflation.

    As far as all the anger.....?

  21. Did you guys see what Mish Shedlock had to say about gold, "Gold and the US dollar have been rallying together for some time. This is what one would expect to see in deflation after the leverage in gold has been washed out."

    Doesn't dissuade me from what FDR's been saying, but it does show how much the jury is still out for a great many people. Even a deflationist like Mish.

  22. What I found simply amazing was that there were literally hundreds of articles a couple of weeks ago touting gold. I go to the seeking alpha website, and they must have had a dozen gold articles. Marketwatch had a handful of gold articles.

    Since gold has topped (at least IMO it won't go much higher or any higher), EVERY SINGLE GOLD ARTICLE HAS VANISHED.

    I have not seen even one single gold article on seeking alpha, which is a virtual hotbed for every gold bug in the country it seems. None on marketwatch.

    I literally can't find a gold article at any of my regular haunts.

  23. for all the talk about deflation during the GD it is important to remember that gold did go from $21/ounce to $17 at it's low to $35/ounce. So deflation did not really affect gold price although equities dropped 90 percent.

    GDR - parasites sometimes inadvertently kill their hosts - has the Federal Reserve and it's banker owners finally overdone? Have they permanently destroyed the US economy? Was perhaps the consequences of WWII also an example of overreaching greed of by central bankers that ultimately even destroyed their own lives? Perhaps we are on the cusp of another such era.......

  24. yeah, but gold was only FIXED at $35/ounce by FDR (the original FDR). Remember that by 1933 it was ILLEGAL to privately own gold, much less buy it and sell it as a private citizen. So that $35/ounce gold price during the GD has to be taken with a grain of salt, since it wasn't an open-market price.

  25. The other day there was a two page ad in the local paper selling over 4,000 gold coins shipped with a free armor safe.

    If that isn't a sign that gold prices have topped, i don't know what is.

  26. anyone seen this yet?

  27. Breaking news:

    Chris Dodd has approved FDIC to borrow up to 500 billion dollars from bottomless pocket taxpayers.

    Why the FDIC bailout? Apparently this particular sum of money is enough to cover the top five banks in the country should they fail. This was not mentioned as the motivation for the bill obviously, but is the speculative conclusion that some choose to make.

    To me it is a pretty clear signal that banks are going to be closed.

    P.S. this is a repost because I posted it in a different thread by accident...

  28. "How to take over the world’s finances"
    Imagine an international Federal Reserve that creates and controls the money supply for the entire world. The centralization of financial power into the hands of the few would be unprecedented. What power the Fed wields over the United States today, a "global Fed" could soon wield across the entire world.

    Achieving such a power grab, however, is no small task. Nations will not voluntarily surrender power over their currencies…

    Unless there is a crisis!

    In a crisis scenario, nations will give up practically anything — freedoms, finances, and yes, even their own currencies if it means avoiding certain economic disaster. If there’s one thing that the world has learned from 9/11, it’s that the best way to grab power from the People is to either engineer a disaster or piggyback on one that occurs on its own. When faced with the fear of annihilation, the People of any nation will not merely surrender their freedoms and finances, they will beg to turn them over to any apparent "authority" who promises a solution.

    "Problem - Reaction - Solution" approach to mass manipulation.)
    The battle for the future of America is under way right now

    With all this in mind, we are faced with a rather sobering scenario. Even though there are many people within the U.S. power structure who are no doubt attempting to save the U.S. economy and prevent outright collapse, there are almost certainly far more powerful people involved in this game who have as their agenda the creation of a global currency controller. And the rise of that institution necessitates the economic downfall of nations like the U.S. and the U.K., to name just two.

    So there’s a tug of war going on: Some people are trying to save America, and others are actively working to destroy it and eliminate the existing Federal Reserve altogether, defaulting to a single, global "Fed" organization. It’s important to note that regardless of which side of this battle we’re talking about, none of these power elite are looking out for YOU, the People. This is all just a high-level territorial chess match in which you and I are the lowly pawns.

  29. Asked to comment upon: "20k DOW is not so far fetched a possibility when you examine all the inflation that is currently building up"

    Probably written by a guy with his home on the market for 25% above top 2006 dollar, while the builder down the street is boarding up windows on unsold inventory.

    If anyone still honestly expects hyperinflation, I suggest you stick a 'For Sale' sign in your front lawn for $100,000,000 and brace to fight back the crowds.

  30. Dear FDR.

    Your blog posts are very interesting. Some people can only think of inflation. Your deflationary site is interesting reading.

    I have a question.

    So, it is going to be (is) deflationary hell. Fortunately, I have always seen stocks and shares etc as gambling. Equally, I have never trusted anyone with my money. I live on cash, have cash, and have always been happy to live like this as I am under the "radar" of predatory lenders. I am, it has to be said, paranoid about the authorities having any knowledge of my dealing purely on the basis that I feel it undermines my right to be free from within my soul, and not my wallet. My bank account rarely gets touched. But I have nothing to hide, only my own right to a private life. I know that homes and stocks have tumbled in value, but will my daily costs, such as food, water, electricity, and the like come down in value to any recognizable degree?

    Thank you.

  31. daily costs , such as food , water , electricity , and the like is based on your affordability.

    If you can afford more, they will go up in price. If you can only afford less, they will go down in price until you and your needs reach an equilibrium.

  32. Questions for you FDR.

    Do you expect US engaging in military conflicts around 2012, as in world war? Or it might happen around 2020?

  33. "I know that homes and stocks have tumbled in value, but will my daily costs, such as food, water, electricity, and the like come down in value to any recognizable degree?"

    Absolutely, food and utilities will fall drastically in price, but not before highly levered prices like homes and cars.

    The cycle that is cresting is huge, spanning perhaps thousands of years. It won't all culminate to final resolution in a month or two, it will take decades to unwind.

    But it is still useful to understand that long term trends have reversed. For example, those who try to buy and hold, or worse, lever and hold, will be flattened over the long haul.

  34. FDRAOA, I think we understand your reasoning and wisdom as to rampant deflation.

    We are also watching Obama and congress/FED absolutely doing EVERYTHING they can light the torch of inflation again.

    Plus, we have the GMAC example where the govt. gives them money and they are immediately back to lending to anyone who is breathing...

    It is inexcusable how some posters on here are rude and purposely belligerent...but under the veneer of their immature behavior is a very real worry that you're right when 99% of other financial forecasters are wrong.

    I think we just don't realize the ramifications when a REAL Depression starts...when GE is bankrupt and mostly closed down and 3 out of 10 able-bodied workers are standing in line for a government meal.

    If companies are not making money, they cannot stay in business very long. These accounting games they are playing are hiding their losses for now, but that only means when the game ends, their closure will be instantaneous and not a slow descent.

    I will never forget my grandmother telling about the big-strong men standing in line with their wife and kids in Lewisburg, WV crying openly because they could not even earn enough to feed their own family.

    I sincerely hope this never happens again, but at the same time, we sure are economically fractured enough for such to happen. :(


  35. Given topic of the week seems to be psychology, I thought I'd add my take on anonymous' comment on the thread.

    I believe you might be the type who 'sees' a person and instantly begrudges them because they intimidate you intellectually. Too shallow to devote anytime to understanding them, you instantly dismiss them based on your own insecurities.

    That must lead to a really unhappy life, filling yourself with hatred like that. I feel sorry for you but will make one recommendation that will help you avoid being such a bitter, twisted person (Been there, done that): don't come here. Simple. Frees you of ever having to expose yourself to something you find so 'arrogant' etc.

    More importantly, given the subject is presumably economics or finance, isn't it more interesting that FDR was generous enough to share his knowledge with us for free. Check it out for yourself if you want:

    Agree his delivery was arrogant, but maybe that has more to do with naysayers like you criticising him far too early ('Doom and Gloomer' etc.). Surely he's entitled to feel smug after being proven right so many times. He's earned that and has shared his knowledge with you as a person in a chat room. We should be thanking him.

    I don't agree with him on everything, but most of the time he's right.

    Not sure if I'll ever bother posting again. Fed-up with people like you. Just felt it needed to be said. All too many criticisms of those whose neural networks are wired in to simplistic 'schemas'against those of us who actually do have morality about us.

  36. I have not yet read another blog or article that has been as consistently accurate as that posted by FDR here and on Marketwatch. His influence is the reason I sold out at the very Peak of the market.
    Nobody is 100% accurate or able to foresee every outcome. I must however say that I have been utterly amazed at the quality of comment and accuracy of forecast before and during this whole financial event.
    How about keep the discussion polite and respectful.


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