SPY now

The trend is up, no hedges.

Look at things as they are...

Look at things as they are, not as your emotions color them. In strategy, you must see your emotional responses to events as a kind of disease that must be remedied. Fear will make you overestimate the enemy and act too defensively. Anger and impatience will draw you into rash actions that will cut off your options. Overconfidence, particularly as a result of success, will make you go too far. Love and affection will blind you to the treacherous maneuvers of those apparently on your side. Even the subtlest gradations of these emotions can color the way you look at events. The only remedy is to be aware that the pull of emotion is inevitable, to notice it when it is happening, and to compensate for it. When you have success, be extra wary. When you are angry, take no action. When you are fearful, know you are going to exaggerate the dangers you face. War demands the utmost in realism, seeing things as they are. The more you can limit or compensate for your emotional responses, the closer you will come to this ideal. ~ The 33 Strategies of War by Robert Greene

Markets.

The world economy is deflating, and the S&P is rallying, these two things don't go well together. When the economy deflates the stock market dives.
 
Investors hope the US and China will agree on a trade deal. Any rally caused by government stimulus and trade deals will fade away and the stock market will decline to new lows. The difficult bit is knowing when the decline will resume. Government interventions can support the market for longer than we can expect.  
 
Inflation is falling which is in line with the start of deflation, I expect goods, services and asset prices to fall in the months ahead. Right now some people are talking about a possible recession in the US. It will take a long time, months before the recession starts and then some time before the depression starts.
 
At the end of the depression a new crisis will emerge, the dollar will collapse. The economic crisis will have taken its toll on the dollar, this will probably cause a run on the dollar and this will trigger a collapse in bond prices. The result will be inflation. The dollar will lose purchasing power, the stock market will be considerably lower and it could take a long time, a decade or more before the stock market reaches the bottom.
 
This will not happen in a straight line, governments will intervene along the way and in the process they'll create some huge rallies like the one we are having now.

Vanguard founder Jack Bogle, who passed away last week, began his book Enough with the following paragraph.

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds,“Yes, but I have something he will never have . . . enough.”

Enjoy your day !!

Good example, LFVN mentioned yesterday.

There are still stocks that are working, like LFVN's break-out today, but got to be fast and nimble in this environment, as lots of them reverse and reverse hard after they break out.

Looks like the machines can't handle VIX above 20 for a long time !

It’s a good idea to keep your eyes on the VIX relative to its 200-day moving average.

Briefly stated, the VIX is the “implied” volatility of the S&P 500. It's where market participants believe market volatility will be over the next 30 days. The VIX doesn’t look backward (historical volatility does), it looks forward. 

The VIX has been above its 200-day moving average since early December,  For long-only traders, it’s been treacherous since early December. For the short side traders, and long volatility traders, the past month and the first few days of January have been a bonanza.

The VIX will eventually move back under its 200-day moving average again and as it does, market behaviour will likely change back again. 

For now, expect heightened daily volatility. And please be careful here because as you’ve seen over the past month, there are a lot of smart people out there, and none have been able to pick a bottom. 

Good luck.

THE SELF-CONFIDENCE FORMULA

This formula is from Napoleon Hill’s classic book, ‘Think and Grow Rich’.  If you haven’t read the book yet, then I highly recommend you read it. Of course, you don’t have to have read the book before putting this effective confidence formula to work for you.

The formula is essentially a declaration that you read to yourself.  It is suggested that you read it aloud, with an open mind, and with faith that it can help fortify your confidence.

It will require some faith on your part, but I can assure you, if you believe in it, it will work.

So without further ado, below is your new highly effective confidence tool that you will be sure to benefit from.

Here you go:

1. I know that I have the ability to achieve the object of my Definite Purpose in life. Therefore, I demand of myself persistent, continuous action towards its attainment, and I here and now promise to take such action.
2. I realise the dominating thoughts of my mind will eventually reproduce themselves in outward, physical action and gradually transform themselves into physical reality. Therefore, I will concentrate my thoughts for 30 minutes daily upon the task of thinking of the person I intend to become, thereby creating in my mind a clear mental picture of that person.
3. I know through the principle of autosuggestion that any desire I persistently hold in my mind will eventually seek expression through some practical means of attaining the object. Therefore, I will devote 10 minutes daily to demanding of myself the development of self-confidence.
4. I have clearly written down a description of my Definite Chief Aim in life. I will never stop trying until I have developed sufficient self-confidence for its attainment.
5. I fully realise that no wealth or position can long endure unless built upon truth and justice. Therefore, I will engage in no transaction that does not benefit all whom it affects. I will succeed by attracting to myself the forces I wish to use, and the cooperation of other people. I will induce others to serve me because of my willingness to serve others.  I will eliminate hatred, envy, jealousy, selfishness and cynicism by developing love for all humanity because I know that a negative attitude towards others can never bring me success.  I will cause others to believe in me, because I will believe in them, and in myself.  I will sign my name to this formula, commit it to memory and repeat it aloud once a day, with full faith that it will gradually influence my thoughts and actions so that I will become a self-reliant and successful person

Do or Don't trust first snap back after a big decline ?

There were a bunch of 5% up days in 2008 and way back in the 1930s.

A 5% up day also marked the bottom in 1970, 1987, 1997, 1998 and 2009.

I never trust first snap back after a big decline.

The American Dream

“In 1923, seven men who had made it to the top of the financial success pyramid met together at the Edgewater Hotel in Chicago. Collectively, they controlled more wealth than the entire United States Treasury, and for years the media had held them up as examples of success. The American Dream

Who were they? Charles M. Schwab, president of the world’s largest steel company; Arthur Cutten, the greatest wheat speculator of his day; Richard Whitney, president of the New York Stock Exchange; Albert Fall, a member of the President’s Cabinet; Jesse Livermore, the greatest bear on Wall Street; Leon Fraser, president of the International Bank of Settlement; and Ivar Kreuger, the head of the world’s largest monopoly.

What happened to them? Schwab and Cutten both died broke; Whitney spent years of his life in Sing Sing penitentiary; Fall also spent years in prison, but was released so he could die at home; and the others? Livermore, Fraser, and Kreuger, committed suicide.”

—Donald McCullogh, Waking From The American Dream

I received this passage from a friend as a friendly reminder that there is more to life than money. Always keep in mind that family, health, spirituality, and many other things should come first before wealth accumulation. Make sure to spend time with your family and loved ones during this holiday season because that is where true wealth and happiness exists.

An even greater happiness comes from giving. Think of something that you can do during the holidays to help others, such as charity or volunteer work, and then go out and do it! 

Wishing you all a Happy Holiday Season!

Enjoying the show from the sidelines !

Deutsche Bank, trading at all time low.

This correction is turning into a Bear Market and Bear Markets usually last anywhere from nine months to three years.

"Keep your powder dry" and be ready to pounce when the time comes.

Remember, secular bull market resets are a good thing.

Keep Your Powder Dry

"What makes a life worth living?"
click to listen

"How to get Wealthy"

Market’s repeated reversals show ‘neither bulls nor bears’ are in charge.

Play small or just enjoy the sideline and let them tire themselves out before joining.

Enjoy your weekend !

With distribution coming soon after a follow through day the possibility of a market bottom coming into question. We'll see, but one thing for sure, expect more volatility.

"1929-1937 period vs 2008-2018:"

   In both cases, the financial crisis caused interest rates to go to zero, forcing central banks to print money to buy financial assets. The resulting asset market rallies drastically increased wealth disparity between rich and poor. [My comment: The reaction by politicians triggered rate hikes, plus the wealth disparity is not an issue because a rising tide lifts all boats, thus people across the board are better off. Technology has made a massive impact over the last 50 years and continues to accelerate in terms of quality of life in the U.S.]

·       Political polarization between left and right occurred globally, and populist/progressive movements popped up everywhere. In the 1930s, populism led to nationalist dictatorships in Italy, Spain and Germany. [My comment: Populism by itself is not the issue but the leftist, progressive thinking which sounds great in theory but often leads to socialism, fascism, and a lower tide for all.]

·       Japan was the China of the 1930s, a rising global economic power. The global response were trade restrictions and eventually an oil embargo. [My comment: Trump is a businessman so does not want to create waves that cause a steep drop in the stock market. Of course, this situation remains in flux.]

·       In 1937, the Fed began tightening monetary policy – U.S. unemployment jumped from to 19 per cent and manufacturing fell by 37 per cent from peak. The Dow Jones Industrial Average cratered -50.2% per cent. [My comment: the situation today is different from 1937. 1937 did not have strong pro-business policies in place as we have today. Instead, we had a socialist government in place (New Deal, etc) which hamstrung many businesses.]

The US devalued the dollar by 41% in 1934 in the throes of the Great Depression. But today's situation is not the same. While Trump’s policies have greatly helped, they have also increased the deficit to more than $1 trillion this  year but a material part of this is Obamacare which has yet to be repealed. That said, are the existing bubbles broad enough to affect the stock market should any or all of these bubbles blow apart? It is claimed the current U.S. household wealth bubble will end the way the last several asset and wealth bubbles did- by The Fed ending loose monetary conditions that caused the bubble in the first place. But this is wrong. Utopian affirmative action with ninja type loans and the equivalent where most anyone would qualify for a home loan created a monstrous real estate bubble which blew apart in 2008. There is arguably no such bubble today, though there are many smaller bubbles, some which I will discuss in a future report, but none sufficiently endemic to cause a replay of 2008. 

Nevertheless, the perception is that the higher the Fed hikes rates, the closer we get to the end of the road. Dalio recently said the rate hikes are now hurting asset prices. Adding fuel to the fire is the quantitative tightening policy which shrinks the balance sheet by $40 billion a month. But the question remains how fast GDP can continue to grow to offset rising rates. If GDP can continue to grow, then this ageing bull market will head higher once again, especially given the still near-record levels of global QE still in place as global economies remain weak thus have no choice but to continue to print.