HOW THE FED STOLE CAPITALISM

                                  Your Government At Work

The world breathlessly awaits the new round of money printing & currency debasement easing from Weimar Ben today. Like kids tucked in their beds awaiting Christmas morning, thoughts of sugarplums dance collectively in the hearts of most market participants.

It doesn’t matter anymore to the collective crowd that the entire system of finance as we have known it has ceased to exist; all we are left with is the “up or down thumb signal from the emperor”. One guy, who has a track record that couldn’t land him a job as a greeter at Walmart, is going to decide what the economy needs and just how much it needs it. Markets used to decide such matters.

Remember, this is the guy who said back in 2008 that everything was fine regarding the housing market. Somewhere, Stalin is smiling.

What we are left with now is crony capitalism and the prop desks at JPM and Vampire Squid with more money to ramp stocks higher to make you feel good. In the real world, a place most Fed members rarely if ever inhabit, the situation is far, far worse.

My sense is that all that is happening now is a gigantic CYA exercise, so that when SHTF months from now, everyone can point the finger at someone else and say it wasn’t my fault.

I’m writing and posting this before the “magical” moment the world finds out what “The Bernank” has up his sleeve. In a very real sense, in the long run I don’t think it will matter much. The Fed wants interest rates as low as it can get them, thinking this is just what the economy needs. These people are stuck in the 1950’s.

What the economy needs is for Government, at every level, to get the hell out of the way and let people do what they want; this paradigm just isn’t programmed into the elites running things. No, I absolutely need for you to tell me what to do.

So, we wait for the skinny bald guy to tell us which way the wind is blowing and how he is going to make everything OK. Please, I can't stomach the Q & A session with the fawning financial press after the rate decision. Listening to guys like Steve Liesman makes me want to puke. I don’t know about you, but as for me, every time these guys lips move they are lying.

Only sure thing I know is that the math doesn’t lie. We are one day closer to that moment when the entire system collapses from its own weight. Debt doesn’t grow an economy; productivity grows an economy.

In the government dictionary, productivity is defined as money that someone makes that we can confiscate and then pass around to our political pals, who then donate back to us so we can favor those who “see the light”.

Welcome to the Ponzification of Amerika.

Have a good day everyone.

-vegas

THE TRAIN WRECK IS COMING

                                           World Economies

Hold your nose every weekend from here on out. You can absolutely count on the world’s top clowns to conference and decide something incredibly stupid to stink the joint up; the only thing we don’t know is which weekend it will occur.

That Greece and Spain are toast should be no surprise to anybody with a brain. At some point though, math brings everybody back to reality. We are at that point in time and history. Markets are not going to allow the Pols to kick the proverbial can down the road anymore with shady accounting gimmicks.

Of course, when the true SHTF comes, it won’t be during market hours; it will be over a weekend. Big money hedge funds [that are tied in politically], TBTF [to big to fail] banks, and politicians need the time to prepare the inevitable for the masses. When Spain goes bust, it will happen over a weekend; when Greece leaves the Euro, it will happen over a weekend. The carnage will simply be a blimp on the computer screens across the world come Monday morning.

Everything is fine, until it isn’t.

The real train wreck for the world, when it comes, will be here in Amerika; if Fearless Leader gets re-elected it will definitely happen in 2013 or 2014. If Romney gets elected, we may have some time as markets will cut him some slack; but if he turns out to be Bush III, the end comes in 2014 or 2015.

The math doesn’t lie; China is positioning itself to be the world’s next superpower; they own trillions in $$ treasury debt; they will call the shots; they are accumulating oil and precious metals in unbelievable amounts. Remember the Golden Rule?

Them that has the gold makes the rules.

At a time of their choosing, they will walk away from supporting U.S. debt. Who buys it then?

Everybody that sits watching TV, from the relative comfort and safety of your living room, better reconcile the very high probability that life as you know it is going to end and get very, very ugly.

You think riots and anarchy can only happen in Greece? With almost 50 million people on food stamp debit cards [oh, excuse me, nutritional assistance], what happens when those cards don’t get loaded some month? You think millions are gonna sit back and just relax while they starve?

“Snake Pliskin where are you?”

Sure, the straight forward problem is math; the real problem is that there are no leaders willing to bite the bullet and lead.

I don’t know if Mitt Romney can prevent the U.S. from the abyss; I am quite sure Chalky Soetero is planning on it.

Meanwhile ……. It’s the weekend and time for a chuckle. Without further ado …..

Have a good weekend everyone.

-vegas

DEALING WITH TAIL RISK

                                Be Careful: It’s Waiting For You

Before you even make your first demo trade, you must give some serious thought to those events that have a low, to very low, probability of happening in the marketplace. Does your algorithm consider such events? If no, why not? If so, how?

                       Risk? What Risk? Account Balance = $ 0.00

Can you survive a day in which gold has a range of $150? How about a double or triple reversal day where prices cascade lower not once but maybe two or three times?

                        When SHTF, Where are You On This Chart?

It can come twice in a week, and then not be seen for 15 years. It may never happen in your trading career, or it may happen on your very first trading day. It can’t be predicted, but it can be dealt with effectively.

Your highest priority, as a professional trader, is to make sure you will be here tomorrow. No one trade “makes or breaks" you. No one day is going to have your "retirement” trade in it.

                                    When You Meet Tail Risk?

In my 30 + years of trading I have personally seen too many traders become ex-traders because of poor planning of [probability distribution] tail risk.

It is specifically because of tail risk that “The Vegas BFSG Algorithm” does the following:

1)      trades from the side of the highest probability of success, on any given day, where it is determined momentum is greatest based on a very long trading history,

2)      makes every initial opening trade based on intermediate money flows with the highest probability of success [money > information],

3)      places our trade at a crucial juncture in terms of time and price,

4)      forces us to sit on our hands and not risk capital when it is determined the probability of success is not in our favor [ less than 50%], and

5)      Always trades with stops in place. ALWAYS!!

Having said this, it doesn’t mean we never lose money. It means we manage risk and most importantly TAIL RISK.

In an environment of rapidly falling prices yesterday, where gold was down over $50 / oz., we still managed to make money from the long side. The fact that we missed the down move doesn’t concern me: it was an opportunity cost, not a real loss. All we lost was an opportunity, and those are infinite in scope.

Today’s Action & Wrap Up

The algorithm has very specific criteria that initiate “buy mode” and “sell mode”, along probabilistic distributions. We came into the day in “buy mode”. The Asian session had some very mild short covering to start the day, but very quickly prices started to drift lower in choppy trade.

Our first buy signal came at 12:10 AM [Chicago time] at 1568.50. I placed a very tight stop at 1565.50 and it got taken out a few candlesticks later. Loss on that first trade was

$ 3.00 / oz.

Our second buy signal came at 1:00 AM [Chicago time] at 1567. I placed the stop at 1563.90. At 2:20 AM [Chicago time] we got a confirmation top [discussed in the manual and Appendix III] at 1582. Gain on this trade of $15 / oz.

So, for the day we had net profits of $ 12.00 / oz.

Altogether now, Ka-Chingggggggggggggg  [Again]

And because I felt like yesterday was a loser, even though the algorithm scratched out a meager buck, let’s do it again because it feels good to do it twice:

Ka-Chinggggggggggggggggg !! [Oh yea, it does feel good the second time too.]

I got a lot of emails late yesterday, questioning the “buy mode” status of the algorithm. I sum them up as follows:

“I don’t know vegas, stuff looks terrible on the charts. We’re in “buy mode”? Ohh boy.”

Or,

“Man, we’re missing big moves on the downside by not being short; are you sure we should be buying?”

                                     I'm Shocked!! Who Knew?

My response to all was just follow the algorithm. Stop thinking and just follow it. This is where your profits are, not in thinking on the proverbial fly so to speak. What I think, what you think, doesn’t mean squat. Reality doesn’t care!

The power of the algorithm rests in its ability to garner profits from the day, not in any single trade. By itself, any given one trade is not the “load-the-boat-here-we-go trade” for the day. I don’t believe the algorithm has the ability to make that specific of a call. It is the total trades for the day that make the probabilistic argument for profits.

Whether we have to trade once, twice, three times or more, in and of itself simply does not matter. By using proper leverage and stop placement, we are never faced with the prospect of large losses from trading. It simply is not part of the game plan, and this one fact keeps people from destroying themselves while thinking about the market.

Given the results of the day, I rest my case.

Have a good day everyone.

-vegas