Thursday, March 15, 2012


Optimists who mean well -- but often are not thoroughly evolved -- in the dogmatic practice of their prejudice are quick to call any and every instance of concern or negative perception, "pessimistic" in nature. Frequently this is true -- as with the familiar half-glass of water that can be described as either half full or half empty, depending upon one's general attitude. However, there are instances where critical analysis of a situation reveals the "potential" for very dire outcomes should preventive measures not be taken "immediately" or "as soon as practical" depending upon the criticality (yes that is a word) of the situation. These instances are not pessimistic, but rather, are realistic interpretations that should not be ignored. For example, two people stranded in the middle of a desert with no Oasis in sight and one, half-full canteen of water between them. The optimist wants to use the water to cool his brow, while the realist argues to save it for hydration purposes. Is the optimist correct to insist that the realist is being "pessimistic"? I think not.

On a sidebar: when I was in training for a commercial pilots license, my instructor insisted on very detailed preflight inspections of our aircraft. In flight, any and every little wobble or divergence of a flight instrument was not to be missed or ignored. The training was frustrating beyond belief. I never had a perfect flight, even though my skills advanced continuously toward achieving a certification minimum. The instructor was always better than me, and -- looking back, now that I understand -- was not pushing me, but rather pulling me along to where I needed to be before being allowed to carry people or cargo for hire in an aircraft.

A popular witticism among pilots in training refers to the difference between an amateur pilot and a professional pilot. The amateur is surprised when something goes wrong. The professional is surprised when it does not.

The attitude instilled by this training was to approach a flight plan, aircraft inspection, taxi for take-off, approach to landing, even parking and securing the craft at the end of the day -- approach with the attitude that "Something is wrong with this deal and I am going to find it before it finds me." Now tell me, honestly. Would you rather fly with the pilot who is an eternal optimist, and just knows that everything is good in the world, so not to worry? Just get aboard and let's go! Is the other guy really a "pain in the ___" pessimist?

Now why am I writing about this in the first place? The article I posted by Nouriel Roubini is a very good summary of potential threats in the world today. I hope you read it to the end. But Dr. Roubini is known affectionately -- in the economic arena -- as "Dr. Doom". It seems he always (almost) sees things in a negative light. Do not take this wrong. It is his job to find problems before they surface, and warn the rest of us. He is not a pessimist. Realistically things might not turn out as bad as he points out. And the canteen might have enough water to last until an Oasis is found. Or the aircraft will probably be O.K. with only a little water in the fuel.

When it comes to life and health critical circumstances, combined with efficient use of limited resources -- I hope my "ruling elite" -- whether that be the Governor or the "Head of Household" -- at least knows where to look for problems. It matters not how good one is at handling emergent situations, if one is constantly "surprised" by unexpected events. Sooner or later one will fail to respond properly.

Saturday, March 3, 2012

1.  If Beethoven's Sonata "Pathetique" is playing from my website, pause it.  Now watch and listen to this video.

2.  Now restart Pathetique -- or right click on this link and "Open in New Tab" -- if that music has not started yet.

3.  After the music starts, replay the above video with the speakers muted. Then – and only then – read the following blog entry, which expands my view of the above theory even further. Don’t worry. You will get it at the end.

I have come to believe in a universe that has a simple, underlying, fundamental truth at it's essence. That truth is -- in it's most essential form -- that no other possibility exists. Things are the way they are because it is the only way they can be. However, this essential form is grossly misunderstood by Man, who has a tendency to bring matters unto himself and reduce the universe into a small package that he can get his head around. Truth is, this essential form is greatly obscured toward its core -- as the universe contracts into a black hole -- and all matters become chaotic and more sophisticated. No, this essential form exists in it's purest form at the outer limits, when the universe has expanded toward its limits of expansion -- after the cataclysmic, big-bang -- following its implosion into that black hole and the subsequent explosion into (almost) eternal expansion. At that limit things become very cold and motionless -- as in eternal death of everything that ever existed -- except for the essential nature -- when all matter finds it's soul. That soul speaks and says,"I am" -- and a new age is born. Expansion reverses into contraction, and we begin again.

Fundamental Analysis vs Technical Analysis.

Economic fundamentals move price, while price moves technical indicators. So, it is true that fundamentals lead technicals. However, fundamentals can be very confusing.  Are we to not trade until the fundamentals are completely known and understood?

On the other hand, trying to pick tops and bottoms -- getting in early on new trends -- is mostly an act of greed, brought on by the desire to “milk” every possible pip out of the trade.  Picking tops and bottoms is also a guaranteed way to lose, because the spread costs, whipsaws, and stop-loss attacks by bigger money accounts with market-depth information will usually amount to a net loss.

A break in trend does not mean, "Take a new position because something new is happening.” We have to wait and see.  When a break in trend occurs what one needs to do (if they haven’t already done it) is to determine what price level will be convincing that a new trend has developed.  Reverse entry can be attempted when price reaches that level, and not until then.  All the while, trying to make sense out of the fundamentals, in order to determine whether, or not, a trend reversal is justified. Usually, what a break in trend does mean is just to close positions -- taking profit if in-the-money -- otherwise allowing your stop-loss to decide for you -- because something new might be happening.

Technical indicators cannot predict what the market will be doing, but they do show when the market is not doing what it has been.