Change in market volatility indicates "Institutional Bullying"

So you decided to get into the stock market as kind of a hobby and thought those fancy "Trailing Stop Orders" were convenient because you could "Set them and forget them" eh?

Not so fast.

If you use Scottrade and watch the streaming quotes for the larger companies, you'll notice that buying and selling almost has a breathing pattern, such as with Citigroup [C], blocks of 5,000 shares appear to be continuously bought and sold, almost like someone waiting to play tennis, bouncing the tennis ball up in the air with their racket. These are Institutional investors who play with billions of dollars every day. If they stop breathing a stock, the price will fall.

When I started investing using Scottrade, I was using trailing stop orders to buy or sell stocks, but they were hitting wrong. It was after watching closely that I discovered big institutional investors were messing with price volatility by selling, then "buying to cover," large volumes of shares to shake-out standing trailing stop orders of smaller investors, so I no longer use any trade triggers, but I must be vigilant.

It feels like bullying.

QE3 boosts stocks.

The Federal Reserve may buy even more bad debt from Banks that loaned people money they couldn't afford to repay. This apparently is sending stocks higher in the hopes that companies with bad debt on their books will be restored to the point where they won't be afraid to expand their business, raise their employees salaries and hire more workers.

Banks will take the money and they will do with it what they did with QE1 and QE2 which is nothing at all. They will sit on the money. 

Recession and Recovery

What causes the recession? Huge corporations hoarding trillions of dollars of a currency. This takes money out of circulation.

How do we typically recover from a recession? The government borrows money from its tax payers and gives it to the corporations that couldn't manage their money.

What happens to the money from the government? It gets fed into the individuals or companies that continue to bleed cash into the hands of the companies that continue to hoard the cash.

Who are these companies? http://www.usatoday.com/money/companies/2010-07-28-cashcows28_ST_N.htm

Tweet from @larry_kudlow

@larry_kudlow: Ya gotta love it. All the folks who want a balanced budget amendment to the Constitution. Yet not one has plan to get there.

@SPFLDnet: that says a lot about the type of people who vote in this country.

Sent via BlackBerry by AT&T

Gold will be priced out of this world, but prepare for a huge "- POP! -"

Look out for a sudden surge in gold prices. CNBC reports that gold will be going up to $5,000.00 due to a supply shortage. When this happens, gold mines in progress will likely suddenly release huge quantities onto the open market to produce massive profits, and the price will collapse to an all time low.

Save up your cash for a future buying opportunity. I would start budgeting right now. I don't know if the dollar will be worth anything soon thought, you might start converting to Yuan.

Mortgage backed securities as magic mashed potatoes.

If you have six people and only five potatoes, you make mashed potatoes. A mortgage backed security is similar, which makes this recipe of mashed potatoes magic because it grows, or it was supposed to grow, I mean that's what everybody thought. At least the gullible were lead to believe that everyone thought that.

Mortgage lenders treat mortgages like hot potatoes. Once they sell a borrower a loan, the lender turns around and sells the paper on the loan to an investment broker. The lender has made back his money already and doesn't need to wait for the loan to be paid off to make back the money he loaned plus the interest.

The investment broker buys loan papers from several different lenders. The investment broker wants to make a profit, and also doesn't want risk, so he mashes the loans together into a "derivative" we will call Magic Loan Mashed Potatoes. They are magic because if everything works out in the end, they will grow to at least twice their original size, hopefully more!

The investment broker can sell spoonfuls of magic loan mashed potatoes to investors at a profit. Thus, the investment broker has already made back his money that he spent on the loan papers, plus the price markup for a profit.

The investors have as many spoonfuls of mashed potatoes as they can afford. The investors must wait for all of the loans to be paid off before they can make their own profit, in 15 or 30 years.

Someone bought several spoonfuls of mashed potatoes and started waiting. He waited and waited. He didn't like how long it was going to take. He thought the risk was going to be bad, so he decided to create an insurance company specifically for the mashed potatoes. He made it a corporation so he could sell shares of stock in his insurance company. He based his assets on all the spoonfuls of mashed potatoes he had. Since it looked good at the time, he was able to sell shares of his insurance company, and make back the money he spent on the spoonfuls of mashed potatoes he originally bought. He made a huge profit too.

And in the fullness of time, all the loans were paid off, and everyone made a profit. They all retired happily ever after. This was the plan anyway, if you're an idiot.

Way back at the beginning of the chain, where the lenders were selling the original hot potatoes, the lenders were not selling enough hot potatoes. They were told that they would get large bonuses if they sold enough loans, but not many people were buying loans for homes.

Smart* people were saving up cash and paying for their homes straight-up, without paying any interest. Lenders couldn't lower interest rates enough to make smart people buy loans for homes. What could they do?

The lenders could hook poor, under-educated people by offering Adjustable-Rate-Loans that started out at only 2%, but increased to 7% after a couple of years. Another gimmick is the "interest-only" loans in which you pay only the interest, but only for a set period of time. You must eventually start paying off the principle, which will increase your payments.

Some lenders offered "zero percent financing" which means the payment is still higher because the amount of money that would normally be called "financing" is simply worked into the original price. Nothing is free.

Some lenders were letting borrowers lie about their income, but the bad loan papers somehow made it into the investment broker's magic mashed potato recipe. Some lenders knew that the borrowers could not afford the payments on an adjustable rate mortgage when the interest rate adjusted higher in a couple of years, but the lender also knew it would not be his problem or his bank's problem long before that happened, because the lender would pass along the hot potato to the investment broker.

Since not many smart people buy loans for homes or cars, the investor who created the insurance company was smart enough to know the high failure rate of fancy gimmicky loan types like the "Adjustible Rate Mortgage" and the "Interest Only" loan, and the loan for the car that's interest-free for 6 months or two years.

The investor who created the insurance company and sold shares of his company on the stock market, sold shares to other people who were not invested in the magic mashed potatoes, other people who did not know anything about the magic mashed potatoes.

When the investor who created the insurance company sold enough shares of his own company, he bought an insurance policy against his own magic mashed potatoes, because he knew better.

Gradually, thousands of Adjustable interest rate mortgages adjusted higher. Thousands of interest only loans finished the interest only payments and it became time to start paying the principle. People who were barely getting by because of low wages suddenly found themselves falling behind on their loan payments. On top of home loans, some people were making car payments too. Some people were already struggling with medical bills.

Gas prices went up. Food prices went up. People stopped spending their money and businesses were closing and laying off employees. The unemployment rate went up to ten percent. Lots of people forclosed on their homes and were evicted or walked away.

The investor who created the insurance company filed a claim against his magic mashed potatoes because the mashed potatoes went bad. He made a huge profit. Unfortunately, the price of his insurance company's shares plummeted because his insurance company assets were drained away due to the claims. He later went to the government and asked for a bailout with taxpayer money because his insurance company was "too big to fail."

*"Smart people don't borrow money, ever." -- Dave Ramsey

Poverty level consumers

As a poverty level consumer earning minimum wage, sometimes I'm lucky to get up to 40 hours a week at my job, however there is no overtime allowed.

So, because rent would be 60% of my income, and gas 15%, I choose to live with family. I'm lucky they let me stay.

The only thing I must spend money on is my phone bill, gas for my car, and I buy my own food.

I will eventually be required to replace clothing items, tires for the car, and potentially a mechanical part on my car, so that's what I'm saving for.

One rule for online investors.

One lesson I learned the hard way this week is this:

Always keep a large quantity of cash in your online trading account.

It's too easy to invest all of the cash in the account, after all, cash that's just sitting there isn't really doing anything. It seems to make sense to use as much of it as possible right?

Not when you consider what just happened to the market following the disaster in Japan. I had all but $27 invested. The market took a huge dive and it was easy to sell off my big gainers immediately.

There were a lot of opportunities to buy opening up. Monday, the U.S. markets opened extremely low and started climbing up.

When I sold some stock, I didn't realize that funds from stock sales require several days to settle before I can use them again. It takes nearly as many days to add cash from the bank into the portfolio.

So I was stuck with $27 in the middle of a crashing market. By next week when my funds finally get settled, it will be over. Downwad pressure on consumer spending will be applied by gas prices, food prices, increased taxes on alcohol and tobacco, the removal of collective bargaining rights of public sector workers, potentially followed by the repeal of minimum wage increases in some states to compete for business.

The attempt by state and federal governments to balance their budgets will be a fiscal vortex into oblivion.

I digress. Keep your account at least 50% liquid so you can jump in as soon as you see an opportunity.

The Middle East Crisis and the stock market

Something strange is happening. Massive protests are going on everywhere. Despots are fleeing and the U.S. Secretary of State Hillary Clinton recently testified that Libya could degrade into chaos or anarchy. The word Anarchy has been for years tinged with negative connotations because it has been used by the plutocratic institutions as a smear against their opponents.

Wikipedia defines Anarchism as follows:

Anarchism is a political philosophy which considers the state undesirable, unnecessary, and harmful, and instead promotes a stateless society, or anarchy. It seeks to diminish or even abolish authority in the conduct of human relations. Anarchists widely disagree on what additional criteria are required in anarchism. The Oxford Companion to Philosophy says, "there is no single defining position that all anarchists hold, and those considered anarchists at best share a certain family resemblance." -- http://en.wikipedia.org/wiki/Anarchism

It appears that anarchism is currently working in Egypt and other states that have removed their dictators prior to Libya, however, the main-stream media seems to be focusing on the dismantling of hierarchical leadership, and avoiding the anarchist aftermath that seems to be operating successfully due to social media technology.

Commerce in these newly techno-democratic countries seems to be ramping up faster than ever. The old institutions have fallen away, and this has become the biggest threat to the plutocrats in the U.S.

The collective social communication infrastructure in the U.S. is deliberately fractured into small sub-networks, such as Facebook networks. One cannot add networks, one may only change to another network. On Twitter, you may follow or be followed by any number of people from anywhere, however, it becomes extremely crowded and tweets may blow by like a bullet train without ever being read if one follows too many people.

Techno-democracy in Twitter is difficult because one cannot see feetback after tweeting. To organize like they did in Egypt, one must somehow follow a martyr. There must be some martyr in the West to follow, or an organization to follow that is devoted entirely to the free-flow of information and the enforcement of transparency of government.

We can only trust those who are honest about their motives, and since there are no leaders in the world who are willing to be honest about their motives, we can only trust those who are willing to expose dishonest leaders.

What does this have to do with the Stock Market? Take a look at stock prices as they reflect the rising price of oil. Do they appear differently than at the beginning of the War on Terror, the recessions of 2001 and 2008? It's because nobody believes the rhetoric of the institutional investors and their lapdog business news publishers anymore.

CNTF - China Techfaith Wireless Communications Technology

Sounds like a pretty good deal. FINVIZ.com has this stock tracking along very positive trending lines, as if the concept itself, Wireless Communication in China, doesn't sell it already. I wish I had this back in May when it was only $2 a share.

Nokia tanking,

Nokia (NOK) was riding high back in 2000, with a stock price near $60 per share, by September 2001 it was down to around $14 per share and crawled back out of the shadows to around $40 by November 2007. Then slid and hovered between $10 and $15 all the way through 2009 and most of 2010.

On February 9, Nokia peaked at $11.73, but today, Friday, November 11, 2011, NOK was knocked off the precipice and is about to close at around $9.

Analysts were struggling to rationalize why they should hold on or buy more of the stock. It was reported that the company was making a deal with Microsoft for the use of its smartphone platform, Windows Phone 7 (1) among other strategies, however, the phone may never emerge from the shadows of Apple (AAPL) or Reserch in Motion (RIM).

I'm reminded of Kodak, which peaked at over $90 per share back in 1997, but is now a mere shadow of its former self at $3.63 per share. Oddly, there are over 200,000,000 shares of Kodak still out there. What a bummer.

Some times you just have to let go.

1. http://blog.mobilegamesblog.com/2011/02/nokias-shares-sink-13-28/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MobileGamesBlog+%28Mobile+Games+Blog.com%29 

Pandemonium at CNBC

There was a CG on the screen that showed December sales were up at the same moment they were reporting that inventories are up.

The markets started lower, and has dropped past 0.50 percent today. Do I care? Not really, most of my stocks are not part of the DJIA, mine are mostly "microcap" stocks that have very little capitalization, that are brand-new fresh startups which are nothing like the old behemoths that have been taken over by second-generation silver-spooners with interest only in self-serving profits rather than filling the original need. Yet, TV Money programs keep repeating the conditions of the same old stocks.

At this moment, CNBC is featuring analysts who look at Satellite photos of Walmart and McDonalds parking lots, to make their financial decisions, but the data could just as easily mean that customers have enough money to go elsewhere, as it could mean that people are so desperately poor that they cut their spending at Walmart and McDonalds.

What is so appealing about these TV Money programs is that they convey such melodrama about the stock market that opportunities open up.

ALU (Alcatel-Lucent) is suddenly being featured, rising at the moment like a shooting star, and at a low low price, under $5.00 per share right at this moment. I'm going to keep an eye on it because I'll bet that traders this afternoon are going to start taking huge profits, forcing the stock down by the end of the day. Keep an eye on ALU.