Rebel Traders – Analysis Without The Hype

It has been said numerous times that RebelTraders is only a bear site, in that only bearish news is presented. Is that being objective, or is it merely an echo of reality?

Perhaps if you knew a bit more about me you might adopt a slightly different view of what is presented on my site and why it is I am so adamant about certain viewpoints. You may have a perception that I am a greedy, selfish, or even a stubborn individual who cares only about himself.

While I am bearish on the economy and the markets I am nothing of the above. Outside of the markets and this website I am told I am a very generous person. I give to others without asking anything in return. I volunteer a substantial amount of my time to help others through our fire department, being the coordinator for a local Community Emergency Response Team (CERT), and a member of our towns Office of Emergency Management team. Mrs. Rebel and I live in a very small community and we are both heavily involved in organizations that are all centered on helping those in need. And we never ask anything in return. What we do get in return is the satisfaction of knowing we made a difference in someone’s life in a time of trouble. But this is just how my Wife and I are, it is what we enjoy doing.

The birth of RebelTraders on May 16, 2007 was out of that very same mindset of helping others.  I am told by my family that I sometimes care too much and that I give of myself more than I should. Even this very website is free and provided to all without asking anything in return. When the site readership grew I had to move to my own dedicated server because it outgrew the free blogger service ‘blogger.com’ which is where RebelTraders was born. The costs to maintain and operate this site come out of my own pocket each and every day. While there is some advertising on the site it does not make any profit for me. It just goes towards the upkeep of the site and even then I still must put out my own money. Some have suggested I put up a ‘tip jar’ on the site, but I have even resisted doing that for it would make me feel I’m taking money for something I enjoy doing which is helping others.

Some say I have a chip on my shoulders, that I hold extreme anger against those who speak bullish on the markets. The only chip that I have on my shoulder is angst against those who attempt to take money from others for their own financial benefit. Be it through deceptive marketing, misguided information, or outright lies. I know it is a chip that will always be there for a world that has an open and honest Government and honest business practices will never become a reality in my lifetime. But that does not mean I just lay back and just take it. As long as I have my voice and fingers to type with I will speak my mind and say what I see to be the truth, no matter how many people don’t care for it. I’m not here to please everyone all the time. For if that was my only goal then RebelTraders would have never been born.

I have attended many trading seminars over my lifetime. Some were here in my own neck of the woods around Philadelphia and New York, and occasionally by travel. My reason for attending these seminars once in a while is to meet people. I have met some of the best technical analysts and traders in those travels. One aspect of your web host here is that I am a ‘people’ person. I enjoy listening to all view points and believe it or not I am rarely one to tell others they are completely wrong. Instead I will just present an alternative view. I can’t force anyone, nor should I even expect anyone to adopt my alternate view if I have one. It is always up to the individual to decide for themselves what view point is right for them, whether it be right or wrong. I can only offer a viewpoint that may provide some balance to their views.

In early 2007 I became extremely frustrated with the quality and/or skewed information that was being presented to investors and traders.  The reason I was frustrated was that through my own observations, research, and analysis of the technical aspects of the markets led me to believe that a significant bear market was about to befall upon the world. This is why RebelTraders was born.

During those early days trades were discussed, macro and micro economic conditions were presented, and counter analysis was offered in the face of ever increasing bullish talk from CNBC and the Government. In the eyes of some readers, I was being unpatriotic to go against my own Government by disagreeing and even refuting their claims that all was well with the economy.  As time went on the economy continued to show all of the warning signs of significant and long lasting change was coming. And in spite of all the complaints from readers who kept trying to persuade me to think otherwise I kept my view.

As I stated earlier I am keen to other viewpoints, but they must be based on rational thought and data. As an engineer I have spent a good part of my life always debugging and designing systems that were based on facts. An engineer bases his or her work on empirical evidence and that is how I always have approached the markets my entire trading career.

The stock markets are full of individuals and corporations who only have one interest in mind, and it is theirs. Even large investment firms who specialize in managing other people’s money may say they have your best interest at heart but the naked truth is that for the majority of them they don’t care about you. Every company always operates under a ‘what is in it for me’ business model. The primary reason investment banks and other investment specialists are in business is to make money, not to make ‘you’ money. Yes, there are some that base their profits on the growth of your portfolio but that is not where the real money is being made. The real money comes from simply having your account in their files to show a bigger account base which in turn allows them to do more and grow bigger. They can’t grow and make more money if the deposit base is thin.

Your $250,000 portfolio with Acme Investment Advisers Incorporated (made up name) is worth more to them as an account, irrespective of how much money you make or lose under their guidance. Case in point, how many people do you know received a phone call from their investment advisor in late 2007 or even 2008 and were told to sell everything? How many were told that the markets are facing big problems ahead and it might be safer to get out? See what I mean. The only thing that matters to an investment firm is the fact that you have money in their ‘system’ and so why would they want to tell their clients to sell and get out when your account is part of their life blood.

When the financial crisis began to grow even larger some investment firms went as far as to tell their clients to ‘ride it out’, or that these problems were common and you should not worry. Even in my own family we were exposed to that very tactic. In a post I published back on December 2, 2007 I discussed how an investment service attempted to tell  its clients that they should essentially turn off the television and go take a walk. It was not about how much money any client stood to lose, it was about the company losing the account, that’s all that mattered. Your personal gains or losses means squat to them.

The following is the actual letter a family member received in December 2007, again this was in 2007 and was already one month after I called a new bear market (more commentary follows the embed article below).

Rather shocking isn’t it. Telling clients to, in not so many words, just go stick your head in the dirt and ignore everything.

We all know the stock market is speculative and involves risk. But when it comes to the stock market it is also the breeding ground for the largest corruption, lies, scams, false statements, and outright deception. The larger the company is so too is the potential for even larger scandals, lies, and even illegal activity all in the name of making even more money. Just look at the major banks that have become so large that they can’t be killed. Instead their pilferage of the innocent grows to the pilferage of everyone in the form of the largest tax payer bailouts in history.

An individual investor is seldom told the truth of what is going on. They receive nice and glossy year end reports from companies they are invested with. They show beautiful photographs of people hard at work, speak of corporate ethics being at the top of their priority list, and speak about how great the future will be. Remember Enron? How about WorldCom? Take the many other thousands of companies that throughout history have been reduced to rubble, or left impotent by their own lies and fraudulent activity. The only entity that is worse than the stock market with respect to lies and deceptive statements is the Government itself.

So just how does a person who wants to invest money in the markets find any real information. Many turn to the financial news shows and get guidance from the likes of Jim Cramer, the team at the Fast Money desk, or listen to any number of large financial institution spokespersons speak about how this stock or that stock is a great investment. The financial media is just as guilty of always presenting a bullish sentiment regardless of the facts in front of them. Unfortunately no one in the big financial media outlets ever gets held to account for their actions. I read an article just today about Jim Cramer and how many death threats he has had against him. Gee, could it be that his ever bullish mantra has cost people to lose money and they are mad at him? He is on TV so he must be smart and must know what he is doing, right? Unfortunately so many innocent people watch him and think that very thing. If Cramer says it then it must be true is what these innocent people think. So sad a world it is that a screaming manic on television who has even admitted in the past to breaking Securities and Exchange Commission (SEC) rules is being taken seriously.

My mission here at RebelTraders is to do my best at presenting a view of the markets based on technical analysis, macro and micro economic events, and real world observations. My statements sometimes rub people the wrong way, they may disagree completely. Some may even think I have no capability at all for seeing anything good when it comes to the markets and economy. On the contrary, I am not that at all. I so desperately want to report good things going on, I desire the day I can say to everyone that I see green pastures ahead, and to report that the economic problems are all behind us. But wanting to report good things is different than reporting the truth. One thing I will never be is persuaded to do is report what I know to be incorrect. The word ‘Rebel’ may mean to go against a popular view but it does not indicate that I am a permabear, or even stuck in my ways. In the case of RebelTraders it simply means speaking what I see through my own research, which may often go against the mainstream media. In this regard I am a rebel.

My view of where we stand now remains the same. We are in the midst of a secular bear market (not cyclical), the rally from March will fade, and a return to a downward path in the markets will resume yet again. I await the signs of organic growth to return which to date has not. It remains my view that any market advance should be an opportunity to sell (or go short if you are an astute trader).

I foresee home prices declining much further still, credit contraction in the consumer sector will continue well into the year ahead, if not much longer. Foreclosure activity will continue to increase, personal and corporate bankruptcies will rise much faster in the coming year, and the growth witnessed to date in the form of corporate earnings will deteriorate once again after the artificially created growth fades away.

There is still much danger facing our markets and the economy as a whole. Agree or disagree that is my view and I will continue to report what I see, not what I’m told to say.

From the folks at Shadow Capitalism

The New Bull Market Fallacy

The U.S. stock market is stumbling.

After a powerful rally that pushed the Dow Jones Industrial Average ahead by more than 30% in three months through last week, stocks are clearly having trouble extending their gains.

Many analysts see a pullback ahead, and they are debating whether it will be just a temporary annoyance or something bigger and more painful.

Indicators of market health, including trading volume, buying demand and trading by companies and corporate insiders, are beginning to flash yellow or red. People also are beginning to question whether the economic fundamentals are strong enough to justify continued gains.[...]

“This 40% rally isn’t based on a 40% increase in fundamentals,” says Michael Farr, president of Washington, D.C., money-management firm Farr, Miller & Washington. “The economy is still declining. Credit isn’t coming back. Unemployment is rising and we are seeing a much less robust consumer. I think the market at some point is going to give back a large portion of these gains.”

Mr. Farr and others say it is impossible to know whether the market already has topped out, or will edge higher before giving up the ghost. But even many bullish investors see a downturn ahead.[...]

Consider trading volume. Average daily volume for all New York Stock Exchange stocks hit a record of 7.21 billion shares in March, as the rally began and heavy buying sent stocks sharply higher. That slipped to 6.42 billion in April, and so far this month, it is running at 5.14 billion, putting it well below the 2009 average of 6.15 billion a day.

“A new bull market is one when investors are prepared to commit larger and larger amounts of new money to equities,” says Paul Desmond, president of Lowry Research in North Palm Beach, Fla. “What we have seen here is a very consistent drop in total volume going back to early April.”[...]

Mr. Desmond says his data, going back to the 1930s, don’t show any new bull market with such a weak volume trend, which leads him to believe that this rally won’t become a lasting bull market.

Other data reinforce that concern. The number of stocks joining in the gains has begun to shrink, which doesn’t typically happen this soon in a real bull market. And Mr. Desmond’s measure of stock demand, based on the amount of trading volume and price change occurring on stock gains, indicates that demand has been fading, another negative signal.

“Investors are risking smaller and smaller amounts of capital and that is a bad sign,” Mr. Desmond says.[...]

Source: WSJ

Often the question is asked how this bear market compares to others. Thanks to Doug over at dshort.com he has given me permission to show a graph that he has created.

This graph compares the current bear market against the other major bear markets of the past century.

Keep in mind that even the government acknowledges that the economic crisis this nation is now facing is the worst since the Great Depression.

(click on image for a larger view)

I hope everyone has an enjoyable New Years Eve celebration, or at least was able to catch up on some R&R which is what I did today.

A slow news day as expected with it being a national holiday and the markets being closed. Tomorrow (Friday) brings only one event of any significance and that is the December ISM (manufacturing) data at 10:00am (US EST).

How will the first trading day of the new year behave? As with the passing of any significant milestone, marker, or time period there is always a sense of relief. A feeling that all that was bad was taken with it when the old calendar is removed from the wall and a fresh one hung in its place. Of course we know this not to be true, but it is human psychology to ‘want to believe’. To believe that evil,despair, and suffering will be magically erased with the annual ritual of singing  “Auld Lang Syne” at the stroke of midnight on New Years Eve.

Unfortunately the economy, corporate losses, home foreclosures, and rising unemployment cannot be wished away with the singing of one song. The human psychology and its relationship with the financial markets will always be a factor. There is nothing in our known existence that is not influenced in some manner by human emotions. Will the institutional traders, fund managers, hedge funds, and other large money players come to work tomorrow feeling giddy, or will it be more recognition of an economy in a worsening shape?

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After yesterdays massive Federal Reserve decision to create a zero interest rate policy, drive the value of the US dollar down, and start placing orders with contractors for more printing presses the market had some second thoughts today.

Suddenly there were not as many people in the media who think Ben Bernanke’s big ’shock and awe’ announcement yesterday will fix anything. Actually the mood is turning ever so slightly to ‘this may make things worse’… and yes it will make things worse in the long run for the United States.

Tonight I have been monitoring the currency trading in the FOREX markets and once again the US dollar is losing value against other major currencies. It was said today that the falling dollar “will be good for the US export sector”. That is complete nonsense. The rest of the world is in a slowdown and headed for a recession as well. Economic conditions worldwide are deteriorating and so to does global demand for goods. Maybe our farmers will see some added gains in their exports of beef, corn, or grains. But it should be short lived in my view. When demand is declining it does not matter how cheap something is.

The most dangerous impact to Ben Bernanke’s zero interest rate policy is the potential destruction

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