Trade of the Week – Monday 28th January 2013

Hi All,

New trade for week commencing Monday 28th January 2013:

https://thehovistrader.wordpress.com/trade-of-the-week/

 

and yes I have an order in place for ALL my Trade of the Weeks at the time of posting.

Far dated view on the UK’s involvement in Europe

Will the UK remove itself from the EU (European Union)?

I write this article as a full UK national and citizen, born, bred and educated in the UK.

On Wednesday 23rd January 2013, our prime minister David Cameron, gave a speech outlining the UK’s role within the EU – you can find the speech by googling it, I won’t reprint it here because the speech is not the purpose of this post –  the outcome in 2017 is the purpose of this post.

David Cameron has outlined providing a full in or out referendum to us on being part of Europe in 2017.

The last time the country had chance to vote was in the 1970’s, when I was only a few months old, so I’ve never had a say on Europe, since the 1970’s we’ve not been a fully paid up member of the EU but we have been very well versed in it’s policies and culture.  for instance in our supermarkets Banana’s have to CONFORM to EU size and curvature directives, unless they can’t be sold, another is that rather than working in pounds and ounces we have to work in kilograms and grams – there’s actually hundreds of silly EU rules that we have to abide by! – In other words the EU tell us what we can and can’t do in various area’s of life and commerce.

To be fair previous governments have negotiated various opt outs and vetoes so that we aren’t forced to abide by all rules, but still in my eyes the EU’s involvement in UK life has and will continue to cause friction and problems.

The problem many people in the UK are seeing is that we are funding the EU but being taken for a ride by them!  When things get tough at home people don’t like this and start to ask questions of their MP’s and government (Hence David Cameron’s speech).  This is classic protectionism and quite right, why fund an organisation who waste our money and give it to other countries from which we obtain very little in return.  It has everything to do with political stability in the EU and keeping our fingers in the EU pot as well as having trading links.

I can understand the political argument, I don’t like the “You scratch my back and we’ll scratch yours when required” deals, but they happen.  The EU are a huge part of our trading links which makes them very important.

To the ordinary man and woman on the UK’s streets, I’m pretty sure they just see us funding the EU and being told how to live our lives by the EU!  If the perception deteriorates further over the years then the likely outcome of the vote in 2017 should be NO [we want OUT].  What could cause those events?……..

How is all this linked to Trading and Investing?

Well, it has everything to do with the TIMING.

I’m pretty sure, although I’m guessing that David Cameron has set the 2017 date because he thinks by then the whole country will be feeling better by way of improved economic conditions – this is SOCIONOMICS!

Now, I’ve studied market performance going back centuries and if the stock markets follow trends and cycles of the past, then this year 2013 for 3-4 years (2017) should result in a sideways to falling stock market over that 3-4 year period [expected NOT guaranteed, based on past cycles].

This takes us to the year 2017 and to the vote we have been promised on Europe.

If the above market cycle happens, then the UK public’s mood will not be very happy (as I think Mr. Cameron is banking/hoping on).  These periods of extreme stagnating and/or falling stock market performance will create severe anger within the UK and if this happens then I’d be very very surprised if the UK votes YES to joining Europe in the in/out vote.

So I am making a prediction, 4 years out, based solely upon a expected contracted stock market over the next 4 years, that in 2017 when we go to the polls to vote the UK public will vote NO to being in Europe.

If on the other hand I am completely wrong and from say 2015-2017 the stock market has been rising I’d expect the opposite result, as the politicians focus on the positive aspects of being part of the EU.

Yes I am making a prediction and yes I have a 50:50 chance of being right, but I’ve listed my reasons based solely on stock market action from 2013-2017 and especially the period 2015-2017.

If you removed the stock market out of the equation, then I have no idea what will happen – I need the stock market to form my prediction, search through my other Socionomic articles and you’ll see I was spot on for the re-election of President Obama in the USA elections of 2011 – even though the big banks were banking his rival.

Anyway this is one to refer back to over the years and especially in 2017, thought I’d get it in nice and early.

The Hovis Trader

This will add to and enhance your Trading education

Hi,

I don’t own anything from Jake and I don’t own the Metastock software, what I do do, is trade based on probabilities as Jake explains and covers.  It is my intention at some stage to obtain some of Jakes publications to see what they contain and detail.

If you have a spare hour, this webinar is very informative and also contains a few set-ups – the important stuff is not the set-ups it’s what Jake says is required to be successful and profitable.

The webinar is freely available on YouTube, so I’m sure both Jake and Metastock are OK with showing the link – if not let me know and I’ll remove.

.

Enjoy

The Hovis Trader

US Debt $16 Trillion? Think again…..

Gargantuan and Growing: The U.S. Debt Figure You’ve Probably Never Heard Of

The widely reported $16.1 trillion federal debt is a drop in the bucket

By Elliott Wave International

Financial transparency is a must for U.S. publicly traded companies. But if the federal government had to abide by those same regulations, more Americans would know that the often-reported $16.1 trillion federal debt doesn’t come close to the truth about the nation’s liabilities.

In a Nov. 26 Wall Street Journal opinion piece, a former chairman of the Securities and Exchange Commission and a former chairman of the House Ways & Means Committee write:

The actual liabilities of the federal government — including Social Security, Medicare, and federal employees’ future retirement benefits — already exceed $86.8 trillion, or 550% of GDP.

The authors say that few people know about the $86.8 trillion figure because that figure is not in print on any federal government balance sheet.

Federal debt is staggering enough. Municipal liabilities also pose a danger to the nation’s financial health.

Illinois has an unfunded pension liability of at least $83 billion. It had 45 percent of what it needed to pay future retiree obligations as of 2010, the lowest among U.S. states.

Bloomberg, Aug. 29

The article also noted, “California, with an A-ranking, one level below Illinois, remains S&P’s lowest-rated state.”

Budget shortfalls in California and Illinois are just the tip of the municipal financial iceberg. Many other state governments are financially swamped.

How did municipal spending get so out of control? Well, a stupefying story out of Bell, Calif., provides a hint. On Nov. 26, CNN reports that the Bell police chief earned $457,000 a year, and “He is now asking for more money.” In 2010, the Bell city manager resigned after controversy over his $787,000 yearly salary.

States Are Broke and Approaching Insolvency

… States’ legislatures continue to blow money. For years,
state governments have been spending every dime they could
squeeze out of taxpayers plus all they could borrow. (The
lone exception is Nebraska, which prohibits state indebtedness
over $100k. Whatever Nebraska’s official position on any
other issue, by this action alone it is the most enlightened
state government in the union.) But now even states’ borrowing
ability has run into a brick wall, because the basis of
their ability to pay interest — namely, tax receipts —
is evaporating. … The goose — the poor, overdriven taxpayer
— is dying, and the production of golden eggs, which allowed
state governments to binge for the past 40 years, is falling.
The only reason that states did not either default on their
loans or drastically cut their spending over the past year
is that the federal government sucked a trillion dollars
out of the loan market and handed it to countless undeserving
entities, including state governments.

The Elliott Wave Theorist, November 2009

If there’s another leg of the economic downturn, expect a further dwindling of tax receipts.

Finally, consider the wobbly financial dominoes in Europe and what may happen in the U.S. after the first one falls.


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This article was syndicated by Elliott Wave International and was originally published under the headline Gargantuan and Growing: The U.S. Debt Figure You’ve Probably Never Heard Of. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Trading or Investments causing you sleepless nights or undue worry?

This is an aspect EVERY trader/Investor goes through at some stage in their learning.

It basically means that you have too much risk on the trade which puts you out of your comfort zone or

You are not 100% confident in your trading set-up/strategy.

There is a 3rd aspect but this is rare (to get that far before you realise) and this 3rd aspect is that Trading/Investing is just not for you, you are forcing yourself into a career/hobby that does not suit your personality.

The simple answers to solving this problem is for you to reduce and understand the risk your putting on each trade and/or learn a set-up that suits your preferred style.

I know of spread bettors in the UK putting £25 a pip on EURUSD – if the EURUSD is at 13000 then that’s the equivalent of placing hard cash to the value of £325,000 on the trade, th best part these people only have a £5k account size!!!!  Way way too much.

To give you an idea, If I had an account size of £325,000 the most I’d risk would be 1% = £3,250.  this then has the following effect – say the distance between my stop-loss and entry was 100 pips (£3250/100) = £32.50 per pip giving me exposure to only £422k, if I used the same principle ratio as our example above (65 times account size!) that would = £21 million!

Trading success is ALL in the maths I assure you.

When I go to bed I might multiple positions on to a hefty total value but at least I know and understand my ultimate risk at the end of the day.

Remember no-one knows what tomorrow definitely brings in the markets that’s why we are ALL gamblers and the gamblers that struggle or go bust are those that are simply abusing the laws of gambling and risk management.

This is why often you’ll see and hear that your set-up is not the most important part of your trading/investing – what they are getting at (without directly saying it) is that risk is the most important factor to your trading/investment.

Anyway food for thought.

The Hovis Trader

A Free 40-Page Download: A very insightful Investment Report for 2013

Dear investor,

Consider yourself warned.

Please find links to a very rare FREE publication from my friends at Elliott Wave International, providing their thoughts and outlook for the economy and major worldwide markets.

Please note that this is Elliott Wave International personal views and nothing might not come of their concerns, views or predictions.  I personally subscribe to Elliott Wave Internationals publications that you can obtain this rare insight to – why?  Because their level of analysis is superior to others and it fits my analytical nature perfectly, In short I love their analysis because the content is never seen in the mainstream media and its relevant, I DO NOT trade or invest or analyse my potential trades using Elliott Waves – for me it does not suit my style so I personally ignore any reference to wave counts and the like, but the financial analysis is second to none and very useful to me to form an idea of what’s going on in the world [financially].

It’s also interesting to see that Elliot Wave International have time cycles that expire in 2016, this fits in well with my long-term outlook and time cycles – my time cycles are completely different to those in the report but they both bottom in 2016!

The global market outlook is far less rosy than the emperors-minus-their-clothes would have you believe.

  1. Global stocks are near multi-decade, technical price junctures.
  2. Regional economies recently said to be “recovering” are now slipping back into recession.
  3. Despite a multi-year rally in stocks, the AP reported on Dec. 27 that mainstream investors are selling shares at breakneck pace. “It’s the first time ordinary folks have sold during a sustained bull market since relevant records were first kept during World War II.”

Politicians and central bankers worldwide reassure investors that the credit crisis of 2007-2009 will turn out to be nothing more than a footnote in market history — despite the compelling proof that it never truly ended.

Meanwhile, U.S. Congress made a final-hour fiscal cliff deal to delay addressing its gargantuan budget woes, Europe remains in turmoil, and Asia-Pacific regions and emerging markets are charting surprising courses of their own.

Just as the timeless fable warns, sometimes it takes a single voice in a crowd to tell everyone the emperor wears no clothes. EWI’s new report, The State of the Global Markets — 2013 Edition, is that voice.

Packed with timely charts and analysis, this 40-page tour de force tears down the popular investment myths of today and replaces them with hardcore reality.

  • It tells you what’s really going on in the global marketplace.
  • It reveals market pitfalls no one else sees coming.
  • It uncovers once-in-a-lifetime investment opportunities.

To get ahead of the markets in 2013, you must think independently. This 40-page report gives you the tools and the direction you need to gain a competitive edge.

Download The State of the Global Markets — 2013 Edition now (for FREE), and enjoy dozens of independent global market insights that will prepare you to survive and prosper in 2013 and beyond.

Follow this link to download your free 40-page report, The State of the Global Markets — 2013 Edition, now.

(Don’t miss out. It’s only available until April 16.)

If you are trying to make head or tail of whats going on in the world economy then this 40 page report goes a heck of a long way to describing what’s happening and WHY!

With my best wishes for a prosperous 2013,

The Hovis Trader

P.S. This report is available to you for free for a limited time, exclusively from EWI. Please download it now while its valuable year-in-preview advice can help your portfolio in the New Year. Download the 40-page report now.

About the Publisher, Elliott Wave International Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

Trading Tip from D R Burton Jr

Every now and then I receive in my Inbox some great articles that contain relevant trading knowledge and advice – when I do I’m happy to re-post here on my blog to you all as it helps to back up whats on this site!

With thanks to D R Burton Jr and Van Tharp Institute for creating and emailing this article.

Enjoy

The Hovis Trader

Trading Tipdr

Skill and Luck in Trading

by D.R. Barton, Jr.

My high school basketball team was a  “middle of the district” team—out of eight schools in our league, we were clearly better than three, clearly worse than  three and about even with one of the other schools.

Late in my senior year, we played a Christiansburg High team whom we should have beaten, but it was on their court and we didn’t play our best.  With seconds to go, it was a tie game.  Christiansburg’s best player took a shot that bounced off the rim and traveled fairly far from the basket, out to where the guards (smaller players like me) are usually positioned.  I jumped, grabbed the rebound and was slammed by a Christiansburg player who was going after the rebound as well.  The ref called the foul and I would shoot a “one and one”, meaning that if I made the first throw, I would get a chance to sink the second.

As I stepped to the line, I still remember an unusual clarity about what was going on around me—an added acuteness of the senses, if you will.  Like every basketball player on the planet, I had life-long dreams of one day stepping to the free throw line to take the game winning shot.  I had physically practiced this very scenario thousands of times and played it out in my head since I was a little boy tens of thousands of times more.

I went through my normal  pre-shot routine and released the ball. As the ball went through the hoop  hitting nothing but net, it made the familiar “swish” which was followed by a  roar from the fans. With the  game won and the pressure off now, the second shot was another swish  though to be honest, I remember it less well.

So I had lived out my “little boy” dream of hitting the game winning shot!  I believe that a game winning shot and a well-played trade in the markets hold some interesting similarities but some notable differences between the roles of luck and skill.

Luck vs. Skill

An interesting book published  in the last few months has gotten some press lately for a couple of reasons.  Number one, it is well written and gives some great insights into the nature of  success. But more importantly, viewers saw the book in a Warren Buffet office tour he recently  granted to CNNMoney. To watch the brief clip, you can watch it here: http://money.cnn.com/video/news/2012/12/26/n-warren-buffett-office-tour.cnnmoney/ (Actually, no one mentions the book in the interview but you can barely glimpse the cover under a  remote control as the camera pans across Buffett’s desk. Such is the  cache of Warren Buffet…!)

The name of the book? The Success Equation: Untangling  Skill and Luck in Business, Sports, and Investing by Michael J.  Mauboussin. In it, the author  writes about the fascinating roles of luck and skill in various  activities. I was particularly intrigued by the distinctions that Mauboussin  makes about the mix  of those two factors in different fields of endeavor.

In certain areas, luck plays a small role while in others, it plays a  large role. Where luck has a minor role (like in shooting free throws), cause and  effect are closely related. Conversely, there is a looser causal relationship  in  areas where luck has a bigger part to play (weather forecasting, and  yes, trading). In these latter areas (more affected by luck or outside chance  occurrences), you can only distinguish skill over time or with a sufficiently  large sample size.

Mauboussin also identifies a third category of activity:  endeavors that are purely luck. This group would include activities like  roulette or the lottery. He describes an easy test to distinguish this last  group – skill is required if you can lose on purpose. I can clearly miss a free  throw on purpose by shooting the ball 10 feet too short or aiming 90 degrees  away from the bucket. But I can’t lose a coin flip on purpose not matter how  hard I try (I’ll lose 50% of the time with a fair coin, just like everyone else).

For today, the main point that we can take away is that Van’s  decades-long insistence on the importance of psychology in trading is clearly  evident in Mauboussin’s work. Why? A horseshoe tossing champ doesn’t have to  deal with many forms of uncertainty – his activity is very cause and effect oriented. But because traders and  investors deal with uncertainty in every trade, our decision-making biases and  processes can either make us or break us as traders!

From a trading and  investing perspective, I find some of Mauboussin’s insights invaluable.   We’ll dig in more next week and I look forward to  sharing more of Mauboussin’s work with you in future articles.

Until then, I welcome your comments and feedback.  Send them to drbarton “at” vantharp.com

Great Trading,   D. R.

About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured guest on both Report on Business TV, and WTOP News Radio in Washington, D.C., and has been a guest on Bloomberg Radio. His articles have appeared on SmartMoney.com and Financial Advisor magazine. You may contact D.R. at “drbarton” at “vantharp.com“.

Who’s really in charge?

Over the Christmas period I’ve been re-reading some of my Investment and Trading books and have come across quite a few additional quotes that I thought I’d post here on the blog.

Here’s a couple – food for thought!:

“I care not what puppet is placed upon the throne of England to rule the empire on which the sun never sets.  The man that controls Britain’s money supply controls the British Empire, and I control the British money supply.” – Baron Nathan Rothschild

“I am a most unhappy man.  I have unwittingly ruined my country.  A great industrial nation is controlled by its system of credit.  Our system of credit is concentrated.  The growth of the nation, therefore , and all our activities are in the hands of a few men.  We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world.  No longer a government of Free opinion, no longer a conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.” – President Woodrow Wilson (USA)

It is quite easy to see that:

  1. Governments don’t control the country and never have in recent history
  2. If the money supply i.e. Credit is stifled then panics and crashes can quite easily occur

In todays day and age it is slightly more complicated and the credit systems in place are more vast and complex, however, once you breakdown through the layers and notice that if the people who provide the credit simply pulled its availability and walked away how much of a mess the world would be in! Let’s take a VERY quick look at one aspect of this.

The Federal Reserve System or virtually ANY Central Bank in the World

The Fed was created in 1913 to PREVENT stock market panics and crashes – obviously it’s not been able to do that.  More importantly did you know that the Fed is not owned by the government?  It’s a private company (although fairly secretive) owned by a few key financial institutions!  Also did you know that the USA government does not own all the gold that it holds on reserve?  Who doe’s? the Fed!!!!!

There’s a pattern emerging here!

OK, so the Fed owns a lot of the gold out there, they set the USA Interest rate and they have the power to create credit – in 2012 the fed came to the market and stated that they would inject (create) $Billions per month by way of QE – so really what’s going on is these private owners of the Fed have told the USA government what’s going to happen, when they stop QE and start cashing in the Treasury Bonds that they INSIST on for security that’s going to create the next economic problem for the USA and possibly the world.

Ever wonder why financial regulation is lax in the run up to financial bubbles?  Maybe one reason is the big boys providing the credit for the bubbles have a quiet word in the governments and regulators ears telling them to back off.

Markets are imperfect and due to the complexity and mass numbers of participants involved we are unlikely to ever know the real true with any exact clarity.  What I do know is that we have key quotes from many key, influencers in world economic history that supports the facts and deception.  The people supplying the credit also have the ability to remove it from the system!  This can cause panics, market crashes and the like too.

Hope it’s been of some help to you in understanding matters of a financial nature, if this is an area you are interested in then I have on this site videos on Money matters and the 10 Free to Choose videos by Milton Friedman which help to explain matters in more detail and clarity – or you could just YouTube them

The Hovis Trader

Repost of a Dr. Van K Tharp, PhD Article

This is very very Interesting and worth your time to understand the Fed, monetary system and how you’re being lied to – it matters not whether you live in the USA or not, this happens around the world in any freely traded country.

With Thanks to Van K Tharp for the article, keep up producing relevant articles like this

The Hovis Trader

Lies, Damn Lies, and Government Statistics

by Van K. Tharp, Ph.D.

When the US dollar was totally  based upon gold, and before the Federal Reserve existed, inflation basically  was tied to the supply of gold. When new gold was found and came into play,  inflation occurred; when gold reserves were down, deflation occurred. You can  find some interesting articles in older, economic magazines about gold and  inflation.

However, this relationship  started to change partially when the Federal Reserve System* was born in 1913 (by the way, the  federal income tax was also born in 1913) and then massively when Nixon took us  off the gold standard in 1971. These actions provided the ability to create  inflation at will.

When the government needs money it goes to the treasury and says,  “We want $10 million dollars.” This was in the old days when $10 million  amounted to something. The treasury would say, “You’ve spent all the tax  revenues, so we can’t give you any more.” The government would then go to  another door—that of the Federal Reserve and ask for the money. The Fed would  say, “Sure.” It can write a check  for money that didn’t exist previously. The government would then deposit the check in a  bank (probably one that owns the Federal Reserve) and the bank then had the  ability to loan out $100 million to their customers. And where did that money  come from? The Federal Reserve just printed it. This, of course, would be very  illegal if you and I did it. However, the big banks, through the Federal  Reserve, could print money out of thin air. Not only that, but they could  charge interest on it. That’s right, banks could charge interest on money that  didn’t exist before and was printed out of thin air by an agency that they  owned. This process essentially levied a tax on everyone else. It was a silent  tax called inflation.

My mom was born in 1904 and told me that when she first went to the  movies, it cost 5 cents. I can remember going to the movies in the 1950s and I  got to see two movies, plus a cartoon in the middle, for 50 cents. Today, the  price to see one  movie is about $15.

In the late 1950s, I paid 15  cents for a hamburger. When I visited the UN building, I was horrified to  discover that hamburgers cost $1. Today, my 15 cent hamburger can range from  $2.50 to $15, depending upon where it is purchased. Do you see a trend here? It  is all thanks to the tax created by the Federal Reserve called inflation.

Now, this opened up a great  business for the government. Politicians could promise people anything they  wanted in order to get elected. To pay for their promises, they just had to go  to the Federal Reserve, who would write a check to the government and create the money out of thin  air. Then, the banks that owned the Fed could loan about ten times the money  that was deposited, and charge you interest on the money that was created out  of thin air.

Because money was still backed by gold for the first half century of the Fed’s existence, there seemed  to be some constraint  over the money creation process. Around 1970, however, countries were redeeming more and more Federal  Reserve Notes for gold and the US gold supply was shrinking. Thus, Nixon ended  the gold standard for the US dollar in 1971.

Then we pulled something really  amazing out of the hat. We got the rest of the world to treat our paper money,  which the Federal Reserve could print at will, as the world’s reserve currency.  It basically meant that we could spend at will and other countries would fund  that spending. However, social security also funds the spending at will because the social  security administration uses your social security taxes to buy up the debt  created from thin air. When the Fed writes a check for money that didn’t  exist, it creates a debt and the government uses your social security money  (among many sources) to buy it.

I can remember when the U.S. debt first hit a  trillion dollars in the  1980’s. The curve on a graph of the debt looked asymptotic and I thought  then, “It has to end.” But that’s a little like Yellowstone National Park.  Yellowstone is a huge volcano. It erupts about every 600,000 years and when it  does, it destroys everything in North American. When was the last time it  erupted? About 640,000 years ago. That makes it 40,000 years overdue to explode  and wipe us out, but who knows?  It might not happen for another 50,000  years or it might happen tomorrow.

Well that’s the same story with  our debt. Officially, it is now about $16.4 trillion and if you include  unfunded future liabilities such as social security and Medicaid, then it is  about $100 trillion (depending on whose estimates you look at). Just like Yellowstone will one day  destroy North America, the US Debt will one day destroy the United States. And  I can guarantee that it will happen within the next 23 years — not the next  50,000. Right now the official debt is 105% of the US GDP, according to the US  Debt clock (www.usdebtclock.org).

Now, until all of this  explodes, the US has to do several things to keep the game going because it has  made promises to protect you from the inflation it has caused. For example, funding for entitlement programs  such as social security (which  is bankrupt and another promise with no good faith backing) are tied to inflation.  The government  measures inflation and then has to increase SS payments by its own measurement.

Therefore, wouldn’t it make sense for a government that is hopelessly in debt  to figure out some way to lie to you about inflation? Yes it would and yes it does. Enter the  Consumer Price Index.

The Consumer Price Index (CPI)  is a cost of living benchmark that the government uses. The Bureau of Labor Statistics (BLS) produces the  statistic and says simply that the CPI “is a measure of the average  change over time in the prices paid by urban consumers for a market basket of  consumer goods and services.”

Aspects of the CPI began in the  mid-1880s when the Bureau of Labor was asked to estimate the impact of new  tariffs on prices. In those days the government got its money from tariffs, not  income taxes. The government officially started tracking inflation in 1919 and  has regularly published it since 1921. However, it wasn’t used that much until  after World War II.

So let’s look at what’s happened to the CPI over time. The following graph  shows the CPI from 1913 through 2006. Incidentally, it started in 1919, but the  Federal Reserve system started in 1913 so that’s probably why they go back that far.


Notice how smooth and  predictable it has been since 1980 which very little fluctuation in the annual  amount of change. Also notice how the CPI just took off in the mid-1970s after Nixon ended the gold standard.  And at the same time, he  thought that the climbing CPI reflected poorly on his presidency. As a result,  he turned to the Federal Reserve (interesting the role that the Fed has in all  of this mess) and asked chairman Arthur Burns to find a lower measure of  inflation.

And  suddenly “Core Inflation” was born. Basically, the old CPI calculation was  stripped of two of the biggest burdens on Americans—food and energy. But when  you see your groceries and gas prices go up, you are typically not that fooled  by the low core inflation rate. How long did it take for gasoline to go from $1  per gallon to $4? And that didn’t show up in the CPI at all.

During Ronald Reagan’s presidency, housing prices were going up rapidly. As a result, the  BLS in 1983 decided how much rent  would be on a house (if it were rented) and used that as a measure of  housing prices. So when real estate prices surged in the 1980s and the 1990s,  they were vastly underestimated in the CPI.

Shortly after the Clinton  administration took over, the government was allowed to start using a variable  basket of goods. For example, if steak got too expensive, it could substitute  hamburger. In addition, straight arithmetic weighting of the CPI components was  shifted to geometric weighting. And everyone thinks, “How wonderful the Clinton  administration was in controlling the economy” . . . but that’s another story.

Many of  you know that I frequently cite for you John Williams’ Shadowstat statistics  for the CPI and his measure of GNP growth (which subtracts the CPI) to  determine whether or not we are in a recession or not. Williams calculates the  CPI based upon the way it was before Clinton (though not before Reagan and  Nixon). And according to Williams the US has been in a recession since 2000  with the exception of one quarter in 2003—and that’s just by using  pre-Clinton measures of the CPI which are higher by about 7%.

The CPI makes a big difference for a  lot of people.  50 million social security recipients and many millions more of military and federal pensioners depend upon  the CPI for increases to their monthly retirement checks to cover the more  expensive cost of living.  Numerous agreements in the private sector are  all tied to the CPI changes. So the government lies about the CPI and the lies  are becoming bigger and bigger.

Now, there is more to come.  In the fiscal cliff negotiations,  both parties were  negotiating a new way to calculate CPI call the Chained CPI. The Chained  CPI is a much more exaggerated form of goods substitution for when things go up  too much.

Switching to the new Chained  CPI would result in a savings  to the government of about $150 billion by reducing costs of living  estimates between 2014 and 2022. And since things like standard deductions and  limits on retirement accounts that are linked to the CPI, these changes would  also raise income tax revenues by about $62 billion.

I think it’s important that you  are aware of the games being played. It is only a matter of time before the “Yellowstone”  of government debt explodes and totally destroys the US economy. In my opinion,  it’s only about $15 trillion overdue.

But remember that this crisis  presents opportunity which every good trader will exploit. You cannot trade  your vision of the future, you can only trade what is happening right now – and  these markets don’t allow for buy and hold anymore. Isn’t it time that you  become savvy enough to be able to trade these market conditions?

Perhaps a good New Year’s  resolution is to prepare yourself to trade.  We can help you. We suggest  that you begin with The Peak Performance Home Study Course and the Peak 101 Workshop. Understand the  powerful effects your personal psychology has on your trading. These effects  can be magnified by a crisis, however, the proper training can transform your  psychology into an important edge in the markets.

* For a  very well documented history of the Federal Reserve, read The Creature from Jekyll Island by G.  Edward Griffin.

About the Author: Trading coach and author Van K. Tharp, Ph.D. is widely  recognized for his best-selling books and outstanding Peak Performance Home  Study Program—a highly regarded classic that is suitable for all levels of  traders and investors. You can learn more about Van Tharp at www.vantharp.com. His new book, Trading  Beyond The Matrix, is expected for publication February 2013

Trade of the Week – W/C 7th January 2013

Hi All,

I’ve just posted this weeks trade of the week:

https://thehovistrader.wordpress.com/trade-of-the-week/

As usual this is not a trade recommendation for you or advice, this is one that I’m looking to get on board if I can – Usual risk management and money management that can be found on this blog.

Hope it’s profitable, bear in mind this will be one of many trades I have going – I’m not risking the house on it.

The Hovis Trader