The chief executives of GM and Chrysler said they could run out of
funds without the government’s support. GM CEO Rick Wagoner said the
package is needed to “save the U.S. economy from a catastrophic
collapse.” - http://online.wsj.com/article/SB122703811621838291.html

That is what happens when your business model is broken.  The Management of GM and Chrysler are coming to grips with the BROKEN businesses they run.  Saddled with UAW contracts and long term obligations that are simply ridiculous and a product line that no one wants, what else do these guys expect?

We bailed out Chrysler once before, what did that get us?  Another bailout request about 30ish years later.  If the business is broken, let the management fix it.

The reality is that if GM, Ford or Chrysler go down it will be very painful for the US.  However, a better business will pickup the pieces, hire the workers and get to moving on a new automotive front.  Toyota isn’t bankrupt, neither are Honda, VW and a myriad of others.  If GM Chrysler and Ford can’t make it on there own today, why should we believe they can do it tomorrow?

Just my two cents.

We are about to enter one of the most difficult economic cycles that our country has ever seen.  There are a myriad of reasons for this; and most of them boil down to a lack of personal responsibility.

It’s time to take responsibility for one of the most basic things that you have, your cash flow.  Get control of it today.

If you’ve never lived in a budget, I’ll offer a few tips:

1. Use Cash - It’s harder, but it will keep you honest
2. Don’t pull the strings too tight right away - keep a “fun” fund if you have the money to pull it off
3. Pay yourself first - savings, off the top and automatic

Here are a few quick pointers on how to setup a budget:

• Start with your “gross” pre-tax pay.
• Make a line item for your taxes and any “automatic” pay-check deductions
• Next your “fixed” expenses - rent/mortgage, car payment, insurance, etc…
• Variable expenses - credit card payments, electricity, gasoline, food
• Finally, discretionary - internet, telephone, cable tv etc…

You’ll probably be surprised at how much you spend after the first month.  My guess, you blow your budget in month one.  Good, now regroup and get it tightened up.  If you don’t have enough money to pay yourself via savings, then cut off the cable tv and get to living within your means!

My favorite quote, and something I’ve been saying for a while now:

No one in Washington has shown an ounce of leadership in decades. True
leadership requires strength of character, clear vision to see the
future as it is, the bravery to make unpopular decisions, and the
honesty to tell the public the unvarnished truth based on the facts.

Take a few minutes to head over to Barry’s blog, it is a great place and this is a fantastic article.

That said… I’m making a killing in this market!  For about a week I tried to “day trade” the market.  Let me define that for you. While working a full time job, going to school, and having time for my family, I somehow figured that I could eyeball a screen for about 30 seconds every 1/2 hour or so, make trades and make money.  Don’t do that. It was beyond stupid, and cost me about 50% of my trading capital in a week. 

Back to what I am good at.  Swing trading, and playing options.  That has been the name of the game.  I’m still in and out of position intra-day sometimes, however the positions are being setup the day before, or morning of the trading session and almost all of it is automated.  I am setting my buy/sell orders up and letting them go.  Of course, I’m still putting a quick 30 second glance out on the markets to see if things are moving dramatically so that I can take advantage of it.

Anyhow, I’ve taken quite a liking to the following securities (they are mostly EFT products on major indicies… my favorite!):  QLD/QID, SSO/SDS, DIG/DUG, FXP, FXI, EEV and I’m looking to get into the 3x leveraged Russell products sometime next week.

Overall, up about 80% from my starting point for the year.  Given that I experainced a 50% draw-down, that isn’t too bad at all!

We are already, however, well into the realm of what I call depression economics. By that I mean a state of affairs like that of the 1930s in which the usual tools of economic policy — above all, the Federal Reserve’s ability to pump up the economy by cutting interest rates — have lost all traction. When depression economics prevails, the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly.

My thoughts: Well yes, you have a point there. We are in a really difficult spot. With a 1% fed funds rate, you really can’t do anything else on that front, and with money that cheap and things still going down the tubes, it’s a fairly backwards place to be. Furthermore, we are going to experience a very ugly negative feedback loop as we lose more jobs, and those job losses lead to more defaults, and more job losses, and less spending, and more job losses… well you get the point.

Krugman goes on to talk about normal economic policy responses and how they are ineffective because of the state of affairs in the world and makes a very compelling argument:

Finally, in normal times modesty and prudence in policy goals are good things. Under current conditions, however, it’s much better to err on the side of doing too much than on the side of doing too little. The risk, if the stimulus plan turns out to be more than needed, is that the economy might overheat, leading to inflation — but the Federal Reserve can always head off that threat by raising interest rates. On the other hand, if the stimulus plan is too small there’s nothing the Fed can do to make up for the shortfall. So when depression economics prevails, prudence is folly.

You know, that actually makes sense. If we do something really, really drastic (Krugman suggests a $600B stimulus package) and it is too much, then we simply tighten things back up and get into a normal mode again.

Don’t get me wrong here, there a systemic issues that need to be mopped up in regards to credit and savings, but taking drastic action seems to actually make a bit of sense.

On the other hand, I hope that Senator Obama’s projected win goes far heal racial tensions across the nation.  This is a great moment in our nations history to not only “say” that racial walls are gone, but to show as a country that all men and women are created equal.  I am proud to that I live in a country that can see beyond race and gender.

Senator Obama faces a challenge that rivals some of the greatest challenges in the United States history.  I hope that Senator Obama truly works towards positive change.  Ideologically I believe that many of his policies and campaign rhetoric are not the right direction for our country.  Hopefully those policies will be worked out and thoroughly hashed through before being placed into law.

Again, congratulations to Senator, and future President, Barack Obama.  I will pray for your leadership of our country.

Last week, I stopped this stupid emotional cash hemorrhaging trading.  I’ve earned it all back and them some in just a few days.  Granted, the HUGE market action on Tuesday worked in my favor, however I was prepared for it and expected it.  The next few days should be great as well.  I’m setup with calls on a few items that are horrifically oversold and will very likely pop.

Back to basics = making money.  So far this year, I’ve dropped my account at least 20% twice, right now I’m up more than 15%.  For me, not so great, but given that I haven’t been trading a ton this year, pretty much only April and October :)  I guess two months, 15% doesn’t suck.

Anyhow, these trades should be nice, I may very well close them tomorrow if the do rockets higher 400-600 points, they should follow and make good gains. 

The funny part to me, is that every one of these trades that has lost money has been because I’ve made changes that break my rules.  Why on earth would I do that?  Well, because I’ve been retarded for the last two weeks.  No more.  Very tight, very controlled trading from now on.  Tight and controlled stops, options where they make sense and proper analysis before I put on my trades.

Take today for example.  Early this morning I pulled up a chart on the QQQQ’s and decided that if they broke down under 30.75 I should go long the UltraShort ETF and hold that until the QQQQ’s hit 29.25 or trade above 30.90.  So far, well… I’d be up quite a bit, instead, oh yeah, I’m grinding my account to hamburger because I made a stupid decision at lunchtime.

I headed back to the trade desk and did a quick check on the state of things at lunch.  The decision… All of my thoughtful analysis in the evening and morning must be wrong… Let’s go long the Ultra ETF and play for a bounce.  Why I do these things I don’t know.

I set a tight stop, and got out quickly (because we are headed down!).  Then, just to get really smart, I bought in again, and got stopped out again.  ALL DURING LUNCH!  Retarded, simply retarded.  Then, to make matters worse, I bought into DIG (another long) and ended up having to hedge those losses with DUG (the inverse of DIG).  Hamburger anyone?

No more.  Time to go back to the rules.  Solid analysis and none of these retarded intraday adjustments based upon 2 minutes glancing at a screen.  I would have done FANTASTIC this afternoon, instead, retarded losses.

No more hamburger.  Stick to your rules.  Don’t be dumb like I’ve been.  [End Rant]

I’m not quite sure where to start with this post, simply because there is so much good information available about what is happening out there today.  I can say however, that I am not looking forward to the next few years of economic developments.

The house of cards is tumbling down.  We are in the midst of a global, massive, de-leveraging unlike anything we have seen before.  What is really frightening about that, is the simple fact that no-one really fully understands what that will do to our economic system.  Banks around the world are being propped up by governments and hoarding any and all assets that they can get there hands on.  Consumers (globally) are tapped out, and we are staring down the face of deflation, a really, really bad thing to be staring down when your saddled with debt.

Let’s assume for a moment that for the next few years ecnomic activity falls off a cliff (very likely) and we experaince a bout of deflation across the globe.  The problem with deflation is that generally earnings go down during deflationary times, however debt doesn’t get forgiven with the deflationary index.  Meaning, if I owe $100,000 today, that may feel like $105,000 tomorrow and possilby $115,000 in just a few years (in today’s dollars).  The payment for this debt doesn’t go down either, further tapping the consumer and of course further straining the economy.

Just about every one out there belives that we are headed into a deep recession, and sadly I have to agree.  The years of easy money, extreme growth and stupid risk are behind us; hopefully, we will learn from this and de-leverage as a whole generation.  The abuse of credit in the United States is sickening, from families to the Government. 

So, what happens from here?  Well, the good news is that I’m pretty sure the world isn’t going to end tomorrow.  Your friends are still your friends, however your 401k is probebly a little lighter!  My prediction is that we have 2-5 years of hard core recession.  This could be horribly understated pending the results of our upcoming election and policy implementations over the next few years.  I expect unemployment to continue to grow, drastically.

Housing should begin to recover, sometime in the next 2-3 years.  This could of course change dramatically if the Government decides to come in and tweak with the system.

After the recession, I think we have a fantastic economic boom.  This will likely be fueled by an across the board growth of “Green” technologies and the efficiancies gained from them.  Hopefully, during the time before the next boom we are able to develop a modern regulatory framework for our financial system.  Something that can respond to new financial instruments, however something that also allows the market to function.

Off balance sheet items must be removed.  The “CDS” Market must be centralized and cleared properly.  Accounting standards must be solidified and transparancy must be restored.  Transparancy in finacial markets = trust.  Our system is built on this and until it can be restored we are in for a world of hurt.

Anyhow, just my quick thoughts.  I’ll try to rant some more about this on the blog.  I talk about it all day to folks in the office and at school.  By the time I get to the keyboard, by brain is drained of ecnomic babble