Trading Rules, Dollar Trouble
Research for Online Investors

by John Dalt

10/07/09

I watched a video this morning on “How good trading can lead to bad trading.”  It was instructive of some of the bad habits one can develop.  Success leads to bending the rules and losing money, or not attaining the goals you have set out for yourself.  When we are “on our game”, we follow our rules, such as stop losses, and maintain discipline.  If there is not a trade we like, we don’t trade.

Success causes us to minimize the dangers of ignoring our rules.  After all we are invincible, look at all the money we are making!  We begin to think we can predict the market, or we overtrade, feeling pressure to be “in the game.”  We should all reflect on adherence to our system.  Make sure you follow your rules, or be prepared to pay the piper.

I have been reading other market commentators concerning the news yesterday that some of ‘friendly’ countries are working to undermine the dollar.  Not that we need any help in destroying the dollar, but it is always nice to have ‘friends’.  Chris Mayer talks about the currency crises facing the U.S., “The government seems as intent on creating dollars as bunnies are on creating other bunnies.”  Peter Schiff commenting on Ben Bernanke, “He is keeping his perfect record of never getting anything right, intact.”  Schiff goes on to call the “dollar the new peso.”  Some writers are more adept at turning a word than I.

To add additional fuel to the fire, I want to stress how important the events of the past few days are.  You are not going to see shinola on the national news about this.  The dollar, and the U.S., is being set up for a fall of historic proportions.  We are allowed to spend like teenagers with credit cards because the dollar is the world’s “reserve currency.”  This means that world trade is conducted in dollars.  Crude Oil is priced in dollars.  Drug deals in Russia are transacted in dollars.  Warlords in Somalia pay their guards in dollars.

All those dollars floating around the globe are a liability of our country, but until they come home, they cost us only printing costs.  When the dollar is replaced in trade, all those greenbacks come back looking for a home.  We have to give them something in return.  What will it be?  Will they buy our debt?  Alternatively, will they demand something of tangible value, like gold?  What do we have that is worth all the dollars floating around the globe?

For now the money is stagnate, economic activity is slowly recovering.  Inflation occurs when the velocity of money increases.  The Fed is pumping money into the banks, but they are not loaning it.  When they start loaning, and leveraging to produce profits, the velocity of money will pick up and inflation will be upon us.  This, plus money being repatriated as the dollar is replaced as the preferred currency in world trade, paints a bleak picture.  How will we redeem all the dollars that are in existence?  There is only one way, inflation.

We are facing a repeat of the 1970’s, after Nixon took the U.S. of the gold standard.   Stagflation, high interest rates, high unemployment, and inflation await us.  This may be the best we can hope for; the worse case is hyperinflation.  Think pesos.

Our leadership in the world, and the recovering economy as a result of low taxes and cheerleading from President Reagan, eventually strengthened our currency.  Fed Chairman Volker choked inflation out of the economy, allowed the U.S. to prosper.  What is the end game to our present situation?

Does anyone think that Bernanke is going to take the ‘punch bowl’ of easy money away and keep unemployment over 10%, and bump interest rates to 15%? Is there any chance the ‘world improvers’ in Washington will lower taxes and strip regulations to unleash the entrepreneurial spirit of the American people. Under the present administration, we do not ‘lead the world’, we apologize for the past. The future is shaping up to be a dark unfriendly place.

Yesterday’s article lit up the mailbox:
“Hit the nail on the head and pi?*ed me off, all in one article .” ---Subscriber D.J.

“Yeah, sure, especially in the financial markets.  Republican deregulation got us into this mess.  Just like Bush Sr. and the Savings and Loan Rip off.” ---Subscriber K.M.

If regulations stopped criminals, how did Bernie Madoff build his ponzi scheme?  Adding more laws and regulations will not change human nature, it only makes you feel safe and secure, Uncle Sugar is watching out for you.  Typically, the regulations lead to the problem.  It is not Republican or Democrat, it is Capitalism vs. Socialism, but since you bring it up.  Watch this video about Charles Schumer, Barney Frank, and Fannie Mae.----John Dalt

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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