Must read article by ZeroHedge which succinctly states why they have enjoyed such success and why the “financial media” are now playing catch-up.

When discussing financial matters, the “financial media” represented by “Establishment” type reporters and bloggers, just like the financial “regulators”, is woefully behind the curve.

Watching pretty faces like Brian Williams, Anderson Cooper and Charlie Gibson fade into oblivion is a delight; the fewer adults watching these powerpoint presentations of repetitive Democrat vs. Republican nonsense, sound-bite reporting and oversimplifications, the better.

Jaywalking is a good representation of the effects of 12+ years of schooling and “news” on our culture.

Takeaway:  Your mind is the most powerful “muscle” in your body.  Keep it in shape by reading and conversing with those you disagree with and those that challenge your existing views.  Watching 22.5 minutes of political gossip and sponsor-approved stories will rot your brain.

when discussing financial matters, the “financial media” represented by “Establishment” type reporters and bloggers, just like the financial “regulators”, is woefully behind the curve.

It should boggle everyone’s mind how easily bloggers are able to catch obvious fraud in the financial markets while the SEC and other regulatory bodies are looking the other way.

Here are some gems just from the last week alone:

  1. Perot Systems FrontRunning – ZeroHedge.
  2. Blatant reinflation of housing bubble – Denninger.
  3. Corruption at HUD – Karl Denninger.

The SEC was not able to catch a ponzi scheme even after Harry Markopolos delivered it to them on a silver platter. 

Paulson and Bernanke have been incredibly incorrect on their assessment of the health of the US economy.

Choose your sources of information/facts/news very carefully.  Stick with those that are honest enough to state their opinions openly and publish their predictions.

Read what you disagree with before drawing your conclusions.

There is a difference between loyalty and blind loyalty.  Blind loyalty to anything (religion, government, ideology, spouse) is deadly.

Takeaway:  Perpetual reliance on someone else’s seal of approval will rot your brain.  Complacency kills.

The Stress Test results were revealed last Friday after much anticipation.  The test and broadcast of the results were quite telling and there are several things we can learn from this.

My initial reaction of skepticism was confirmed when many reputable bloggers (with their own capital on the line) expressed similar qualms over the weakness of government’s test.  The two short articles I have quoted are well worth the read.

A former FX trader, “Dude”, suggests that the test is direly lacking real-world stress. He cites much more dire scenarios, which the government has not tested:

1) China didn’t show up at a Treasury Auction and bond rates jumped 3-5%
2) China started dumping US$s on the open market and our exchange rate dropped 10%
3) The Fed, under such conditions, had to raise the Fed Funds rate by 5% quickly
4) An act of war or natural disaster struck one of the big coastal cities, putting it entirely out of commission thus pushing GDP down 6-10% quickly

Admittedly, the Treasury is more interested in a longer view than I was, although given the highly leveraged derivatives positions, they might be well served to also inquire about substantial, discontinuous price changes.

I’m troubled that they don’t test for what the past suggests is possible.

What if Unemployment goes to 30% as it did in the 30s?

What if Inflation falls to -5% or rises to 12%?

What if Fed Funds goes to 17% as it did in the early 80s?

What if we can’t roll-over our foreign held debt, as has happened to most nations which have run up as large an external debt position as ours?

Karl Denninger at Market Ticker mentions:

According to The Fed’s “More Adverse” scenario prime delinquencies will reach 3-4%. Note that the PRESENT serious delinquency rate on Fannie’s credit book for single family homes is at 3.15%.  Nowhere in the “mainstream media” (e.g. CNBC, etc) has this been mentioned but it is literally right in your face while reading the Fannie quarterly report.

If we accept the above as true, we must logically draw one of two conclusions.

  1. The government knows that the stress the system could endure could be much worse.  They have decided to deliberately ignore or discount this data to assuage our fears and not report the full truth to us.  In other words, they are knowingly lying to us.  If this is in fact the case and if the government is trying to deceive us, Geithner, Bernanke and Obama should be held responsible for the misdeeds, regardless of political party.
  2. The government is ignorant of these facts that other individuals have adroitly discovered.  This would mean they are not the most intelligent or conscientious leaders to be running our financial system.  They are not fit to be in charge and should be removed as soon as possible, regardless of political party.

Takeaway:  There is a simple theme we can learn from the stress test and it comes from Buddha.  He says:

“Believe nothing, no matter where you read it or who has said it, not even if I have said it, unless it agrees with your own reason and your own common sense.”

Ben Bernanke has made statements such as:

“It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”

(Freddie and Fannie) “…will make it through the storm”, “… in no danger of failing.”,”…adequately capitalized”

We’ve had a $700 billion bailout and numerous corporate-welfare financial programs (CPFF, TLGP, PPIP, CPFF, TARP, etc.).  Fannie and Freddie have been nationalized.

Karl Denninger has published his remarkably accurate predictions publicly (2008, 2009) and stood by them.  People might think you’re a fool for believing a blogger, rather than an MIT-educated expert.  Look at the evidence and track-record and decide for yourself. Just because someone is a popular leader (religious, business, political) or has a popular title doesn’t mean they are any more thoughtful, intelligent or honest than someone without popularity.

For more on the crisis, read here.

Over the last few years, I have been striving to become more action-oriented. As I look at my behavior over the past few years, I can see that I still have a ways to go.

Due to my natural curiosity of finance and economics, I have enjoyed reading the thoughts of thinkers like Mish, Gary North, Ron Paul and others.  In addition to that, I have a degree in Finance, I know a great deal about Keynesian and Austrian economics, I am well-trained in technical analysis, and I have CNBC on all day at work.

Suffice it to say, I saw this market crash coming. 

So, armed with that vast amount of knowledge, how much money did I make off this crash?

None.  I probably lost slightly less than most people.  I held TIPS in my 401(k) instead of equities, so I lost only 5%, not 30% or more.  My regular accounts, gold and oil-heavy, got beat up like everyone else.

As I saw the madness unfold last Fall, I regretted that I failed to take action to cover my ass for the inevitable market downturn. If I would have paid attention, I should have been able to profit by simply being 100% invested in cash or holding a short ETF position.

Rather than just complain about lost money, I thought about why I had let this opportunity slip by.

The more I thought about it, the more I realized that comfort can be the enemy of action.

Too often it is comforting to read someone intelligent like Mish and talk him up to friends. It is also easy to sound smart quoting others who are doing very well.  It is easy to sound and feel smart without actually acting smart.

A friend of mine who’s a good trader once wrote to me

Don’t play the market unless you are ready to lose money. Don’t ask me how to trade. Read books. Come up with your own system. Every good trader does. I have a friend who daytrades the NYSE. He’ll make about a million this year. He can’t explain his sytem anymore than Beethoven, or any other uniquely accomplished person, can ‘teach’ you how to do it.

I agree, action is required.  Not the comfort of inexperience.

As a result of what I’ve learned since last summer I am following the markets again and I have created a spreadsheet where I have “paper-traded” some options and will see what happens. When I feel confident risking capital, I will do so. In the interim, I am holding some defensive positions and staying on top of the overall market.  In other words, I am trying to dust myself off and act smart.

We live in an age of information, and it takes work to find excellent sources of information from great thinkers. I believe I have found these, however, armed with that information, what am I doing with it? Am I reading it, nodding and then going back to my same old habits, or am I putting what I’ve learned to good use?

Also, am I sharing my knowledge and analyzing it with others who care to critique it? Or am I limiting myself to just the “expert’s” point of view?

I close with a personal story:  My friend Neville has his own company, House of Rave. He lives and breathes the life of an entrepreneur. Rather than simply talk about it or blog about it, he actually makes his living buying and selling products.  It  is his actions, step by step by step, that have helped him build up his company for years, from nothing to the thriving enterprise it is today.

In my own way, I am attempting to take these steps, however small, to make the best of my job, relationships and financial situation.

It is never too late to take meaningful action.  Even though this blog should have been started years ago, I’m glad I’ve finally made it happen.

Thank you for reading.

To read more about taking positive action, read here.

I have wanted to set up a “professional” looking blog for over two years and I have decided to just go ahead and get started without all the fancy setup. I have dutifully written down all of my important (and unimportant) thoughts in folders, Word files, and post-it notes and I am eager to share them with others who might reflect upon my them and benefit from them.

This blog, for now, will not be of much value to the passing observer other than functioning as a depot for my thoughts about everything from economics, politics, relationships and humor.

With some practice, I will hopefully present more meaningful posts which will help others avoid mistakes I have made.

Thanks for stopping by.

To read more about taking construction action, click here.