Ed Seykota's Words

If you want to trade consistently, without the swings in confidence, then you have to learn to accept, even celebrate, the feeling of uncertainty. This is the work of the Trading Tribe.

In your recipe for success, don't forget commitment - and a deep belief in the inevitability of your success.

We do not offer advice to each other.. Sometimes listening and empathizing does more good than advising.

Fear anticipates danger

Fear of losing anticipates losing
Fear of embarassment anticipates embarassment

Consider the Positive Intention of your Feelings

Some traders seem to like hope better than to fear even though hope can keep you in a losing

position and fear can get you out of danger.

Sometimes scalping can be like trying to take a drink from a fire hose.
http://www.seykota.com/tribe/pages/2003_Apr/Apr_13-19/index.htm

Relationship between World Interest Rates and Gold

"The producing world cannot now sustain real positive interest rates, and so together, they are going to have economic and monetary crises to come soon. If they were able to get their producing economies back into paying real positive rates, the price rises of gold would be forestalled. That is not going to happen on this go around. The world cannot and will not be able to get back to real positive interest rates before a depression. It is not going to be avoided this time, all positive economic statistics out now regardless."

http://www.financialsense.com/fsu/editorials/laird/2006/0303.html
http://www.gold-eagle.com/editorials_05/laird041706.html

Economic Armageddon

Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish.

But you should hear what he's saying in private.

Roach met select groups of fund managers downtown last week, including a group at Fidelity.

His prediction: America has no better than a 10 percent chance of avoiding economic "Armageddon."

Press were not allowed into the meetings. But the Herald has obtained a copy of Roach's presentation. A stunned source who was at one meeting said, "it struck me how extreme he was — much more, it seemed to me, than in public."

Roach sees a 30 percent chance of a slump soon and a 60 percent chance that "we'll muddle through for a while and delay the eventual Armageddon."

The chance we'll get through OK: one in 10. Maybe.

In a nutshell, Roach's argument is that America's record trade deficit means the dollar will keep falling. To keep foreigners buying T-bills and prevent a resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates further and faster than he wants.

The result: U.S. consumers, who are in debt up to their eyeballs, will get pounded.

Less a case of "Armageddon," maybe, than of a "Perfect Storm."

Roach marshaled alarming facts to support his argument.

To finance its current account deficit with the rest of the world, he said, America has to import $2.6 billion in cash. Every working day.

That is an amazing 80 percent of the entire world's net savings.

Sustainable? Hardly.

Meanwhile, he notes that household debt is at record levels.

Twenty years ago the total debt of U.S. households was equal to half the size of the economy.

Today the figure is 85 percent.

Nearly half of new mortgage borrowing is at flexible interest rates, leaving borrowers much more vulnerable to rate hikes.

Americans are already spending a record share of disposable income paying their interest bills. And interest rates haven't even risen much yet.

You don't have to ask a Wall Street economist to know this, of course. Watch people wielding their credit cards this Christmas.

Roach's analysis isn't entirely new. But recent events give it extra force.

The dollar is hitting fresh lows against currencies from the yen to the euro.

Its parachute failed to open over the weekend, when a meeting of the world's top finance ministers produced no promise of concerted intervention.

It has farther to fall, especially against Asian currencies, analysts agree.

The Fed chairman was drawn to warn on the dollar, and interest rates, on Friday.

Roach could not be reached for comment yesterday. A source who heard the presentation concluded that a "spectacular wave of bankruptcies" is possible.

Smart people downtown agree with much of the analysis. It is undeniable that America is living in a "debt bubble" of record proportions.

But they argue there may be an alternative scenario to Roach's. Greenspan might instead deliberately allow the dollar to slump and inflation to rise, whittling away at the value of today's consumer debts in real terms.

Inflation of 7 percent a year halves "real" values in a decade.

It may be the only way out of the trap.

Higher interest rates, or higher inflation: Either way, the biggest losers will be long-term lenders at fixed interest rates.

You wouldn't want to hold 30-year Treasuries, which today yield just 4.83 percent.

Even Stephen Roach Has It Wrong

In his latest commentary, Morgan Stanley's Stephen Roach, perhaps the only Wall Street economist who at least partially comprehends the looming economic danger, once again lamented that a "co-dependent global economy can't live without the excess consumption of Americans." This echoes the popular misconception that Americans are some how doing the world a favor by consuming the fruits of their labor.

The world no more depends on American's consumption than medieval serfs depended on the consumption of their lords, who typically took 25% of what they produced. What a disaster it would have been for the serfs had their lords not exacted this tribute. Think of all the unemployment the serfs would have suffered had they not had to toil so hard for the benefit of their lords. What would they have done with all that extra free time?

According to modern day economists, if the lords had decided to increase their take, say to 35%, it would have been the equivalent of an economic boom for the serfs, who would have been insured more work. Too bad the serfs did not have economic advisers or central bankers to encourage such progressive policies!

I have written on this subject in the past (see my former commentaries entitled: "CNBC Redefines the Word 'Sacrifice'," Feb 10th 2005 and "The U.S. is Not a Special Case, Just an Extreme One," Jan. 18th 2005). Both articles are archived in the commentary section on my web site at: http://www.europac.net/archives.asp. However, I would like to put the ridiculous assumption that the world benefits from America's excess consumption, and has something to fear from its cessation, to rest once and for all. Consider the following analogy:

Suppose six castaways are stranded on a deserted island, five Asians and one American. Further, suppose that the castaways decide to divide the work load among them in the following manner: (for the purpose of simplicity, the only desire the castaways work to satisfy is hunger) one Asian is put in charge of hunting, an other in charge of fishing, and a third in charge of finding vegetation. A fourth is put in charge of preparing the meal, while a fifth is given the task of gathering firewood and tending to the fire. The American is given the job of eating.

So, on our island five Asians work all day to feed one American, who spends his day sunning himself of the beach. He is employed in the equivalent of the service sector, operating a tanning salon which none of the Asians on the island utilize. At the end of the day, the five Asians present a painstakingly prepared feast to the American, who sits at the head of a special table, built by the Asians specifically for this purpose.

Realizing that subsequent banquets will only be forthcoming if the Asians are alive to provide them, he allows them just enough scraps from his table to sustain their labor for the following day.

Modern day economists would say that this American is the lone engine of growth driving the island's economy and that without his ravenous appetite, the Asians on the island would be unemployed. The reality, of course, is that the best thing the Asians could do to improve their lots would be to vote the American off the island. Without the American consuming all of their food, there would be a lot more available for them to eat.

Alternatively, they could spend less time on their food related tasks, devoting the extra time to greater leisure or to satisfying other needs, which previously went unfulfilled since much of their scarce resources are currently devoted to feeding the American.

Now some of you might be thinking that this analogy is flawed, as in the real world economy, Americans pay for their food, so real world Asians providing the meals receive value in exchange for their effort. O.K. lets assume that the American on our island pays for his food in the same manner real world American pay for theirs, buy issuing IOU's. Let's assume that at the end of the meal, the Asians present the American with a bill, which he pays by issuing IOU's claiming to represent future payments of food.

However, all the castaways know that the IOU's can never be collected, as the America has no food, or the means or even the intention, of providing any in the future. But the Asians accept them anyway, and each night add them to the piles of IOUs collected on previous days. Are the Asians better off as a result of this accumulation? Are they any less hungry? Of course not.

Now let's assume another Asian castaway washes up onto the island, and assumes the role of central banker. Now each day the central banker taxes the other Asians on the island by confiscating a portion of the scraps of food the American throws them each day from his table. The central banker than agrees to return these morsels to the other Asians each day, in exchange for each Asian's daily accumulation of the American's IOU's, less a small percentage for himself, because the central banker also has to eat.

Does the existence of a central banker change anything? Do the Asians have any more to eat because their own central banker gives them back a portion of the food he took from them in the first place? Do the American's IOU's have any more value because they can now be exchanged in this manner? Of course not.

Well, if it does not make sense for the six make-believe Asians to support one make-believe American, it does not make sense for billions of real world Asians to support millions of real world Americans. The fact that they do so in exchange for worthless IOU's in no way alters this reality.

There is no question that in the short-run, by allowing the U.S. dollar to collapse (in effect voting millions of American's off the island), there will be some temporary disruptions to Asian economies. Of course there will be some initial losers, particularly among those Asians who currently profit from this arrangement. However, these profits come only at the expense of far greater losses born by the broader Asian population.

In the end, the cessation of America's excess consumption, which is a burden that the Asians now disproportionately bear, not a benefit that they enjoy, will be the best thing that can happen to the Asian people. Like the serfs being liberated from their lords, their scare resources will finally be freed to satisfy their own needs and desires, and their standards of living will rise accordingly. In addition, since their savings would then be available to finance additional capital investments, rather than being squandered by American consumers, their future standards of living will rise that much faster as well.

Unfortunately for Americans, being kicked off the Asian gravy train means its time to get back to work. In simple terms, this means a whole lot more hunting and fishing, and a whole lot less eating.

Peter Schiff C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.

LEND

Today's premarket is already moving with heavy volume. Most active on the Nasdaq is LEND.

9:00-9:30 LEND Jumped to 12.1 at the premarket.
9:30-10:00 Posted a buy order because of a breach of zone @ 12.78. Got whipsawed and my stop at 12.70 was served on a silver plate.

Lesson: A trade is wrong until it proves itself. Get out while you still can. Lucky if the trade goes your way.

Today's Trading Watchlist

Shorting
ABK - 85
BBY - Nearing upper trendline @ 49.23

Long
CPS - SymmTri breakout at 40

Daytrade Watchlist
TCM
FCSX
PHWT
LEND
ELON

RMBS - Rambus

Ascending Triangle spotted, trendline support around $18.50. Good volume confirms the pattern.