It's all how you look at it...

Sloth Crossing: Human Perspective:

 Sloth Crossing: Sloth Perspective

The Government continues to act in a dysfunctional manner as the Fiscal Cliff countdown continues with just three days left in the year.

You have politicians and regular folk casting blame on one side or the other with some blaming both parties.

As a trader, I know not to let myself become biased with doctrine or beliefs which helps me to sort through the information cloud and make non biased assessments. The market doesn't care what personal bias a trader has so it's important to figure out what is actually happening as opposed to what a trader "thinks" or would "like" to happen.

That said, it's clear to me who the guilty party is for the fact that there has been ZERO resolution on the cliff: Republicans, I'm looking at you.

While Dems and Reps like to finger point and claim the other side is obstinate, here are the facts:

1) The Republicans want no tax increase for anyone, regardless of income. The Democrats want tax increases for those making over $250K.

Common Ground: A separate bill could be passed allowing those making under $250K to keep the Bush era tax cuts since both sides want at least this much. Republicans won't agree to this since they know it will be harder to fight to keep the Bush era tax cuts for those making over $250K without holding the 98% that make less than that hostage.

Blame awarded to: Republicans.

By the way, ALL the Bush era tax cuts were AGREED to let expire by Republicans when it was originally drafted under Bush. It was the only way they could get it to balance out financially. These tax cuts were created WITHOUT balancing them out with spending reductions. Now Republicans are demanding these tax cuts remain permanently, and if any concession is made, the Dems have to make budget cuts to equal the taxes being restored.

Republicans obviously want the bulk of the cuts to come from Social Security/Medicare, since they want defense cuts off the table. What happened to the pledge that they were the "protectors" of Social Security/Medicare during the election campaign?

As a separate question, what nation pushes through tax REDUCTIONS during a time of war when government spending is going up? And not just one war but TWO (Afghanistan and Iraq). The Republicans claiming to have the financial high ground in wanting cuts is pure hypocrisy. Both parties don't know the meaning of proper restraint.

2) A separate bill could passed that takes care of the easy things that both parties have agreed to in the past: keep the AMT tax patch in place, continue extended unemployment benefits, don't cut pay of doctors treating Medicare patients. Again Republicans continue to hold out with their "all or nothing" strategy of trying to force the Dems to do things their way.

Blame awarded to: Republicans

All the extra "crisis" generated is due to the belief of the Republicans that they can get their way despite the election results by playing hardball with the general public's financial livelihood.

This won't help them for the next major elections in 2014, just like they were not helped in 2012.

Of course why should Republicans not act up when the Pres and Dems folded back in 2010 when the Bush tax cuts were originally set to expire and agreed to have them extended for two more years? If they were just allowed to expire then, this wouldn't be an issue today.

Trading Update:

I thought I was already done trading for the year, but I saw a formation develop this morning that I felt comfortable enough to try out. Shortly after I got in, I started regretting it since I realized how jumpy the market still is while the Fiscal Cliff problem is being resolved. After what seemed way too long, the market moved as I anticipated and I took my profits and was done for the day.

I was going to say I'm now officially done for the year, but if there is extreme panic or euphoria this coming Monday, that could spell out another trading opportunity as long as it looks good to me on the charts. I will definitely keep my position and risk small though since this trader isn't crazy!

Today is the last day on the Mayan Calendar - and if the world holds up, there are probably going to be quite a few people reconsidering all their money spent in securing a doomsday shelter.

Since the world doesn't appear to be ending, it's a good thing I didn't blurt out my blog crushes - otherwise can we say A-W-K-W-A-R-D.

Coinciding with the end of the world scare, is the man-made problem now referred to as the "Fiscal Cliff", which is the end of the Bush era tax cuts plus reductions in spending on military and entitlement expenditures. If they were to all trigger at once, the fear is it would push the economy from slow growth back into a recession.

I originally predicted the "crisis" would be solved by the end of last week based on the following assumptions:

1) The Republicans were too smart to let it drag out later than that since public opinion holds them more responsible if we go over the cliff.

2) Politicians are survivors - they do a song and dance for their constituents, but ultimately won't do things that are blatantly self-destructive.

Apparently I underestimated the Republican resolve to forget who won the elections this year as they continue to refuse to yield any ground to the Democrats.

Things looked positive early this week as Boehner made a concession on being willing on raising taxes (by letting the Bush tax cuts expire) for those making over a million. Obama also moved his tax cut extension line in the sand from the $250K cutoff to $400K. Things were looking rosy that resolution would come this week.

Then reality happened and things hit a setback when talks stopped and Boehner stated his "Plan B", the one with extending the tax cuts for those up to a million in income would be voted on by the House as a "safeguard" in case a deal couldn't be struck with the White House. Obviously this was an attempt to shift blame from the Republicans to the Dems if we hit the cliff so they could say they have a bill waiting to be signed and if the Prez and Dems don't do it, then it's all on them.

This strategy was weak to begin with. First, we just had an election on the issue of keeping the Bush tax cuts or letting them expire. Romney wanted to make them permanent, Obama didn't and only wanted to extend the cuts for those making up to $250K.

The elections happened and Dems won the prez and gained seats in both the Senate and House- and also won the popular vote in all three races. Clearly, the choice was made on the Bush tax cuts expiring.

Boehner initially responds to this election result by offering Dems the SAME deal that Romney pledged to do - make the Bush tax cuts permanent, and cut back on tax deductions. In other words, there was ZERO budging on the Republican stance.

His next offer, which became "Plan B", at least had tax cuts expiring for millionaires, showing that at least some bit of reality was beginning to sink in.

Boehner gets Emasculated

Boehner had planned to put his "Plan B" up for a vote Thursday. The Dems in the house were against it, so he would need most of the Republicans to vote yes for it to pass.

Prior to "Plan B" being voted on, the Republicans first passed a bill cancelling the coming cuts to the military and shifting them to additional entitlement cuts such as in Social Security and Medicaid.

Then, in a STUNNING turn of events, Boehner had to cancel the vote on "Plan B", as he couldn't get enough Republicans to back him on it.

There's no other way to describe it other than a pill of SHOCK and HUMILIATION for Boehner to swallow. He is the Speaker of the House and his own party revolted against him, making him look weak and ineffectual as a leader. 

This leaves Boehner as looking quite impotent, a sad state to be in (insert your own jokes here).

There's even talk that he may be voted out as Speaker of the House in January as his control over his own members is questioned.

How did the market respond to this news? Not very well.

After the news broke about the vote on "Plan B" being called off, the futures market on Thursday dived over 40 points in less than 20 minutes with the big 30 point spike down in a matter of seconds. That's why one should always use stop loss orders - things can get ugly fast! The market recovered most of the losses after that but it was quite unsettling to witness.

I believe the market was sending a warning to Republicans to stop the games and get a deal done. Boehner not being able to get the needed consensus from his own party on letting the Bush tax cuts expire on millionaires speaks volumes on the unwillingness on some members of his party to even compromise just a little.

Ironically, these folks fear primary challenges in 2014 if they are seen as raising taxes - even though they raise their odds of losing against a Democrat in the general election.

Going Forward

At first glance, it seems like falling off the cliff is inevitable since the Republicans are not budging on accepting any tax increase. But in reality, if enough Dems join in the vote, it will make it easier for a tax increase bill to pass the house. So the question is where to draw the line on letting the tax cuts expire that the Dems will agree too along with the less radical Republicans.

My guess is Obama can't go any higher than $450K - $500K tops in moving his position. Many Dems are already disappointed that he isn't staying firm on $250K. He won the election and being so quick to give up his positions just makes him look more weak than magnanimous. If he goes too high, he will face a similar revolt among his own party that Boehner did.

Discussions will now have to continue after the Christmas break, which doesn't look good at all for the Republicans for not even being able to pass their own alternative. But I think a deal will be reached before the deadline, as I'm sure the more moderate Republicans will not want to carry the blame of falling off the cliff  going into the next election cycle.

Trading Update

After all that, finally time to talk about my stuff.  I had a good week and was thankfully out of the market before all the Thursday fireworks began.

Since the fiscal cliff news is making the market very sensitive and jumpy, I'm leaning on waiting until we have a resolution before taking on any more  trades- so this may turn out to be my final trading week of the year. I can use the down time to make some computer upgrades/repairs.

1) Glad to be back in warmer temps. I got to do all the "fun" winter things in NY like get caught in blizzards and shovel snow, but the weather did warm back up to a nice fall temp range after a few days. Saw a beautiful early evening full moon while there.

2) Fiscal Cliff

The Fiscal Cliff discussion is progressing- even though it went past my weekend deadline prediction. During that time there was finally an offer of the obvious from the Republican side accepting higher tax rates on the wealthy. Latest news/rumors is that the Dems have budged on the $250K cap, moving it to $400K. All indications are things are being worked out so an agreement shouldn't be too far off.

3) Power-Ball

While in NY, I got to play Powerball, not yet available in Cali when that huge jackpot was building up. Played a few rounds with no win, so I'll have to stick with my trading/investing path to financial success.

Imagine if you won something that huge -...don't know what I'd do really. I'd have to take time to let it sink in...

4) Hostess Goes Belly Up

With hostess out of business, one of my favorite snacks is no longer available:

I was kind of addicted to these coffee cakes.  Since they are gone, I tried the Little Debbie alternative:

They're okay, but I still prefer the hostess cakes.

I returned home to see I have "one" box of the hostess coffee cake goodness left. What shall I do....auction them off on ebay, savor them slowly, or keep it unopened as a treasured memory? Nah, strike that last one.

 5) End of the World?

My 1st post of year talked about the Mayan Calendar ending on December 21, 2012, which some folks have taken to be the end of the world prophecy.

Everyone seems pretty calm if "Doomsday" is truly 4 days away.

I guess if I were an actual believer, I likely wouldn't be working on a xanga post. That's a good question though - what would you do if you were certain the world was ending on Friday?

The Fiscal Cliff made up drama will be resolved this week for the following reasons:

1) This week is the last week Congress is scheduled to meet before holiday recess.

2) Republicans have motivation to work out a deal now before the new session starts next year with more Democrats in the Senate and House.

3) Polls show Republicans will bear the brunt of public blame if a deal isn't done and automatic cuts take place on Dec 31.

4) Republicans have little leverage since the Bush tax cuts for the wealthy are set to expire automatically on Dec 31. So grandstanding and saying they will not accept any tax increases makes for a good soundbite, but reality shows there's nothing they can do to prevent it.

5) Since Republicans can't stop it, they will likely want to look like they are not being obstructionist and work with the president rather than continue to resist and take the blame with nothing to show for it except more bad press.

6) Waiting until the very last minute to agree, as in going into overtime after this week will look bad and generate more bad press, which neither Dems or Republicans need, but especially in the Republicans case, since they have more to lose in terms of public perception.

This month has been a tale of two traders - neither one being completely exclusive from the other. Both have their distinct advantages, but there's no denying there's a problem with one.

Year to date, I can look back and see that my knowledge and skills have been advancing along with an increasing level of insight that I never imagined was possible. That's the straightforward part.

The more complicated part is my advancements have come largely as a result of a potent brew of overconfidence/arrogance - take your pick, combined with inadequate risk management. This typically results in me digging a nice hole for myself that requires an even greater effort needed to try and extract myself from.

It's been said that in the heat of a battle your senses become more acute and heightened to the point that all movement appears to slow down as you become aware of everything going on within the sphere of your observation. This is similar to what happens in my trading analysis when I'm placed under the gun - the pressure to try to gauge and map out out where the market is headed short term enables me to see details that I had previously overlooked. It's these details that when analyzed further help me to take my trading abilities to the next level.

While the results have proven to be favorable, the risk/reward curve has left something to be desired. This month made it all too clear while I was testing my new methods.

While the chart has a brutal drawdown, I can clearly remember my reasoning along every step of the way, and at no time was there panic or desperation involved.

Quite simply, I had developed some methods based on my analysis and I was so confident in them that I was willing to take such a hit by the market to be proven wrong. There was no desperation or fear because I already acknowledged and accepted the losses in my mind but I felt I had to take this leap of faith and see my methods through to their conclusion - either success or eating a huge loss for the month.

Making 10+% on my first trade of the month likely added fuel to the fire of being over confident.

November Performance Vs Indices

I also learned numerous new things this month that I believe will be invaluable going forward. The question I have to figure out is how much risk do I need to put my mind in heightened "battle mode" without risking significant losses in the process?

The problem is the "resolve" I have that put me in deep losses is the same steadfast resolve that led to a big recovery.

I need to be able to bring up this higher level of focus/analysis in a lower risk environment. I'm only going to be able to reach ever higher levels if I can contain/control my willingness to play chicken with the market with poor risk management.

I left 80+ degree weather to head right into the Nor-Easter with temps in the 30's- welcome back to the Big Apple. I was lucky to get a flight out as many flights were being delayed or cancelled. My original flight that day was cancelled but they were able to book me on another one.

Though I'm a native NY'er, my time out west tends to lull me into a non "NY" state of mind, so it often comes as a shock when I visit some of the places in Brooklyn that are, how shall I say, built to deal with the higher crime rates in some areas.

One example is the US Post Office, where in some facilities the staff is separated from the customers by bullet proof glass. To mail package, you have to raise your side of the glass, place your letter or package in the gap, then close it- then the postal staff raises their side to retrieve what was placed. I hadn't been to the NY post office in a while so the first time I experienced this, I didn't know how to proceed and had to fumble a bit for directions. Same deal for some fast food places.

Mind you, not every place is like that, but a good amount of them are. That's also not to say this only happens in NYC as one of my my local Cali banks upgraded their entrance such that you buzz in to open a door, then there's another door in front of you to open, but the 1st door has to close behind you first before the next door opens to the banking lobby.

I suppose extra security is the natural consequence of the effort to counter higher criminal activity.

One of the better things about NY is the transit system is 24/7, and the trains/buses run fairly frequently. A neg with buses mostly is some areas tend to have "problem folks"- those who talk to themselves wandering around or panhandlers asking for money. You have to treat it in an "I am legend" type of strategy in areas where they tend to congregate- make sure you're not in the area long after sunset.

You can skip transit and just take a cab or car service, but it does cost more, and where's the adventure in that?

I have to say though there are some quite attractive people that ride the trains on NY, very attractive indeed! I was tempted to take a few pics with my cellie to post some examples but didn't want to be branded a creepazoid so I refrained.

This comes from Brazil - a place where obviously personal lawsuits must not be allowed.

It's pretty funny, but on the other hand it sure looks like some of the older folks may be at risk of a potential stress induced medical problem - young folks too!