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SHEPHERD’S of Financial Markets ILLUSION

Stock-Markets / Financial Markets 2009 Jun 28, 2009 - 10:52 AM GMT

By: Joseph_Russo

Stock-Markets

Best Financial Markets Analysis ArticleSadly, history will continue to show that those in positions of great power, elected by various means as prudential stewards of peoples and their economies, continue to prove themselves nothing more than shepherd’s of illusion.


One of the spoils of war enjoyed by victors is the tendency toward rewriting history to better suit their prevailing views.  In similar context, once ruling parties secure conquest, when backed up against the wall, the few in control of the many often go to extraordinary measures to quickly modify or rewrite the rule of law in order to preserve the monopoly of dominance over those under their rule.

To illustrate a very small example of such tampering, we share a side note of John Hussman’s weekly market commentary surrounding the proposed regulatory changes in the financial markets.  We were particularly drawn to one of his observations, which in our view, correctly characterizes the Fed and Treasury as prone to using public funds for private benefit, and their tendency to hop into bed with bank executives more eagerly than five-dollar gigolo’s: -Side note quoted from John P. Hussman, Ph.D. of the Hussman Funds-

“In observing the proposals for changing the regulatory structure of the financial markets, it strikes me that the idea that some banks are “too big to fail” is a dangerous and misguided premise.  The best way to defend ourselves from further crises like those that we have observed over the past year is to - a.)  Give regulatory authorities with a clear and unbiased stake in customer protection – ideally the FDIC – authority to force the government receivership of insolvent bank holding companies and non-bank financial institutions, with no option to perform bailouts at public expense.  This receivership authority should emphatically notbe under the discretion of officials at the Treasury or the Fed, who are prone to instead use public funds for private benefit, and who hop into bed with bank executives more eagerly than a five-dollar gigolo; b.)  eliminate the use of “cross-covenants” that allow the default of subordinated debt to trigger the default of senior debt – this would allow the receivership of an institution to properly wipe out both the equity and a portion of the subordinated debt, without resulting in a blanket default of all of the institution's other debt obligations; c.)  Similarly, restrict the use of credit default swaps to senior debt, and then only for bona-fide hedging purposes.  The upshot of these changes would be to make equity and subordinated debt work in practice as they ought to work – as capital buffers that are truly capable of absorbing extraordinary losses of a financial institution without provoking endless domino effects in the event that an institution goes into receivership.”

Another recent illustrative quote comes from credit analyst Doug Noland, and exemplifies the cunning illusory deceit and subsequent denial routinely imparted by central bankers and politicians relative to their past and ongoing stewardships of social obligation.  In our view, his quotes clearly illustrate the ease and complexity in which denial-based justification of actions on part of the powerful-few come to be routinely lauded despite the long-term practical effects that those actions will most assuredly impart on the many in due course.

-Doug Noland on the flawed but powerful influence that politics and central banking impose upon the long-term health of our nation’s economy-

“The Greenspan/Bernanke Fed championed the disastrous doctrine that our central bank should ignore expanding Bubbles, choosing instead a course of aggressive intervention ("mopping up") once they had burst.  This analysis failed to consider myriad financial, economic and political realities, including that massive fiscal stimulus would be required - and generally welcomed - in the post-Bubble crisis environment.  Today's political and inflationary landscapes are very much an outgrowth of Greenspan's terribly flawed monetary management.”

“Greenspan can claim it is a political problem and warn against increased statism.  Yet the real dilemma today and going forward is the maladjusted "Bubble Economy" structure that fends off systemic breakdown only through $2.0 TN-plus annual Credit growth.  Of course, our politicians have not sat idly as the Credit system buckled and the economy lurched downward.  And, indeed, it was Greenspan more than any other individual that was responsible for the public's blind faith in Washington policymakers' capacity to resolve any and all financial and economic problems.  As always, politicians have a propensity to try to inflate their way out of jams.  That is why it is critical to maintain a disciplined financial system, a stable and balanced economy, and a tough and independent central bank.”

“I know better than to try to predict the timing of problems developing in the Treasury and currency markets.  But I do see all the makings for the next problematic leg of this financial crisis.  As I have written before, our nation's predicament becomes much more problematic when perceptions turn against the Treasury/agency marketplace.”

In summarizing our viewpoints, the potency and effect of distortive interventionist political and monetary policies together with participants herding tendencies to “stampede” are in fact what determines that authorities’ success or failure in maintaining their monopoly and status quo preferences, all of which are vital to their ongoing supreme and elite existence of full spectrum dominance and rule. 

Regimes successful in the management and chosen direction of desired policy-induced stampedes, will likely fulfill their prime directives and remain effectively dominant and in vital control of the masses. 

In theory, leadership regimes that fail must stand down and give way to a new regime, one that is likely quite different from theirs, and hopefully part of a new leadership regime whose intent is more disciplined, impartial, prudential, enduring, and steward-like.  In our present reality however, such a regime change cannot take place without an outright revolution or total systemic collapse.

In the aftermath of inevitable revolution or collapse, such a new regime might then be trusted to perform as expected rather than deceptively shepherding the masses with innovative and false incentive traps far too complex for the mass of mere mortals to unravel and comprehend. 

The jury remains out as to whether the current maturing regimes faltering paradigms will ultimately prevail in this latest quest to preserve its historic monopoly power.  With that, we close our views on the authorities at large, also known by this author as our trusted shepherds of illusion. 

On a tangential matter of Performance and Transparency

We wish to share with readers a rather astounding equity curve chart.  The graph below reflects Elliott Wave Technology’s year-to-date Level-III performance returns vs. the Dow Jones Industrial average.  The performance results are not an illusion.

 

Bear in mind that our medium-term Level-III strategy is just one small “start-of-day” segment residing amid our full spectrum advisory service.  At Level-III, we lay out explicit guidance for index traders who lack a successful disciplined strategy of their own, and who may simply not have the time or inclination to sit in front of a computer all day long searching for trade set-ups.

 

The equity curve’s year-to-date performance result graphically illustrates that while the Dow continues to languish in negative territory for the year, that Level-III single contract futures traders have secured an incredible 160% return on 20K model accounts during the first six months of 2009. 

 

In addition, it shows that those trading non-levered ETF’s with a 20K account size have enjoyed a fantastic 40% return in just six months time.  Note how the non-levered ETF performs in direct opposition to the Dow as the Industrials fell by nearly 40% in early March.  Also, note that since the Dow’s miraculous recovery from its encounter with the abyss in March that in contrast, our non-levered ETF strategy maintains the lion’s share of profits amassed as a direct result of that encounter.

 

In terms of hard-earned money, ETF traders have booked over $6,000 in profits averaging more than $1,000 per month on the modeled 20K account size. Obviously larger account sizes or the use of levered ETF products will have yielded dollar returns proportionately higher.  

 

Astoundingly, their futures trading counterparts have booked nearly $30,000 in profits per single contract traded, which translates to nearly $5,000 per month.  Once again, dollar and yield returns would be double this amount if one traded two contracts instead of one, and triple this amount if three contracts employed.   

 

Relative to the extremely modest cost of this easy to use Level-III advisory, patient and disciplined users have prudently grown their account balances rather dramatically, all while the Dow struggles to break even on the year.

 

On balance, the consistent actionable value derived from our full spectrum Five-Level trading advisory and charting services dwarf the present service fee, which is due for adjustment. 

 

If such extraordinary levels of performance endure, it is likely that at some point it will become necessary to limit the number of users by adjusting fees to represent more accurately the value of such superior and user-friendly returns. 

 

With that, we shall close with an update on last week’s charts and be on our way…


Assuring Safe and Profitable Outcomes

We are the “Simplicity Experts” of navigation amid the broad equity markets.  Our well-organized visual approach in chart presentation incorporates a disciplined blend of technical best practices.  This presentation framework enables us to translate, organize, and simplify (BY STRATEGIC LEVEL) the otherwise complex, and challenging tasks inherent in navigating safely throughout the entire speculative process.  The result is our NEAR TERM OUTLOOK, a simple but comprehensive trading publication, which provides clients with prudently actionable speculative guidance amid all time horizons.   

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The express focus of Elliott Wave Technology's Near Term Outlook is to help active traders anticipate price direction and amplitude of broad market indices over the short, intermediate, and long-term.

Communications ‘09: To more effectively convey dynamic trading conditions relevant to our technical publications; we have recently launched complimentary E-briefings for anyone interested in following our work. E-brief dispatches will summarize current market conditions and tactical trading postures across various time horizons and trading strategies. Those interested can obtain free-inclusion from the sign-up block on our homepage.

Trade Better / Invest Smarter...

By Joseph Russo
Chief Editor and Technical Analyst
Elliott Wave Technology
Email Author

Copyright © 2009 Elliott Wave Technology. All Rights Reserved.
Joseph Russo, presently the Publisher and Chief Market analyst for Elliott Wave Technology, has been studying Elliott Wave Theory, and the Technical Analysis of Financial Markets since 1991 and currently maintains active member status in the "Market Technicians Association." Joe continues to expand his body of knowledge through the MTA's accredited CMT program.

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