Mailbag Grab Bag
You've got questions, we've got answers....
Could you explain how dollar devaluation gets money into the hands of consumers so that they can continue to support credit expansion (increased borrowing and spending)? Minyan Jim
Dollar devaluation is an effect--not a cause--of credit expansion. If Boom Boom (Bernanke) continues to print greenbacks in an effort to keep the reflation balls in the air, the dollar will devalue simply as a function of supply and demand. That, in large part, is why I've been focusing on CRB 320, which is a multiyear trendline (from 2003) and the 200-day moving average. The CRB measures everything from coffee (that you had for breakfast) to wheat (which is used to make bread) to pork bellies (which is used to make bacon, like you might find in a bacon, lettuce and tomato sandwich). Then there are other commodities like frozen orange juice and gold. Though, of course, gold doesn't grow on trees like oranges.
You've mentioned 'virtual real estate' a few times. Are you "talking your book," so to speak, or do you truly foresee another bubble? It all sounds very 1999 to me. Thanks, Minyan Sean."
We've seen the dot.com bubble at the turn of the century and we're currently edging through a real estate bubble (be it pockets of elasticity or a broader, more expansive dynamic). Would it really shock anyone if a virtual real estate bubble finished the tri-fecta? As someone who considers himself a relative realist in the context of financial markets, I've struggled with this a bit but there is some anecdotal evidence that supports that thought.
We've spoken about the squeeze on Madison Avenue as technology pushes the advertising spend away from commercial television and towards more discernible (non-DVR dependent) platforms. This isn't news, per se, as we've seen footprints of the new media landscape tip toe across the web. Witness Dow Jones big ticket purchase of MarketWatch as an example of virtual bandwidth (advertising) demand or News Corp's eye-popping $580mm purchase of MySpace.com as an effort to obtain a next-gen network. In the digital age, television "channels" will be rendered obsolete by organic distribution networks facilitated by technological advances and shared "inlets" (powered by social networking functionality).
We linked an article yesterday that spoke to the supply/demand of legitimate media properties that fit into this next-gen digital puzzle. Platforms are being sized up by the breadth of the audience and the gorillas are paying up not to get left behind. There is a seismic shift in the media landscape, a dynamic discussed recently by Minyanville president Kevin Wassong. As the Founder and former CEO of JWalter Thomson's digital group, he's forgotten more about media than I will ever know. So, if you wanna learn more about this particular subject, feel free to ask our resident sage.
I had a quick question about scaling in and out of longer-term positions. If you've been using pullbacks for building a position, at what point do you have to throw up your hands and buy higher, if the market refuses to provide a better entry? I've been trying out a "trading around a core" mentality for a while, but I have to admit I need lots more practice. If the market gets away from you, do you ever drop the discipline and reach for it? Or is that taboo for this methodology? Thanks in advance, Minyan Norm
You're touched on the Achilles heel of every disciplined trader. A process or approach works great on paper but is often more difficult in application. The other side of that trade is "What happens if I'm using pullbacks to add merchandise and it keeps trading lower? At what point does averaging down become "hoping?" Good question(s)--and I'll do my best to address them.
I've been trading for 16 years and have utilized different strategies in different markets and different situations. The general rule of thumb, either way, is "when in doubt, trade 'in between." If I'm diggin' a stock or sector (energy or metals) and it's getting away from me on the upside, I'll typically 'nibble' to take some pressure off. Conversely, if I'm choking on exposure, taking a bit off generally serves to alleviate the stress.
Remember, you should never have one situation or position that dominates your attention. That would, by definition, distract you from a litany of other opportunities that exist during any given session. Heck, I've been known to put stocks on my "personal restricted list" so I can clear my head and focus on new situations. For as we know, above all else, emotion is the enemy when trading.
Good luck today
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