S&P 500 Sector Performance

via novelinvestor.com


Source: novelinvestor.com

American Entrepreneurs: Rupert Murdoch

Rupert Murdoch: The Untold Story of the World's Greatest Media Wizard by Neil Chenoweth                                         https://archive.org/details/rupertmurdochunt00chen

Reasons to Doubt a Continuation of Last Week's Selloff (Outline)

A few factors to consider before committing to the bear side.

Qualitative:
1. majority of market is on high alert/risk off and had a lot of time to settle into their thoughts over the weekend. They all fear a Monday gap-down and likely have stops in place to limit any potential downside in their portfolios.
2. Santa Clause Rally - we are currently in prime time for a holiday-fueled rally in stocks.
3. Trump leveling up public criticism of Fed policy.
4. The Perma-Bears are out in full force with more conviction than ever. From the Schiffs to the Stockmans - they've all published articles and videos over the weekend prophesying that last week's move is just the beginning of the end. This usually marks a near-term bottom. I wouldn't enter any new shorts while the bears have their chests puffed out.

Quantitative:
1. October's CPI came in 50% below forecasts. The CPI is the Fed's primary tool for gauging near term inflation, and a print 50% below expectations is not bullish for rates.
2. Jobless claims came in 7K higher than expected. One data point does not a trend make, however, it is technically inconsistent with a tightening labour market.
3. Strong dollar exacerbating slowdown in global growth. Since the Fed's dot plots imply a gradually strengthening dollar, current interest rate policy risks triggering a wave of emerging market debt defaults. Ironically, a slowdown in global growth itself ignites a flight to safety, strengthen the dollar further from here, irrespective of a change in monetary policy. A strengthening dollar also puts a dent in corporate earnings, which isn't conducive to a positive economic outlook or higher asset prices.
4. The US is already paying the third highest interest rate in the G8, and is one of only three countries paying positive real rates on 10 year money (0.513%). The other two G8 nations without negative real interest rates are Italy (1.81%) and Russia (5.41%). Every other G8 nation is currently borrowing 10 year money at a negative real rate; i.e., they're borrowing $1 and paying back less than $1 at maturity, after discounting for inflation. If Fed policy continues to diverge from other major central banks, then rising debt servicing costs could become the most important fiscal issue in the US - something Powell likely wants to avoid at all costs.

On the Importance of Sticking to Your System

Below is an excerpt of a story from the classic book Reminiscences of a Stock Operator by Edwin Lefevre. It's an excellent lesson on the importance of sticking to your own system until it requires modification. System trading can lead to extreme boredom, idle hands, and eventually unnecessary tinkering. The stock market is one of the few places where the ends justify means; that is, as long as your system is profitable, it doesn't matter what goes into it, nor does it require a readjustment. The only thing that matters is the outcome. As long as the outcome is satisfactory, plug your ears and stick to the system. 

 Enjoy:

I remember I met an old gentleman in Palm Beach whose name I did not catch or did not at once identify. I knew he had been in the Street for years, way back in Civil War times, and somebody told me that he was a very wise old codger who had gone through so many booms and panics that he was always saying there was nothing new under the sun and least of all in the stock market.

The old fellow asked me a lot of questions. When I got through telling him about my usual practice in trading he nodded and said, “Yes! Yes! You’re right. The way you’re built, the way your mind runs, makes your system a good system for you. It comes easy for you to practice what you preach, because the money you bet is the least of  your cares. I recollect Pat Hearne. Ever hear of him? Well, he was a very well-known sporting man and he had an account with us. Clever chap and nervy. He made money in stocks, and that made people ask him for advice. He would never give any. If they asked him point-blank for his opinion about the wisdom of their commitments he used a favourite race-track maxim of his: ‘You can’t tell till you bet.’ He traded in our office. He would buy one hundred shares of some active stock and when, or if, it went up 1 per cent he would buy another hundred. On another point’s advance, another hundred shares; and so on. He used to say he wasn’t playing the game to make money for others and therefore he would put in a stop-loss order one point below the price of his last purchase. When the price kept going up he simply moved up his stop with it. On a 1 per cent reaction he was stopped out. He declared he did not see any sense in losing more than one point, whether it came out of his original margin or out of his paper profits.

“You know, a professional gambler is not looking for long shots, but for sure money. Of course long shots are fine when they come in. In the stock market Pat wasn’t after tips or playing to catch twenty-points-a-week advances, but sure money in sufficient quantity to provide him with a good living. Of all the thousands of outsiders that I have run across in Wall Street, Pat Hearne was the only one who saw in stock speculation merely a game of chance like faro or roulette, but, nevertheless, had the sense to stick to a relatively sound betting method.

“After Hearne’s death one of our customers who had always traded with Pat and used his system made over one hundred thousand dollars in Lackawanna. Then he switched over to some other stock and because he had made a big stake he thought he need not stick to Pat’s way. When a reaction came,  instead of cutting short his losses he let them run—as though they were profits. Of course every cent went. When he finally quit he owed us several thousand dollars.

“He hung around for two or three years. He kept the fever long after the cash had gone; but we did not object as long as he behaved himself. I remember that he used to admit freely that he had been ten thousand kinds of an ass not to stick to Pat Hearne’s style of play. Well, one day he came to me greatly excited and asked me to let him sell some stock short in our office. He was a nice enough chap who had been a good customer in his day and I told him I personally would guarantee his account for one hundred shares.

“He sold short one hundred shares of Lake Shore. That was the time Bill Travers hammered the market, in 875.My friend Roberts put out that Lake Shore at exactly the right time and kept selling it on the way down as he had been wont to do in the old successful days before he forsook Pat Hearne’s system and instead listened to hope’s whispers.

“Well, sir, in four days of successful pyramiding, Roberts’ account showed him a profit of fifteen thousand dollars. Observing that he had not put in a stop-loss order I spoke to him about it and he told me that the break hadn’t fairly begun and he wasn’t going to be shaken out by any one-point reaction. This was in August. Before the middle of September he borrowed ten dollars from me for a baby carriage—his fourth. He did not stick to his own proved system. That’s the trouble with most of them,” and the old fellow shook his head at me.

QOTD

A good trader has to have three things: a chronic inability to accept things at face value, to feel continuously unsettled, and to have humility. - Michael Steinhardt (Financier, philanthropist, political activist, chairman Wisdom Tree Investments)

FB - Luck Is Found In Opportunity

$FB - here's your chance to buy it. New target: 120.

— Rubin (@traderrubin) Feb. 3 at 11:23 AM

F (Ford) - Short-Term Target: 10.40, Current Price: 12.01

$F Near-term target: 10.40Current price: 12.01

— Rubin (@traderrubin) Feb. 1 at 12:20 PM

TSLA - Price Target Lowered to $187.00

$TSLA - short term price target: $187.00. $QQQ $AAPL $TWTR

— Rubin (@traderrubin) Jan. 25 at 03:52 PM

Book-a-Week Challenge: Week 1, Book 1 - The Power of Habit: Why We Do What We Do in Life and Business (7/10)