Buy the Rumor Sell the Fact

by Larry Levin


I titled yesterday’s missive, Calm Before The Storm for a reason - it was coming today like a hurricane on the horizon. It hit landfall today at 10am CST with Tim, the tax cheat, Geithner’s press conference. Wall Street wanted to hear he had a silver bullet to slay the debt crisis but he didn’t even have a gun, he only had a drawing of one. With that, the indices were pummeled, each closing down more than 4% today. Over the last few days investors have been buying the hype, excuse me - rumor, and today they sold the fact.

The Senate passed the $838-billion Porkulus Bill today, AND Tim-the-tax-cheat Geithner’s $1.5-trillion plan was outlined. In one day Congress and the Treasury have committed to spend and additional $2.338 trillion.

Do you have any idea how much just $1-trillion is? If you spent $1-million every single day starting the day Jesus was born, you still would not have spent $1-trillion. The US Congress, Federal Reserve, and Treasury have spent and or guaranteed over $10-trillion - and rising.

Is money real any more? The longer this goes on; people will start to view US dollars as worthless paper - like Monopoly money.

Bernanke and his ilk aren’t fixing our problems, they are our problems. Any system will work with honest politicians and public servants but what are the odds of getting some of those right now? It seems like both sides of the political isle should simply call themselves Republocrats. It’s difficult to tell them apart.

I have read Keynes and Friedman and others and their arguments for a centralized fractional reserve fiat system. But I’ve also read Ludwig von Mises and Murray Rothbard who make much more sense to me because, like our framers, they have a built-in distrust of government’s ability to do the right and benevolent thing. Keynes himself was an English aristocrat, a member of the ruling upper class, cocky, arrogant and philosophically inclined to dictate to the masses. It is no wonder he thought government should control the money supply from a centralized bank. In his mind the commoners were incapable of understanding such complicated issues and needed to be taken care of like sheep. But fiat systems are inevitably prone to excesses and greed and always fail, centralized or not. Ours is failing as I write this.

The Keynesians have succeeded in destroying our economy and the economies of many, many other countries worldwide. It’s time we finally heeded the warnings of the Austrian School economists who have been telling us for decades that we were building a fractional reserve based fiat nightmare. But we didn’t listen.

Perhaps it’s fitting that in this time of crisis most astonished Americans are turning to the very people who created this nightmare to lead them out of it. If you loaned all of your money to your rich Uncle Sam and he gambled it all away, why would you think you should give him more money to get you out of the bind he got you into in the first place? It is completely unfathomable to me but I am undeniably witnessing it with my own eyes and still I can’t believe it. Yep, Uncle Sam has the answer - Lord save us.

Americans don’t deserve this fate. So you must educate those that can’t see through the lies and deceit that is being perpetrated on the American taxpayer. We must educate them that a true free-market and a world without continuous booms and hideous busts can not be accomplished with a Keynesian Federal Reserve System, a central bank that manipulates the money supply and interest rates as it sees fit to its own benefit. A truly free market based on sound currency needs no manipulation and can not be inflated to suit the whims of the financial and political elite.

Decades ago Ludwig von Mises wrote: “There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.”

Every passing day proves him more and more right. We have only two choices: end the expansion and start the depression right away or continue the expansion until the dollar, and thus the American economy, collapses under its own weight. It is obvious which choice the government has opted to take. Catastrophe now looms within sight.

The dollar and thus the economy is going to collapse with or without this stimulus or any other stimulus. The good thing is more and more people have begun to realize how inept the leaders of this system really are. Will enough come to that realization and actually create something substantial from the aftermath? I hope so but honestly I hold out little hope.

I hope I am wrong.


Previous Day's Trading Room Results:

Trade Date: 2/10/09

E-Mini S&P Trades*
(before fees and commissions):

1) VA sell @ 8:40am at 862.50 = -1.75 (1 lot)

2) Engf sell @ 11:00am at 836.00 = -2.75*3 (3 lot)

3) IDVA sell @ 11:20am at 835.75 = -2.00 (1 lot)

4) IDVA sell @ 11:40am at 837.50 = -0.75 (1 lot)

5) IDVA sell @ 11:50am at 838.50 = -0.75 (1 lot)

6) IDVA buy @ 12:00pm at 838.00 = -1.50 (1 lot)

7) IDVA sell @ 12:10pm at 834.50 = +6.50, +6.50 & +5.00 (3 lot)

8) TP sell @ 1:45pm at 826.50 = -1.00 (1 lot)

9) Algorithm positions (1)…combined SofT and Algo total…+3.75


Electronic (YM) Mini-Dow:


1) No trades today



Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!