El Helicoptro’s not able to Smell the Coffee

Helicopter Ben Bernanke just doesn’t get it, does he?

People have lost confidence in the Fed and its “stimulus”.

That’s why, when Benny Boy announced more stimulus a day after the “debt deal”, the Dow along with broader markets tanked even further.

The Dow only encompasses 30 stocks. Let’s look at the broader US market. For example, the Russell 2000 fell 9 % yesterday.

Now if that’s not a vote of no-confidence, then what is?

If we observe Bernanke’s dealings of yesterday, he heightened his stimulus announcement from one-week ago to “even more stimulus”. This is a death-trap.

How does El Helicoptro plan to finance his stimulus? By printing notes. Such free printing of notes leads to more and more currency in circulation, which ultimately leads to devaluation of the currency in question.

The devaluation process of anything financially connected to the US has been set in motion. Ben Bernanke is still not smelling the coffee.

Where does that leave you?

Ideally, one should have asked this question back in 2008, but if one didn’t, one will be forced to ask it now.

That’s what Mrs. Market does, it forces you to keep questioning your basics till you get her groove.

For the newbie investor who’s caught in the current fall and is taking his or her share of hits, well, the silver lining is the learning effect. He or she will buy with a margin of safety as an investor in the future, or will learn to respect a stop-loss as a trader. Mrs. Market will either force him or her to learn these basics, or will throw him or her out of her game forever.

What about more experienced players, who saw 2008, or perhaps older crises? If they are still taking a hit just now, well, they too need to get back to the basics. Mrs. Market does not discriminate between who is making the mistake. She’s universal in doling out her punishment to the non-performers, but also universal in doling out her reward to the diligent learners.

So what are these basics?

Mrs. Market 1.0.1 teaches two basic lessons.

Lesson numero 1 is for investors. They need to BUY WITH A MARGIN OF SAFETY. This allows them to sit tight during such a crisis, because they aren’t taking much of a hit.

Lesson numero 2 is for traders. They need to TAKE A STOP-LOSS once it is hit. With that they are out of the market and she can’t hurt them anymore.

That’s it. 2 lessons, people. No way around them. They need to be incorporated into one’s DNA before one can move on to second base with Mrs. Market.

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3 thoughts on “El Helicoptro’s not able to Smell the Coffee

  1. So according to your lesson No. 2 2 days ago when the market started to tank in the US, investors should have executed a STOP LOSS and exited the market. Which is probably what happened. People panicked and started to sell like crazy and prices spiraled down. I on the other hand am not quite convinced of this strategy. Panicking and exiting might generate greater losses. Though too be honest its the stock market..who knows where it is heading next!!

    • Uday Nath says:

      Technical stops were hit a while back, perhaps a day or two before the panic started. That’s the beauty of TA. Astute traders were already out by max Aug 2 / Aug 3, if not before.

      After that the hysteric drops were all panic.

    • Uday Nath says:

      And those traders who used the strategy of profit booking on the way up after their targets were hit were out between July 20 and July 27…

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