Our most important post EVER

Just to elaborate more on our twit from May 2nd on the 10 year bond http://twitpic.com/1kbg6d. When many commentators, including Pimco’s head Bill Gross, were calling for rates going above 4% we suspected that there would be one more “flight to quality” as thing once again got “more bad”. Again, the reasons why this happened are obvious now after the event.

Sometimes an Elliott Wave count can give you much more market insight without ever looking or listening to news. This is why we also recommend that client avoid news when making trading decisions if they are unable to distinguish between what is important from the noise.

If you had listened to the biggest bond trader in the world you would be down 20% since the yield was at 4%. Our Elliott Wave count was that the first major wave up began in Jan. ’09 and ended in April. We expected a wave Two, ABC correction to take place and last for a few months as indicated in the above twitpic. Our target levels were between 2.75% and 3.25 % (basic Fibonacci retracement levels). It now looks like we could get to below the 3% even though this looked like an unlikely event only a few weeks ago.

We then go into the most impulsive wave and this is where the meltdown will occur. First the media will say a rise in rate is due to the economy become “less bad” and there is again a demand for risky assets. However the real reason will be that investor realised they jumped out of the frying pan and into the fire. Nobody will want the long end of the US curve and what happened in Greece is just a precursor to how quick and impulsive wave 3 can be.

Heaven knows what interventions Governments will try so it may be difficult to make money on this demise. Of course if you own this product at these yields get the hell out. However, most are held by institutions in our hard earned pension funds. This is where “Joe Public” really gets ripped asunder.

Rates on T-bill MAY remain low as the second last flight to quality. It won’t take much of this bond money to drive the price of gold and silver into the mania bubble phase we discussed here http://vimtrading.blogspot.com/2009/06/compare-gold-in-1970s-to-2000s.html and here http://twitpic.com/1oy34q.

It’s not a pretty picture but now is the time to batten down the hatches and stop listening to all those “experts” and “economists”.

When Credit is Flowing

Here we will try to show the facts that the Global Financial Crisis was due to monetary and credit expansion gone mad and dispel the idea that it is the savings of other nations that has caused it. In our previous blog “Get Credit Flowing” http://vimtrading.blogspot.com/2010/04/get-credit-flowing.html we claimed that LOANS CREATE DEPOSITS WHICH CREATE LOANS WHICH CREATE DEPOSITS. Figure one shows just how much this expansion has happened. Whether we look at just the paper money in circulation or broad credit the expansion has been between 6.8% P.A. and 8.8% P.A. Exactly how this happens is not as important as to what the consequences are. We got to keep in mind that the ECB has a target for inflation of under 3% and this inflation figure (CPI in Ireland & HICP in Euro Zone) is what is used to calculated wage and pension increases and now decreases.

Figure 1. Euro Money Supply in Billions of Euro

Figures from www.ecb.int/pub/mb/html/index.en.html
M0: Currency in circulation
M1: Currency in circulation + overnight deposits M2: M1 + Deposits with an agreed maturity up to 2 years + Deposits redeemable at a period of notice up to 3 months M3: M2 + Repurchase agreements + Money market fund (MMF) shares/units + Debt securities up to 2 years

To keep this as simple as possible we will look at M0 which is all the Euro currency in circulation. From the beginning of the Euro in 1999 there was €343.8 billion in circulation and 11 years later there was €806.2 billion which is an increase of €462.4 billion or 8% per annum. If it had increased by just 3% PA the total amount would be €475.9 billion.

So we will say wages increased by 3% PA in line with CPI or a total compound increase of 38% over 11 years but the amount of Money in circulation increased over 3 times faster. Some may argue that we need more money in circulation because the euro zone has expanded and has a larger population. This may be true but the population has only expanded by 13 percent. The per capita increase of currency in circulation has been 108%. So for ever €100 you were earning in 1999 you should be getting €208 just to be keeping up with per capita currency printing. This does not include that one has 11 years more experience under their belt.

By just looking at figure 1. and reflecting on ones own situation it is easy to see that something just doesn’t add up. For most the thought may be “the amount of money per capita has gone up by 108% but I am not getting my share.” Also, if I’m not getting it, who is? We have answered some of the question one may have in previous blogs.

Henry Ford stated “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” This system can only work with continuous expansion. By allowing write off of debts the above figures would contract. While it looks bad for Governments to bail out the main culprits they know the alternative of a total collapse would lead to revolution. In simple it is a pyramid scheme and the majority of us are on the bottom leg. Because not enough of the money has fallen to the bottom we can’t sustain the scheme and government will try to “get credit flowing”. Bailout may work this time, but in the end it will go the way of all pyramid schemes.

GET CREDIT FLOWING

It has been three years since the Celtic Tiger party topped out. Since, we have the same discussion and blame game with the same commentators who are offering nothing new and are not highlighting the real cause and effect. The public are getting tired and sadly with all this coverage are feeling more confused.

We will go back to the analogy of a big party that many use to describe the Celtic Tiger. We went on a massive CREDIT bender and in mid 2007 the party stopped. When we woke up with this killer hangover to the shame of the thing we got up to during this party we were left with many options. To name a few, we could take the pain with the knowledge that we would come out the other side stronger and wiser. We could take the easier option and go for “the hair of the dog” which had often eased the pain before. Of course there are also loads of quack solutions to ease a hangover but what is important to remember is that is was doing the dog at the party that caused the problem.

It is widely discussed that Credit was the drug of choice at this party however what is not widely understood is that this was a synthetic credit. Economist would have you believe that this credit was money borrowed from the saving of thrifty Germans. This is only mildly true as their saving may have been the base for this credit. In the fractional reserve, central bank controlled fiat money system that exists LOANS CREATE DEPOSITS WHICH CREATE LOANS WHICH CREATE DEPOSITS and so on until the credit expanded faster that the wages that are used to pay back the principle and the loan. In a world where language is used to confuse rather than enlighten this is loosely called INFLATION. In a nutshell investment banking is a licence to print money. Again money and credits are interchangeable term that experts have difficulty in drawing the line between.

This system is CREDITISM. Like Capitalism and Socialism this ideology works well on paper. If you have a steady growth of this credit, say up to 3% P.A. it can go on for ever and a little morning after stimulus cure will work ok for the minor excesses. However since the introduction of the Euro there has been over 8% monetary and credit expansion P.A. which came to an abrupt halt and now Governments and Central Bankers are trying to get this party started.

See ECB Monthly Reports www.ecb.int/pub/mb/html/index.en.html

Diagnoses and Cures
Governments and the financial industry know the illness is self inflicted creditism but are disclosing it as free market capitalism gone mad due to lack of regulation and enforcement. Their cure is stimulus of synthetic credit and more regulation which is seen to be vigorously enforced. Many main stream economists also mistake Creditism for Capitalism. The difference being, Capitalism requires savings and a natural outcome of a society being more productive is a reduced price of goods. Creditism also allows for productive gains however due to an increase supply of credit it takes more and more money to acquire goods.

If we were to take the cure for excesses and poor investments in Capitalism and apply them to Creditism you would get a total wipe-out of deposits and a total inability for those indebted to pay down their debts. The idea of just protecting deposits is not a Capitalist solution. As was highlighted earlier, many if not all deposits are created from loans. For example if a dump site in Dublin was sold for €450 million, the buyer puts up €50 million of their savings and borrows €400 million. This €400 million loan is created by increasing the broad money supply (it is not the saving of thrifty Germans). The seller of the site now gets their €450 million which they put in their deposit account known as M1. The broad money supply increases by €400 million as does the amount of money on deposit. Should the seller not also lose out if this system breakdown? This is the bulk of deposits while the saving from earnings that is used as a case against this radial cure is just pittance. As the debts are wrote down or wrote off there would be a dramatic reduction in the money supply. Some of the outcomes of using a Capitalist cure for Creditism problem in the Euro Zone would be a strengthening of this currency against other pairs that chooses a stimulus route (why? because less Euro will exist). Also bonds rates would go up and countries as well as corporations would find it difficult to roll over debt and issue new debt at reasonable rates. All goods and services including public services wages would collapse. Ideologies would quickly move from the centre to the extremes. The happy medium that we have experiences since WWII would be over. Knowing this the wise Politicians that we call thick are going to do all in their power to “GET CREDIT FLOWING”. In Ireland changing government is pointless as other main parties’ ideology is also in the spectrum between Corporatism and Creditism. The rest are in extremes that have already proved themselves as utter failure.

The key is to understand that the problem is not the use of credit but the reckless expansion of monetary and credit supply. Now that this has blown up we need to see why there is a massive effort to “GET CREDIT FLOWING”. With this knowledge the debate can move to what are really the best solutions to the problem and how best to prevent it from happening again.

Why Choose Vim Trading?

What is so special about your product?
There are five elements to the Vim Trading “Steps to Success” training programme.
1. Understanding the psychology of markets and your emotions (how to deal with them)
2. Money and risk management (simple but most important)
3. Investment strategies, we cover developing, testing and implement strategies.
4. The skill set; to physically trade from your office or home you require a certain skill set. The practical nature of this programme give you the skill set required.
5. Learning how to analyze charts and identify the most probable future direction of the trend. (this is where most people focus for success, it is important but the least important of the above elements)
For a fraction of the cost of other products we run our course over a three month period so clients can build on their skills between sessions. We will take clients with no experience or knowledge of the markets and within three months give them the knowledge and skills to develop and implement a success investment plan.

Others programmes just offer some of the above elements. For example some programmes can charge over €2,000 for loads of information and some poor technology all of which can be acquired for free if you are smart. Others provide one day and half day workshops on some of the skills and strategies but this is information overload and does not allow time for clients to practice the skills.

What can I take away from the course?
Clients will acquire knowledge, skills and wisdom in the above areas as well as some new perspectives about markets and finance.

What turn around on profits will I make?
If you understand what is said above to come out with this question is a bit silly.
As you may not make a profit at all.
Your success will depend mainly on you implementing a sound, realistic plan with SMART objectives. Then there are an infinite number of factors that can impact (positively and negatively) on your P&L. So while it may seem like a smart question it would be stupid for us to put a figure on the answer as you may lose money or you may become the next Warren Buffet.

What you will have is a clear understand of this fact by the end of the programme so if you get bluffed by someone offering you a magic bullet formula you were not listening in class!!!!!!

Do I need software for the course?
FREE software is provided with your trading account. We will guide clients to what we believe are good sources of free information and resources.


How much time is involved studying at home?
Simple, what you put in is what you get out. The course is run over 10 sessions and not a weekend so clients can build the knowledge and skills as well as learn from the emotions that they experienced trading. The reality is that some people won’t go near it from one week to the next but we recommend doing 2 hours of planned, specific work between sessions. Some clients spend much more time studying and they get more from the contact time as they can ask smart questions and will understand the answers.

Is there an after care service?
Yes there is a mentoring service but this is expensive. One is much better off going away and putting the knowledge and skills into practice with small amounts of money. Then, when you have experienced the real investment world join us for a group get together to explore our experiences. We find the people looking for after care are those that just don’t put the work in during the course and have more money than cop-on. They are a prefect target for a sales guy who comes along offering them a magic bullet solution.

How long will it take before I will be trading on real markets?
We hope clients set up a real micro trading account with €100 straight away and then you are trading real money in the markets. By the end of the course you should have developed an investment plan.

Do I have to set up my own account with a stockbroker?
All clients will set up a demo and/or a real account with the same brokers so we all have the same technology. We will look at a number of different ways to invest but each client’s choice of brokerage beside the demo or micro account should be based on their due diligence. While we cover the steps one takes in choosing technology, brokers and investment vehicles we do not make specific recommendations.

Investing seems like hard work, would I not be better off putting my money on deposit or letting a professional manage my investments?
For many they are better off giving their hard earned savings to an investment manager or putting it on deposit. However, don’t expect to make a great return or even a positive return on your investment. See our blog on the best investment of the past decade.http://vimtrading.blogspot.com/2009/12/stocks-bonds-property-cash-or-gold.html

Even if you choose not to invest yourself, you will be a lot wiser about markets and investing by taken part in training with a company whose only vested interest is giving you an impartial education on the financial world. We give clients the skills and knowledge to “form their own opinion”. Our programmes are based on our understanding of what these requirements are and our knowledge and experience on how adults’ learn best.

If you have any other question please leave a comment or email info@vimtrading.com

http://www.vimtrading.com/

Stocks, Bonds, Property, Cash, or Gold

Here we will look at what was the best investment for your money since the introduction of the Euro. For this illustration we will consider that you had €1,000,000 to invest ten years ago and you wanted a safe place for it?

Option one is, you take the €1million in cash and hide it in a very safe place. You now still have €1million in cash to do what you please. However, you lose to this thing called inflation, but how much?

I think we need to look at the money and credit expansion and not CPI when we consider inflation. So in December 1999 if you had €1million in cash, that was 0.0000027 of the €361billion of Euro currency in circulation at that time. Now your million is just 0.0000012 of the €774billion Euros in circulation. Just 44% or put differently, the Money supply is up 114% during this period. http://www.ecb.int/pub/mb/html/index.en.html

To put this simply, if your investments or your earnings are not up 114% from what they were 10 years ago you are less well off. Your €1million needs to be more than €2140000 just to keep up with money and credit expansion. This required an 8% annual compounded growth.

So let’s see how the other asset classes performed.
You put your million in a deposit account at net 5% compounded annually and you receive €1,628894

You buy 1 million worth of Irish housing property you get back €1,615,026 and your net rental income possibly €500000 at a rental yield of 4% with interest at 3% so the total is €2,115,026. http://www.statusireland.com/statistics/property-house-price-statistics-for-ireland/3/Irish-House-Prices-Since-1996.html

You buy €1 million of Irish stock, they are now worth €598541 + the dividends you received.

You buy €1million worth of the DJ Euro Stoxx 50 index, it is now worth €567,800 + the dividends you received.

You buy 3571ozs of gold at €280 an oz. its value is now €2,857,142 less storage costs. A growth of 11% compound annually.

It is a very weird situation when holding real money (gold) in storage outperformed investing your money in any other asset class. We have explored why this is so in previous blogs see http://vimtrading.blogspot.com/2009/07/why-5000-year-old-rules-on-getting.html and http://vimtrading.blogspot.com/2009/07/fat-bankers.html

Is Personal Bankruptcy a way out?

While the debate on cuts and how they happen is very important I believe what is now paramount for our Government to focus on is changing the current bankruptcy laws. If the union leaders were interested in the citizens and working classes this is where their interest should rest. Based on this years tax take our spending needs to return to 2003 levels. Everybody believes their role is more important than the next. If all departments received their 2003 budget and cut spending accordingly this would be a simplistic and a fair way to do this. Now that is an unending debate however the issue of our draconian bankruptcy legislation and the state of debt many families find themselves in is a much more important issue for many reasons.

· The deflating/contraction of credits cycle we are in is positive for workers and only those whose who have large amounts of debt will suffer. As when prices were inflating and wages trailed, wage will also trail deflation for many.
· This means many in public and private sector jobs will have more cash to spend on cheaper goods and should be willing to take some pay cuts. (Ideally what the market will bear but good luck with trying to get that.)
· Personal bankruptcy is pretty much a last straw as one is perused for 12 years making it unfeasible to be a productive member of society during this time. By allowing people to quickly file for bankruptcy and come out of bankruptcy in a couple of years and get on with life will be much more socially and economically beneficial. They will lose their assets which may be punishment enough. It is unlikely that these people will take on risky investments in the future. The current law is a measure to immunise the creditor from risks. It should be the role of lenders to make prudent not riskless decisions.

It is unlikely that the currently bunch of TDs will make any decisions that will be beneficial to the majority of society or the economy as a whole. It is not that they do not know what to do but like any lifestyle change, many try to take the easy route.

Raising awareness on this issue and uniting those who are indebted will receive much more public support than the current squabbling between public and private workers. With NAMA and bank guarantees the burden of this debt will again fall back on the public. However, drastic action needs to be taken soon.

http://www.vimtrading.com/

Free or just serfs

As unions and government go head to head on pay and conditions we the people need to reflect where we are on the spectrum between freedom and serfdom. On a superficial level it looks like we have a liberal society. We have free elections and free press. We have good contract and property legislation. We can dress, do and say pretty much what we feel. However, on further reflection a growing mass are under the spell of government dependency and control.

Firstly we have those on direct government dependency. The number we all know being the 423,000 on the live register. We have the same number dependant on government to pay their pension. There are thousands on Fás C.E. schemes, back to work schemes and other such projects that keep the real unemployment figures down. We then have our 263000 public servants who are at the mercy of the Government for their wages. Thousands are also employed in the community and voluntary sector which is funded through government departments. We have the farmers who since joining the EEC have become dependant on subsidies to survive which has killed off any incentive to become more productive and competitive. We then have Irish and EU regulation which is a massive burden on the farming and fishing sector as well as on small businesses. This burden means big business can be less competitive which means higher costs for consumers. On viewing “big business”, are they capitalistic or just involved in corporatism? Michael O’ Leary’s actions with the EU Transport Commissioner during the recent Lisbon campaign points very much to corporatism. Government support for multinationals also points in this direction. Now in the midst of deflation hundreds of thousands are enslaved to debt and our Government is intent on enslaving our country in foreign debt.

We think that we tried free market capitalism and got burns and we will now take security any day. However, this was just a debt based pyramid scheme. I urge you to discover what market capitalism really is and where true liberty rests.

http://www.vimtrading.com/