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MV Chronicle: World Market Madness, Donchian channels


At MarketVision, the weekly chronicle talks about the S&P Downgrade. (Regn required, free)

We pause our regular programming with a “WTF is happening to the world markets”.

So WTF is happening to the world markets?

We ask that question as the situation gets increasingly bizarre. I point you to S&P’s downgrade of the US government recently, which calls for a flight from the complex world of economics to the simple world of …. economics.

Downgrade of the US government (From AAA to AA+) is supposed to indicate that the US Government is somehow less capable of paying back its debt than before, while remaining largely investment grade. This is somewhat outrageous, because the debt is in US dollars, and if the US Government issues the order, the Fed can print dollars and the money will be returned.

But the devil is in the details. The Fed is not owned by the US Government, even if it will follow orders. Then, the fed can’t just print dollars; it needs to buy something in exchange. What it buys, apart from the crap like mortgages they buy from banks, is US treasuries and long term bonds. If it had to print dollars to pay back some current debt, then the only way it can do so is to buy bonds or T-Bills, both of which are also….debt. So to pay back one set of borrowers, you create a new borrower, the Fed.
Don’t laugh. This is how all central banks operate (except till recently, China, but they’re also going there). Ponzi bonds have existed for a  long time, and even India continues to pay back debt with more debt issued every year.

Donchian Entries and exits

Our Chronicle series on trading has had:

With the market dropping so much, nearly all stocks would have hit a close stop loss, and indeed, the technical based portfolio would have hit a snag. Yet, this is how the behaviour is supposed to be: when the market goes down, you exit, because it’s likely to go down some more.

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Past Short Takes:

(Read the whole Chronicle)


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