The brilliant U.S. economist Irving Fisher first highlighted the fact that an economy’s debt level could have a deleterious impact on economic growth if it is, in fact, excessive. At $3.70 of debt for every dollar of GDP, U.S. debt is excessive.

Fisher pointed out that the unwinding of debt levels results in prolonged economic distress, and we certainly agree. In 2009, the book This Time is Different – Eight Centuries of Financial Folly, by Reinhart and Rogoff, shed new light on the role of debt by compiling a database that looked at financial crises in 66 countries over a period of 800 years. The main standard in explaining more than 250 crises studied is whether debt is excessive relative to national income, even though idiosyncrasies apply in each case. They reiterate that this old rule (excessive debt) continues to apply, and this time is not different.

(Source: The Big Picture)

Woof. That sharp sell off between 10-10:30 AM (EST) today blew me out of my (IYR) swing for a small loss. The markets have calmed now. The damage was done in about 10-minutes of panic selling. Who stepped on the duck?

Jack | keith@fecal.org

So my (SDS) swing borked yesterday and I'm alerted this short term Long play on (SH) today. What to do. Hmm. Well, I decided to take it at 1/2 position and see what happens. I'll add the other half position if it puts in a new recent high. A higher high than the most recent high.

Wait, what?

Jack | keith@fecal.org

Just a bit of house cleaning. I was stopped out of my swing Long on (SDS) yesterday for a small loss. As usual, I was stopped out by a mere 2 cents about 15 minutes before the market closed. Of course, we had a nice drop (plunge) today, but alas, I wasn't along for the ride. It happens...more often than traders will admit.

Jack | keith@fecal.org

Added this swing Long in (IYR) today.

10-period Put/Call Ratio (chart) didn't even blink at Friday's sell off. Thought there'd be a slight bend. Nada.

From Monday to Thursday of this week I was either traveling or in the hospital being anal probed so my trading was light. The S&P 500 ($SPX) index closed down -0.78% for the week. Choppy action. The biggest loser on the chart above was Oil ($WTIC), down a tasty -5.29%.

Long term, we clearly remain in a synthetic uptrend created by Goldman Sachs, aliens and the PPT. It's apparent to me that it'll take a sizable price shock to put the market in correction mode. Apparently the bad news that has painted the tape recently is being taken as "lagging" and thus, benign. Buyers bloated with cheap dollars and revenge are plentiful. Sellers, however, remain on strike or impassioned.

The SPY's volume and volatility continues to run higher than 2003-2007 levels. With the long term trend locked on $SPX 1200-1250, my Shorts remain quick (day trades or 2-day swings). I don't have the balls to pick this market top. Selling picked up intra-day Friday, but that may open a Stargate for buyers next Tuesday (markets are close Monday for Martin Luther King day).

That in mind, I took out a short on Friday. Not a "real" short, mind you. A swing in a cheesy inverse ETF:

One of the few longer term short swings I have been poking at is the ProShares Ultra Short ETF (SDS). Like all the inverse ETFs, they're in a straight ass down trend and will eventually go to zero. I am quick to cut my losses when taking shots counter trend. The initial premise to my counter trend trades is that I'm wrong. Tight stops, no Ego, control freak the position size. Live to trade another day. Etc.

Also took out this Long on CPX. It's a simple little short term position trade: Buy on Yang (black line), Sell on Yin (red line). Risky trade me thinks given its recent run. It may go into consolidation prior to earnings (01 Feb 2010). No clue really as I don't waste my time trying to predict price moves.

Next Week: Short trading week. I haven't run my scans yet and probably won't until Monday morning, but my plan pretty much stays the same: until we break this uptrend, it's quick Shorts and longer Longs. I'm willing to take a few busted Longs into any legitimate market correction before I flip teams.

The sectors I'm most interested in for the next 3-5 months are Tech, Basic Materials and, since America will have compulsory socialized health care soon, the Healthcare sector. Tech always looks interesting to me.

Good luck and good trading this week. ~Jack | keith@fecal.org

Below is an electronic Industrial song called Centuries In Me by Haujobb off their seminal album Polarity. It's brilliant stuff. Ground breaking album in this genre (one of many for them). Enjoy.

Disclaimer: all charts are posted for educational purposes only and not a recommendation to buy or sell any stock or ETF posted within. At the time of this post, the author (me) did (does) have open positions in CPX and SDS, but has no business relations with the companies, business entities or evil conglomerates behind the symbols.

The $90 billion tax proposed by President Obama this week is "90% about politics," Craig says. "This is bad train wreck for the government. They did all this work to stabilize these institutions and now we're reading about record bonuses. It's a nightmare for these guys."

The administration is moving to "deal with the huge disconnect" between the big profits on Wall Street and big pain on Main Street, Craig says. Given the size of that gap, the government has been very slow to respond, she says.

While the reform effort drags on in Washington, the one thin reed of hope may come from an unexpected source: Large institutional shareholders. ~Susanne Craig

(Source)

Hilarious animated short from Explosm.net. Some language may not be safe for work.

This is a continuation from my previous post and might become a regular feature if I'm not too lazy to keep track of what I'm reading or finished or abandoned. In other words: that last sentence is an "out" in case this is the last post about "books" for the next five years.

You won't get much in the way of a book review out of me for anything that I've read because, quite frankly, my own writing is putrid. My spelling is fair, but my grasp of English grammar is heinous. I'm sure this post is a fine example of my impoverished grammar skills.

Onward...

Books I Finished (from my previous post):

- "Trading For A Living" by Dr. Alexander Elder | About the fourth time I've read it. Always good.

- "Options Volatility Trading: Strategies for Profiting from Market Swings" by Adam Warner (@agwarner) |  I thought this was a good read. I learned quite a bit. I plan to re-read parts in tandem with "How I Trade Options" by Jon Najarian. Some of the best traders to follow on Twitter are the options traders. Make sure you do even if you only trade equities.

Open Books (books I'm reading):

- "Candide" by Voltaire | I'm reading this at a casual pace. It's very good. Disheartening at times, but quite relevant to this past decade.

- "Come Into My Trading Room" - by Dr. Alexander Elder (Amazon.com | Google Books Preview) | As part of my continuous trading education, I make it a habit to re-read the "basics" or the classics in my field. You can never get enough of the basics in trading & speculating. Don't be afraid to refresh your skills especially if you're a chartist.

- "Empire Of Illusion" by Chris Hedges (Amazon.com) | I hate this piece of shit. It's like one long angsty adolescent blog post. Carping. Loads of carping. Alas, I'm half way though. I might as well finishing it up.

Dropped (from previous post)

- "Smarter Trading" by Perry Kaufman | Didn't really drop this in a negative sense. I was only interested in a few chapters this go around. Good stuff.

Jack | keith@fecal.org