Pirate Equity

Paul Krugman wrote an article titled “Mugged by the Moralizers” wherein he argues the reason the world is still mired in a slump is because some people/countries are stubbornly insisting that we, as a people/world economy, live within our means.  He is seemingly saying that “world income” should only go in one direction, higher.  He concedes that the years leading up to the 2008 crisis were marked by unsustainable borrowing and real estate speculation gone wild, but seems to conclude that now that we’re here, the world economy must keep charging ahead at the same breakneck, unsustainable pace in order to heal.  This makes about as much sense as an alcoholic that wants to stay drunk until he sobers up.  Further he suggests that anyone who disagrees with his conclusions is wrong and a “moralizer”, as if being moral as defined by ‘living within ones means’ is a bad thing.

A link to the entire article is included above and is a recommended read in order to have a complete perspective of this post.  Following are some excerpts from Mr. Krugmans article with rebuttal:

“The years leading up to the 2008 crisis were indeed marked by unsustainable borrowing, going far beyond the subprime loans many people still believe, wrongly, were at the heart of the problem…

This borrowing made the world as a whole neither richer nor poorer: one person’s debt is another person’s asset.”

 As is typical with academics, this statement would be acceptable if it existed within the confines of a vacuum.  However, when taken in the context of what transpired leading up to the financial crisis of 2008, it just doesn’t hold water.  A policy of lowering interest rates over the preceding 25 years to combat any economic weakness led to a culture of artificial floors and balloon-like ceilings for asset prices.  Securitization, special investment vehicles (such as CDO’s), and incremental lowering of underwriting standards over time were the steroids which exponentially exacerbated the problem over and above simply inflating asset values this time around.  Millions of “bubble jobs” were created as a result of the excesses spawned by these derivatives that were never needed in the first place and are now gone forever.

“The key thing to bear in mind is that for the world as a whole, spending equals income. If one group of people — those with excessive debts — is forced to cut spending to pay down its debts, one of two things must happen: either someone else must spend more, or world income will fall.”

 Here again, Mr. Krugman makes a statement which, while factually correct, ignores the context of our particular economic situation.  First of all, the implication of this statement is that “world income” must go up and only up forever until the end of time.  The fact is that “world income” was artificially high to begin with.   Mr. Krugmans simplistic choices between someone else spending more or world income will fall, are in reality a choice between recreating artificial prosperity in short order or laying the foundation for a more sustainable economic future over a longer period of time.  New industries spawned by new technologies are what create new jobs.  This doesn’t happen overnight and doesn’t happen as a result of a government blindly throwing trillions of dollars at an economy to plug holes and re-inflate asset values that never should have existed to begin with.

 “Consumers who didn’t over borrow can get loans at low rates — but that incentive to spend is more than outweighed by worries about a weak job market. Nobody in the private sector is willing to fill the hole created by the debt overhang.”

 Again, the hole created by the debt overhang was false and therefore shouldn’t be entirely filled.  Mr. Krugman seems to believe that everyone who’s able should still be taking on as much debt as their current income allows.  He apparently wants people to borrow from their future wages by loading up on debt so they have no option to retire and can be kept in systemic slavery until the day they drop dead.  Most people who are not wealthy and will probably never be wealthy would be far better off saving for retirement and health care needs than taking on debt to buy things they don’t really need.

“First, governments should be spending while the private sector won’t, so that debtors can pay down their debts without perpetuating a global slump. Second, governments should be promoting widespread debt relief: reducing obligations to levels the debtors can handle is the fastest way to eliminate that debt overhang.”

 The implications of this particular passage are mind boggling on many levels.  First of all, paying down debts that already exist does little to avoid a global slump.  Paying down existing debts simply makes good on demand that was pulled forward using borrowed money.  Second, how does the government spending that is currently taking place help debtors pay down their debts?  Can he possibly be referring to the paltry unemployment benefits that cover a fraction of a person’s lost wages and barely cover necessary expenses?  Again, he seems to suggest that once an existing debt is paid off the debtor ought to immediately load up on more debt?  Mr. Krugman would make an excellent drug dealer. 

He says early in his article that one person’s debt is another person’s asset.  Yet he advocates widespread debt relief.  What then would be the incentive for a borrower to ever pay off a debt?  What incentive would an investor have to invest if the government is going to come in and mandate debt relief?  Oh yeah, this is a onetime deal that will never happen again due to the iron clad “financial reform” bill passed earlier this year.  This latest is the third asset bubble in the previous 30 years and they’ve gotten progressively larger each time.  The bill passed will likely fall short of altering that pattern going forward. 

“Try to explain that when debtors spend less, the economy will be depressed unless somebody else spends more, and they call you a socialist. Try to explain why mortgage relief is better for America than foreclosing on homes that must be sold at a huge loss, and they start ranting like Mr. Santelli.”

It’s difficult to completely disagree with Mr. Krugman because he writes in such broad generalities.  In fact, some government spending specifically targeted at efforts such as R&D and education in order to lay the foundation for a healthier, sustainable economy is probably appropriate.  But it has nothing to do with spending for the sake of spending to hit an artificially high number as Mr. Krugman advocates.  Mr. Krugman has repeatedly said that QE1 failed simply because it was too small. 

Redistributing wealth by borrowing from future generations or taking money out of an investors pocket to put it in a debtors pocket is socialism.  Maybe Mr. Krugman would feel better if we called it Robin Hoodism.  But, it is what it is.

 “The irony is that in their determination to punish the undeserving, voters are punishing themselves: by rejecting fiscal stimulus and debt relief, they’re perpetuating high unemployment. They are, in effect, cutting off their own jobs to spite their neighbors.

But they don’t know that. And because they don’t, the slump will go on.”

 Saving and investing in productive capacity is what creates prosperity.  Educating our citizens to be at the top among developed nations in the disciplines that will lead in the future is what creates opportunity.  Not just when we’re young, but throughout our entire careers.  Education should be a lifelong pursuit in this country and it isn’t.

Throwing trillions of dollars at banks to speculate in markets and artificially inflate asset values so our citizens “feel” wealthier does not create real prosperity.  Borrowing money from future wages to buy things today doesn’t create real prosperity.  Spending for the sake of spending until more “bubble jobs” are “created” doesn’t create opportunity.

The actions needed to create a healthy, sustainable economic future for this country will certainly cause some pain.  But as with many things, the longer we wait, the more painful it will be.

But Mr. Krugman doesn’t seem to know that.  And because he doesn’t, he will continue to dispense bad advice.

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• The Brother™ P-touch labeler™ is being marketed as “one great idea” for reducing the amount of time American workers spend looking for misplaced items, which is estimated to be the equivalent of 1 week per year.
• American workers spend the equivalent of 1 week per year looking for misplaced items
• Jerry Brown is in serious contention for the Governorship of California
• Meg Whitman is in serious contention for the Governorship of California
• California is about to elect a more ridiculous Governor than Arnold Schwarzenegger
• Google is threatening to end the pleasurable experience of taking out aggression on anonymous people in other cars
• American people are tearing themselves away from Facebook™, to go see a movie about…Facebook™
• A study, as reported in the journal Current Biology, was necessary to conclude that “a dog who is being destructive is a dog whose needs aren’t being met.”

Disclaimer:  The author is egregiously long the S&P 500, so as of today doesn’t have much conviction in the implication of this post.  Developing…

Much has been written lately as to the reason for continued economic malaise.  After all, interest rates are at all time lows, corporate profits are booming, some 3 trillion dollars is sitting on corporate balance sheets, the debt markets are functioning well, corporations are generating billions in free cash flow, M&A activity has been robust;  Corporations have the ability and wherewithal to begin hiring and expanding the economy.  Yet, there still seems to be unwillingness on the part of the decision makers to aggressively begin providing jobs to the masses of unemployed so we can, as a country, put all of this recession nonsense behind us and get back to our old consuming ways. 

Confidence, the theory goes, must be the missing piece.  Yes, that’s it!  Our esteemed bankers and corporate heads simply lack the confidence to begin deploying the huge piles of cash on their balance sheets in order to set the country back on a familiar track of prosperity. 

Poppycock!  I’ve had the fortune, or misfortune depending upon your perspective, of being exposed to many of these higher ups throughout my career and have never met a one that lacks a bit of confidence.  These folks, as a rule, tend to think very highly of themselves and their ability to affect prosperity for themselves and their minions below.  This is evidenced by the fact that luxury brands have enjoyed strong sales throughout the last couple of years.  Indeed, those with money have continued to indulge themselves throughout the Great Recession, albeit less conspicuously than before.

No, the real reason there exists a widespread reluctance to get the party going again is the absence of an asset class to use as a vehicle for “creating” capital gains.  There’s an old saying:  You can’t keep doing the same thing you’ve been doing and expect to get different results than you’ve been getting. 

Our policy maker’s prescriptions for this latest economic crisis are substantially the same remedies that have been used by policy makers for the last 3 decades.  Sure, they had to get more creative this time around and dig deeper than they’ve ever dug before.  But, at the end of the day, pumping liquidity into the system to “re-inflate” the economy has been their policy response.  Therefore, in order to “re-inflate” the economy, there needs to be something to “blow-up”.  An asset must exist that can be used to create trillions in capital gains to provide the “wealth” to allow our good citizens to purchase goods and services so that jobs can be created and we keep the party going.  (Disclaimer:  it’s considered bad manners at this point in the game to give the least amount of thought to the poor souls that will be left holding the bag when the music stops.)

So let’s review, they can’t use housing and the securitized derivatives used this last time around because that would just be obvious. 

They can try to use the stock market again, but the dot-com debacle is still too fresh in everyone’s mind and using stocks would require the participation of the masses who, at least at this point, seem to have a bit of market fatigue. 

Many think that Treasuries have a good chance of becoming the “tool”, but this doesn’t make sense because the government can simply print the money it needs to pay these obligations.  Anyway, a buyer of Treasuries needs only to hold the security until maturity to get their money back.  If there’s one thing investors have become good at it’s the knack for holding investments for long periods while the value erodes relative to the real rate of inflation.  One only needs to look at the performance of the S & P 500 over the last decade as evidence.

How about junk bonds?  After all, the junk bond scandal of the late 1980’s is a distant memory for most.  Although, much private equity leverage from recent times is proving to have been a less than ideal use of capital so junk bonds may be a tough sell.  Also, the amount of cash on corporate balance sheets precludes the need for the kind of leverage needed to blow a really juicy asset bubble. 

Hey, I’ve got an idea…tulips anyone?

How to play:

The game requires three shills (National Association of Realtors, A spendthrift administration, A liquidity pumping Fed) and a small, soft round brain, about the size of a pea and often referred to as such.

It can be played in almost any market but works especially well in the first-time homebuyer market.

The persons perpetrating the swindle (called the shill men or politicians) begin the game by pumping trillions of dollars of liquidity into the economy to arrest the natural correction of an extremely overvalued market.  Then offering $8000 to new homebuyers and shuffling mortgage interest rates to the lowest levels in history.

Once done shuffling, the audience is told that the housing market has bottomed and if a “player” buys a house they will reap huge rewards in the future.  However, in the hands of a skilled operator, it is not possible for this game to be won.  The $8000 is nothing when compared to the real fair value of homes sans government intervention and/or a slight uptick in mortgage interest rates.

When an individual not familiar with ‘The Shill Game’ encounters a game on the streets, it appears successful bets are being placed by numerous players, when in reality, these persons around the game are shills who are all part of the confidence trick.

The apparent players actually serve various roles in the swindle:  real estate agents most of whom have little to no understanding of markets and are essentially transaction coordinators but who must sell homes to earn commissions, flippers who never actually went away that are buying homes out of foreclosure, sloshing on some new paint and passing them off to unsuspecting “players” for profits and a gang of loan originators who are still being allowed to pawn off loans written on overvalued assets to the tax payer albeit at a slightly higher quality than in recent years.

The game should not be mistaken for an honest game.  It is not possible for a mark to win, even if they know how the trick is worked or if they buy a house in a “good neighborhood”.  Through very skilled sleight of hand, the operator can easily make it seem like the mark is getting a good deal.  Unfortunately, the enormous shadow supply of homes, a limited pool of qualified borrowers or a slight uptick in mortgage interest rates can easily be hidden until the November elections.

The Shill Game set-up and lay-out is quick and simple, so that in the event of trouble, or if cracks in the foundation show up as the elections are approaching (as evidenced in the recent weak housing data including the almost 30% drop in existing home sales which came out today) a second round of stimulus can easily be deployed to keep the game going.  We’ll see what Chairman Bernanke and the other shills have in store for us as the game marches on.

(Adapted from the Wikipedia entry for “The Shell Game”)

Ingredients:

.4% increase in retail sales in July

Rising 4 week average of Initial jobless claims

.3% rise in value of business inventories in June

Rising savings rate

9% rise in foreclosures in July

19% rise in trade deficit on declining exports

Anemic GDP growth

Rising fiscal deficit

Modest income growth

Tight credit

Likelihood of higher taxes next year

Separate autos and gasoline from numbers to extract negative retail sales.  Mix together with increase in savings rate, rising 4 week average of initial jobless claims, .3% rise in value of business stockpiles in June, rising savings rate and a 9% increase in foreclosures in July.  Gently pour mixture into a large bowl with a 19% rise in the trade deficit, anemic GDP growth, a rising fiscal deficit, modest income growth, tight credit conditions and the high likelihood of higher taxes in the future.

Use egg beater to mix the above to creamy texture.  Pour over a bed of Chinese rice and serve cold.

Yield:  1 healthy serving of an ugly economic outlook for the US.

Insightful article about things our leaders should be thinking about instead of trying to reinflate bubbles that have already burst:

http://www.tnr.com/article/economy/76961/richard-florida-reset-recovery-economy-future

The real problem is our politicians have become so obsessed with reelection cycles they are incapable of thinking long term.  As this article points out, we should be looking at this period as a tectonic shift in the foundation of our economy that will propel the United States into the future.  Instead our elected reps are too busy trying to get back to where we were so they don’t lose their jobs.

It’s time for us as a nation to show our politicians the way.  November is coming…

Financial job postings are up 31% from a year ago and technology job postings are up 36% from a year ago according to Scot Melland, CEO of Dice.com.  CEO’s at other temporary staffing agencies are also reporting rosy expectations of future job growth based on businesses increasing hiring of temporary workers.  Increased hiring of temp workers, as the mantra goes, always precedes a pickup in permanent hiring.  But, they’ve been saying this for several months now.

Meanwhile, the latest report from the Labor Department indicates the economy lost 131,000 jobs last month and the previous month’s job losses were revised down to a greater loss than previously reported.  Additionally, the unemployment rate remains uncomfortably high.

The tried and true script uttered by politicians and economists that “job growth generally lags the beginning of a recovery by about 6 months” is becoming a difficult sell since most have attached themselves to the notion that a recovery began in mid 2009.  Many are becoming concerned about the job markets lack of response to the normal monetary and fiscal stimulus measures that have successfully re-inflated every other bubble we’ve had over the last 20 years.

There could be a meaningful change in this dynamic soon but given the cost effectiveness of hiring temporary workers due to not having to pay for full benefits and the relative flexibility in staff levels with temporary workers vs. permanent workers, this usually accurate indicator may prove to be less so this time around.

Some are calling for banks to start lending so businesses can use the money to hire more workers.  Others are convinced that the increased productivity experienced throughout the downturn that has led companies to be able to produce more with less is temporary and companies will need to hire soon to keep up their current level of production.  Still others insist that the capital expenditures companies have made on new technology which has allowed them to increase productivity will eventually require them to hire new people to run all this new equipment thereby leading to a pickup in hiring.  The most out of touch are calling on the government to “do something” to encourage businesses to start hiring, presumably giving borrowed money to companies to hire workers they don’t necessarily need which is probably the stupidest ponzi-scheme idea ever conceived.

It’s worth considering that the real reason the job market has thus far refused to start showing meaningful gains is anchored in a truth that no politician with any sense of self-preservation would dare utter:  A vast majority of the jobs that were lost during the Great Recession were never needed in the first place! Most of these jobs will never come back, nor should they.

It’s a well known fact that the US has fallen woefully behind the rest of the developed world in math and science skills.  For years we’ve been outsourcing manufacturing jobs to countries that offer their workers cheaper wages and in-sourcing engineers and scientists via the H1-B Visa program from countries that are doing a better job of educating their citizens in these disciplines.  The result is that we left ourselves with too many sales people selling too many unneeded things to each other and too many people filling cubicles pushing the paperwork around to support all these sales activities.  That chicken has seemingly come home to roost.

There’s always going to be activity around the fringes to give hope to the notion that the job market is somehow going to magically start putting all the people displaced throughout this downturn back to work.  After all, look at any job posting site and there are dozens of job listings.  However, the reality is that most of those that find themselves out of work today do not meet the qualifications required by employers to fill the jobs they have available.

A typical sound bite uttered by our politicians is that people need to go back to school.  However, there is generally no direct connection between school and a specific job as can be seen playing out in the stocks of the for-profit education industry.  These companies promise job placement assistance but typically do little more than saddle students with debt.  Earning a four year degree also takes money that most who could benefit don’t have and otherwise may not be a feasible option for someone older than 25 with a family to feed.  This is also a long term solution to a short term problem with no guarantee that a job will be waiting upon graduation.

Another convenient sound bite from politicians is that new technologies and innovation will bring new job opportunities.  This time around this promise is anchored in green jobs and clean tech.  Unfortunately, those currently unemployed will be no more qualified for the new jobs than any of the jobs that are available today.  The result will probably be an expansion of the H1-B Visa program.

One idea to bring down the unemployment rate meaningfully in the relative short-term is for companies to hire unqualified workers for their available jobs and provide training themselves.  Use of taxpayer money to incentivize companies to do this would arguably be a better long-term solution than giving a company taxpayer funds to hire someone for a position that provides little productive value.

Another idea would be for the government to create a direct connection between bank lending, education/technical skills training and the private sector job market.  Although our government’s ability accomplish that in an efficient way is almost laughable.

One way or another, a bridge must be built to close the gap between displaced workers current skills and those that are needed to propel our country forward in the global economy.  Otherwise we will end up with a huge group of our citizens that rely on permanent government assistance or a low skill job, both of which provide wages much lower than what’s needed to be a productive force in our economy.

Trading equities sounds like a very simple concept:  Buy low, sell high.  Unfortunately, it isn’t or, as they say, everyone would be doing it.

Not only is it very difficult to make money on a consistent basis by trading, sometimes the market exacts a humbling toll on those trying to do so.  If a trader loses discipline or fails to follow fundamental tenets of trading when the market is acting erratic it can devastate the foundations of a trader’s confidence or worse, knock them out of the game all together.

Last week brought about a thankfully rare but nevertheless occasional outcome along these lines that never ceases to piss me off when it happens:  My thesis about market direction was exactly correct, but I lost money.  WTF!? 

Debriefing after every trade is an essential habit for every trader to practice in order to continuously improve their skills.  Doing so after a week like the one just passed is not fun, but imperative nonetheless.  Rather than rehash my specific mistakes here, I thought it might be helpful to list some of the general and specific thoughts I’ve been reflecting on over the weekend to identify where I went wrong and how I can attempt to ensure I don’t make the same mistakes in the future.  While many are basic and straight forward, even the most seasoned traders must have the discipline to review and reflect on the fundamental process of placing smart trades if they hope to be successful over the long term.

What is my thesis for market direction?

What is the timeframe of that thesis?

What is my specific plan? 

What is my entry point?  Why?

What do I want to see happen once my entry point is reached in order to provide confidence to place the trade?

Where do I cut my losses?

Do I have the discipline to use a mental stop loss or should I place a stop loss order?

What is my exit point?  Why?

What is the appropriate percentage of capital that should be allocated to this trade?

Proper risk management

Patience

Trust myself and wait for my plan to set up

Never let fear of missing a move guide trading decisions

I alone am responsible for bad trading decisions

Have the discipline to admit when I’m wrong

Background noise clouds my ability to think clearly.  Eliminate it…

Keep the TV muted.  CNBC, while entertaining, has turned into a forum for ego, opinions and debate.  Very little that is broadcast on CNBC on a given day is helpful for trading and I’ve found that which is helpful is usually broadcast quicker on the @Stocktwits stream anyway.  Bloomberg skews more toward news and information but nonetheless acts primarily as unneeded noise to a trader.

Better to pay a higher price and miss some profit than enter a trade too early and end up taking a loss

Win or lose, conduct yourself like a gentleman in an even-tempered fashion

Enjoy life, family and friends…it’s only money

Debriefing after every trade will ensure that I am aware of what I do right and what I do wrong on every trade.  Constantly striving to learn from mistakes and repeat successes is integral in achieving long term success as a trader.  Here’s to the start of a brand new week!  Happy Trading!

The California Foundation for Fiscal Responsibility is a 501 (c)(4) organization founded in 2009 whose mission is to educate the public and key decision makers about California public employees retirement benefit issues and developing solutions to the looming problem.

Part of the foundations education campaign has included inducing local governments around the state to release details about their pension plans.  They do so, in many cases, by filing a lawsuit.  A judge in Orange County, CA recently approved the release of documents from the OC Employees Retirement System that revealed some staggering information:

• Orange County is facing a $3.7 Billion unfunded pension liability
• 400  former OC County employees received more than $100k in pension payments in 2009
• Former OC Sherriff Mike Carona, recently convicted of witness tampering and serving a 5.5 year prison sentence, received $215k in pension payouts in 2009
• Former Treasurer/Tax Collector Robert Citron received $142k in pension payments in 2009.  Mr. Citron led Orange County into bankruptcy in 1994 by funneling billions of public dollars into risky investments that blew up and lost approximately $1.64 billion.  Almost $200 million had to be cut from the budget, 1000 jobs were cut and the county had to borrow $1 billion.
• In addition to pension payments, former county executives also receive an 8% 401k plan fully funded by the taxpayer and $760 per month car allowance.  Non-executive retirees also receive a 401k plan but they at least partially fund it themselves.

Widen the view out to the entire state of CA and we know that unfunded pension liabilities are a huge problem.  In fact, a recent study released by Stanford University estimates the states unfunded pension liability in CA to be near $500 Billion.

Further widen the view to include the entire country and we know that several states are facing similar circumstances.  Not to mention the federal entitlement program shortfalls.  Additionally, recent analysis of data from the Federal Office of Personnel Management by USA Today revealed that the average federal worker earns 77% more than the average private sector worker.

Elected officials at every level were all too happy to bow the unions and hand out excessive pay packages to public sector workers when times were good.  Even though some temporary measures have been taken by state and local governments during the downturn, significant measures to address long term deficiencies remain elusive.  Politicians are no doubt holding their breath and hoping for a massive upturn in the economy that will allow pension funds to achieve spectacular gains in their portfolios and effectively close these gaps.  This is a pipe dream.

To fix these imbalances requires one or more of the following:

• Unions agreeing to massive roll backs of previous pension agreements
• Much higher taxes on the private sector
• Unrealistic investment returns by the pension funds
• Thousands of public sector jobs cut
• Loss of other state and local services in many states
• Another bubble economy in the US

While the most likely solution includes some combination of the above, the underlying message is clear:  More unemployment, higher taxes, less government services for those taxes and probably another asset bubble at some point in the not too distant future.  Unfunded pension liabilities are just another headwind in an economy that already has its share of massive challenges.

My first trip to Del Mar Racetrack was a glorious day.  Opening day 1992, the sun was shining; beautiful women were everywhere, the races were full of adrenaline pumping competition and most importantly I walked away a big winner.  The first time I played craps in Vegas provided a similar outcome.   I walked away a big winner.

Some people call that beginners luck. 

Wikipedia defines luck as good or bad fortune in life caused by accident or chance, and attributed by some to reasons of faith or superstition, which happens beyond a person’s control.

Additionally, it seems “beginners luck” is somewhat fleeting.  Sometimes it’s present and other times it isn’t.  This is far too squishy a concept for my analytical mind.

Hindsight tells me that instinct played an outsized role in my inaugural horse racing and craps outings.  After all, in both cases a few basic instructions and instinct were the only tools in my box.  Though I’ve not endeavored to become an expert in either activity, it seems the more I think I know, the worse my results.  Many have similar stories of having so-called beginners luck which fades once some knowledge is gained.

Trading is different than gambling because traders have the benefit of risk management, money management, time in some cases and external variables, such as headline risk, that can affect the outcome of a trade.  All of these, if managed properly, have the potential to shift the probability of success in the traders favor over the long term. 

Many successful traders also rely on instincts finely honed through experience to help guide their trading decisions.  Sometimes it just feels right or wrong and often times those instincts are correct.

A lot of buzz recently has been given to the idea that traders should protect their confidence by not forcing trades and that it’s ok to do nothing.  This is important advice in any market, but especially poignant in today’s tape.

At the same time, sitting on one’s hands when ideas are setting up and the Spidey senses are tingling can have similar debilitating effects on confidence if the ideas ultimately play out as imagined.  Not once or twice, but over and over.  Traders are in the business of taking calculated risks and must have confidence in their convictions.  In other words, there is a happy medium between not forcing trades in a crazy tape and sitting out a favorable trading environment.

So, take smaller positions if necessary, execute your plan, manage your discipline on the factors within your control, but trust the little man (or woman) inside your head.  Trusting my little man would have served me well lately in a tape that otherwise scares the hell out of me.