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portfolioheat

(click graphic for larger image)

When your portfolio heat increases too fast, too soon, you need to cut your position size(s) down to lower the overall risk to your portfolio. Else you have a Jiffy Pop portfolio

Great corn infographic from an the article The Factors Driving Food Prices at the CME Group’s Open Markets blog that delineates things that affect corn prices and thus, portfolio heat. Above and beyond supply and demand are these 9 factors that all add up to what corn trades for on the CBOT. You can spend a lifetime studying “farmland,” for example, and what other crops compete for acreage (it’s soybeans).

You do not need a higher level of uncertainty of too many of these facets to dramatically increase your portfolio heat. When the portfolio heat rises too fast and the corn starts popping, pro traders will cut their positions fast — not because they don’t believe in the trend anymore — but because their main concern is to manage risk.

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With years of less than average performance (compounded) and marketing budgets that would eclipse make Channel blush, the mutual fund industry took it broadside this weekend.

David Swenson, author of the phenomenal book Pioneering Portfolio Management, wrote an editorial in the New York Times called The Mutual Fund Merry Go Round.

Swenson knows much about manager selection: he’s the CIO of Yale’s Endowment. Swenson offers: “Why isn’t there more of an outcry? Investors naïvely trust their brokers and advisers. Most understand too little about financial markets to make informed decisions, intervene too frequently in counterproductive ways and gather too little information about portfolio holdings to evaluate results. Investors like to believe they are doing well, even when they are not.”

Relative performance, as opposed to absolute performance, will keep you eating government, grilled cheese sandwiches.

Most advisors are not worth the 1% management fee they get. They are parroting what they’ve heard someone else say. They are by no means portfolio managers. What boils my blood most is that they are taught to diversify and walk away. Diversification is the extend of risk management in a wirehouse. What a joke. Trading is knowing how to manage risk. That’s it. Learn to trade so that you can at least keep your losers small.

Investing in equities is not worth the downside risk if you are intelligent enough to know where to look for the risks. Stocks may be cheap by some historical standard, but they can get cheaper and the values can get much better as the prices continue to drop. Then you have to deal with the dead money…

You will know where to look on October 6.

Inner Voice of Trading is endorsed by Bill Dunn and Victor Sperandeo, to name a few.

The foreword is written by Ed Seykota.

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I just got a phone call from December Gold. It’s the first time in my 23 years of trading that I’ve gotten a cold call from a commodity futures contract. Seems Gold has been reading my blog and he’s chosen my humble corner of the market for this exclusive interview to set the record straight on a few things that have appeared in the media recently. Ed Bradley RIP and Charlie Rose eat your hearts out.

The first thing Gold said to me was that “American politicians are my lifeblood, and frankly, I’d be nothing without them. The more jawboning the better. Uncertainty is the driver to my success, and with these headlines, not even a Tweet from Kim Kardashian could propel me higher.”

More gold insight:

– “Helicopter Ben is one of my favorite business partners. He is clueless, but leaving him at the helm of the Fed is like Christmas at Fort Knox. He’s totally “job security” as far as I’m concerned. I might ascend to $3,000 from these levels. I might take a breather down to $1625 and hang with J-Lo for a while. But don’t take my word for it, just watch my price.”

– “After Obama endorses Hillary Clinton for President, he should move to London to help with the unrest there. They need a good community organizer right now. He was good at it and they need him to bridge the peace.”

– “I want to have Ben Bernanke’s children. No man in history has had such a profound effect on my growth and upbringing. He’s heavy metal. Love him…”

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Past performance is not indicative of future results. What’s true for mutual fund managers is true for S&P. Paul Krugman misses this point about the S&P downgrade in his Op-Ed piece Credibility, Chutzpah, and Debt.

With the downgrade, S&P has called America’s political girlfriend ugly. It’s about time. I don’t think this is about finances, debt, nor the creditworthiness of the US. It’s about the breakdown in our political system. No one but the S&P has called them on their audacity and in reading their remarks, you get the feeling that Washington is in a state of incredulity.

After the President spoke today the market voted — it sold off further. Worse, it closed at the lows for the day. It’s normally bearish when the DJIA closes at the lows of a day that’s down 100 points. The magnitude becomes exponential when you close at the lows of the day where the DJIA is off 634 and the S&P 500 is off 80…

That is a mandate: Americans want our political climate to change.

And since the markets closed at their lows today, and that the downgrade is not about debt, there is more downside in the market to come. No one has been in this place before and no one can handicap the level of uncertainty due to the breakdown in politics.

What Mr. Krugman misses is that the stock market is saying that neither the President, the House, nor the Senate has any credibility anymore and no one believes them. Both political parties are to blame for S&P’s recent stance and Americans are tired of the jawboning. I know I am.

As far as I’m concerned, S&P could have blown their last 9 calls in a row. They got this one right.

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