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    The Outside World Febrary 24, 2020

    February 24, 2020

February 24, 2020

The Outside World Febrary 24, 2020

There is no outside world, there are only people, a society, and the market

Everyone knows why they just don’t know when. Except for Contrary Thinker that knows when the “fragility” of the market exist and warns its clients; every day since Contrary Thinker’s MarketMap-2018 said the first risk-off signal on January 26, 2018, the finger was firmly pointed at no ability to foster a “soft landing” when the time comes.

Fed watchers put it this way that the Fed recognizes their ongoing monetary interventions have created financial risks down the road. The Fed must be aware that most of the policy tools are spent; they are likely ineffective at mitigating financial risks in the future.

This leaves them being dependent on expanding their balance sheet as their only weapon, leaving them at the whim of social unrest, which is also the case in China, where the results will be massive.

No matter how much of a Pollyanna you want to be, the earth is starting to move regarding social unrest. the wealth gap is not an imaginary thing; I heard about it in an econ 101 class in Australia years ago.

Hell, since 2007 – if not longer – the group that has seen an increase in net worth is the top 10% of the population. Like everyone knows this is not economic prosperity

It is a distortion of real economics out of fear instead of the intestinal fortitude required to save the system for everyone.

From 2009-2016, the Federal Reserve held rates at 0%, and flooded the financial system with 3-consecutive rounds of “Quantitative Easing.” During that period, average real rates of economic growth rates never rose much above 2%.

Leaving the Fed with inflation targets above 2% because inflation at 1% is too unstable, too hard to fine-tune, and keep inflation from collapsing into a deflationary spiral. Also, econ 101.


Here are two Underwater Equity curve charts. This notion was popularized by my friend Jack Schwager. It presents a unique way of evaluating equity performance because you can view the relationship between time and magnitude of drawdowns as they relate to previous and new equity highs.
The top chart is the underwater of the buy and hold since 1997 for the a one lot of the ES.

The next chart is a volatility breakout system, short only scalping for the day with the Turtle contract sizing strategy being used.

These types of charts enable the trader to look at the performance from a pessimistic viewpoint. It pinpoints how much percent risk occurred and how long it took to rebound back to hit a new equity highs.

A traditional equity curve plots the closing equity value, or account balance, for a trading system bar-by-bar in relation to time. The underwater equity curve focuses on losses bar-by-bar in relation to time. Now you can inspect all the drawdowns through a visual chart of drops in equity.

Here are two addtional screen shots. The more comon way of looking at the P&L. The top equiry curve is the one lot of the S&P being help since 1997.  Its clear since the March 2009 low the bull market taking hold.

The next chart is the equity curve – net 53.50 a trade – since 1997 of the same volatility breakout system as described above.  The big take away here is the profit run the strategy is happening since the initial change of regime peak January 26, 2018. So volatility has been increasing without much fanfare.

The best advice and most insightful vision are not curated from the social media space, they are right here and as anti-social as the market.  Become a Contrary Thinker today

Great and Many Thanks,
Jack F. Cahn, CMT
A Thinking Man’s Trader Since 1989,
Copyright 1989-2018
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