Martin Kronicle

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Check out this chart from AFT, LLC.

According to Peter Bernholz, whenever you see a government borrow to cover 40% or more of its fiscal expenditures, it’s resulted in hyperinflation. Bernholz wrote about it extensively in his book Monetary Regimes and Inflation: History, Economic and Political Relationships.

The US has recently been as high as 44%.

Unless we see growth upwards of 3-4%, there is an almost 100% chance that we will see hyperinflation.

I write mostly about commodities here, but stock trading at SAC and Steven A. Cohen are too good to ignore. Only one down year (2008) since inception in 1992 should be enough for anyone to want to learn to trade and give up being an employee.

Steve Cohen is the cover story in the April edition of Bloomberg Markets magazine.

Here are a few great motivating blurbs from the article which you can get to from the link above:

- Cohen left Long Island for the Wharton School of the University of Pennsylvania, where he would often skip class to watch stocks at a local brokerage. He taught himself to be a master “tape reader,” according to people who know him, able to predict the direction of a stock by watching each tick of the price and the volume of shares traded.

- After graduating in 1977 with a degree in economics, Cohen joined Gruntal, a New York brokerage firm. Cohen came on board as a proprietary trader, buying and selling stocks with Gruntal’s money. He thrived and in 1985 became the firm’s head proprietary trader, a job he held until 1992, when he quit to start SAC.

- In his own trading, Cohen solicits ideas from everyone at the firm, people familiar with the arrangement say. Send “Stevie” an idea that makes money and you get paid something extra, they say.

- Unlike many hedge funds, which tend to have a handful of executives making investment decisions, SAC runs what amounts to 100 small funds. SAC borrows as much as $4 for every $1 of its own from prime brokers, including Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co., then distributes the hoard to various teams.

- Managers’ contracts have “down-and-out” clauses: lose 5 percent from your peak assets, and SAC can take away half of what remains. Suffer a 10 percent loss, and you could be out.

- Each team manages from $300 million to $500 million, on average, according to an SAC marketing document.

- Whether the stock is cheap or expensive is irrelevant. There must be a catalyst that will make it move

With mutual funds paying your bills, it’s hard to not try to be bullish. Such is the life at CNBC…

Hi Michael,

I have a question. I am a 50 year old blue collar type of joe. I work in the food industry as a kitchen manager. I have always had an intense interest in the markets and have been educating myself over the years as far as how the markets work and who the players are.

You and Michael Covel are by far the best educators that I’ve come across. I have never actually traded before; I want to get more knowledge before I start. I will have between 40 & 50k in trading capital when I start. Trading to me represents independence and a chance to do things that I have not been able to do with my life. To me, it’s a challenge.

My question is, do you think that I am expecting too much from the markets? I have read that it’s not a good thing to expect the markets to do things for you. How do you balance this? I will be trading my own account; I’m not looking to manage other peoples money. Thanks for your time. I love your website and your intro to commodities course.

Bob D.

Expectations have built-in disappointments. I think you’d do well to think that the market will try to kill you and take all your money. Focus on keeping your losses small and start by trading 1 or 2 contracts to see how it feels. And by that, I mean “how does it feel?” – not “how do you think your trading is going so far?” If you feel scared, you should hold off.

If you do trade, grow your account and don’t take any money out. In other words, don’t trade and try to live off of the growth. You’ll always be trading with scared money.

It’s better to peel off  a chunk and leave it somewhere and trade the rest. IMHO, it’s better to be a blue collar joe b/c you’ll have an appreciation for the money and you’ll probably err to keeping losses small. You know how hard it is to accumulate that much in the first place.

Second, you probably have some ambition about you with this sort of background b/c things have not been provided for you, so my guess is your intention is rock solid. But you’ll only know for sure once you start managing risk.

With rates at historic lows, real estate markets soaring, stock market soaring, there were lots of estate planning seminars 2 years ago, helping wealthy baby boomers with the greatest transfer of wealth the world will ever know.

My guess is with the severe erosion of wealth that’s taken place, you’ll soon see advertisements on how to gift life insurance.