Zero interest rate and deflation: how would you make money in such world?

We want you to think about thes question below, and write your answer in the comments section or email it to us for publication consideration on this blog.


How would you make money in such world: Zero interest rate and deflation?

We ask the question because the traditional way to invest will lead to losses at worse, and at best no change at all in account size (negative growth or no growth).

We will provide our answer but you must subscribe if you are not a subscriber. You must think about this, as all traditional investmenet strategies used in retirement funds assume inflationary world, and positive interest rates.

But what if the next decade is different?

We know a lot of people who did go through the above context without adjustement in their mental plans: they are called japanese, and they have lived this this for close to 20 years now!

The last 20 years, the japanese did however have the luxury to invest in an inflationary world with positive interest rate via US, european and asian markets.

But the situation we raise in this post is a world wide situation! Thefore the answer of moving to other markets will not make it. One need to change investment thinking at the fundamental level.

How would you invest (do not answer by simply writing it will not happen!)?

If you are planning for retirement via investment in markets or if you are already living in retirement on your market investments, we cannot think of a more pressing and important question to ponder than the question we ask in this post.

Profits originate in our heads, and are the mental equity. No thinking is free.

PS:

In investing and trading, a man's mental equity (despite his genuine thinking from an effort and time point of view) can be negative because the mental equity of his opponent is positive. It is all relative.

Retirement Account, Financials EFT (XLF), Fidelity Select Banking

We thought to share the result of one trade we have made in our retirement account. As you may recall, last Friday (October 24, 2008), we wrote that the market was again offering an excellent entry point for long term, long positions in retirement accounts.

Last Friday we decided to take a long position by buying shares in the Fidelity Select Banking fund. The entry was at 15.82.

The price of that fund (FSRBX if you want to check it) is at 17.98 (as of close of october 31, 2008).

We just closed the position for a profit of close to 14%.

Since they charge short term trading fees of 0.75%, our net gain is 13%.

The money is now safe back in a cash fund. We will be looking to deploy it if and when an opportunity arises again. There is one little thing though. If we repeat this in and out one more time in a quarter, Fidelity will flag us as short term "disturbers of other investors" and disallow it to do it for 90 days. The fact is that they do not like people such as us making money very soon,as money would stay only for a short period of time in their funds, they will not collect fat management fees. Note that even if we pay them 0.75% they consider it not enough. They hate successfull timers! When we discussed it with them sometime ago (we used to play their index funds), they told us to just go away. We then moved, at the time, to their select funds. We used to play the select gold as we used to make out of it 3% here and there even day trading it as it is a very volatile fund. They later even closed that opportunity, and now they do not allow trading during the day in select funds. Select funds at Fidelity were a semi-ETF funds as they used to be trading on the hour. They removed that possibility about 2 years ago.

Now we have to enter and exit only at market closes. A lot harder than doing it during the day, as the top and bottom of a day may not always be at market close.

But we designed systems around this, which however would require the use of a brokerage account. It is another interesting element that leads top efficient use of retirement accounts and brokerage accounts to decrease taxes, improve entry and exit, obtain zero interest loans, (and keep fidelity silent).

Cheers!

Stock price prediction: NDX qqqq NQ Trading (october 31, 2008)

It is now about 11:30AM on Friday 31, 2008. NDX is now at the critical point we discussed yesterday. It may not be able to break the 1340 level. Therefore we are starting to scale in on short side (but we are prepared in the case of a break out). If it breaks out, and goes to 1375, that would be an excellent point to short it as we discussed yesterday. But since it may not break the 1340 level, let us start scaling in with half normal size.

10:31AM: with NDX at 1340, we are starting to scale in on SHORT side of NDX. The full position will be half normal size. If market goes to 1375, then we may add the second half.

Hope It Will Holds, So I Can Offload (without hedging it in brokerage account)

We have a long position in financials in the retirement account. We hope the market will hold till the close, so we can offload without having to hedge the retirement position via the brokerage account. Retirement account position is in a mutual fund that accepts exchanges only at market close.

Time is now 2:30PM. NDX is siting at the level of 1338. It is a critical level. The best scenario for us would be if it breaks and goes to the level where it will be ideal to short it. That level is 1375 area.

We are however getting ready to start hedging the retirement position if we judge that it is too risk to keep it exposed in case of a start of a selloffs.

Stock market price prediction: QQQQ, NQ, NDX trading (October 28, 2008)

2:55PM: With NDX at 1239 we are taking profits off.

We will re-enter on retreats probably tomorrow (or later today if there is any sell off).

3:16PM: NDX is back to the top area. It is now at 1239. Those who wanted to take profits during the first visit to the high of 10 minutes ago, you now have a chance to take profits at the high so far.