hi Steve - I have just been reading one of Chris Martenson's blogs regarding fractional reserve banking http://www.chrismartenson.com/blog/exponential-money-finite-world/29744
I think it fits in nicely with Ian Gordon's predictions because as CM states FRB can only function if there is continuous credit growth. It seems to me that we have now reached the limits of growth for this economic cycle and as a result the economy has stalled. I also think that Steve Keen is correct when he says that the only way out of the GFC is for debts to be written off because it will be impossible for the debtors to pay them back.

Rogoff and Reinhart, two very substantive (and, I might add, earnest) economists, have produced a prodigious work which will be read and studied for years. They have gathered mountains of data from primary and secondary sources and reduced it to dozens of charts and graphs, a heroic work in its own right. Their intention, God bless 'em, is to lay out the follies that have led to economic/financial crises over the last eight centuries. Their findings: humans have not learned from past mistakes.

Trader Alert

If you are a long term investor this article probably won't mean much to you. But if you trade a part of your portfolio, you might want to pay close attention to the following observations.

About nine months ago, my strategy of placing protective stops under my "buys" started working against me instead of for me. I hadn't fully realized this until recently. I knew something was wrong. Something changed. I kept saying "do you know what the odds are of making this many consecutive losing trades? Like most traders who had very good years recently, this year has been a tough one. Then I realized it wasn't just me. Lately, I've been hearing conformation from the street of the very same results.

Many of the top investment advisors handling some of the biggest portfolios have retreated to the side lines. Mutual Fund managers are said to be confused why their models are no longer working. Most traders and hedge funds admit that no one on the street -- bulls or bears -- are making any money. Huge amounts of cash is building up on the sidelines and is not being put to work, invested, or even lent out. Something very different is going on.

I'm sure I do not know the complete answer to this change, but I think I know part of it. The tip off was a recent firing of 15% of traders at a major trading firm. The reason given was that they were no longer needed -- they were being replaced with "black boxes". It has become known that recently black boxes make more money trading than humans. These black boxes are super computers that can identify a change in trend and trade it in a nano second. And it can do this all over the world in any market taking into account the various currency values and discrepancies and arbitrage those instantly. Computer models have been developed that are designed to initiate what is called, "flash trades". This high tech, high frequency trading, is a game changer.

Flash trading is replacing human judgment. It is certainly beating it daily. We live in a brave new world and it is not stopping for anyone and it is neither controllable nor predictable. The common thread running through this new form of trading is that it tends to create extreme volatility. It runs stops and virtually wipes them out.

The "flash crash" was a great example of this. Once the market broke technical support it fell a thousand points in ten minutes. By the end of the day it was as if nothing happened except a bad day in the market as we recouped most all of the loss. But everyone with defensive sell stops in place were removed from the market. The black boxes, in effect, ran the table.

Let me tell you a story of what happened in my situation that particular day. I had a buy stop in as a strategy to take advantage of a falling market. My plan was to take an initial position in TZA, an ETF that is short the market at 7. If it moved to 6 I'd re enter the market. If it moved to 8, I'd by more. I placed a sell stop just under my initial position at 6.75. The market dropped like a rock, TZA soared, and I bought it at 8 (something I expected to happen in about a month from then not in 10 minutes.) Then the market rallied and I was stopped out of my original position!

Consider it: We had one of the biggest market drops on record , I was short, and I was sitting in a loss position! Do you know what the odds are for something like that happening? Then I realized that to one degree or another this had been happening since about November of 2009.

There was a time when the individual trader could beat the boards of huge funds by interpreting news and acting faster than most large institutions. That was called being nimble. That era, I'm afraid is over. Boards have been replaced by computers.

This is what has led me to change trading tactics. The trend is no longer your friend, if you're a trader. It was always safer to buy the trend than to try and pick a bottom or top. Today, you must be a contrarian. You've got to buy the dips and sell the rips. I have been stopped out of my short position in the market as we went through 1040 earlier this week on the S&P 500. I am looking at re-entering short at about 1100. But, I am fully aware that the upside on the DOW could be substantially higher. So, I will not remain short if we rally convincingly above that level. The bulls make a good case that we could touch the upper end of this years trading range. The key is to take losses quickly, keep opening positions small, and add to them if the trend continues.

Meanwhile, buy and hold is the key to all resource stocks -- or any good stocks for that matter. The day to day, and week to week trading, will not affect good stocks over the long run. The same with gold and silver. The trend is still up and until proved otherwise, the metals sector is a long term hold.

My view is we will eventually enter a new bear market if we aren't already in one. I want to be short, but I will keep all positions small and ladder in. I will also place mental stops rather than physical ones to avoid being stopped out by extreme volatility. Volatility is now something you can count on and therefore plan on. The bottom line is that trading is going to take a lesser role in my investment portfolio, and cash and long term positions will increase.

Remember, we have to play the market we are given -- not the one we wished we had.

Paul Nathan