Tactical Investor

Euro crisis; the hidden agenda

2010-05-19T20:42:00.001-07:00

Watch out for emergencies. They are your big chance.
Fritz Reiner

While everyone is focusing on the so called obvious factors, they have missed the most important factor; the real reason behind the crisis. The crisis started in Greece and the top EU members knew they were going to bail out Greece and potentially any other member that needed help, but they pretended that they would not. One of the obvious reasons for the bailout was not to protect Greece, but to save the bond holders; most of the bond holders are foreigners. That’s the same reason the banks were bailed out in the US, to protect the large shareholders; it’s all a game of smoke and mirrors.

Our hypothesis is that the main reason that the Euro crisis was allowed to evolve was to deflate the Euro. Note that we have stated many times in the past that we have now entered into the competitive currency devaluation era, where the theme is or will soon be “devalue or die”. Or maybe we should add “devalue or die trying to”, for nations are going to do whatever it takes to keep their products competitive in the global market. We recently spoke of this phenomenon in two separate articles Currency-devaluation-a-race-to-the-bottom and the devalue or die era is picking up steam

Germany was knocked out of the top place and replaced by China as the world’s largest exporter and that must have hurt. Thus by allowing the crisis to progress, the EU could, in fact, devalue the Euro without actually issuing new currency. And then when things started to look really bad, they could pretend to help by approving a huge package, but this package would now devalue the euro even more. Thus with one stone they killed two birds in the sense that it produced double the effect. If they had approved a bailout package immediately, the euro would not have shed as much as it did. In a matter of months the Euro dropped almost 24%; in the currency markets, this is considered to be a very large move.

Another factor to consider is that no government wants to pay its debt in a stronger currency; governments borrow money so that they can pay it back with cheaper currency.

Thus while one currency might appear to be appreciating against another; the truth is that they are all falling down, some faster than others. Take a look at some long term commodity charts, and you will notice that most of them are in up trends, regardless of which currency they are priced. For example, a 3 year chart of gold priced in any currency shows that it's in an uptrend. The race to the bottom has picked up in intensity. We would not be surprised now if some sort of crisis hits Asia soon; this would complete the circle perfectly. A position in precious metals is recommended; view this as a hedge/insurance against another potential crisis; if you have no position wait for a pull back before deploying new money.

Crises refine life. In them you discover what you are.
Allan K. Chalmers

Ultimate futures timing system

Is Apple Overvalued?

2010-05-18T19:21:00.001-07:00

From top to bottom of the ladder, greed is aroused without knowing where to find ultimate foothold. Nothing can calm it, since its goal is far beyond all it can attain. Reality seems valueless by comparison with the dreams of fevered imaginations; reality is therefore abandoned.
Emile Durkheim,1858-1917, French Sociologist

Let’s do some simple math.

There are roughly 910 million shares of apple in existence and the entire company has a valuation of 231 billion dollars.

To put things into perspective let’s examine the valuation of the following companies.

Stock	Valuation in billions	Comments
ABX	43	The worlds largest Gold company
NEM	28
CDE		One of the world’s largest Silver producers. It has over 269 million ounces of silver in reserve.
DD	34	one of the worlds chemical giants
FCX	29	One of the worlds top copper producers
CCJ	9.7	One of the worlds largest uranium producers
SWC	1.42	North Americas largest Palladium producer
SII	10.69	One of the worlds largest sellers of oil and gas services
CHK	14.5	Largest producer of Natural gas in the US
VLO	11	One of the largest refiners in the US
HRB	5.6	The largest tax preparer in the US
CLF	7	A large producer of Iron
ADM	17.4	One of the worlds largest agricultural conglomerates

All the above companies put together would still have a valuation lower than that of AAPL. Roughly, they would have a combined valued of 214 billion. If one had to choose between buying AAPL and all the above companies, the wise choice would be to dump AAPL and jump into the above companies, especially since we are in the midst of a commodity bull. With left over change, you could purchase HL, KGC, RGLD, and you still would have some money left over.

Some other facts to consider

BHP is the largest mining company in the world and yet its valuation is well below that of AAPL, as of Monday it has a valuation of 182 billion shares.

You would be able to buy all the following Gold mining companies and still have a huge amount of change left.

Barrick Gold $40 billion
Goldcorp $29.478 billion
Kinross Gold $13.50 billion
Agnico-Eagle Mines Limited 9.84 billion
Eldorado Gold Corporation $7.95 billion
Yamana Gold Inc. $8.17 billion
IAMGOLD Corporation $6.87 billion
Red Back Mining Inc $5.80 billion
Osisko Mining Corp. $2.86 billion
Centerra Gold $3.03 billion

What would you do given the choice; buy apple or purchase a stake in some of the top commodities based companies in the world.

Tactical Investor

The ultimate futures timing system

Dow’s new highs all lies

2010-05-16T19:32:00.001-07:00

All pain is either severe or slight, if slight, it is easily endured; if severe, it will without doubt be brief.
Marcus T. Cicero,c. 106-43 BC, Great Roman Orator, Politician

As the saying goes, a picture speaks a thousand words and the charts below quite clearly illustrates that the Dow has not put in a single new high in the past 3 years.

When the Dow is priced in Gold all we get is a long term down trend line. This clearly illustrates how the masses are being fooled into believing that these illusory highs are real highs.

When the Dow is priced in Canadian dollars, we also get a similar picture though not as striking as when it’s priced in Gold.

When priced in Australian dollars the picture is almost as striking as when it’s priced in Gold. These charts clearly illustrate the sinister nature of inflation; your wealth is literally being stolen right in front of your eyes.

Conclusion

Inflation the silent killer tax is being used to fleece the masses; you work hard for your money, you pay taxes and instead of getting a pat on your back you get a kick in the cahones. Welcome to the real world. The way to protect oneself from this insidious disease is to stay one step ahead of the central bankers. Precious metals are one way to hedge oneself, but they are not the only way and not always the best option. For example, from the mid 1990’s to 1999 the dot.com era was a good way to stay ahead of the inflation game, and then from 1998 to roughly 2006, real estate was a good bet, and so on. Given the rate at which new money is being created and the fact that many nations are reaching the point of no return in terms of paying back their debt, it would be extremely wise to have a position in precious metals (Gold, Silver, etc). In fact, having a position in any commodity is a good idea for the current commodity bull still has a long way to go before a long term top is put in.

You know the world is going crazy when the best rapper is a white guy, the best golfer is a black guy, the tallest guy in the NBA is Chinese, the Swiss hold the Americas Cup, France is accusing the U.S. of arrogance, Germany doesn’t want to go to war, and the three most powerful men in America are named Bush, Dick, and Colon.
Chris Rock Comedian

Tactical Investor

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Trichet, Euro bailout bought time that's all, nothing more

2010-05-16T16:30:00.001-07:00

Observation more than books and experience more than persons, are the prime educators.

Amos Bronson Alcott,1799-1888, American Educator, Social Reformer

There is a need for a quantum leap in the governance of the euro area," European Central Bank (ECB) President Jean-Claude Trichet told Der Spiegel magazine.

Echoing his call, ECB Executive Board member Juergen Stark said turbulence in the euro zone would calm down only if member countries reformed their economies and cut their deficits.

"We have bought time, nothing more," he said in an interview with the Frankfurter Allgemeine Sonntagszeitung.

Euro zone governments agreed a 750 billion euro ($1 trillion) rescue last weekend to end a crisis of confidence in the euro triggered by financial problems in Greece, which had threatened to envelop the region's much bigger economies.

"It is not an attack on the euro," he said. "It is clear that it is the primary responsibility of the Europeans to take the appropriate measures in order to counter the present severe tensions which have erupted in Europe."

Trichet has long urged euro zone governments to cut budget deficits to stop debt piling up. The failure of the Greek government to take this advice led to a debt crisis that risked spreading to other euro zone countries with similar problems.

"There need to be major improvements to prevent bad behaviour, to ensure effective implementation of the recommendations made by 'peers' and to ensure real and effective sanctions in case of breaches."

In Zagreb, EU Economic and Monetary Affairs Commissioner Olli Rehn said bailouts had to be harsh to avoid encouraging reckless behaviour by governments.

"This mechanism must be made so unattractive that no leader of any (EU) country is voluntarily tempted to resort to this system," Rehn said in a speech. Full story

Exactly, we could not have said it better; if any help is offered (we are against this, but if the measures implemented are harsh enough it might just work) the restrictions should be so painful that it will make others think twice before breaking the rules. So far, all we have is talk; let’s see if it turns into action.

Now the head of European central bank finally agrees with what we have been saying all along. As we have stated before when bankers make comments that actually make sense one should pay heed to them. We feel that only a severe lesson will be sufficient enough to trigger the other laggards into finally pushing in long term meaningful measures to balance their budgets. Until then they will nod yes but in terms of actions nothing will change; it will be the business as usual.

The Euro has already hit one of our targets; when it was trading at or close to new highs we stated that it would trade down to the 120 ranges before putting in a bottom. However, the picture has changed slightly, and it now appears that the Euro could potentially trade down to the 115 ranges. We recommended shorting the Euro Via Euo several times, but at this point in the game, we think it’s a bit late to open up new positions, unless the Euro mounts a strong rally over the next few weeks.

Related Articles

Euro; the Worst is yet to come, May 12, 2010

Euro shock and awe bailout, more like shock and shake May 10, 2010

Ulterior motive behind Greek Bailout, May 3, 2010

Roast the PIIGs; End the Euro crisis April 30, 2010

The Threat of Hyperinflation real or not?

2010-05-15T11:39:00.001-07:00

Try not to become a man of success but rather to become a man of value.
Albert Einstein

Higher Gold and Petrol prices are some of the clear signs that inflationary forces are gathering steam. Do not confuse inflationary forces with inflation; inflation is defined as an increase in the supply of money.

There are several reasons why inflation could become a threat in the years to come

1) Government spending is going through the roof; they seem to think that we will never have to pay this money back.

2) Unfunded liabilities for Medicare, social security, etc, add up to over $108 trillion. This is a ticking time bomb for everyone claims that our national debt is high but in comparison to the unfunded liabilities, the national debt is child’s play.

3) As the Fed has dropped interest rates almost to Zero, it has very little firepower left. It could take rates to the negative level and pay people to borrow money; this will really stimulate the economy in the short run before burning it up completely. However, this option is more of a dream than a reality. The truth is that fed is almost out of options. If the economy should slow down and move back into a recessionary phase, then the only option available would be to print boat loads of money. The net result would be stagflation; higher inflation and slow growth and also the odds of entering a hyperinflationary phase would go up significantly.

Look at the price of Petrol; when oil was trading at $140, petrol was selling for 3.30-3.50 a gallon. Oil recently did not even make to $85 but the cost of petrol is already 3 plus dollars a gallon. Based on this it would be fair to state that when oil trades back to the 140 ranges, the price could surge to the $6-$7 ranges.

Many point out that we could face deflationary scenario for years to come. Well, this might be true; there is nothing wrong with hedging yourself, that’s what investing is all about. One should not bet all of one's money on a single strategy.

In an inflationary and hyperinflationary environment, commodities perform very well. Having positions in precious metals, base metals, energy, and select agricultural stocks would be a good way to protect hedge oneself. One should also have some of their assets in pure bullion (Gold, Silver, etc.).

For those who are against precious metals, one other option is to invest in TIPS and one of the ways of doing this is through TIP, iShares Barclays TIPS Bond Fund.

You cannot have what you do not want.

John Acosta, Poet

Disclosure

We have positions in Gold and Silver bullion

Tactical Investor

Ultimate Futures Timing System

Unemployment will remain at lofty levels as some jobs are never coming back

2010-05-14T19:41:00.001-07:00

Sometimes I lie awake at night, and I ask, 'Where have I gone wrong?' Then a voice says to me, 'This is going to take more than one night.

Charlie Brown

The story below clearly illustrates that a huge swath of jobs are never coming back. Jobs in these sectors have been permanently eradicated, and thus it is going to make the task of finding replacement jobs even harder, especially since many of these individuals are in their late 40’s to early 60’s. They are basically going to have to learn new skills and that is not an easy thing to do at such an age, especially when you have dedicated your whole life to a specific job.

Worse yet the remaining jobs in the in the clerical field, secretarial, travel agency field, auto market sector, etc, are going to keep coming under pressure. As we see it employment numbers will remain high even when the economy starts to show real signs of life; so far, the so called signs of improvement are all bogus.

For the last two years, the weak economy has provided an opportunity for employers to do what they would have done anyway: dismiss millions of people — like file clerks, ticket agents and autoworkers — who were displaced by technological advances and international trade. The phasing out of these positions might have been accomplished through less painful means like attrition, buyouts or more incremental layoffs. But because of the recession, winter came early.

The tough environment has been especially disorienting for older and more experienced workers like Cynthia Norton, 52, an unemployed administrative assistant in Jacksonville.

“I know I’m good at this,” says Ms. Norton. “So how the hell did I end up here?”

Administrative work has always been Ms. Norton’s “calling,” she says, ever since she started work as an assistant for her aunt at 16, back when the uniform was a light blue polyester suit and a neckerchief. In the ensuing decades she has filed, typed and answered phones for just about every breed of business, from a law firm to a strip club. As a secretary at the RAND Corporation, she once even had the honor of escorting Henry Kissinger around the building. But since she was laid off from an insurance company two years ago, no one seems to need her well-honed office know-how.

Ms. Norton is one of 1.7 million Americans who were employed in clerical and administrative positions when the recession began, but were no longer working in that occupation by the end of last year. There have also been outsize job losses in other occupation categories that seem unlikely to be revived during the economic recovery. The number of printing machine operators, for example, was nearly halved from the fourth quarter of 2007 to the fourth quarter of 2009. The number of people employed as travel agents fell by 40 percent.

This “creative destruction” in the job market can benefit the economy.

Ms. Norton has sent out hundreds of résumés without luck. Twice, the openings she interviewed for were eliminated by employers who decided, upon further reflection, that redistributing administrative tasks among existing employees made more sense than replacing the outgoing secretary. The problem cannot be that the occupation she has devoted her life to has been largely computerized, she says.

“You can’t replace the human thought process,” she says. “I can anticipate people’s needs. Usually, I give them what they want before they even know they need it. There will never be a machine that can do that.” Full Story

The smart thing to do now would be to start training ASAP for jobs in the nuclear industry, oil and gas industry, health sectors, utility sector (power transmission), etc for this is where the growth lies. We are leaving out the high tech sectors such as computer programming, biotech, chemical engineer, petroleum engineer, etc, because we feel that the average person is not going to want to put in the time it takes to study those filed.

The smartest thing to do is to live 1-2 standards below your level and to put the money you save into long term investments in the commodity's sectors (precious metals, energy stocks, select plays in the agricultural sector, etc)for this entire sector is in a long term bull market.

Here's to you and here's to me, and I hope we never disagree. But, if that should ever be, to HELL with you, here's to ME!

Anonymous,

Related articles

Continuous Strength in the precious metals sector signifies all is not well May 4,2010

The Engineering of a financial crisis April 8, 2010

The Ultimate Futures Timing System

Markets climb on a wall of worry and fall down a cliff of Joy

2010-05-14T15:54:00.001-07:00

Companies are reporting higher profits, supposedly more people are getting jobs and as a result those that stopped looking for jobs are now more optimistic about landing a new job, Consumer sentiment is improving, retail sales rising, unemployment insurance claims are down and the list goes on.

So why is the market falling; perhaps the market has already priced in all this, and it needs something more to power it. Perhaps it also senses that all this so called good news is just a short term development and that the potential for extremely bad news is rather high. Before the correction started to gather steam we warned that the lack of volume was a sign that all was not well. Precipitously low market volume a sign that a correction is imminent, May 5, 2010

Bottom line; tread carefully as this market is extremely overextended. The action of the past few days clearly illustrates that the market is falling down a cliff of Joy. Mass psychology dictates that the best time to buy is when there is blood in the streets and the best time to sell is when everyone is celebrating; its time to take a stand or risk falling down the lemmings.

Related articles

Continuous Strength in the precious metals sector signifies all is not well May 4,2010

The Engineering of a financial crisis April 8, 2010

Ultimate Futures Timing System

Dow, Gold, Copper and the Loonie

2010-05-14T12:08:00.001-07:00

Dow

The first wave of selling has completed and the markets are racing upwards on very light volume; this is a very bearish development. Worse yet the Dow mounted one of the largest one day point gains in years this Monday and yet the volume was at best mediocre. A very clear signal that the smart money is selling into strength and not buying the crap that the economy has entered into a new paradigm. The problems of Europe have not vanished and we have a bank and real estate bubble brewing in China. Thus the potential to get hit from all sides is rather strong.

Rising volume, lower prices and rising prices and lower volume are both very negative developments. At this point of the game it appears that we are still not out of the woods.

Gold

Has also moved up strongly but it’s extended its gains when it is already trading in the very overextended ranges. The current pattern could produce more price gains but it is also a very dangerous pattern for when it reverses it could lead to very strong pull back. Caution is warranted in the short term.

Copper

Is still trading below 330; the longer it takes to trade to this level, the more likely the market is to mount a stronger correction. A failure to trade hold above the 330 ranges if they are tested again will lead to a drop to the 280-290 ranges.

Canadian dollar

It mounted a Relief rally; there is a daily sell signal in effect and more downside is expected before it trades to new highs.

Related Articles

More Euro woes; Wage cuts May 13, 2010

World's 1st gold ATM; a sign of a top? May 13, 2010

Euro; the Worst is yet to come, May 12, 2010

Euro shock and awe bailout, more like shock and shake May 10, 2010

Ulterior motive behind Greek Bailout, May 3, 2010

Roast the PIIGs; End the Euro crisis April 30, 2010

Strategist states that southern Europe Countries Need Wage Cuts; easier said than done

2010-05-13T08:58:00.001-07:00

If you lead the people with correctness, who will dare not be correct?
Confucius,BC 551-479, Chinese Ethical Teacher, Philosopher

Financial markets are showing they have their doubts, with markets in Europe and Asian drifting lower Wednesday after Monday's initial euphoria over the initial 750 billion euro package announced by European Union officials over the weekend."Is the package big enough?" asked Paul Lambert, the current director of currency and macro strategies at Polar Capital who's also held roles at Deutsche Asset Management, UBS, Citibank and the Bank of England. "That depends on the success of the debt consolidation in the periphery [and] whether they're ultimately able to have falling real wages so that they can come back in line with the core."

Much criticism has been lobbed at places such as Greece for high public sector wages, which will now be brought down sharply by the government as part of the agreement for its bailout package. That's also been one of the key reasons Greeks have taken to the streets over weeks that have turned violent at times. On Wednesday, Spain announced a plan to reduce public wages 5% this year and freeze them in 2011 while suspending a pension hike. The moves come as the government there fears being dragged into a situation similar to Greece's.

"I've observed that if any country in the emerging markets had been offered a loan package like the Greeks were offered before they got the eventual loan package they got, people wouldn't have been rioting on the streets, they would have been saying thank you," said Lambert at a Morningstar Investment Conference in London.

"The fact they're rioting on the streets means ultimately there may not be the ability of the Greeks to see a 20% fall in real wages," he said. Full Story=

Yeah we would like to see how long individuals are willing to keep quiet once the government starts to cut their salaries, increase taxes and cut benefits. People used to the good life do not take kindly to such measures, they are going to get rid of the existing government, (Greece is the lead candidate for such a move) and replace it with one that is more sympathetic to their cause. The only way to solve this is by the properly (instead of the miserably program called shock and awe, more like shock and shake) is for the Euro zone to set an example. They need to let one country default; this will send a strong message to the others that if they don’t wake up, a sledge hammer is going to fall right on their heads and snap them out of their coma.

In the short term this is a very painful strategy, but long term this would be very beneficial to the Euro, as it would give it credibility and make it a true front runner as a challenger to the US dollar. Investor will have more faith in a nation that is willing to take strong measures to protect its currency.

Things turn out best for those who make the best of the way things turn out.
Jack Buck

VIP Futures 1 year win ratio 84.6%

Tactical Investor

VIP futures 5 year win ratio 75%

http://playingtowin.blogetery.com/

Strategist states that southern Europe Countries Need Wage Cuts; easier said than done

2010-05-13T08:51:00.001-07:00

If you lead the people with correctness, who will dare not be correct?
Confucius,BC 551-479, Chinese Ethical Teacher, Philosopher

"The fact they're rioting on the streets means ultimately there may not be the ability of the Greeks to see a 20% fall in real wages," he said. Full Story=

Things turn out best for those who make the best of the way things turn out.
Jack Buck

VIP Futures 1 year win ratio 84.6%

Tactical Investor

VIP futures 5 year win ratio 75%

Worlds 1st Gold ATM; is this a sign of a top?

2010-05-13T08:36:00.001-07:00

Do not be desirous of having things done quickly. Do not look at small advantages. Desire to have things done quickly prevents their being done thoroughly. Looking at small advantages prevents great affairs from being accomplished.
Confucius,BC 551-479, Chinese Ethical Teacher, Philosopher

Amid fears over the strength of nearly every major currency, Abu Dhabi's top hotel has come up with a new type of ATM for their most risk-averse guests. The Emirates Palace is giving those staying there the chance to withdraw gold from the world first ever gold dispenser. With gold prices at record highs amid fears that the EU's rescue package will drive inflation higher, the ATM monitors the daily price of gold and offers small gold bars that weigh up to 10 grams with customized designs.

Giessler's timing is very good given gold is currently at a record high. Given the price action at the moment your 10 grams could be worth considerably more by the time you check out and could help you pick up the tab at the luxury resort. One night in a three-bedroom suite that could set you back more than $10,000 a night. Full story=

This is a clear sign that Euphoria levels are reaching an extreme level in the Gold camp. The next move for gold could therefore be down instead of up. History has shown that whenever something spectacular is done in a market that is extremely overbought, a top is usually close at hand. The Burj tower is a prime example.

VIP Futures 1 year win ratio 84.6%

VIP Futures Win ratio for 2010, 100%

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Euro; the worst is yet to come

2010-05-12T10:59:00.001-07:00

If the thunder is not loud, the peasant forgets to cross himself.
Russian proverb

I think it is a given that Greece will have to default, everyone knows this, but they are just playing cat and mouse for now. Most Greeks are dead set against the new Austerity measures and they will likely throw this government out of power for the new changes they have instilled. The next government will cater to the people’s needs for fear of receiving the same treatment. Change is not wanted in Greece. The only way to fix this problem is if the nation as a whole understands that they have to go through a painful period of cuts, but as evidenced from the past riots this is not the case. The story below further substantiates our claims.

Greek unions announced on Wednesday that they would stage a 24-hour nationwide strike on May 20, the second major protest against tough austerity measures pledged in exchange for billions of euros in aid. The main public and private sector led a 50,000-strong march a week ago in which hundreds of angry Greeks fought pitched battles with police in the streets of central Athens and three people were killed in a petrol bomb attack on a local bank.

They are due to march in the capital on Wednesday from 6 p.m. (1500 GMT), in a rally which will give indications about the public mood before the big walkout next week. Investors are closely watching public reaction to government wage and pension cuts amid concerns broader unrest could hit Prime Minister George Papandreou's resolve in pushing them through. New figures published on Wednesday showed Greece's economy contracted 0.8 percent in the first quarter compared to the last three months of 2009.

The austerity measures, pledged in return for 110 billion euros ($139.7 billion) in emergency aid from the European Union and International Monetary Fund, are expected to keep the economy in recession through 2011."The IMF will not stop thirsting for workers' blood," said Yannis Panagopoulos, chairman of Greece's main private sector labor union GSEE. "Its recipes are a disaster and the government must turn them down."

The country's socialist government on Monday unveiled a draft law to raise the average retirement age and cuts benefits, which further angered unions already opposed to previous steps including public wage cuts and tax hikes. Full story

Adding to the host of problems is the fact that Greece is now officially in a recession. Painful cuts have to be implemented and maintained or Greece will default. Sometimes markets should be allowed to settle matters, intervention only delays the inevitable. Our stance has been that the Euro is going to trade down to the 115 ranges and could possibly trade down to the 110 ranges. The massive 1 trillion Package had no lasting impact on the Euro, after mounting a brief rally, the Euro crumbled and is now on its way to putting in another series of new lows.

Spain’s new austerity measures, too little too late

Prime Minister Jose Luis Rodriguez Zapatero said Madrid would slash civil service pay by 5 percent this year, freeze it in 2011, cut investment spending and pensions and axe 13,000 public sector jobs in a drive to meet EU deficit targets. "We have to make a singular, exceptional and extraordinary effort to reduce our public deficit and we have to do it when the economy is starting to recover," he told parliament. The announcement came two days after euro zone governments, the European Central Bank and the IMF agreed on a $1 trillion (674 billion pound) rescue package to stabilise the euro in exchange for pledges by highly indebted countries to pare down their deficits. Full story

We think this is action is a little late as Spain had ample time to address these difficult changes, but instead decided to sit on its fat rear and do nothing. The current recommendations are just too little to produce any meaningful change. Unofficially the employment rate is well past 20%, the housing sector has crashed, fiscal debt is roughly 112% of GDP and Rising and estimates put private debt between 160-180% of GDP. Thus unless they put forth some bone crushing changes, the odds are that Spain will be joining the Greeks sooner than later. Furthermore, this 1 trillion euro aid package is more of a band aid than a fix because the nations that are spending beyond their means are still doing so. Nothing has changed other than the day of reckoning.

The enemy of my enemy is my friend.
Arabian Proverb

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VIP Futures Win ratio for 2010, 100%

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Strategic mortgage defaults the next time bomb

2010-05-11T17:56:00.001-07:00

The first group of defaulters was individuals who were conned into buying houses at teaser rates and had a very hard time making payments when rates reset to market rates. The next group of individuals was individuals with decent to good credit; this group started to default because one or both members of the family lost their jobs and therefore, could no longer make payments on the mortgage. Now we have the next wave; the strategic defaulters. This group’s decision to default is based on cold logic. The value of the home of their homes has dropped so much that it no longer makes sense to make payments on a house that is trading well below market value.

"Strategic" defaults accounted for at least 12 percent of all defaults in February, up from about 4 percent in mid-2007, according to a recent Morgan Stanley (NYSE:MS - News) report. Analysts led by Vishwanath Tirupattur classified a default as strategic when a homeowner who hadn't previously been delinquent made an on-time mortgage payment one month; skipped payments for the next three months; and stayed current on other consumer debt of $10,000 or more. Full Story

In a way this it’s payback time for the banks; the banks swindled millions of innocent homeowners when they turned a blind eye and even encouraged the sale of fraudulent mortgages via the liar loan application process. Then when the S**T hit the fan, they came running to Washington and like faithful concubines, Washington bailed them out with taxpayer dollars. Thus they were handsomely rewarded for their illegal activities. Now it appears that the individual home owner is deciding to stick it to them and if this new trend picks up steam, a massive wave of new defaults could hit the market, further souring an already weak real estate market.

Conclusion

Housing analysts say strategic defaults mainly occur when a home's value has dropped below the balance remaining on the mortgage. A homeowner in that position may decide that continuing to make payments is throwing money away, or may default to get the lender to modify the loan. All told, borrowers who aren't making mortgage payments are probably skipping roughly $100 billion annually, an amount equal to 1 percent of consumer spending, according to Mark Zandi, chief economist at Moody's Economy.com. Zandi likens the money to "a form of stimulus, a little tax cut."Full Story

Zillow.com states that one in five U.S. homes with a mortgage has “negative equity” so the number of potential strategic defaulters is rather huge; what we have on our hands is a ticking time bomb and purchasing real estate now is one of the dumbest moves an investor could make.

Long term the trend for housing is still down. Individual that are bearish can use strong rallies to short stocks in the housing sector such as LEN, BZH, etc. ETF players can open up positions in REK, SRS, and if you really want to take an aggressive position you can short via Direxion’s DRV. SKF is another option; it is an ETF that shorts the financial sector.

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VIP Futures Win ratio for 2010, 100%

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Health overhaul could cost 115 billion more

2010-05-11T17:34:00.001-07:00

The ink has just dried and the cost of the package is already 115 billion more. I wander how much more it will rise a year from now, 500 billion more. Already the potential savings are starting to look like a myth. Providing health insurance for everyone while most don’t have jobs is simply brilliant; well only a lobotomized individual would think so and congress seems to be full of such individuals.

The signs for hyperinflation are all over the place; the name of the game now is inflate baby inflate, for this is the only way we can pay for all this crap.

President Barack Obama's new health care law could potentially add at least $115 billion more to government health care spending over the next 10 years, congressional budget referees said Tuesday. If Congress approves all the additional spending called for in the legislation, it would push the ten-year cost of the overhaul above $1 trillion — an unofficial limit the Obama administration set early on.

The Congressional Budget Office said the added spending includes $10 billion to $20 billion in administrative costs to federal agencies carrying out the law, as well as $34 billion for community health centers and $39 billion for Indian health care. The costs were not reflected in earlier estimates by the budget office, although Republican lawmakers strenuously argued that they should have been. Part of the reason is technical: the additional spending is not mandatory, leaving Congress with discretion to provide the funds in follow-on legislation — or not.

"Congress does not always act on authorizations that are put into legislation by drafters," explained Kenneth Baer, a spokesman for the White House budget agency. "Authorizations for discretionary spending are not expenditures." Full Story

Let’s not forget that they are not giving anyone a choice. If you have no health insurance they are going to fine you. The land of the free has just changed; it should be called the land that was free. For now individuals have one foot out of the door, while the other is shackled to a prison cell. Make sure you have a position in precious metals as this is the best way to hedge against the dangerous effect of inflation. If we move into a hyperinflationary cycle, precious metals could prove to a God sent.

VIP Futures 1 year win ratio 84.6%

VIP Futures Win ratio for 2010, 100%

VIP futures 5 year win ratio 75%

Euro shock and awe package more like Shock and shake

2010-05-11T08:48:00.001-07:00

I am not ashamed to confess that I am ignorant of what I do not know.

Marcus Tullius Cicero

The first shock and awe failed miserably, victory was initially declared in Iraq, but a few weeks and months later, it looked more like defeat. Ironically the same term has been used to describe the new Euro rescue package. This parcel will only delay the inevitable, short term relief for even greater longer term pain.

This package does not address the main problem that many nations that are reeling from this economic slowdown are taking on debt as a means of generating new revenue. Now the leaders at the Euro zone have joined the party, taken on even more debt to address the short term debt issues, with no plans in place to deal with long term problems.

The next step would be for these idiots to follow the US and start monetizing their own debt; a silent but nefarious stepping stone to bankruptcy. This is one of the main reasons why Zimbabwe collapsed. No one would buy their paper, so they printed more to buy the crap they had printed before and with each run of the press the value of their currency dropped an ever increasing pace; now the Zimbabwe dollar is dead, millions are in the dog house and the unemployment rate is close to 80%.

The only way to fix this problem is to deal with the problem. It will be painful, maybe some nations will have to be thrown and drastic cuts will have to be implemented. Whenever you delay the inevitable the end result is always 10 times more painful.

The Euro is projecting a drop to the 115 ranges, so traders look to take advantage of a weak euro can, purchase shares in EUO.

It is against stupidity in every shape and form that we have to wage our eternal battle. But how can we wonder at the want of sense on the part of those who have had no advantages, when we see such plentiful absence of that commodity on the part of those who have had all the advantages?
William Booth,1829-1912, British Religious Leader, Salvation Army Founder

VIP Futures 1 year win ratio 84.6%

VIP Futures Win ratio for 2010, 100%

VIP futures 5 year win ratio 75%

Large insider transactions; a sign all was not well at Moody’s

2010-05-10T16:02:00.001-07:00

Moody’s finally fesses up to the fact that they received a Well’s notice from the SEC; this time around things could be different as Moody’s might officially be put out of business. It could actually lose the right to be a rating agency, which in our opinion would be a magnificent move.

Moody's Corp has disclosed that its credit rating unit could face enforcement action from the US Securities and Exchange Commission for allegedly misleading regulators in a 2007 application to remain a nationally recognized rating agency. Moody's said in a filing late on Friday that the SEC is mulling starting an administrative case and "cease-and-desist" proceedings, and that a so-called "Wells Notice" was received from the SEC on March 18.

Regulators send Wells Notices to firms or people to alert them of the likelihood that the government will file an enforcement action against them. Companies or people being investigated have the right to argue why they should not be charged by filing a "Wells submission." According to Moody's filing, the SEC claims the Moody's description of its procedures for determining credit ratings was "false and misleading" because of Moody's own finding that a policy had been violated internally.

In the filing, Moody's said it disagrees with the SEC and said it had sent a response explaining why its application was accurate and why it believes enforcement is uncalled for. Full Story

Off course Moody’s is going to disagree with the SEC’s finding; those that make a living by sucking blood from others try to deny it until the very end. This same punishment should be levied against all the rating agencies that failed to do their job; rating agencies that mislead should be banned forever so that the message is clear, do your job or die. Of more importance though, is the fact that insiders appeared to have acted on this information in a manner that would enable them to get the best price before this knowledge became public.

Consider the following info

Moody’s CEO Dumped 100,000 shares of stock the day the Well’s notice arrived. The well notice arrived on 18th of March; this once again clearly illustrates how corporate America is all about making money at the expense of its shareholders. However, sales by Buffets Company make CEO Raymond McDaniel sales seem very small; they unloaded a boat load of shares, the largest block was sold on the exact day that MCO received the notice. The timing of these transactions and the size leave one wondering if Berkshire Hathaway might have been privy to some inside info; take a look at the transactions. We are not stating that Buffet’s company did anything wrong, but the timing of these transactions does make one wonder.

18^th of March 678,962 shares at 29.98 a share

19^th of March 136,943 shares at 29.81 a share

23 march 148,054 shares at 30.22 a share

24^th march 54,574 shares at 30.37 a share

26^th march 3,000 shares at 30.56 a share

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Tactical Investor

Inflation; A positive development for the Astute Investor

2010-05-09T11:42:00.001-07:00

When you see a worthy person, endeavor to emulate him. When you see an unworthy person, then examine your inner self.
Confucius,BC 551-479, Chinese Ethical Teacher, Philosopher

We all pretty much have felt the effects of inflation in one form or another. However, economists and the central bankers choose to define inflation as an increase in price of goods. This is a very clever way to actually hide what they are doing. If they are able to inflate the money supply but keep the cost of certain goods suppressed, mainly those that the average Joe uses everyday, they have more or less won; the simple reason being that the average person has come to view inflation in terms of rising prices.

One mechanism to keeping the cost of common goods down is through the use of heavy subsidies. This is used everywhere in the farming sectors, Manufacturing and industrial sectors, etc. I will elaborate on this in more detail on a follow up essay as this would a deviation from the topic at hand.

There are some incredibly positive attributes to inflation. As an investor/trader one should be interested in trying to find the best investment that takes advantage of this situation; in other words, the rate of return is several levels higher than the current rate of inflation..

The only problem with inflation is that, for the most part, the poor actually become poorer and the unprepared move down 1-2 ranks. That is why the saying originated the “poor become poorer and the rich get richer” while the middle class gets wiped out.

Since we have greedy slugs at the helm of the banking system, their inflationary tactics are designed to produce unequal benefits. Normally, if one inflates and spreads the money equally there is no net change as the price of goods move in equal percentages to reflect this increase in the money supply. However the central bankers will have none of this. They seek to inflate as much as possible and redistribute as little as possible of the new money they have just created out of thin air. The net result is that if you are unable to see in which direction they are moving, you will simply be left paying the tab. Your purse that was once full is now ¾ full and the prices of goods have moved up unevenly.

This is what is happening now. Manufactured goods are extremely cheap; yet the cost of most commodities has shot up significantly in the past few years. In many cities, the cost of a house is still beyond the reach of many, and this is after the housing crash. Salaries have not kept up with the level of monetary inflation. The only way people are able to buy houses is because of the low artificially controlled interest rates. These fools many a new buyer into taking a debt that he/she really does not have the means to pay of.

However, despite all these negatives the astute investor can make a tremendous killing if they take a little time to look at what is going on. For example, the intelligent investor would have started to notice that prices of houses started to increase rather drastically towards the end of 1999 and early 2000. They would have also noticed that Gold actually broke its Downtrend in 2000. They would have noticed that basic raw materials broke their down trend in Early 2003. They would have also noticed the trend of printing more dollars, if they bothered to read what this new administration was proposing. So the middle class family could have taken a mortgage and bought one house as the price inflated, they could have possibly taken a loan on the existing house say at the end of 2000 or early 2001 and used it to buy a second home. They could have put some of their money into Gold bullion and a little into some gold stocks, many of which are up over several hundred percentage points, some are showing gains in excess of a 1000%.

Let's now look at the true full range benefits of Inflation. In this world if you do not spend time educating yourself the price you pay is extremely high. If you thought education was expensive, try ignorance for a lifetime.

Almost every Gold bug is secretly rooting for inflation. Why do I say this? If they are expecting Gold to reach 1300, 1500, 2000, etc they are rooting for inflation. Gold prices are one of the main indicators that there is something seriously wrong with the banking system and that the monetary supply is going out of control. In the later stages, the fear factor will kick in as everyone panics and looks for a way to protect their assets; this will drive the price of precious metals and other commodities to the moon.

Those that have bought real estate are also secretly rooting for inflation, as they want the prices of their property to increase. If you really take the time to think about it inflation is very beneficial to the astute investor. Those that are investing in the stock market are also rooting for inflation. It is the free money policies that push people and business to risk more of their money in the market. Look at the present market, it keeps going higher and higher, but when you price it in Gold or any other strong currency it has done nothing. However, the astute investor could spot that the central crack head bankers were out of control and knew that not only would the price of Gold rise but there would be a rise in the price of general equities to.

These prices increases have more than compensated for the inflationary practices of the central bankers. However the only ones who have benefited from this move are a small group of smart investors (investors who were smart enough to jump out of dollars and into commodities) and the cronies of the central bankers who were privy to this information, long before the Junkies, oops we mean central bankers decided to press the pedal to the metal and push the printing press into overdrive.

When you think about it, life is nothing but one huge market place and in the end someone needs to lose in order for someone else to win. Not everyone can win and not everyone can lose. The sad part is that it takes a lot of someone’s to lose to make one someone wealthy. The net effect is zero. Money is not really lost it simply moves from many pockets to a few large pockets.

When the NASDAQ crashed everyone was made to believe that several trillion dollars of wealth were lost. That was and is a fat huge lie. Those trillions of dollars simply moved out from hundreds of thousands if not millions of pockets into a select few thousand pockets.

It’s a net 0 game. So when people scream about the negatives of inflation. They are doing so because they have not taken the time to educate themselves on the many tools that are available to protect themselves against this insidious disease. This once again brings life to the saying, "An Empty Tin makes the most Noise.”

In spite of the cost of living, it's still popular.

Kathleen Norris 1880-1966, American Novelist

Do we condone inflation? No we don’t. Do we really think it is something great? No we don’t. However, what one thinks and what one can do become rich are two different things. The central bankers are not going to change; they have been doing this for far too long. . They are masters at this game, one day they will lose, but I might be dead and gone by then. So rather than screaming from the top of my lungs like an empty can about the negatives of inflation, we would rather be a silent and have our eyes on what the central bankers are doing so that we can position ourselves to take advantage of their dirty moves. We will leave the screaming to the “Empty cans”; they seem to have plenty of time on their hands.

In the end, all that really matters is for one to find a way to take care of themselves and their loved ones. And if you take the time to educate yourself than you put yourself into the driver's seat inside of being locked up in the trunk. Make sure you learn the true definition of inflation, the effects of inflation, how the central bankers operate, and you can use this info to ride on their tail coats and increase your net worth in the process.

The best form of protecting oneself from the evils of inflation is to have a wide exposure to the commodities sector. One should definitely put some of one’s money into Precious metals (bullion). Some ETF’s that focus on commodities are SLV, GLD, GDX, MOO, COPX,PALL, CUT, USO, ETC

Next to inflation, majority rule is the most ingenious scheme ever contrived by government. Most people have never dared to question the basic morality or logic in the assumption that the majority should have power over the minority. A majority of the people in the South once believed in black slavery. Did that make it moral? A lynch mob is majority rule stripped of its fancy trappings and its facade of respectability. In a community where homosexuals outnumber heterosexuals, should the majority have the right to outlaw sex between married partners of the opposite sex? In a community where atheists outnumber non- atheists, should the majority have the right to outlaw the practice of religion? ... a dictatorship allows only a small number of people to interfere with the rights of others, a democracy makes it possible for great numbers of people to impose their will on others -- through the force of government. Is an act of aggression more right if carried out by the majority than by a dictator? Since approximately half the eligible voters vote this means that approximately 75% of the people are ruled by 25% of the people.

Robert J. Ringer, American Writer

Disclaimer; We have positions in Gold, Silver and Palladium bullion.

Ultimate Futures Timing System

Random musings on Experts

2010-05-07T19:22:00.001-07:00

Even when the experts all agree, they may well be mistaken.
Bertrand Russell,1872-1970, British Philosopher, Mathematician, Essayist

Everybody loves to use the word 'expert' all the time to claim they know something extra or have knowledge of the inner workings in a specific field or area. Repeat the word expert slowly and then spell it like it sounds and viola you get EX SPURT, which basically means that this expert is nothing but a spurt that never was, in other words, they are finished even before they have even begun. Isn’t it strange that most so called financial experts fall into the EX SPURT category? We use words to secretly define what we know to be true but refuse to believe or see with our open eyes. To live in an illusion is far easier than to step out and deal with reality. It’s said that reality bites, but then we could say illusions swallow. In reality, there is no such thing as an expert, because who are you measuring yourself against. Anyone can be expert if they measure themselves against the ignorant and blind. There are only advanced market students or advanced life students. We can never stop learning for when we do, senility is usually very close at hand.

The public do not know enough to be experts, but know enough to decide between them.
Samuel Butler, 1612-1680, British Poet, Satirist

Tactical Investor

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The dangers of Quant Trading models; Dow’s 1000 point drop a prime example

2010-05-06T20:48:00.001-07:00

Build a system that even a fool can use, and only a fool will want to use it.
George Bernard Shaw, 1856-1950, Irish-born British Dramatist

The initial trigger for drop in the Dow was probably due to fears that the Greek crisis was going to spread. One could credit this for 300 or maybe even a 400 point drop in the Dow; however, a 1000 point drop is quite another matter.

At 2.20Pm the Dow was at 10,460 and then suddenly in 7 minutes it shed another 600 points. Humans could never move that fast. There are rumours that a trader entered billion instead of million and this triggered the massive sell off. Whatever the cause the main wave of selling was initiated by computers.

A simplified look at quant model

A Quant (Quantitative) programme is a computer model which determines which investment strategy is going to yield a superior rate of return; to simplify matters let’s assume the programme decides when to go long or short.. It is assumed that because computers have no emotions, they should be better at trading as they can move in and out of the markets extremely rapidly. The scary part is that the computer renders the final decision. There is one problem, these computers are programmed by humans and one glitch in the programme can cause havoc. Let’s not forget the old saying junk in junk out. Today’s wild action is indicative of what can go wrong when computers take over.

These quant programs now make the vital function of market marker almost obsolete and this is a very dangerous situation if left unchecked. Today Treasuries, SP500 and other indices were moving so fast it was hard to manually follow them. Computers took over the markets for a few minutes and in that time they wrecked total havoc. What happens if the glitch is not spotted immediately, then a cascade of sell orders could be triggered pushing the Dow down until the circuit breakers kick in. However, if the glitch was not found then computers would resume selling after the markets opened again. Let’s not forget that big firms can still sell via Dark pools. They are basically electronic networks that allow big firms to sell stocks without tipping their hand; in other words, they can sell these stocks anonymously without the public ever knowing. This is a separate topic, and we will try to cover it another day. Two examples of firms offering such services are Liquid net Inc., Pipeline.

Quant strategies are becoming extremely popular. They are now accepted in the investment community and even mutual funds are now using these models. These models are also known as alpha generators, or alpha gens. These programs are often set up in advance so that the computer can react instantaneously to moves in the market. For example, if the Dow drops below a certain level, the programme can unleash a massive sum of sell orders and in doing so trigger other quant programs. This could potentially trigger a market meltdown as was experienced today. Indeed by some counts computers are responsible for as much as 70% of daily trading volume.

These models are now a real threat to the health of the financial markets and should be eliminated or closely monitored and regulated. Exchanges should not cater to firms that are using these programs and openly allow computers to place orders for millions and or billions of dollars. Exchanges should place a dollar limit on trades that can be initiated by such programs. One can only imagine what would happen if the computer mistakenly places a trillion dollar sell order. Today’s action is a warning, next time things could be infinitely worse. At one point ACN fell from 42.30 to 4 cents, that is 4 cents; it ended the day at 41.08 down $1.08. PG shed $23 dollars in a heartbeat but closed the day down only $1.41. In between someone could have had a heart attack. Imagine you had 1 million dollars in ACN, and then suddenly watched your portfolio shrivel right in front of your eyes as ACN fell to 4 cents from 42 dollars.

One of our first warnings came from Long term capital (LTC). LTC founded in 1994 was one of the most famous Quant based funds and it was run by two noble prize winning economists: The Quant model did not foresee the Russian government defaulting on its own debt and this triggered a series of events that destroyed LTC. In less than 4 months in 1998 LTC lost 4.6 billion dollars. If the Feds had not stepped in, things could have really turned ugly.

These quant trading programs need to be regulated and not allowed to freely take over the markets; they are destroying the vital role market makers play to maintain financial stability in the markets. Today’s action should serve as a wake up call for those who have turned a blind eye to risks these programs pose to the markets. Next time round we might not be so lucky.

On a separate note we warned individuals about the dangers poised by the extremely low volume in an article that was just published one day ago and at that time suggested opening up positions in DOG and or QID. Precipitously Low Market Volume a Sign That Correction Is Imminent 7 comments

The key to the age may be this, or that, or the other, as the young orators describe; the key to all ages is -- Imbecility; imbecility in the vast majority of men, at all times, and, even in heroes, in all but certain eminent moments; victims of gravity, custom, and fear.
Ralph Waldo Emerson, 1803-1882, American Poet, Essayist

Tactical Investor

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Precipitously low market volume a sign that a correction is imminent

2010-05-05T05:50:00.001-07:00

Since the 16th of April, the Dow has pulled back several times however on 3 occasions the volume swelled to over 7 billion shares. April 16, volume swelled to 9.1 billion, April 27, volume surged to 8.31 billion and on May 4th volume surged to 7.4 billion. What do all these dates have in common? The markets sold off on each one of these dates. What is even more important is that not once during the 37 new highs the Dow put in did the volume ever make it even to the 7 billion mark. This is an astounding development, for it clearly indicates that long term players are not participating in this rally. Low volume indicates low market participation and vice versa. Thus a market that trades to new highs on low volume is setting itself up for a very big fall as there are fewer and fewer players to support it. The current pattern is projecting a pullback of 10%, but things could spiral out of control at the drop of a hat. Extreme caution is now warranted for the masses are simply too bullish.

VIX appears to have put in a bottom and is ready to trend much higher. An upward trending VIX means markets will trend in the opposite direction.

Copper a leading economic indicator has already topped and the Baltic Dry index put in top last November. Put call ratios are indicating that the masses are also extremely bullish.

Individuals willing to take on a bit of risk can short the market via the following ETF’s DOG and QID.

Technorati Tags: low volume,market top

Tactical Investor

Ultimate futures timing system

Continuous strength in the precious metals sector; a sign that all is not well

2010-05-04T09:00:00.001-07:00

Gold has rallied to new highs in the Euro, and it continues to defy the dollar; instead of pulling back it continues to put in higher lows, a very long term bullish pattern. It has also just closed above $1175 on a weekly basis and has thus set the base for a test of its old highs. The entire precious metal's sector appears to be sensing some sort of future disaster for it simply refuses to correct strongly even in the face of a very strong dollar. If you have no position in the precious metal's sector, use pull backs to open up a position. If you already have positions, then use strong pull backs to add to them. A major currency crisis is going to strike, it’s just a matter of time and precious metals thrive in such conditions

The dollar has just rallied to a new 11 month high and will soon put in a new 52 week high; in contrast Gold has refused to trade below its Feb 5 low of 1045. In Feb 2010 the Dollar was trading much lower and so by logic Gold should have easily dipped below its Feb 2010 lows, instead we find that Gold is just a hop and skip away from testing its old highs. Gold has now put in new highs in all major currencies. The strongest out of the bunch has been Palladium, which went on to put in a series of new highs in the face of a rising dollar. These extreme divergences indicate that the precious metal's market is sensing another crisis in the not too distant future; our guess would be another currency crisis. Watch the 83 level on the Dollar index; a close above this level on a monthly basis will indicate that the dollar is ready to test the 90 ranges and the euro will most likely trade down to the 1.20 ranges.

Obviously, the best hedge against a currency crisis and an inflationary environment is to own physical bullion. ETF players can purchase SLV, GLD, CUT, GDX, PALL, etc.

Disclosure: We have positions in Gold, Silver and Palladium bullion.

Tactical Investor

Ultimate futures timing system

Ulterior Motive behind the Greek bailout

2010-05-03T12:26:00.001-07:00

A mere friend will agree with you, but a real friend will argue.
Russian Proverb

Before we discuss this issue lets focus on some facts. Many individuals claim that Greece has to be bailed out to maintain stability in the financial markets. This is a bogus argument, in the short term it might be true, but in the long term it just delays the day of reckoning and makes the situation infinitely worse. You do not help an alcoholic by chastising him and then allowing him free access to booze; it won’t work.

The current debt load is 115% of GDP and by 2011 it will be 150% of GDP. The Greek government has now stated that it will take 2 years more to meet the EU requirements; a great start and a clear sign that they will come begging for more aid down the line.

Greece only has a GDP of roughly 326 billion dollars, much smaller than their Neighbour Turkey, which has a GDP of roughly 830 billion dollars, On a Per capita Basis Greece knocks turkey out with a GDP per capita of roughly $32,000 dollars but so does Greece’s debt. Thus the bailout ($147 billion), alone is equal to roughly 44.5% of Greece’s GDP.

If the Greek economy can deal with and survive this crisis it will be one of the first to recover from a crippling debt ratio of more than 90% of GDP. If interest rates were to continue rising, and they will most likely as their debt has been rated as junk, it could spell the end. The interest rate Greece has to pay to borrow money is now on Par with emerging countries like India and Mexico; it is going to take a lot of work before the rating agencies lift Greece’s rating. This effectively eliminates their ability to borrow money on the commercial markets and almost guarantees that they will be begging for more help a few years down the line.

What should make investors even more sceptical is the fact that they cooked their books so one does not even know what data to trust, things could be infinitely worse than the Greek government is projecting.

Roughly, 80% of this debt is foreign owned and a major portion of this debt is held by German and French citizens. For every 1% rise in interest rates, Greece needs to send an extra 1.2% of GDP abroad to bond holders. Currently, Greece has one of the highest external public debt/GDP ratios in the world. If rates surged to the 9% plus ranges, they would have to send 10.8% of GDP overseas every year. This aid package will last them roughly 3 years and when the old debt has to be rolled over, the new rates will kick in. Latin America in the 1980’s made overseas payments that amounted to 3.5% of GDP and that proved to be a brutal experience to say the least. Germany was also in a very tough position during the 1925-1932 eras, but their Payments make what Greece might have to go through look like child’s play. This trend is simply unsustainable.

So who are they protecting, the answer is simple; the bond holders. Roughly, 80% of this debt is foreign owned and a large portion of this is held by German and French Citizens. Bottom line this rescue package is not for Greece, but it’s a rescue for Greek bond holders worldwide. If Greece were to default tomorrow, it would not disappear, but its debt holders would be seriously hurt. Thus behind all this noise one must understand that the main reason for the bailout is to protect the bondholders; the exact same story unfolded in the US, the only difference being that it was a bailout of the banking industry. As the Germans and French hold a very large percentage of these bonds, it is actually a bailout of Germany and France and not really Greece. They should let Greece's default but they will not.

Even though Argentina defaulted on its debt, it is still around. Yes it did pay the price initially by being shut out of the global capital markets for years, but it did not vanish and only its foreign debt holders lost.

An IMF study by Eduardo Borensztein and Ugo Panizza counts as many as 257 sovereign defaults between 1824 and 2004. Between 1981 and 1990 alone, there were 74 defaults . In fact, the evidence suggests that the penalties for default are often less severe than those meted out to Argentina. Its experience of being shunned by international capital markets is not typical, for example. At least in recent years defaulters have been able to re-enter markets once debt restructuring is complete. Argentina’s woes stem partly from the fact that it is only now, more than eight years since it defaulted, nearing a final deal with its creditors

That said, markets appear to have short memories. Only the most recent defaults matter and the effects on spreads are short-lived. Messrs Borensztein and Panizza find that credit ratings between 1999 and 2002 were affected only by defaults since 1995. They find that defaults have no significant effect on bond spreads after the second year. This tallies with earlier research by Barry Eichengreen and Richard Portes. Studying bonds issued in the 1920s, they also found that recent defaults resulted in higher spreads but more distant ones had no effect.. Full story

This clearly illustrates that a Greek default would not be the end of the world and could potentially be a positive development over the long run; we stated this in our previous article Full story

It appears that the main reason behind the bailout is to placate the debt holders; these chaps should have known better. After all they did not complain when they were getting paid, now that the house might burn, they start to scream. They knew well in advance that the situation was not sustainable, but yet they continued to purchase Greek debt. When you invest you understand that you are taking on some risk and the higher the yield the more risk you take. Investors that put money into a money that declares bankruptcy are not suddenly bailed out, they have to suck up and bear the losses. The same rules should apply to bond holders.

This concern over Greek debt is a simple ploy to cover up this fact; the same ploy was used by the US government to bail out the banks. If Greece defaults, we doubt the end of the world scenario that many are projecting will come to fruition. It will certainly cause some pain but will not have any lasting impact on the global markets.

The best hedge in the years to come against what appears to be another massive currency crisis will be to place a portion of one's money in commodities (Oil, Natural gas, Precious metals, base metals, etc.)

ETF traders have a wide range of choice when it comes to taking a position in the commodity’s sector; USO, FCG, GDX, GLD, COPX, PALL, SLV, MOO, CUT, etc.

Bad is never good until worse happens.
Danish proverb

Disclosure: we have no positions in the Stated investments.

Tactical Investor

VIP futures Timing system

Roast the PIIGS, and End the Euro Crisis

2010-04-30T12:49:00.001-07:00

Mankind differs from the animals only by a little and most people throw that away.
Confucius, BC 551-479, Chinese Ethical Teacher, Philosopher

The last meltdown was caused by the financial crisis in the United States, which was triggered by the onset of the housing and mortgage crisis. We now have the potential for a full blown currency crisis to unfold. Greek debt has been reduced to junk status and both Spain and Portugal have had their ratings lowered. This is going to make it much harder and more expensive for these 3 nations to borrow money, especially Greece and rightly so. The next in line could be Ireland or Italy. The UK is also another time bomb waiting to explode. If Spain runs into the same problems that are now facing Greece, the fall out could be extreme. The amount of money necessary to bail out Spain would be significantly larger and the EU block might not have the capital or the stomach to fund such a huge bailout. Thus it is imperative that they take a stand now and send a strong message to other stragglers; fix your house or burn.

The PIIGS share a common trait with many States in the US, especially California, New York and New Jersey; they all continue to borrow more money than they earn and no one at the top has suffered any consequences pursuant to these actions, at least not yet. There is also one big difference; all US States must balance their budget every year. This is done by raiding some funds or cutting benefits, cutting work hours, or firing workers, etc. Whatever is necessary is done; though in the long run you cannot put your house in order by spending more and cutting programs. Eventually there will be nothing left to cut, and you move from the fat, to the muscle and finally to the bone.

The Greeks took things one step further, they blatantly lied about their finances and continued to spend like billionaires, when, in fact they were not even millionaires. Living like a king on a soldier’s salary is a recipe for disaster. The simple solution would be to let them fix the problem on their own or allow them to default and fling them out of the EU. Short term this will be very painful but long term it will strengthen the Euro and send a strong message to the other laggards; get your house in order or risk the same treatment.

While everyone assumes all is well here in the U.S, pay attention to the fact that the world is connected and that even though it might appear that the US is starting to move ahead, a crisis in Europe could derail everything. Not too long ago, the US was the brunt of all the jokes as everything appeared to be well in the Euro zone, now the opposite is occurring. Things are not much better in the US; they just appear to be so because Europe’s problems are more severe. Think of Europe and the US as two ships with large holes; just because one is sinking faster than the other does not mean it’s in better shape.

From a mass psychology perspective, the sentiment against the Euro is building up in intensity and so from a long term perspective the Euro could hit an extreme inflection point over the next few months where the worst case scenario will already be priced in. The worst case scenario would be a default by one of the PIIGS. Ironical, it almost sounds like PIGS; perhaps this was an early warning signal of what was to unfold in the future.

The negativity on the Euro has not hit the extreme of extreme points yet; we will do our best to spot this moment, so that traders can shift out of US dollars into Euro’s as it could make for a great play in the next few years..

We are at a stage where the trend is pushed to the limit and so the euro will probably go through the same hell that the Dollar went through before it mounted a turn around. We will have a lot of false starts at the beginning of the turnaround. This play could be particularly beneficial to individuals with US dollars because the dollar is projected to put in a series of new all time lows before a long term bottom takes hold.

Conclusion

The Greeks want to live LA Vida Loca without putting in the extra work; in essence, live beyond their means on borrowed Euros. The party has to end and when it does the hangover is usually very painful.

They borrowed more money than they could ever pay back; they knew this day of reckoning would come and so lied to everyone about their true state of affairs to push this day out as far as possible.

Goldman’s dirty tracks have appeared again and this time in Greece, so there is a good chance that something illegal was done. Goldman is accused of helping and encouraging the Greeks to cook their books in order to hide a large part of their debt.

Goldman Sachs has been the most important of more than a dozen banks used by the Greek government to manage its national debt using derivatives. The bank's traders created a number of financial deals that allowed the country to raise money to cut its budget deficit now, in return for repayments over time or at a later date.

In one deal, Goldman channelled $1bn of funding to the government in 2002, in a transaction called a cross-currency swap. There is no suggestion of any wrong-doing by Goldman Sachs. Such deals are an expensive way of raising money, but they have the advantage of not having to be accounted for as debt. Full Story.

We now learn – from Der Spiegel last week and today’s NYT – that Goldman Sachs has not only helped or encouraged some European governments to hide a large part of their debts, but it also endeavored to do so for Greece as recently as last November. When the data are all lies, the outcomes are all bad – see the subprime mortgage crisis for further detail.

A single rogue trader can bring down a bank – remember the case of Barings. But a single rogue bank can bring down the world’s financial system. Goldman will dismiss this as “business as usual” and, to be sure, a few phone calls around Washington will help ensure that Goldman’s primary supervisor – now the Fed – looks the other way. Full Story

The other problem is one does not know what data one can trust, for if they cooked the books, then they are capable of cooking the data everywhere. Thus one can understand why German citizens are up in arms about providing any loans to the Greeks.

They may have once been the cradle of civilization; today they are better known as the cradle of over indulgence. They should be flung from the frying pan into the fire; short term it will be painful but long term it will bring about stability for the message will be clear live within your means or risk being roasted alive.

Man who stands on hill with mouth open will wait long time for roast duck to drop in.
Confucius, BC 551-479, Chinese Ethical Teacher, Philosopher

Tactical Investor

VIP Futures Timing Service

SWC; a compelling Palladium Investment

2010-04-28T14:32:00.001-07:00

To believe in one's dreams is to spend all of one's life asleep
Chinese Proverb

In an article titled the Palladium; the stealth bull market, we explored the Palladium bull market and laid down the criteria necessary for Palladium to trade to the 800 ranges. We are going to post some of the excerpts of this article below before we take a look at Still water mining (SWC).

It broke through the 1st resistance point at 375 with relative ease and is now attempting to break past an even stronger zone of resistance. The $465-$475 ranges make up a zone of very strong resistance, and most likely it will take several attempts before palladium manages to break past this zone; once it does though it should be clear sailing to the 550-600 ranges.

The $465-$475 ranges which should have provided a zone of strong resistance, was once again taken out with ease, indicating that Palladium is in an extremely strong upward bullish phase. What is even more astounding is the fact that it has managed this in the face of a strengthening dollar; it is the only precious metal that continues to put in a series of new highs in tandem with a rising dollar.

Palladium will now need to trade past the 465-475 ranges for 12 days in a row. If it can achieve this, it will set up the base for a rally that could take it all the way to the 800-890 ranges. If we had to put a time frame on this, we would say that once it trades past the 465-475 ranges for the suggested period of time, it could hit these targets within 12-18 months.

It has managed to trade past the $465-475 ranges for more than 12 days in a row, laying the ground work for a move to the $800-$890 ranges. If Palladium maintains this momentum it could end up striking these targets a lot faster than we originally projected; potentially, it could hit these targets before the year is over.

We have two palladium producers in North America, PAL and SWC, but SWC has a much stronger pattern and so our focus for now will be on this chap.

SWC has had a tremendous run in the past 52 weeks and those who opened up positions early in the game and held onto them are now sitting on decent gains. As we do not like to chase a trend (we like to get in before the crowd jumps in) we are going to offer our long term and short to intermediate term views on this Stock.

Long term view

If SWC can close above $18 on a weekly basis, the odds of it testing its 3 year highs will be rather strong. We would not be surprised if after testing the $23.00-$24.00 ranges SWC experienced a small bout of profit taking. If during this round of profit taking SWC manages to stay above $12, then the next leg up should lead to a test of $30.

The main leg of the battle would begin in $34-$36 ranges; if SWC can close above this level twice on a weekly basis (in other words remain above this level for 2 weekly closes in a row) or trades above this mark for 9 days in a row, the next target will fall in the $48-$51 ranges.

A true bull market does not begin until its all time high is taken out; for SWC this would mean trading past the intra day high of 50.81 and above the closing high of 46.625. Once in the true bull phase, SWC should be able to at least double in price before putting in a long term top; this would equate to a target of roughly $100-$120.

Short to intermediate term outlook

The above chart clearly illustrates that SWC has had a stellar run in the past 12 months; from low to high it has risen over 150%. Thus it would be normal to expect a bout of profit taking to take hold anytime. As long as it does not close below $12 on a weekly basis, the short to intermediate term outlook will remain bullish and a break past $18.00 for 3 days in a row could result in SWC trading to a new 3 year high. In the short term, we would be slightly cautious on how much new money we deployed into SWC as it would be best to wait for a pullback before committing new funds.

Some stats on SWC

Forward P.E. of 11.91

Average sales growth for the past 5 years has been 25%

Total cash on hand 201 million

Total debt 195 million

% of shares held by insiders is a very healthy 52%

% of shares held by institutional and mutual owners is 35% and this accounts for 72% of the float.

Additional factors that support a bullish outlook for Palladium

Worldwide sources of Palladium are rather limited. Over 80% of the world’s Palladium is concentrated in just two countries, Russia and South Africa, with Russia's accounting for nearly half of the total Palladium supply. Russia has 3 sources of Palladium, the Norilsk Nickel mine, Gokhran and the Russian Central bank. Norilsk mines are the main source of palladium in Russia and production peaked back in the late eighties and output started to fall from the 90’s, primarily due to lack of investment. Once prices started to rise in the 90’s Norilsk started to invest more money into production and supplies of PGM’s started to rise. However, production has started to fall again and to meet these supply short falls the Russian government has been selling Palladium from its stockpiles. This programme has now come to an end and with it roughly 125,000 pounds of Palladium will suddenly vanish from the supply chain. This is going shock the system (the shock process might already be underway) for taking out such a huge amount of Palladium of the market just when demand is rising is the perfect recipe to precipitate a run on Palladium as companies start to hoard supplies for fear of not having enough of the metal on hand. This could perhaps explain why Palladium is the only precious metal to put in a series of new highs in the face of a rising dollar.

Note that world Palladium supplies fell by 1% in 2009 to 6.31 million ounces despite a 5% increase in South African output to 2.48 million ounces. This increase was off set by a drop in Canadian production due to the closure of the Lac des Lles mines at the end of 2008.

Finally let’s not forget the massive amount of interest the New Palladium and Platinum ETF’s are creating. These two ETF’s are gobbling up huge amounts of Platinum and palladium. As of March 2010, PALL holds roughly 520,000 ounces of Palladium; this ETF is barley 4 months old and its Palladium holdings have already surged past the 500,000 ounce mark. It took the London based Palladium ETF over 2 years to accumulate the same amount.

Now add in the lower supplies, increased demand due to the Palladium ETF, voracious increase by the Chinese for Palladium and the eventual hoarding of this metal by the automotive sector when they realise that they could be facing a shortage, all go to ensure that Palladium has a long way to go before a long term top is in place. Our suggestion is use strong pull backs to add to your positions in both SWC and Palladium bullion whenever the opportunity presents itself.

Conclusion

The long term outlook for SWC is extremely bullish. The current pattern is projecting a high probability that its all time high will be taken out; the if factor has been removed and has been replaced with the when factor. In between one should expect a lot of volatility; remember that good things never come about easily; if they do they were not worth it to begin with. Unlike Palladium bullion, there are two factors that come into play for SWC. One is the price of bullion and the second is the overall health of the equity's markets. If the markets are experiencing a strong correction then SWC might not move up as fast as it normally would, even if Palladium prices are rising. Therefore, it would be wise to have a position in both Palladium bullion and SWC.

Our long term targets for SWC now fall in the $100-$120 ranges. This could one day be viewed as a conservative target; once the real bullish phase of a rally begins it’s not unusual for a stock to at least double in price. A real bull market begins when the all time high is taken out; in this case, it would be $46.625. From a long term perspective SWC has just begun its bullish run.

Do not use a hatchet to remove a fly from your friend's forehead.
Chinese Proverb

Ultimate Futures Timing System

Tactical Investor

Precious metals; Gold, Silver and Palladium

2010-04-27T16:17:00.001-07:00

All the precious metals are behaving extremely well in the face of a stronger dollar; the standout player is Palladium. Palladium has refused to buckle under the face of a stronger dollar and instead continues to put in a series of new highs. This is what a true bull market looks like.

Gold has refused to put in a new 6 month low even though the dollar has gone on to put in series of new all time highs. This action suggests that once this consolidation/corrective phase is over, the odds of the entire precious metals sector exploding upwards are rather high.

In general the strength exhibited by this sector suggests that the smart money understands that the current strength in the dollar is not going to last as precious metals are now diverging from the dollar. On a percentage basis Silver will show the highest gains in the next leg up; prior to this we favoured Palladium and had a very strong buy on it from late 2008 to early 2009.

As soon as a new weekly buy signal is generated we will be issuing new entry points for Silver, Gold and Palladium bullion. We will also issue entry points for several stocks in these sectors.

ETF players can take positions in SLV, GLD, GDX, PALL, etc,

Players looking for more leverage can jump into AGQ and UGL. Use Pull backs to open up new positions and strong pull backs to add to your position.

Tactical Investor

The Ultimate futures Timing System

High Yielding Dividend Stocks

2010-04-27T10:48:00.001-07:00

We are providing a list of high paying dividend stocks; please conduct your own research before deploying any money into these plays. Be aware that companies at times offer a very high dividend to attract new buyers as the company may be going through difficult times, or sometimes it is done to mask potential long term problems.

Stock	Dividend Yield	Market Cap	P.E. Ratio
AGNC	20.74	666 million	4.08
CPLP	18.51	231 million	7.63
HTS	18.3	953 million	5.50
CIM	16.46	2.68B	7.00
CMO	16.91	810 million	7.04
CFP	16.37	71.6 million	4.8

One can lock in great gains if one is nimble enough to jump in and out. The key factor with such plays is to monitor them closely and not to consider them as long term investments; very few if any strong companies pay out such high dividends over the long run.

Remember the time tested Latin phrase. Caveat emptor; let the buyer beware

Disclosure; we have no positions in the stated investments.

Tactical Investor

The Ultimate futures timing system

Dollar, Gold and Silver

2010-04-20T10:33:00.001-07:00

A man who has committed a mistake and doesn't correct it is committing another mistake.
Confucius, BC 551-479, Chinese Ethical Teacher, Philosopher

The dollar as expected has mounted a very strong rally, and it just missed its target of closing above 82 on a monthly basis by a few points. It did, however close above 81 on a monthly basis which indicates that it is going to trade higher before a top is in place. As long as it does not close below 78.00 on a weekly basis, the odds of it trading to the 85-86 ranges are rather high. If it manages to close above 82 on a monthly basis, it would move the final targets to the 90-92 ranges. While a lot of noise is being made about the Aid package that the EU members have in place for Greece, the Euro is still not out of the red zone as many members are still facing huge budget shortfalls. Potentially Spain, Portugal or Italy could find themselves in the same place Greece is now in.

Despite the strength in the dollar, the commodity's sector has held up remarkably well and this suggests that the smart money is deploying new funds every time this entire sector pulls back. It also a very ominous warning that inflationary forces are going to unleash with a fury in the years to come. We still believe that individuals all over the world, especially in the developed countries are going to experience a shock in the next 2-3 years. We have spoken of this many times in the past 12 months. The economic pain right now is being masked by the gains in the stock market.

Interest rates are slowly rising and the long term charts are indicating that they have nowhere to go but up. We also believe that the bond market is going to experience a crash as rates soar to eventually match those of the 1980’s. For those who have no positions in bullion, use pull backs to establish a position and use strong pull backs to add to your position.

Under normal circumstances Gold would have mounted a stunning correction given that the dollar has mounted a very strong rally over the past few months. This is not the case this time around and Gold has only mounted a mediocre correction and now appears to be putting higher lows instead of lower lows in the face of a strong dollar. A weekly close above $1175 will most likely result in a test of the old highs. A test of the old highs if not confirmed by our technical indicators could then result in a rapid move down to the 990-1040 ranges.

Gold is still expected to consolidate for a few more months. If the consolidation remains in a tight range (1000-1200), then expect Gold to explode upwards once a new weekly buy is generated.

Traders, who want to take advantage of a dollar rally, can use pull backs in the dollar to establish positions In UUP. Consequently, they can also short the Euro via EUO; use rallies in the Euro to open up positions in EUO. For those who want to use ETF’s to play the precious metal's sector, the following ETF’s should be considered PALL, SLV, and GLD.

It doesn't work to leap a twenty-foot chasm in two ten-foot jumps.
American proverb

Housing Debacle

Ultimate futures Timing Service

Bond Market nowhere to go but Down

2010-04-19T15:23:00.001-07:00

It is better to do thine own duty, however lacking in merit, than to do that of another, even though efficiently. It is better to die doing one's own duty, for to do the duty of another is fraught with danger.
Bhagavad Gita, BC 400-, Sanskrit Poem Incorporated Into the Mahabharata

A lot of noise is being about the economy improving and even things do continue to get better, there is a rather strong head wind building in the horizon. Interest rates have been slowly but surely rising over the past few months and given the current trend, it appears that the bond market has nowhere to go but down.

Our ballooning debt and inflation are labelled as the main culprits.

“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”

The housing market which experts state has just started to recover (our personal opinion is that it’s a long way from mounting a sustainable recovery) is going to be the first one to get knocked down and dragged down for years to come. Mortgages rates are trading close to 52 week new highs and given that the Fed has its $1.25 trillion program to purchase mortgage debt, rates will be subject to even more upward pressure.

The above chart clearly illustrates that bond yields have been rising for quite some time and one can quite confidently state that mortgage rates have bottomed. The Green circle represents the madness that hit the bond markets when investors panicked and flocked into bonds in the late 2008 to the early 2009 period. If rates can stay above the 4.75-4.90 ranges for 12 days in a row or close above this level twice on a weekly basis, it will mark the beginning of a new bull market in rates and long bear in bonds.

Christopher J. Mayer, a professor of finance and economics at Columbia Business School goes on to state “Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home”. Thus any hope of a long term recovery in the housing sector is going to be short lived as higher rates will effectively lock out more and more individuals from purchasing a home.

Factors that will create further pressure on bonds and the economy

Auto loans are going to become more expensive; in fact, rates have already been rising. Higher rates here will in turn have a negative impact on the auto industry and this short lived spurt of higher sales could soon be followed with a prolonged drought.

The credit card industry is another sector that is going to take a hit. Rising rates are going to make already skittish consumers even more reluctant to take on new debt. As our economic growth is based on consumers taking on more debt, this will knock the fragile recovery right of its feet.

Washington will soon have to pony up more when it tries to borrow the money it needs for the social programs it has in mind. The outflow of funds from the bond into other investments is also contributing to the rise in rates. If bond investors were to panic and run out of bonds as they dove into them back in the 2008-2009 time period, it could have a massive impact on rates. China has been a net seller of late, and if China started to aggressively unload its holdings, it could result in a complete meltdown.

Bill Gross the bond king has reduced US bond holdings by a significant amount; 9 months ago PIMCO total return fund had invested over 50% of its assets in US debt, today the ratio has dropped to roughly 30%. This is the lowest level in the fund’s 23 year history.

2 weeks ago the treasury auctioned of $82 billion in debt at a rate of roughly 4%. This is twice as much as they paid towards the end of 2008 and early 2009 when investors flocked into Bonds looking for safety.

Mortgage rates peaked in 1981 at 18.2%; this works out to a monthly payment of roughly $3100 in comparison the current payment of 1100 on a $200,000 mortgage.

Total household debt is almost 10 times what is back in the early 80’s and yet the percentage of disposable income that goes to servicing ones debt has not increased much over this time period? The current household debt is $13.8 trillion and disposable income is roughly $11 trillion; a deficit of roughly $2.8 trillion.

Gross debt by the end of the first quarter was almost 88% of GDP. Our gross debt has increased at a rate of roughly $500 billion every year since 2003, and then it went ballistic in 2008 and 2009 where $1 trillion and $1.9 trillion were added respectively.

Richard Fisher The president of the Dallas Federal reserve stated in May 2008 that the National debt was close to $100 trillion; an excerpt of the full speech is pasted below.

Why is the Medicare figure so large? There is a mix of reasons, really. In part, it is due to the same birthrate and life-expectancy issues that affect Social Security. In part, it is due to ever-costlier advances in medical technology and the willingness of Medicare to pay for them. And in part, it is due to expanded benefits—the new drug benefit program’s unfunded liability is by itself one-third greater than all of Social Security’s.

Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent.

I want to remind you that I am only talking about the unfunded portions of Social Security and Medicare. It is what the current payment scheme of Social Security payroll taxes, Medicare payroll taxes, membership fees for Medicare B, copays, deductibles and all other revenue currently channeled to our entitlement system will not cover under current rules. These existing revenue streams must remain in place in perpetuity to handle the “funded” entitlement liabilities. Reduce or eliminate this income and the unfunded liability grows. Increase benefits and the liability grows as well. Full Story

One should definitely pay attention when one of the Fed heads starts to talk especially when what they have to say actually makes sense. It is now 2010, so the figure is now definitely well above $100 Trillion. Add in the $1 trillion health package, and all the other social programs announced since and the number goes up even more.

Conclusion

Bonds have only one place to go and if one is kind one will use the word down, but the fact is that the bond market is a disaster waiting to happen. At some point in time it is going to experience a horrific correction/crash as the only way this government will be able to borrow the billions and trillions of dollars it will need one day is by paying huge interest rates to bond holders.

Long term players can use rallies in the bond market to short bonds via TBT. Precious metals perform very well in a high rate environment so an even better option would be to have a position in Gold and Silver bullion. One must also seriously consider the possibility of hyperinflation; under this scenario having a stake in precious metals is an absolute must, for they will at least prevent you from ending up in the dog house.

If I had a formula for bypassing trouble, I would not pass it around. Trouble creates a capacity to handle it. I don't embrace trouble; that's as bad as treating it as an enemy. But I do say: meet it as a friend, for you'll see a lot of it, and had better be on speaking terms with it.
Oliver Wendell Holmes, 1809-1894, American Author, Wit, Poet

Tactical Investor, Stock market timing service

Ultimate Futures Timing System

Anatomy of a Housing Crisis

2010-04-16T06:54:00.001-07:00

A fool despises good counsel, but a wise man takes it to heart.
Confucius, BC 551-479, Chinese Ethical Teacher, Philosopher

Freddie and Fannie certainly had a large role to play in the housing crisis and many may claim that they were the main contributors of the housing crisis which eventually resulted in a market meltdown. Before we proceed let’s get some background info on these two chaps.

Some background info on these two companies

They were created by the Federal National Mortgage Association in the 1930’s to help speed up the home ownership process by buying mortgagees from banks. Banks would normally sell a mortgage and then put it on their books, this means that each time they did so, a certain amount of capital was tied up and this limited the number of mortgages they could issue. Now they could simply issue a mortgage and sell it to Freddie or Fannie and as a result banks could issue almost as many mortgages as they could sell.

Although they are private companies, they are government sponsored enterprises established by federal law. As GSE’s they received special privileges, the main one being that if they were threatened with failure, the federal government would come to their rescue. This gave them the best of both worlds; profits are privatised but losses are socialized. This guarantee basically encourages immoral and unconscionable behaviour because there is no downside; the downside becomes the government’s problem, which in turn becomes the tax payer’s problem.

Factors that support the claim that Fannie and Freddie had a role to play in the housing crisis

Freddie and Fannie were prevented from buying mortgages that did not meet down payment and credit requirements by law. As the structure of the mortgage market changes, so did their business model. From 2005 until the onset of the crisis most of the mortgages they purchased did not fall within the convention fixed interest rate with a 20% down payment category instead most of the loans fell within the following categories.

Fannie mae’s loans

62% negative amortization
84% interest only
58% subprime
62% required less than 10% down payment.

Freddie Mac's loans

72% negative amortization
97% interest only
67% subprime
68% required less than 10% down payment. (source about.com)

This incestuous desire to issue exotic loans and to open the market to subprime borrowers made most of their loan acquisitions extremely toxic and in doing so helped fuel the speculative real estate bubble. This is a very huge topic, and we have only just touched the tip of the iceberg. The information laid out should provide enough food for thought such that if peeks your interest further research on this topic can be conducted at your own leisure.

Now let’s examine if these GSE’s really helped the Public

Freddie Mac lost 50 billion last year but has now come begging to the government for another 31.8 billion and this comes on top of the 13.8 billion Freddie asked for last year. The government has pledged a massive 200 billion line of credit to support this disaster and based on all the talk so far, they would probably offer even more if Freddie ever needed it.

If we weigh the cost to the taxpayer and the so called savings these two mortgage giants provided, one finds that they failed miserably and have really provided no benefit at all. How can this be? The so called benefits from offering lower mortgage rates has been offsetted by the cost of all the money taxpayers have poured into these two companies. . They had access to money at a lower rate than private companies and could in turn pass these savings to the consumer; lenders provided them with lower rates because their survival was guaranteed by the Federal government. Based on the amount of money they have already asked for and the future amounts they will need to continue functioning, it is estimated that by the end of the year they will become net losers. In other words, they would have moved from providing some value to providing none at all.

Lawrence J. White an economist at the New York University (Stern School of business) states that the GSE’s could borrow money 35-40 basis points lower than the private sector. Thus if the standard rate was 6%, they paid only 5.60-5.65%.

At the end of 2008 these two companies had 31 million mortgages on their books, which were worth in excess of 5 trillion (actual figures were roughly in the 5.4-5.6 trillion ranges). Thus borrowers would have saved roughly 10 billion in 2008. According to Daniel Gross over the years, they supposedly produced savings of $100 billion.

Contrast the potential saving of $100 million against the $300 billion plus in financial support the government has pledged and one can immediately see that they have provided no real benefit at all. If they were regular business, they would have gone bankrupt long time ago, but because they are GSE’s the government sees fit to pump billions of dollars into losing cause. It is true they have not used up all the money the government has pledged to them, but at the rate, they are burning this money, it’s only a matter of time before they go through those funds before they start begging for more.

While these two GSE’s did play a role the financial crisis that hit this nation; after all they did provide banks with an incentive by virtually buying any junk that the banks were willing to throw at them.

Wall Street firms (Goldman, JP Morgan, Merrill lynch, etc) and rating agencies also had a big role and may have contributed even more to this housing crisis then Freddie and Fannie. These firms combined subprime mortgages with other mortgages that carried slightly higher ratings and sold them of as Collateralized Default Obligations (CDO).

CDO’s were nothing but a bunch of BB rated mortgages that were bundled up to create a security that carried an AAA rating. The rating agencies (Moody’s, S&P, and Fitch) all played a role in this process by putting their stamp of approval on these toxic products. By putting their stamp of approval on these products these agencies made these toxic products appear to be of investment grade.

Investors in General rely heavily on these agencies to determine risk. Thus when investors realized they could achieve superior returns with AAA, AA or A rated mortgages, like idiots they jumped in. We use the word idiots because they could have and should have spent time understanding what was behind this new product. If something is too good to be true, take time to dig for you will find out that it is usually fraught with risk. Large institutions started to jump in and buy these CDO’s left right and centre creating a huge demand for these products; demand soon overwhelmed supply. As the demand rose, it drove the borrowing costs lower and made qualifying for a loan easier and this in turn drove housing prices higher. Mortgage lenders were making huge sums of money and each player wanted to increase its share of the market. Lack of oversight, poor underwritings and outright fraud were all perpetuated as a result of this greed. It will take years for the housing and mortgage sectors to recover as a result of this greed. Investors continued to pour into CDO’s and as the supply grew so did the demand; the only way to bring this vicious cycle to an end was for the real estate and mortgages markets to crash.

Investors were given several warnings that all was not well; towards the end of 2006 home prices peaked. In 2007 home prices stopped rising and finally started to decline. Worse yet default rates start to increase and yet like drug addicts investors kept buying these securities and Wall Street like a drug dealer continued to issue these securitized instruments.

If the blame should be laid on anyone it, the biggest culprits are the banks and rating agencies.

However, we have one final culprit and that culprit is the average Joe, who jumped on the band wagon because he wanted to make a quick buck without taking a risk. Well at least that’s what he thought, for real estate seemed like a sure bet.

Every con has a conman and sucker; for the game to proceed both have to be willing participants. Thus the conmen provided the suckers with what they were looking for. The suckers did not complain as long as they were getting paid. Only when the whole house cards crumbled did they wake up and start to squeal like fat pigs being roasted alive.

The morale of this story is that one should never jump into anything that has attracted mass attention. The masses are always late to the party and usually end up leaving with a massive hangover.

Conclusion

Before one lays blame on another one must look in the mirror and be sure that one did not have a hand to play in the crisis. It takes one to cry, two to tango and 3 to have a party. Individuals wanted to party without having to do any work, and they thought they could do this without taking on any risk. If something appears too good to be true, it generally is.

The government is hell bent on pouring good money into these two completely useless companies, Freddie Mac and Fannie Mae. Ironically the Government finds it very easy to turn down individuals that really need a helping hand; for example, not approving a $250 check for senior citizens. To make matters worse they create money out of thin air to pay for these projects, thereby further devaluing our currency and indirectly imposing a silent tax on the population. This silent tax is otherwise known as inflation.

Meanwhile, taxpayers have pumped more than $125 billion into the failed firms -- and on the hook for many more after the administration promised an unlimited source of funds just before Christmas to backstop their growing losses. "We will do everything necessary to ensure these institutions have the capital they need to meet their commitments," Geithner said in response to tough questions from Rep. Scott Garrett, a New Jersey Republican. Underscoring the need for change, Geithner acknowledged that taxpayers are likely to face "very substantial" losses on the government's takeover of Fannie and Freddie.. Full Story

The best way to protect oneself against inflation is to get into hard assets; hard assets are anything that cannot be mass produced and are in finite supply. Examples are oil, timber, copper, iron, precious metals, etc. The easiest way to protect oneself against the harmful effects of inflation is by purchasing precious metals (Gold and Silver bullion). If one wants to play the ETF game one can open up positions in SLV and GLD.

Once the game is over, the king and the pawn go back in the same box
Italian Proverb

Disclosure: we have positions in Gold, and Silver bullion

Other articles of interest

Housing Debacle

Housing Bust

Links of interest

Ultimate Futures Timing Service

A Step Back In Time

2010-04-08T21:20:00.001-07:00

A generation which ignores history has no past and no future.

Robert Heinlein, 1907-1988, American Science Fiction Writer

The info below provides an interesting view of what took place in the 1929-1930 time periods. If one had to take away the dates, one would think that the writers were referring to current events. History clearly repeats itself and the stories posted below quite clearly illustrate this point. Our comments are posted in italics

Events leading up the Crash of 1929

Investors had long borrowed money to buy stocks, but the amount they borrowed and the enthusiasm for borrowing grew rapidly in the late 1920s, as credit became plentiful and the stock market started to boom. Borrowing to buy a stock—an investment representing a share of a corporation—meant putting up “margin.” Margin was like a down payment on the stock purchase, sometimes as little as 10% of the purchase price. Investors didn’t have to pay anything more upfront, unless the stock price fell. The loan would be paid off by the rising value of the stock.

In 1927, brokers borrowed $4 billion, up 33% from the previous year, and they in turn would lend the money to stock buyers. By the end of 1928, brokers’ loans had exploded to $6.4 billion, a 56% increase in one year.

In fact, in 1929, nearly $4 of every $10 banks lent was for stock purchases. Even corporations jumped in on the lending business. John D. Rockefeller’s Standard Oil of New Jersey, Chrysler and General Motors all made millions of dollars in stock loans.

Interesting is it not that many banks reported record profits and most of these profits were made from trading the markets. So instead of lending money banks are now moving more and more into trying to time the markets. Indirectly, this is the same thing that took place in 1929 when 4 out of every 10 dollars banks lent went into the market; the final destination was still the stock market. Sounds like a recipe for trouble.

But stocks continued to fall, dropping 12.8% on the following Monday, Oct. 28, and nearly another 12% on Oct. 29, Black Tuesday, one of the worst days ever in the stock market. Over six days, the stock market lost nearly one-third of its value—$25 billion in savings disappeared

The stock market crash was painful, wiping out the life savings of millions of people and leaving some deep in debt. After watching the devastation of such a borrowing binge, federal officials were determined to keep people from overindulging again. They took steps to keep interest rates high and discourage borrowing. So people didn’t borrow—and companies didn’t either. Consumers couldn’t buy houses. Companies didn’t have money to expand. Workers lost their jobs as the businesses shrivelled. The result was a downward economic spiral.

The stock market crash of 1929 was the first clear sign of an economic downturn. But it was the policy aimed at preventing a repeat that sent the nation sliding into the horrific slump that that became the Great Depression.

After the Crash

The following stories extracted from the following site news from 1930 blogspot

From June 2-7 1930 Wall Street Journal

Henry Ford says business is getting back to normal and the worst of the economic depression is past.

Brokers and financiers “seem to think the business depression has touched bottom, and the next turn will be for the better.”

Present dull period is giving Wall Street brokers time to improve their prowess at many games, including golf, bridge, checkers, chess, and ping pong.

June 13, 1930 Wall Street Journal

Business is not improving as predicted, which is lowering market sentiment. Business volume is holding fairly steady week-to-week, but prices are lower, which should lead to lower earnings. Wages aren't going down as fast as earnings, but fewer people are employed.

Market has confounded observers by slumping when two weeks ago at least 75% of the Street was predicting a rally.

Strange the market actually has a mind of its own, interesting how 80 years later and very few seem to have understood this simple concept.

June 23 1930 Wall Street Journal

Col. Ayres, VP Cleveland Trust, predicts an abrupt recovery in stock and commodity prices by Labor Day due to current consumption exceeding production. Distinguishes between two types of depression, “V”-shaped and “U”-shaped.

Reduction of the rediscount rate to 2 1/2 percent is considered beneficial in several ways. It indicates credit will be easy for some time; should benefit many industries including farming, building, and construction, and make bond issues easier for corporations resulting in lower unemployment.

Stocks continued down, with big declines in the large trading stocks. Bears encouraged by the failure to hold Thursday's rally after good news, and further breaks in the commodity market (wheat, corn, cotton). US Steel hit a new yearly low, followed shortly by Bethlehem Steel, Union Carbide, and American Can. Some rallying on the close on short covering. Volume not very heavy.

August 6, 1930

Market seen as having prepared conditions for good uptrend on both fundamental and technical grounds. A year has passed since start of the downturn, typical lengh of depressions historically. Seasonal factors are favorable. Also, recent dull range-bound trading is typical as "market builds up its technical strength."

Are not many experts already making such comments now?

Market appeared to have been strengthened by past two days of consolidation; bulls encouraged by failure of bear efforts to bring out liquidation; also by increase of $8M in brokers' loans, taken as sign of greater public participation (though a relatively small increase). Retailers strong following news of improving Aug. sales at Woolworth. Major industrials recovered vigorously from recent lows. Amusements, utilities, banks also strong. Volume increased as prices went higher, and “bullish demonstrations” spread. Rails and oils neglected. Market closed on day's highs. Bond market strong; Dow 40 bond average at new 1930 high of 97.29; high grade corp. strong; convertibles more active; govts irregular, little changed.

Market opinion now sharply divided; bears cite repeated failure to break through 241 resistance level, bad farm news, and recent bad business news; bulls point to market resistance to selling (volume drying up on declines), and to strong positive reaction to good news as indicating path of least resistance is upward.

August 16 1930

Stocks staged a sensational late rally attributed to “wild covering movement” by over extended shorts. Pessimism over drought affects on business had induced “perhaps the largest” short interest in history. Bears made some further attempts early, particularly against coppers. News of heavy rains in drought areas caused a short covering movement, at first cautious but turning into a rout in late afternoon. “Spectacular uprushes” in stocks under recent pressure including US Steel, J.I. Case, Vanadium; general market rose aggressively. Bond market dull; corp. and preferreds up, foreign govts. mixed, US govt. steady.

August 25, 1930

Alarmed by shrinking population, France budgets $45M to encourage large families; parents to receive $20 for second child, $30 for each additional.

Bulls encouraged by Pres. Hoover's statement tax cut may be continued, by some favorable business reviews, and by market action on Friday. Some unsettlement in oil group caused by decline in gasoline prices and high inventories in spite of recent reduction; however, weakness was moderate and didn't spread to other sectors. Major industrials and trading favorites strong, some reaching best levels since July peak. Tobaccos, banks and trusts, utilities strong. Bond market in Saturday session quiet but continued higher; most activity was in a few rails and industrials; Dow 40-bond avg. up to new 1930 high of 96.87.

Notice how bonds rallied very strongly much like they did early in 2009 before they suddenly mounted a very strong correction and are still trading significantly of their highs.

Editorial: Some have suggested banning short-selling as aid to business recovery. But recent market swings have not been due to short-selling but to public recognition of reduced earning power; similarly, farmland in Corn Belt has gone down by 2/3 from wartime level, though no one has been selling it short.

They blamed naked short selling recently for the damage caused to bank stocks and so they eliminated this practice. Time will tell if this ban on naked short selling was really a factor or not; we suspect that it simply delayed the inevitable. Weak banks are going to fail and should be allowed to be taken over or sink and not given extended life lines only to cause more damage down the line.

Sept 11

Market considered stronger technically from recent period of consolidation, move upward on higher volume; declines of June and early August are seen as having shaken out weak hands, as indicated by shrinkage in brokers' loans. Recent economic news has also been encouraging, including steel production, retail and mail order sales. Roger Babson's switch to bullish stance has also attracted attention. All indications point to good sized gains in stocks in the near future, though third-quarter earnings reports in a few weeks may change the trend.

An out-of-work broker asked a friend who owned a circus for work. His friend said the circus gorilla had recently died, and if the broker wanted to get into the gorilla's skin, swing around, growl, and amuse the children, he could have the job. Things went well until one day the rope the “gorilla” was swinging on snapped and catapulted him into the lion’s cage. The lion let out a roar, which the “gorilla” answered with a timid yelp. The lion roared louder, and the “gorilla” lost his nerve and started screaming for help. The lion came closer and whispered “Shut up, you damned fool, you're not the only broker out of a job.”

Sept 13

Current consensus is that “there will be a good advance shortly followed by a set-back before the end of the year”, when disappointing Q3 reports appear. However, when “predictions ... are so nearly unanimous,” market action may be contrary to the general opinion.

Conclusion

All the quotes posted under the section titled “after the crash” were obtained from this site. For more info click here

One can clearly see the similarities between what took place 80 years ago and what is transpiring right now. Once individuals are used to fast money they keep coming back for more and the only thing that can slow them down is a massive dose of pain. The dotcom melt down of 2000 only briefly stopped investors, a few years later they jumped into real estate and created another bubble and now they are trying their hands at stocks once again.

Banks are supposed to generate most of their money from loans; however the major banks are actually taking on larger amounts of risks by using the stock market to beef up their gains. In many cases the trading dept is producing up to 50% of the banks revenues. They are now using the money the government lent them to take on even more risks.

MR Durant was one of the richest men in Wall Street before the 1929 crash; he controlled over 4 billion dollars (4 billion dollars that time was an incredible amount of money, probably in the order of 1 trillion plus dollars in today’s money). After the crash he was left with just $250.

There are some differences or so called differences between what is occurring now and what took place last time

Last time round the Fed's immediately cut back on lending and drove up interest rates. This time round they have aggressively lowered rates and provided huge amounts of liquidity to the markets. The difference however is that in 1929 we were not a debtor nation, but now we owe money and continue to require huge infusions on a daily basis. Overseas investors are simply not going to keep lending money at such low rates. The fed is going to be forced to raise rates sooner or later and once they start raising them, they will have to do so rather aggressively to satisfy foreign investors. When you owe money you are no longer in charge, you answer to someone else; only the illusion of being in charge is left, the real power lies in the hands of those that provide the funding.

Second problem now; is that the private and government debt combined is over 400% of our GDP. They mask this fact by only quoting the government debt and private debt separately but combined these debts are now at unsustainable levels.

Third problem; the commercial real estate sector is threatening to fall apart.

Thus while many will claim that the situation is completely different, the main problem that caused the plunge last time is the very same problem that could be unleashed in the not very distant future. What was this problem? Inflation; in 1929 the effects were felt immediately because the Feds aggressively raised rates. This time there is going to be delayed effect because the Feds lowered rates but they are pumping so much money into the market that it would be almost impossible to avoid some form of run away inflation in the future that could very well spiral into hyperinflation.

Finally we were a strong manufacturing nation back then, now all we seem to be producing is boat loads of paper and debt accounts for over 70% of our GDP; this is an unsustainable trend. In order for this scenario to work, individuals must be willing to take on more and more debt (basically borrow forever) but with banks cutting bank on lending and home values falling in the toilet, the consumer has only one option, cut down debt or burn. The average consumer in the USA has no savings and has only started to save recently not because they wanted to but because they were forced to. Consumer credit dropped almost 22 billion last month, that’s the equivalent of a 10% decline on an annual basis and we suspect those numbers will rise. If consumers are cutting their debt levels, increasing their savings, then how is an economy that is based on debt going to recover. This is why we stated that the change in the spending patterns of the American consumer is going to affect every single nation; no other country purchases as much as America does and there is no immediate replacement. In the long run Asia can and will replace America but not within the next 3-6 years.

A 1 hour documentary on the build up to the 1929 crash and it’s after effects.

http://www.economicpopulist.org/?q=content/friday-movie-night-great-crash-1929-plus-1930s-fdr

Not to know what has been transacted in former times is to be always a child. If no use is made of the labors of past ages, the world must remain always in the infancy of knowledge.

Marcus T. Cicero, c. 106-43 BC, Great Roman Orator, Politician

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Tactical Investor

The Engineering of a Financial Crisis

2010-04-08T11:27:00.001-07:00

Nothing is more common on earth than to deceive and be deceived.
Johann G. Seume, 1763-1810, German Theologist.

The Dow continues to put in new highs but our 3 moving averages of new highs are trading well off the highs they put in last year. The 20 day moving average (current reading = 640) of new highs would have to surge past the 2500 mark to have a chance of putting in a new high. Based on this week’s readings it would have to surge 400% from its current reading. It is very strange and disturbing that a market that appears to be strong is actually not as strong as it appears to be when one examines its internal structure.

V readings (our proprietary indicator that measures market volatility) have surged to yet another new high, we are now striking distance from hitting the 1600 mark. We cannot remember the last time when V readings put in 4 back to back new highs. In fact it appears that the surge (over 5.6%) in the past 4 weeks has set a new 4 week record.

Given the fact that the Dow has now put in a stunning 29 new highs and the volume has not once touched the 6.8 billion mark leads us to believe that some form of extreme manipulation is taking place. It is statistically impossible for a market to put in so many new highs on such low volume without something being amiss.

If one examines the history of the Dow (we have more than 100 years of history there), one will find that at any given point in time, the Dow trended higher on higher volume especially if it was putting in a series of new highs.

Before we proceed, we would like to list a few very important quotes.

“The budget should be balanced, the treasury should be refilled and the public debt should be reduced. The arrogance of Public officialdom should be tempered and controlled. And the assistance to foreign Lands should be curtailed, lest we become bankrupt.” CICERO, 63 B.C.

Thomas Jefferson the 3^rd president of the United States made the following quotes and did his level best to curtail the power of banks

“The Truth is that we can never satisfy their (bankers) appetite for money”

“Banks of issue were more dangerous to the liberties of the people than standing armies and the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale”

The power to issue money should be taken from the banks and restored to congress and the people”

President Jackson made the following statement in his farewell address “the banks of the United states waged war upon the people”

"It is one of the serious evils of our present system of banking that it enables one class of society - and that by no means a numerous one - by its control over the currency, to act injuriously upon the interests of all the others and to exercise more than its just proportion of influence in political affairs."

President Jackson killed the banks and restored the power to create money to congress. In his farewell speech (1837) he very clearly and openly stated the consequences that could befall a nation if the banks were allowed to take over? To read the full excerpt of President Jackson's farewell address click here

It is no secret that central bankers under the guise of trying to provide financial stability have been plundering every nation and manipulating the system to their benefit and to the detriment of the majority. However, things have now gone out of control. The following two facts should help provide support for this hypothesis.

The top 6 American banks have assets that are equal to 63% of U.S. GDP; let that figure sink in. Imagine that 6 banks have assets that are equal to 63% of the world’s largest economy. Effectively they can manipulate any system. If one were to treat these banks as a nation they would be in the top 5 nations of the world. Power corrupts and absolute power corrupts absolutely. These banks will seek to gain even more control and will stop and nothing, unless their legs are chopped off.

The Top 6 banks are engaged in over 80% of all over the counter derivative trades.

Were not banks created to lend money and help business grow? So why are they using this money to trade the markets. When you combine these two pieces of data, it’s all but obvious that the banks have a free role to do as they see fit courtesy of the Feds. The Feds are providing these banks with virtually free money and instead of lending this money out, they are simply pumping into the markets, setting them up for another monumental correction. The function of a bank is to lend money, not to trade; new laws should be introduced striping banks of their status if they earn more from trading then from their traditional business operations. Better yet they should be banned from trading the financial markets.

One could go even as far as stating the financial crisis was engineered to help create a few super powerful banks. It appears that this is the case for the banks have not lost any power, but instead we have fewer players with triple the amount of power.

These facts could help explain why the markets have simply continued to rise on vapour thin volume and why the precious metal's sector (Gold, Silver, Palladium, etc.) has refused to mount a strong correction in the face of a stronger dollar. Precious metals are the ultimate stores of wealth for they provide a hedge against the inflationary tactics central bankers employ to defraud the masses of their hard earned wealth via the silent killer tax otherwise known as inflation.

The Dow has put in 29 new highs and not once has the volume surged above the 6.8 billion mark. Take, for example, the latest high (Monday April 5th) volume was only 4.26 billion shares, half of what it was last year when the markets were rallying strongly between the months of March and July.

So why push the markets you ask when they have already made a ton of money? That’s where power, greed and arrogance come to play. Remember the quotes we listed above. Why would they stop if they can push it to the limits, destroy the psyche of traders and set up what appears to be a perfect trap. What do we mean by a perfect trap?

There are billions of dollars in the bond markets and while long term rates are slowly rising they do not even come close to the potential gains many have locked in the past 1 year. Imagine if bond players were pushed to abandon the bond markets, how much money would flow into the equity markets. Once this occurred the bankers could start to bail out for the billions pouring from the bonds markets would sustain their selling into rallies. Once out they could then start to build up massive short positions and eventually trigger a monstrous correction/crash. This would in turn trigger a rush into the bond markets as traders looked for a safe place to park their money and so the vicious cycle would continue.

Read the book “The coming battle by Lorraine Walter”. It is over 100 years old, and it explains how every recession, depression is actually engineered in advance. This is not hearsay it actually provides quotes showing how the bankers have done this in the past. You can purchase this book from our Book Store or by just performing a simple search on Google.

Some other factors to consider

The PPT (Plunge protection team has openly acknowledged its existence after hiding in the shadows for decades). This article provides some info on this topic. Full Story

The Fed is using every bogus excuse in the book to maintain low interest rates; the primary beneficiaries of this move are the big banks. They borrow the money for next to nothing (the average Joe cannot take advantage of this lovely feature) and then use this money to trade.

Our smart money indicator has remained in the neutral zone for months now. It sensed something was wrong and just moved into the neutral zone as it has refused to issue a sell signal.

Volume has always been important for it indicates market participation. Volume is shockingly thin and if it occurred once, or twice we could ignore it, but one cannot ignore the fact that the Dow has put in 29 new highs on sub standard volume; statistically, it is impossible to state that something is not amiss. Perhaps this is why our smart money indicator refused to issue a sell signal. This indicator has always astounded us for its ability to keep one on the right side of the markets. It moved into neutral territory and has remained there for several months. This was the very same indicator that issued an extremely strong buy signal in Feb of 2009 after remaining in the sidelines of an extended period of time.

The Baltic Dry index another leading economy indicator is well of its Nov 2009 highs; another indication that something is wrong.

If the Dow trades within or above the 10,999- 11050 ranges for more than 3 days in a row or closes above 11100 on a weekly basis, it could potentially trade all the way to 11,800.

Conclusion

There are many signs that all is not well.

Additional factors that also support the extreme market manipulation theory

1) In March 2009, there were less than 6 sectors with a positive score; today every single sector (roughly 200) has a positive score and only 1 sector has a negative score. Even when the markets were crashing; there were at least 5 sectors that had a positive score, but today even the worst junk has moved up significantly, and we only have on sector with a negative score. This shows you how extreme the current environment is; even the worst Junk has rallied significantly from its March 2009 lows and yet not much has improved since March.

2) Another very strong reason to keep the markets up is due to politics. The incumbent party does not want to lose its majority stake and a badly performing stock market on top of a terrible job market will be the fastest way to lose the top dog position. And as we all know by now most politicians are willing to sell their souls and those of others if they can for a price.

3) Our special futures to equity indicator have moved even more in favour of the futures market. The current score is 67 for futures and 33 for the equity's markets. This is a risk to reward indicator, and it is now stating that the futures markets (which are very high risk markets) offer a better risk to reward ratio than the equity's markets. Generally, when it is in favour of the futures markets the difference has been very small, usually 1-4 points. This is the first time in decades where the point differential has moved past 15. This gives you an idea of the potential long term risk associated with the equity's markets now.

As we stated before power corrupts and absolute power corrupts absolutely. A few large banks now control almost everything (at least it where it matters the most for example the supply of money) and can at their whims generate another massive selling wave. In times such as these where inflation is on the rise, a massive currency crisis is just waiting to occur, and financial markets are racing to the extreme zones, the best way hedge/protection is to have a position in precious metals (Gold, Silver, etc.). Gold has stood the test of time, can one say the same for any paper currency. Let’s not forget that the US has declared bankruptcy twice before. Those who forget history are doomed to repeat the very same mistakes again.

We will end with two quotes from the ‘The coming battle” by Lorraine Walter

“The greatest financial mistake of my life was in what I had to do with the passage of the present national bank act. It ought to be repelled; but before it can be done there will be such a contest between the banks on one side and the people on the other as has never been witnessed in this country”. Salmon P. Chase.

“fifty men in these United States have it within their power, by reason of the wealth which they control, to come together within twenty-four hours and arrive at an understanding by which every wheel of trade and commerce may be stopped from revolving, every avenue of trade blocked, and every electric key struck dumb. Those fifty mean can paralyze the whole country, for they control the circulation of currency and can create a panic whenever they will”. Chauncey M. Depew.

Ultimate futures Timing System

Tactical Investor

Perfectionism, the Art of Losing

2010-04-05T20:44:00.001-07:00

I don't like these cold, precise, perfect people who, in order not to speak wrong,
never speak at all, and in order not to do wrong, never do anything.

Henry Ward Beecher 1813-1887, American Preacher, Orator, Writer

According to the low of paradoxes one never gets what one desperately chases or needs; one only gets it by seeking it. Desperation blinds the mind from being able to function optimally and therefore failure is all but guaranteed. Everyone enters the markets thinking they are going to win yet only 10% or so win in the long run; despite knowing these statistics there is never a shortage of new entrants.

Trying to win 100% of the time is another sure fire way to make sure that you lose almost all the time. Perfectionists usually have some deep rooted psychological fear which probably has to deal with some form of rejection earlier on in their lives. They try to compensate for this lacking (usually this is not real but just a false perception) by going overboard and trying to be perfect in every thing they do.

It is a given fact that long term traders by far win more often then short term traders; the reason is simple they are relaxed they have more time to analyse their moves, have patience and generally are much more disciplined then their counter part short term traders.

We are going to list 6 of our 13 investment rules below:

Tactical Investor Investment Approach

1. Divide your money into 10-15 lots. When you add additional funds to your account, divide the new money by 10 or 15 or create a brand new lot. In other words if you currently have 10 lots (lets assume each lot is 500 dollars) and you add an additional 500 dollars to your portfolio; divide the 500 by 10-15 and spread the money equally into each lot or create a brand new lot.

2. Each holding should have the same amount of money assigned to it. Never invest more in any one recommendation; this way if anything should go wrong you won't be blown out of the water. Most investors tend to lose not because of bad choices but because they are found to be lacking in the area of money management. The fastest way to lose is to spread your money unevenly.

3. Never dedicate more than 10% of your entire portfolio to options investing. Of this 10% never invest more than 2-3% per position. If you are options professional you could dedicate up to 20% of your portfolio to options (but do not invest more than 2-3% of this 20% per option play)

4. Remember that no one can win all the time. The market operates in cycles. Some quarters it is very easy to make money and some quarters are a struggle just to stay alive. Do not fight these cycles; the market always goes through these phases. What you have to do is recognize them and act more conservatively during these very volatile and nerve racking times.

5. Have a goal, 20%, 30% etc; when your entire portfolio has hit your mark, consider taking a break or better yet risk only some of your profits. Just because you are paying for a service or services does not mean you need to try to squeeze the maximum out of it. If you hit your targets earlier consider it as surprise bonus and take time to enjoy the other simple things in life.

6. Try not to let your emotions influence the way you trade. There is no room for emotions when it comes to investing. Emotional traders almost always end up getting buried before their time.

Some more random thoughts on becoming a better investor

The long term Investor looks for a trend and buys early in the trend; he/she then rides the trend till it ends. You can get more information on this topic by clicking here. Let’s deal with the topic of Trading vs. investing. Short term traders look for rapid gains, they prefer to extract the maximum profit they can from a stock, option, future etc. At least that's the concept behind trading, unfortunately most traders end up losing more than they win, and even when they do win, they usually end up making less than the long term investor.

A few traders do extremely well, these chaps fall into the 2%-5% category of overall players. Their gains are huge, but for the rest of the players loss is all they can hope to look forward too. The investor on the other hand, looks for a new trend and usually tries to get in right at the beginning of the trend. If he/she is more aggressive they try to get in when that particular market is putting in a bottom and has been trending sideways for sometime, indicating that the worst is behind.

Another error that is often made is to confuse long term investing with the rather falsely promoted policy of buy and hold. Long term investing is getting in early and selling when the trend is over. A classic example was the Internet mania of the 1990's. The time to buy was in 1995 and 1996 and the time to sell was late 1999 and early 2000, when many of the Internet stocks started violating their main up trend lines. Those that bought the buy and hold lie, ended up poorer then when they opened their initial positions in these stocks.

To be clever enough to get all the money, one must be stupid enough to want it.

Gilbert K. Chesterton 1874-1936, British Author

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Some of the best Stock market tools on the net.

Interest rates and Bonds

2010-04-03T18:25:00.001-07:00

Long term rates have been slowly creeping up and bonds have been pulling back. We believe that an intermediate trend reversal is close at hand. Bonds are expected to mount a rally that could last a couple of months after which they are expected to resume their downward trends. Long term traders can use this potential surge in bonds too slowly ease into additional TBT positions; risk takers can purchase long term call options in TBT.

In the short to intermediate time frames, bonds could rally as high as 120 and possibly spike to the 122 ranges. Feb 2, 2010.

We still have daily and weekly sell signals, in effect. The first sign of a trend change would be a daily buy signal and the ability of bonds to trade past 118 for 4 days in a row. If bonds can trade above 118 for 4 days in a row, it will signal that they are ready to test the 122-124 ranges. If we get a weekly buy signal it would result in much higher prices and bonds could trade as high as 128 before pulling back. Even though the current pattern is suggesting that bonds could rally for several months in a row, this pattern will only be complete if it is confirmed with a weekly buy signal.

Right now we would advise long term players not to open up any new short positions via TBT and to actually consider taking some profits with the intention of redeploying this money later when bonds trade to the above suggested targets.

We will warn everyone via updates or interim updates when a new daily and weekly buy signal is generated.

Long term our outlook for the bond market is extremely negative but in the short to intermediate time frames bonds are expected to rally. The strength of the rally will depend on the signals generated (daily, weekly, etc.)

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Slavery and the mass mindset

2010-04-01T20:05:00.001-07:00

Slavery in the true sense never disappeared, it has just changed. The chains have been replaced with cubicles and the only difference is that you now hold the keys to your own prison and you gladly, and willing incarcerate yourself.

The masters controlled the land in the old days and the people that worked the land, today they control skyscrapers and the people that work in them. What has changed? They have just sugar coated the deal. They provided individuals with the illusion that they were free, i.e. no longer tied to the masters who owned the land. Notice how many individuals gladly and proudly speak of working for a company for 20 plus years. The average person starts to work (we won’t count odd jobs that one might do while one is a teenager or while one is attending college) roughly at say 21-23 years of age, and they work until roughly 65 years. Thus roughly the average person works for 42 years, in this time the average vacation is roughly 1 ½ month, so in 42 years you get 63 months of vacation, which works out to roughly 5.25 years of time to do sit down and relax. Is this really freedom? One has just given the most valuable years of one’s life to have enough so that one can live a so called comfortable life in the worst years of one’s life. They called retirement the golden age, but it should be called the Bronze Age, for one has just given up gold in exchange for bronze. So is there any solution; yes there is, all one has to do is look for one.

In order to break free from the physical and mental prison one needs to see one’s predicament and only in seeing can one formulate a plan. It’s for this reason why most will never break free, why the mass mindset will always dominate, and why the same old tricks and scams work again and again. Ask yourself this question. Do you really think the top individuals are that stupid? Why is it, they never seem to learn from history, why is it that governments for some strange reason keep making the same mistake again and again? The truth is that they are not stupid; in a nefarious manner of speaking, they are in fact brilliant. They know that the masses forget, they learn nothing and that through the use of greed and fear they can achieve anything. It’s for this reason we will always have booms and super busts. Every cycle is engineered in advance.

This is a very long and deep topic, so we are only just scratching the surface but to bring about change all it takes is a desire to want the change. Thus if this topic has stirred enough interest, it has served its purpose for finding a solution is the easy part.

As for what one can do personally. As we stated before, if one can identify the problem one is more than half way at finding a solution. If you see the game for what it is then you are no longer a slave for you can formulate a way to break free. That is why one should never retire; retirement should be viewed as getting away from what you had to do, to now doing what you love to do. A retired mind is a dead mind.

Mass Psychology 101

2010-04-01T20:02:00.001-07:00

It’s an old phenomenon but one that has only been brought to light recently. It is something that is encoded in all beings, we tend to feel comfortable doing things together. One can even see this in other animals, a flock of birds a herd of beasts, a shoal of fish, etc they all seem to follow a leader.

Mass Psychology is the study of group behaviour; the mass mindset draws comfort from the fact that everything is okay because the majority support this view point. In other words, an investor feels comfortable enough to buy technology stocks because it appears that everyone thinks that high tech is the way to go.

The way to profit from this phenomenon is to do something that is contrary to our upbringing and most of our cultures and that is to resist the herd mentality and try to be a leader. In any crowd, or group behaviour situation, the ones that lead are the ones that draw all the benefits, while the ones that follow blindly are the ones that take all the risks. This is very clearly illustrated in the stock market. Let's take the internet era of the 1990’s.

Investor who took the time to analyse what was going on, could see that the internet would revolutionize the way information was transmitted; the consumer would finally move from the passenger seat to the drivers' seat. They also noted with great interest that the public at that time was against or completely ignoring this sector; this is a key facet of mass psychology. They took positions in these stocks as early as 1994 to early 1995, with the majority taking stakes in 1996, the masses only began to awaken to this phenomenon in mid to late 1998, by 1999, there was a feeding frenzy as everyone simply piled in.

The leaders were alarmed at this behaviour, as they should have been, since this frenzy was not sustainable. Knowing that the end was near, they started to sell towards the end of 1999 and move their assets into cash and bonds, while the feeding frenzy continued. In March 2000 the markets started to correct and by the end of the year the main up trend line was violated and the market was ready to crash. By 2002 the market had lost more than 70% of its value and many of the masses who had momentarily tasted wealth were reduced to a state of poverty that they could not have envisioned a few months back.

1) The leaders represent less than 2% of the population yet take in more than 90% of the profits. Getting to this stage is not easy as it involves changing ones ingrained modes of.

2) You have to learn that whenever something is popular the end is very near.

3) That the time to take a position or start something new is when it is viewed with extreme negativity and disdain.

4) You have to learn how to fight the fear of selling out to fast after taking a position, remember it won’t just go up., most likely it could even go down a bit more or move sideways for months or even a year. The one area you can draw comfort from is this, the longer the sideways action the more powerful the upward move will be when it finally transpires.

5) Keep extra money to take additional positions.

6) In all likelihood you will have a 50-100% retrenchment in the first stage of the bull market, meaning that your shares could double only to fall back to the original value you purchased them at. This is usually known as the shakeout stage, whereby the weak hands are forced out of their positions and end up selling at rock bottom prices. Hold and the rewards are extremely huge.

7) When the investment suddenly becomes topopular be on guard and perform simple trend analysis on all your holdings, once the super main up trend. Wait patiently for the next opportunity to show up, there is always another opportunity.

This is meant to be a brief introduction into the very esoteric but highly rewarding field of Mass psychology, to do an in depth analysis would take months. When one combines Mass psychology with Technical analysis you truly have a very potent weapon that can be used very effectively to position oneself in the right investments and consistently be on the right side of the market.

The term contrarian investing was most likely derived from the study of mass psychology as it basically means taking a position that is completely at odds with the masses.

With that in mind, mass psychology has once more provided a new opportunity in the financial markets for the astute individual willing to take an early position and wait. Sectors that are going to explode even further in the years to come are the precious metal's sector, the energy sector, agriculture, etc.; virtually anything tied to commodities will do well in the years to come.

It would be wise to have a position in several of the key stocks in each sub sector of the commodity's markets. A starting point would be to establish a position in Gold and Silver bullion.

www.thewinningzone.net

The Fannie May and Freddie Mac debacle

2010-03-29T15:05:00.001-07:00

No man is happy without a delusion of some kind. Delusions are as necessary to our happiness as realities.
Christian Nevell Bovee, 1820-1904, American Author, Lawyer

Republicans on the panel want to dismantle Fannie and Freddie within five years, arguing that the government-backed firms cost taxpayers too much with little to show for it -- hundreds of billions in taxpayer losses for a housing finance system rife with moral hazard issues and a crowding out of private companies from the market. Full Story

When Geithner states that they will do everything to make sure these institutions have the capital they need to function, he is basically stating that they are willing to use tax payer’s money to fund two worthless entities, instead of dismantling them. Trying to keep these agencies floating is akin to pouring money into a bottomless pit.

One of the old lines was that these two agencies helped make housing affordable by providing an avenue for individuals who would not normally qualify for a mortgage. The following quote was extracted their site.

Fannie Mae works to increase the supply of affordable for-sale and for-rent housing across America by creating customized financing solutions with our housing partners. These financing solutions help ensure stable, livable neighborhoods. Through multiple community development investment funds, Fannie Mae works to tear down barriers, lower costs and increase opportunities for homeownership and affordable rental housing for all Americans. Full Story

They have been a failure in every sense of the word; in trying to provide affordable housing they indirectly provided banks with the incentive to sell as many mortgages as possible. As soon as the deal was closed the banks could get these mortgages of their books by dumping them onto these two agencies.

Some background info on these two companies

Now let’s examine if they really helped the public

If we weigh the cost to the taxpayer and the so called savings these two mortgage giants provided, one finds that they failed miserably and have really provided no benefit at all. How can this be? The so called benefits from offering lower mortgage rates has been offset by the cost of all the money taxpayers have poured into these two companies. . They had access to money at a lower rate than private companies and could in turn pass these savings to the consumer; lenders provided them with lower rates because their survival was guaranteed by the Federal government. Based on the amount of money they have already asked for and the future amounts they will need to continue functioning, it is estimated that by the end of the year they will become net losers. In other words, they would have moved from providing some value to providing none at all.

If we compare this potential $100 billion in savings they have provided against the $300 billion plus in financial support the Government has pledged to both these agencies, the conclusion is clear; these two companies have provided no benefit at all. In fact, one has to wonder why they continue to exist as they have now become a monumental liability. It is true they have not used up all the money the government has pledged to them (at least not yet) but at the rate, they are burning this money, it’s only a matter of time before they go through those funds before they start begging for more. Thus would it not be better to dismantle these two monstrosities and cut and end the haemorrhaging.

If one were to state that these guys had a large role to play in the financial crisis that hit this nation, one would not be too far off the mark. After all they did provide banks with an incentive by virtually buying any crap that the banks were willing to throw at them.

The government is hell bent on pouring good money into completely useless projects, but when it comes to helping individuals; they find ways to make painful cuts. Point and case, not approving a $250 checks for senior citizens. To make matters worse they create money out of thin air to pay for these black hole projects, thereby further devaluing our currency and indirectly imposing a silent tax on the population. The only way investors can protect themselves under such conditions are to make sure that one puts a portion of one’s money into hard assets; the simplest way to do this would be to purchase some Gold, Silver or Palladium bullion.

The people of the world having once been deceived, suspect deceit in truth itself.
Hitopadesa, 600?-1100? AD, Sanskrit Fable From Panchatantra

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The Competitive currency devaluation era gains momentum

2010-03-25T15:00:00.001-07:00

You can fool all the people all the time if the advertising budget is big enough.
Ed Rollins

Portugal has just had its credit rating cut and both Greece and Spain are now begging the EU to set up a bailout fund to help the beggar nations (PIIGS) who are unwilling to curb their spending habits. In our previous article, we made the following comments.

Indirectly they have been begging for assistance from the very start. This aid package will trigger other beggar members of the PIIGS group to eventually join the handout club. Next in line is probably Spain. If the top members of the EU wanted to send a strong message to the weak members they should have stuck hard and fast to their previous claims that no aid would be forthcoming. Euro Woes, Part II: Have We Entered the Devalue or Die Era?

Now that Portugal has its credit rating lowered, Spain has started making noise about setting up a bailout fund. Not too long ago they stated that all was well, and that they should not be compared with Greece. Ironical is it not that they have now joined up with Greece in demanding a fund be set up to help nations that are having problems financing their debt.

French and Germany appear to have reached some agreement (the key word being appear) as indicated by the story below

The safety net - not yet agreed by the whole eurozone - would total about 22bn euros (£20bn). It would apply only if market lending to Greece dried up. Eurozone countries would grant co-ordinated bilateral loans, and there would be "substantial" IMF loans. The "majority" funding would be European. EU leaders are poised to discuss the plan at a two-day summit in Brussels. Full Story

We could go on about the potential ramifications of the above idea but there is something that is more interesting that we would like to speak off.

Germany and France knew that they would eventually come to the table and approve some sort of package even though they made a lot of noise about doing nothing in the beginning. No one has bothered to ask why. The reason is by playing this cat and mouse game, they have allowed the Euro to lose a significant portion of its value; in effect, they indirectly devalued their currency without actually officially having to do so. Each time they put out a story to calm the markets they leave room to change their position. The story above and the just released story below are perfect examples of such ploys in action. While France and Germany have agreed to set up a fund, they leave extra wiggle room by stating that this matter would still need approval from the whole euro zone.

The market's advance fizzled after European Central Bank's president Jean-Claude Trichet told French television that Europe must take responsibility for its financial problems. That raised concerns about when a rescue for Greece might come. Officials from European nations were meeting late Thursday to discuss their economic problems.

Investors have been concerned for months that problems in Greece and other debt-strapped countries in Europe would spread and spoil a global economic rebound.

"Any time we see comments about it it seems to spook the market," said Adam Gould, senior portfolio manager at Direxion Funds in New York, referring to Greece's financial problems. He said traders still expect Greece will get a bailout but the questions about how unnerved investors. "It's more the uncertainty." Full story=

A single nation can easily devalue its currency but in the Euro zone a single nation does not have this power. The large members can, however, pretend like they are not willing to help the smaller weaker members and thereby create a mini confidence crisis; the net result the Euro loses some of its value.

The US is deflating its currency by printing money at a stupendous rate, China is devaluing its currency by pegging it to the weak Dollar and countries like Vietnam simply openly devalue their currency in order to maintain a competitive edge. Expect this trend to pick up steam; it’s now going to be a race to the bottom of the pit, and it will only end with a full blow currency crisis. Investors should make sure they have a position in precious metals. Don’t think of it as investment, think of it as insurance just in case the house burns down. Use strong pull backs to add to your positions.

He who doesn't have legs cannot teach one how to walk
unknown

If you are interested in a trading service with a high win ratio (currency futures, commodity plays, etc) than consider giving our service a try. Our 5 average win ratio is in excess of 75% and our 12 month win ratio has jumped to 84%. The Winning Zone.

A small but Strategic victory for Google

2010-03-23T18:22:00.001-07:00

After issuing many threats that it would pull out of China Google was left with little wiggle room, and it looked like they had backed themselves into a tight corner. It was a given that the Chinese government would not cave into their demands. Doing so would have made them look weak not only among their people but also to the rest of the world. Thus Google’s latest move to redirect traffic to Google hung Kong is a very smart move for in one shot it exposed just how much content the Chinese government insists on censoring. Instead of getting an error message or simply producing no search results, users are greeted with a message that states Page is unavailable. This move now shifts the burden of censoring content from Google shoulders to that of the Chinese Government via its “great firewall” and at the same time is a small victory for Google as it has the Chinese government on defence now as indicated by the following statement.

Google has "violated its written promise" and is "totally wrong" by stopping censoring its Chinese language searching

results and blaming China for alleged hacker attacks, a government official said early Tuesday morning.Full Story

Google’s current strategy to redirect its China site to its Hong Kong site Google has virtually given up nothing and achieved all the following benefits in one shot.

Made the Chinese Government look foolish and directly exposed the level of their censorship. This together with Google’s “evil meter” (this metre shows what the Chinese government is blocking in real time) has now enabled the whole world to see the extent of china’s censorship.

It has not lost any of its Chinese Traffic, and it managed to catch the Chinese government off guard with its sudden announcements as evidenced the host of silly responses from government officials.

It has stopped censoring search results, transferring this burden to the Chinese government instead.

And finally it has the option to redirect traffic back to China. Cn if a new agreement with the Chinese government can be reached.

In conclusion, Google’s victory while small is somewhat significant. It has been able to stick to its guns without giving up its stake in the world’s fastest growing internet market.

www.dailyreckoning.net

www.thewinningzone.net

Palladium; the Stealth bull Market.

2010-03-22T13:32:00.001-07:00

Production, on the other hand continues to fall mainly owing to lower production by the two major players in this sector, Russian and South Africa. Production fell to 7.31 million ounces in 2008, a fall of almost 15%. Investment demand for Palladium climbed to 400,000 ounces in 2008, a rise of over 50%. ETF’s were the major players purchasing 370,000 ounces and demand via coins and small bars jumped to 30,000 ounces.

As of Feb 2010, the Palladium ETF PALL has 430,000 ounces of Palladium. This is a huge amount of Palladium; to put this in perspective consider the fact that it took the London ETF over 2 years to accumulate the same amount.

As stated below the demand for precious metals (Palladium, Platinum, Gold and Silver) is increasing at a voracious pace and the story below quite clearly illustrates this point.

Investments in precious metals such as gold, silver, platinum and palladium are in feverish pitch across China. No wonder, then, that the Chinese consumption of precious metals is dramatically going up, and up. China consumed 395.6 tonnes of gold in 2008 for jewelry and investment, reports the World Gold Council, or around 14% of global demand, up from 327.8 tonnes in 2007. In 2009, gold jewelry and investment demand in China is expected to reach 432 tonnes, compared with 422 tonnes from India.

On the derivative exchanges, China's Gold Futures trading volume hit 1.49 trillion Yuan in 2008. This is likely to double in 2009. Ditto platinum and palladium. Physical Chinese demand for platinum jewelry was at around 0.76 million ounces last year, accounting for 68% of the global total of 1.12 million ounces. The latest forecast sees that hitting 1.5 million oz in 2009, which even if it is a gross rather than net (of recycling) remains impressive. The Chinese jewelry demand for palladium increased from 15.5 tonnes to 20.2 tonnes, making palladium another hot commodity in China. Full Story

China usurped India as the World’s largest consumer of Gold this year and will probably end up being the largest consumer of all the remaining 3 precious metals in the years to come.

Now let’s take a look at the Technical picture.

Palladium took a massive beating in 2008 and surrendered all its prior gains in a matter of months. However, this proved to be a buying opportunity of a lifetime, and we continuously pounded the table from late to 2008 to early 2009 and even went so far as to inform our subscribers’ that it had fallen into the screaming buy category. The term screaming buy is rarely used, and we only use it when we feel that we have spotted an investment that is extremely undervalued with incredible upside potential. From low to high Palladium surged well over 120% in a period of roughly 15 months; an incredible rate of return to say the least.

Palladium is now at a very important junction; it has just broken through the long term down trend line and is attempting to break out of a 10 year channel formation. Palladium will now need to trade past the 465-475 ranges for 12 days in a row. If it can achieve this, it will set up the base for a rally that could take it all the way to the 800-890 ranges. If we had to put a time frame on this, we would say that once it trades past the 456-475 ranges for the suggested period of time, it could hit these targets within 12-18 months.

The real bull market, however, will only begin when palladium trades past 1100. Taking an even long term view; a close above 1100 on a monthly basis and the ability to trade past this level for 15 consecutive days in a row, should lead to a test of the 1500-1700 ranges.

Conclusion

On our proprietary timing indicators Palladium has an open Buy signal on the daily, weekly and monthly time lines, so the long term outlook for this metal is rather bright. It is the only precious metal that went on to put in a new 52 week high in the face of a stronger dollar. More importantly it is also the only precious metal that did not issue a weekly sell signal at all during the dollar’s surge upwards; it momentarily issued a daily sell which has long since been neutralized.

The long term and the very long term outlook for Palladium is extremely bright. In the short to intermediate terms Palladium is due for some profit taking as it has mounted a tremendous rally in the past 15 months. Prudent investors would be wise to use any strong pull backs to add to or open up new positions in this metal. Investors will one day look back and view the current price as a bargain, do not make the mistake of looking out the window and wishing you had bought it. Now that you have the chance make sure you at least have a small position in it and use pullbacks to add to this position. While purchasing PALL might be one way to take a stake in Palladium, our preferred method of choice is Palladium bullion. Our bullion dealer of choice is Larry Labrode, our subscribers have dealt with him for years and his service and knowledge are simply outstanding to say the least. You can make contact with him at www.silvertrading.net

One who has imagination without learning has wings without feet.
Joseph Joubert, 1754-1824, French Moralist

The Devalue or Die era is picking up steam

2010-03-16T11:06:00.001-07:00

It is a wise person that adapts themselves to all contingencies; it's the fool who always struggles like a swimmer against the current.
Source Unknown

The US and criticizes China over is reluctance to let the Yuan appreciate and indirectly blame some of its woes (increasing budget deficits) on China keeping the Yuan pegged to the dollar. Let’s stop for a moment. Is this not the pot calling the kettle black syndrome? The US is debasing its currency and a mind boggling rate, printing new dollars to the tune of 1 plus trillion a year, and yet we have the nerve to call on China to revalue its Yuan.

If the US wanted to put an end to this nonsense it would simply follow a course that would ensure the dollar becomes stronger, this in turn would drive the value of the Yuan up as it is pegged to the dollar. Clearly, the US does not favour stronger dollar policy for though it mouths this, its actions speak otherwise. The bandits in congress want to print all the money in the world, and then they want other nations to let their currencies appreciate. China is too smart to fall for this game and the US is no longer the big bad wolf that can huff and puff and blow all the straw houses down. Now many of the houses are built with brick and steel and so no matter how hard this big bad wolf blows the Chinese house is not going to fall down.

One must remember that the one that controls the strings to the purse is the one that is in command and at this point China with its huge holding of US treasuries appears to be in charge. Thus the US can make a lot of noise out there but China will not listen because they know that all they have to do is threaten to unload their treasury holdings (they do not even have to really sell them) and it could have a severe impact on our markets. The story below clearly indicates that China is not going to be bullied into allowing its currency to appreciate against the dollar.

A Commerce Ministry spokesman repeated Chinese complaints that Washington was acting unreasonably by expecting other countries to raise their value of their currencies in order to boost U.S. exports. The United States and other trading partners complain Beijing keeps the yuan undervalued and are pressing for it to rise. "Politicizing the exchange rate issue is not helpful to coordination among all parties in the course of fighting the global financial crisis," spokesman Yao Jian said at a news briefing.

A group of 130 U.S. lawmakers wrote to President Barack Obama on Monday demanding that he take action, adding to pressure ahead of an April report in which the U.S. Treasury has the option of declaring Beijing a currency manipulator. That would set the stage for a complaint to the World Trade Organization and possible sanctions.

On Sunday, Premier Wen Jiabao denied the yuan was undervalued and said foreign pressure was unhelpful. He said Beijing plans to reform its exchange rate system but the currency will be kept at a "stable and balanced" level.

Yao rejected suggestions the yuan's exchange rate was to blame for the Chinese trade surplus or the U.S. trade deficit with China. Critics say the yuan is undervalued by up to 40 percent, giving China's exporters an unfair price advantage. Full Story=

The Chinese have adopted the Mantra, if you cannot beat them, you might as well join them, and they achieved this by pegging the Yuan to the Dollar.

Every nation is using every means at their disposal to devalue their currencies; look at the pound, not to too long ago it took 2 dollars to buy one British pound, today it takes only a 1.50.

Vietnam decided to devalue its currency twice in a matter of 3 months and 3 times in the last two years, clearly illustrating that they are not going to be left holding the back.

Vietnam's central bank declared Wednesday that it would devalue its currency-the dong by 5.44 per cent, effective Thursday. The central bank will also increase its key interest rate from 7 per cent to 8 per cent, effective on December 1. Speaking on the topic, economist Tai Hui said, "We have seen a significant amount of devaluation pressure on the dong in recent weeks. The rate hike is there to support the dong."

Trading band of the dong will also be curtailed from current 5 per cent to 3 per cent, effective Thursday. As per an estimate, Vietnam's reserves have dropped from $22 billion at the start of 2009 to about $16.5 billion. On November 12, Vietnam lifted an 18-month old ban on gold imports to check panic buying that had dragged the dong down.

This is the third time in the last two-year period that Vietnam has devalued its currency. Previous attempts to check a long term slide in the currency had shown little effect. Full Story

The race to the bottom that we spoke of several years ago is now picking up steam as each nation competitively devalues its currency to gain a trading edge over its neighbor. In such an environment, one has to move into hard assets as it offers the best means to protect against this outright theft. One of the simplest ways is to this is to move into precious metals, there are more complex and highly rewarding strategies that involve taking positions in lumber, oil, etc., but for those that want a simple and effective way to protect themselves from currency debasement (inflation and possibly hyperinflation) is to take a position in bullion (Gold, Silver, Platinum, etc.). The time to take action is now for once the storm starts it might be too late; an ounce of prevention is worth a pound of cure.

The weather-cock on the church spire, though made of iron, would soon be broken by the storm-wind if it did not understand the noble art of turning to every wind.
Heinrich Heine,1797-1856, German Poet, Journalist

The Winning Zone

Euro Woes Part II

2010-03-13T16:51:00.001-08:00

The EU is poised to reach agreement on a potential multi-billion euro bail-out for Greece after weeks of crisis, senior officials have told the BBC.

They say the rescue package would be available if Greece asked for assistance to finance its huge deficit. Eurozone ministers are expected to finalise a proposal setting out a range of options as early as Monday.

Greece has not requested help so far. The EU says no deal has been agreed but technical work is continuing. Greece is struggling to deal with a 300bn euro ($419bn; £259bn) debt. It needs to raise about 20bn euros ($27bn) on bond markets to refinance debt maturing in April and May. Its deficit is more than four times higher than eurozone rules allow. Austerity measures aimed at reducing it have provoked public anger. The crisis has also undermined the euro. Full Story

This statement is a joke “They say the rescue package would be available if Greece asked for assistance to finance its huge deficit”. Off course they are ask for assistance, indirectly they have been begging for assistance from the very start. This aid package will trigger other beggar members of the PIIGS group to eventually join the handout club. Next in line is probably Spain. If the top members of the EU wanted to send a strong message to the weak members they should have stuck hard and fast to their previous claims that no aid would be forthcoming.

Greece should have been given a simple ultimatum, meet the requirements or leave. This marks the beginning of a new trend. As members cannot deflate their currency, they will run massive deficits as a way to deal with the inability to devalue their currency as means to make their exports competitive in the global markets. we have entered the devalue or die era, where each nation will eventually seek to devalue its currency as a means to gain a competitive edge over its peers. The US and China by pegging its currency to the Dollar are actively using this technique as a means to gain a competitive edge. Many Asian nations are also jumping aboard so expect this trend to pick up. If the EU is unable to find a long term solution to its problem, the EURO could end up becoming a relic of the past.

The Winning Zone

Americans are still living in the land of dreams

2010-03-10T21:27:00.001-08:00

Most Americans still unprepared for retirement - survey

The percentage of American workers with virtually no retirement savings grew for the third straight year, according to a survey released Tuesday. The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans. Workers who said they had less than $1,000 jumped to 27%, from 20% in 2009. Confidence in ability to save enough for a comfortable retirement hovered at 16% of respondents, the second lowest point in the 20-year history of the survey.

"Americans' attitudes toward retirement have clearly tracked the economy the last couple of years, and that seems to be the case in 2010," said Jack VanDerhei, EBRI's research director and co-author of the survey, in a statement. The percentage of workers who said they have saved for retirement fell to 69%, from 75% in 2009.

While VanDerhei attributed the decline in current savings rates to job losses, mortgage problems and the suspension of corporate 401(k) matches in 2009, he said the economy isn't entirely to blame. "In previous years, there were a whole lot of people who had nothing to begin with," said VanDerhei. The gap between what Americans have saved and what they'd need for retirement is forcing workers to prolong their working years. Full Story=

Clearly, the story above indicates that the majority lived well beyond their means. It's not that they did not make enough to save, it’s just that they spent more than they made because they thought tomorrow would always be sunny. In parts of Europe the savings rate is as high as 20% of one’s income and in most parts of Asia they save as much as 35% of their income.

For years, we have been warning and advising our subscribers to live 1-2 standards below their means and for those who could deal with it to push it to 3 standards below their means. In real terms 1-2 standards below means living within your means, as most have never lived within their means. Thus you would only move below your real standard if you moved 2-3 levels lower. However, any move down is a move in the right direction. We also suggested that this money should have been deployed into long term investments such as Gold, silver, Palladium and other related commodities. Strong pull backs should have been used to deploy new funds.

Continue to live 1-2 standards below your means, and deploy the saved money into hard assets. The problem going forward for those who have saved is dealing with the pain they are going to witness in the years to come. Believe it or not the current situation is still decent in comparison to what lies in store for the unprepared in the years to come. Can this path be altered? Off course it can, nothing is engraved in stone, but for that to occur, the government would have to cut its debt down, drastically cut back on new expenditures, reduce services, close its bases all over the world and stop being the police of the world, etc., chances of any administration implementing these severe changes are very slim.

The Winning Zone

Pension funds, taking on more risk just when they should be playing it safe

2010-03-10T21:20:00.001-08:00

Companies are quietly and gradually moving their pension funds out of stocks. They want to reduce their investment risk and are buying more long-term bonds. But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.

"In effect, they're going to Las Vegas," said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. "Double up to catch up." Though they generally say that their strategies are aimed at diversification and are not riskier, public pension funds are trying a wide range of investments: commodity futures, junk bonds, foreign stocks, deeply discounted mortgage-backed securities and margin investing. And some states that previously shunned hedge funds are trying them now.

The Texas teachers' pension fund recently paid Chicago to receive a stream of payments from the money going into the city's parking meters in the coming years. The deal gave Chicago an upfront payment that it could use to help balance its budget. Alas, Chicago did not have enough money to contribute to its own pension fund, which has been stung by real estate deals that fizzled when the city lost out in the bidding for the 2016 Olympics. Full Story=

The geniuses finally decide that it’s time to take on extra risk just when they should be exercising caution. If they wanted to take on extra risk, would not it have been best to do so during boom times. Instead when times were good they played it safe and now when times a bad they decide to take on more risk. Pay close attention to the mass mindset at work. It always leads you to make the wrong decision precisely when you should be playing it safe you are triggered into take on extra risk and vice versa. Pension funds are going to take a severe beating as they are betting in the wrong direction and playing the wrong trend. Net result is that many pensioners are going to find out that their so called guaranteed pensions are not as safe as they once presumed it to be. In the years to come expect payments to drop and some funds will completely bankrupt themselves as a result of this stupid new ploy at trying to achieve higher returns. One cannot squeeze water out of a rock no matter how hard one tries.

Our average win ratio for the past 5 years in futures is over 70%

Robbing the Old to pay the Rich

2010-03-05T22:00:00.001-08:00

People who treat other people as less than human must not be surprised when the bread they have cast on the waters comes floating back to them, poisoned.
James Baldwin,1924-1987, American Author

The senate boldly and blatantly refused to give 57 million elderly individuals $250 more. The story below highlights this point.

A measure to give some 57 million elderly people, veterans and persons with disabilities a $250 check was rejected by the Senate on Wednesday, a setback for the powerful seniors' lobby.

Social Security payments for the elderly and disabled will stay flat this year for the first time since 1975 because they are tied to consumer prices, which decreased amid the worst economic recession in 70 years.

That follows a year in which payments rose by 5.8 percent, largely due to a spike in gasoline prices."It is wrong to turn our backs on seniors in this moment of economic difficulty," said Independent Senator Bernie Sanders, who sponsored the amendment.

But Republican Senator Judd Gregg pointed out that the bill would defeat the purpose of indexing Social Security payments to inflation. "The law says it shouldn't be given," Gregg said. At least 10 Democrats agreed with Gregg and joined 40 Republicans to defeat the proposal. Full Story

Under normal circumstances, I would have just ignored this story and moved along, but when I read the statement that is boldfaced above I felt I had to say something. These morons and retards in Washington would not know what inflation was if it hit them right in the face and then drove over them.

The real and only definition of inflation is an increase the supply of money. It is not defined as in an increase in price as so many economists love to falsely proclaim. The money supply has gone ballistic, our national debt has doubled in the last 10 years, and we continue to create more money and a mind boggling rate. Therefore, inflation has not gone down it has only increased; based on this simple fact these individuals should not be getting $250, they should be getting between 600-1000. The masses are being blindly robbed via this silent Killer tax, otherwise known as inflation.

If Senator Judd and everyone who voted against this bill feel that we have no inflation, why are they are not lowering their salaries to compensate for this so called low inflationary environment? It will be a cold day in hell when anyone in congress voluntarily takes a pay cut. Senator Bayh was right, every incumbent needs to be kicked out and replaced with new blood; while not the perfect solution, it will send a message to these guys that it’s time to do something. When you bite the hand that feeds you, you are doomed to lick the boot that kicks you.

To add insult to injury this money is lent out to bankers all of which played a huge part in making a bad situation even worse. The Feds inflate the money supply and then freely give this money out to individuals who really don’t need but those who really need it have a hard time even getting $250 bucks.

We can see the effects of inflation everywhere;

Higher gas prices, higher heating prices, higher rents, cost of basic staples increasing, etc., etc

Gold one of the best measures of inflation is up roughly 400% from its lows. If we were in a low inflationary environment the price of Gold would not have risen so much. Oil is up over 800% from its lows and not too long ago was up almost 1400% from its lows. The average person’s salary has in no way kept pace with this torrid rise in the price of commodities.

We spend money defending other nations and trying to promote peace and justice in the world. Why can’t we spend some of this money on individuals that really need it? Where is the justice there?

What will congress have to say when Gold eventually trades past the 2000 mark and then hits the $3000 mark? They are now projecting that our national debt will hit 20 trillion in the next 10 years; at the rate we are spending, we would hit this mark well before the decade is over.

While we could provide reams of data illustrating how inflation has robbed and sent millions to the poor house, this time would be better spent on dealing on some of the basic measures one can implement to protect oneself.

The best hedge against an inflationary environment is to be in hard assets. That means anything that cannot be mass produced or just created; basically almost anything to do with the commodity's sector. Some of the easiest ways to hedge oneself are to buy Gold and Silver bullion. The best way to protect yourself from the evil effects of inflation is to live 1-2 standards below your means and use all this extra money to put it investments that will hold their value over time such as Gold or silver. Over 100 years ago one gold Coin purchased a very good handmade suite, 100 years later one Gold coin can still purchase the best handmade suite and if you go to Asia it will purchase even more. Can one say the same for 1 dollar?

Other means of hedging oneself involve purchasing shares in the companies that produce these essential commodities or dealing in ETF’s that track these commodities, some examples are, USO, FCG, GDX, GLD, SLV, CUT, KOL, MWE, MOO, etc.

In a follow up article we up article we will spend more time dealing with the specific measures one can utilize to hedge oneself against inflation.

Nothing in the world is more haughty than a man of moderate capacity when once raised to power.
Baron Wessenberg

Free Stock market tools

Precious Metals and the Dollar

2010-03-04T20:56:00.001-08:00

Keep on sowing your seed, for you never know which will grow -- perhaps it all will.
Albert Einstein,1879-1955, German-born American Physicist

The dollar has rallied very strongly easily taking out the lower end of the targets we projected several months ago. It almost closed above 81 on a monthly basis. Had it done this, it would have made the outlook even more bullish. The dollar has gone on to put in series of new 9 month highs and thus by contrast one would have expected Gold and the other precious metals to do the opposite. However, this has not taken place.

If we look at the chart of Gold, we see that while Gold went to put in a 9 month new high, Gold did not even put in a 4 month low. This is a very strong development and suggests that there is a very good chance that Gold could rally to the 1170-1200 range before pulling back. On the longer time frames, Gold flashed several strong intra market negative divergence signals; the most important two are mentioned below. .

The most impressive metal, however, is Palladium. The massive rally in the dollar has had almost no impact on the price of Palladium; it is still trading very close to its highs. If the precious metal's sector continues to hold up like this, one can expect it to literally explode upwards once the dollar rally fizzles out. From late 2008 to early 2009, when no one was paying attention to Palladium, we were strongly pounding the table on it. Palladium turned out to be the top performing precious metal last year and is still holding up a lot better than the rest.

Silver has taken the most severe beating so far and this breakdown could be (key word is could) providing an early warning signal.

Silver’s inability to trade past its 2008 highs strongly suggests that all is not well in the precious metal's sector, especially the gold sector.

On the longer time frames Gold has flashed many strong negative divergence signals the strongest of which were

1) The dollar putting in a higher low instead of a lower low when Gold went on to put in a series of new highs

2) The inability of the GDX, XAU, and HUI to trade to new highs when gold bullion surged to new highs

The potential for Gold (precious metals) to remain in a prolonged consolidative phase is still rather significant. The longer Gold trades sideways the more explosive the subsequent rally is going to be. However, there is the possibility that Gold could still mount a rather sharp correction if and when the Dollar surges past the 82 price point level.

A possible early warning of a longer correction/consolidation in the precious metal's sector will be given if the dollar can close above 81 on a monthly basis, or it can trade above 84 for 3 days in a row.

So far we have laid out the technical perspective for short to intermediate term rally in the dollar; our initial targets have already been fulfilled. It’s time to provide some fundamental reasons as to why the dollar is in trouble long term and why the precious metals sector and the commodities sector stands to benefit from these dollar woes.

1) The US has a massive current account deficit and it only seems to be getting bigger. The economist’s plays with numbers by stating that one month is less than the other and so forth, but the trend is up. It now comes close to 6% of our total economic activity.

2) The US needs to attract a whopping 1.8 billion dollars a day to compensate for the current account gap. This trend is simply unsustainable.

3) While Government officials talk big of a strong dollar policy, they actually favour a weak dollar. This serves two purposes, it helps increase exports and it allows the government to pay its debt with lower valued dollars. As long as the Government continues to borrow at these mind boggling rates, it is going to unofficially favour a weak dollar.

4) By inflating the money supply the government is imposing a nefarious silent killer tax on the masses. The only way to hedge against this outright theft is to hedge yourself by getting into hard assets (precious metals, lumber, oil, etc).

5) Our national debt is 12.4 trillion an increasing. However, this does not take into consideration all our unfunded liabilities such as social security and Medicare. If these are combined the Debt levels soar to well unimaginable levels.

6) 44 states are facing budget shortfalls. California is leading the way as it is expected to spend 50% more than it will generate this year. Now that is a really scary thought. Since 2007 US states have collectively spent 300 billion more than they have generated. These deficits means higher taxes and so far 33 states raised taxes but collections have plummeted to their worst levels in 46 years; you cannot squeeze water out of a rock. No jobs, means no revenues but states are selling new bonds at a record rate to raise funds; a recipe for a long term disaster.

7) Eventually the Feds are going to have to raise rates to continue attracting the huge amounts of money it needs to function. Overseas investors are going to start demanding higher rates. Higher rates will kill this fragile economy. Precious metals thrive in a high interest rate environment. From a long term perspective the bull market has only just begun.

Conclusion

The dollar has exhibited unusual strength; it simply refuses to correct, refusing to trade below 80 for any decent period of time. A close above 81 on a monthly basis will be the strongest signal that it could potentially trade to and past 90 before topping out. In the short term time frames, the Dollar is overbought and normally one would expect a pullback from current prices to roughly the 78 ranges. Gold, on the other hand is also picking up strength; this is clearly illustrated by its refusal to match the dollar by putting in a new 9 month low, instead it has gone on to put in a higher low.

On the longer time frames though Gold has still flashed several very strong negative divergence signals that need to be neutralized; two of these negative divergences were mentioned above. Thus the potential for Gold to correct/consolidate for several more months remains high, until off course the above signals are neutralized or a new buy signal is issued on the weekly time lines.

Right now Gold is holding up remarkably well In the face of a stronger dollar. If this pattern continues, then the next break out is going to be very explosive in nature; the dollar is not expected to mount a long term rally. Our long term outlook for the dollar is that it’s going to put in a series of new all time lows in the next 12-24 months.

From a long term perspective, all strong pull backs should be viewed as buying opportunities.

There are two ways of exerting one's strength; one is pushing down, the other is pulling up.
Booker T. Washington, 1856-1915, American Black Leader and Educator

www.tacticalinvestor.com

An Illustration of the Mass Mindset in Action

2010-03-03T14:56:00.001-08:00

It's not the bulls and bears you need to avoid -- it's the bum steers.
~ Chuck Hillis ~

1= Stock is going no where; its pure junk, let me look at something else.
2= Lucky break, its going to definitely crash.
3= What, it's still going up, earnings are not so good, people are definitely getting carried away, its going to pull back and crash.
4= Ahh, see I knew it was going to crash, thank God I did not buy. (Mistake the mass mindset misses the main point here. Yes it pulled back, but look where the pull back ended--miles away from its first break out. A losers mind can only see the picture for what it is not, by replacing it with a picture from his or her imagination. Since they live in a losing sphere they focus on the negative aspects but not on the positive aspects.
5= What happened here; this stock was supposed to crash, how the hell did it get here? Perhaps I should have bought, I could have made a lot of money; this looks like a sure thing. (So only halfway through stage 5 will the mass mindset decide its safe to venture out. Now this person finally musters the courage to buy.) Wow it actually went up, great, I'm making money.
6= This stock is going to go to the moon; let me tell all my friends about it; it looks like a sure thing.
7= What happened? it pulled back. Ahh, I am not going to fall for this like I fell for it last time (look at number 4). Time to buy more, buy on the dip, that’s it.
8= I knew it, its going up and I made more money, wish I had bought more. Next time I will invest more on the pull back. (Notice the loser’s mindset does not bother to take time to notice that the stock did not put in a new high. All that matters is that it went up.)
9= It's going down again, time to really load up; I don’t want to lose this opportunity. Earnings are great so it must be a good time to buy some more.
10= First dose of bad news and the stock takes a big hit; okay, this is just temporary; it's going to go back up. (Blind faith huge mistake, one of the main ingredients of a losing mindset). Let me buy more and average down.
11= Maybe I should sell now; things don’t look good, but you know what, let me just hold for a bit longer. Maybe things will change. Yeah, things have to change; look how fast this stock went up and it has pulled back so much. The worst is over; it has to go up.
12= This stock is dead, I have to get out; it's not going anywhere (this is when the stocks start to bottom. The secret programmed desire to lose syndrome has completed its mission. Trader is in state of extreme distress and shell-shocked). I am never going to look at this stock again; I knew it was garbage, why did I ever buy it in the first place?
13) Slow base formations and the possible start of new up trend and the worst part is that this trader is out.

Conclusion

Take a close look at the above picture; the masses will react in the same way when it comes to this commodities bull market. They will dump when they should be buying and then they will try to buy when they should be selling. Nothing in this world comes easy for if it did, it was not worth it in the first place. So make sure you’re positioned well to take advantage of the coming spectacular bull market. So far we have just barely begun the first run.

This is not to be confused with the concept of buying and holding. Every now and then it's prudent to take some profits off the table and invest this money when there (gold, silver, oil, etc) is a pull back. However one should always maintain a core position as long as the long-term trend is up. That’s exactly what we did; we took profits in November-December 2003 on ½ our positions and are waiting for an opportune moment to add to them again. When we wrote an article suggesting that individuals take some profits on their gold and silver positions, we were attacked on the basis that we were trying to promote a sell off. We specifically stated that one should not sell their core positions, but only take some money off the table; but everyone seemed to miss the last part of our statement. If you look closely most of 2004 Gold stocks did not really do anything and in most cases actually lost money. However, this type of behaviour is quite normal. First you have a massive move up, then sideways to down, and then a final quick pull back to flush out all the weak hands. Now just when everyone should be studying the charts to look for new entry points, the weak hands will start to unload their core positions and this will indeed be a fatal mistake.

It is what we think we know already that often prevents us from learning.
~ Claude Bernard 1813-1878, French Physiologist ~

SEC’s curbs on short selling a waste of time

2010-02-26T09:12:00.001-08:00

The rule puts in a so-called circuit breaker for stock prices, restricting short-selling of a stock that has dropped 10 percent or more for the rest of a trading session and the next one. The new curbs take effect in about 60 days but stock exchanges have six months after that to implement them. Full story=

The above rule will only serve to delay the inevitable and could actually worsen the situation. For example let’s say a former high flyer disappoints the street with its earnings report. Normally the stock is bid up in anticipation of blow out earnings, but now the earnings come in lower than expected, so the stock drops 20% in one day, but short sellers are now cut out of the game. Like a dam the pressure will build up and a day later when the short sellers can jump in, it might cause the stock to drop more than 10% and so forth. This effect could go for a longer period of time then if normal market forces were allowed to play out. When one is forbidden from doing something the desire to the opposite increases twice fold; the more one is prevented from doing something the more one wants to do it. Thus this rule is just a silly piece of legislation that will not really achieve much in the long run. In the short run it might provide the illusion that it has the effect of stabilizing the markets.

www.tacticalinvestor.com

How to become a better Investor

2010-02-26T07:42:00.001-08:00

by Sol Palha

The main focus of any good trader should be to spend time trying to identify new and upcoming trends; this is not an easy task. It’s a difficult task because one has to go against the herd; one has to on many occasions even go against one’s own way of thinking because one is embracing a concept that one’s own nature will naturally try to rebel against. The reason for this struggle is due to the fact that we are wired to seek the company of others; we feel safety in numbers. This may be true when it comes to real life dangers but when it comes to investing it’s a fatal error.

In fact, if one just focused on the main issues we have discussed over the years, the end result would have been quite profitable. For example, we focused quite a bit on Palladium from the end of 2008 to early 2009. In the bullion portfolio, we had the label screaming buy up several times when Palladium was trading in our suggested entry ranges. Subscribers know that we do not often use the phrase screaming buy, so when we do it usually means that we think we have a unique situation at hand that won’t last long.

Towards the end of 2008 we also spoke of the potential for bonds to mount a very strong correction and warned individuals against opening new long positions. Bonds mounted one of their strongest corrections ever and by June of 2009, they were down over 20%; a massive move for the bond market.

From roughly the end of 2008 towards the beginning of 2009 we spoke of the fact that the market was going to mount a strong rally as the plunge was overdone, and that it was trading in the extreme zones. Again patience and discipline were needed, for the markets did not turn around immediately. We issued our final targets of 10,500 plus for the Dow in February; at that time, everyone thought the world was going to end.

Towards the end of the 2009 we started to focus heavily on the markets pulling back. This is the reason we started to actively close out many of our positions and it’s also the reason we tightened many of our stops. So far, we have had a brief taste of what lies in store, but the main move has not begun yet. Most will wait until it’s too late to react, very few have the patience to take profits and wait for a better opportunity.

We also spent a lot of time talking about the Dollar mounting a strong rally and gold pulling back. Again individual could have jumped out of other currencies into the dollar, closed out some of their long positions in gold and so on. We could list many such stories; however, that’s not our goal here.

Why are we bringing this up? Well, it’s not to talk about our timing skills. Our goal here is to illustrate that most individuals are lacking when it comes to patience and discipline; most individuals want to chase every single opportunity or at least what they deem to be an opportunity. To most opportunity means following the herd. They feel that if they pay for something they should get maximum usage out of it regardless of whether they win or loss.

To illustrate this point, try this simple exercise. Choose a day and try to do nothing for 1-2 hours and by nothing we mean absolutely nothing. Very few will be able to achieve this. In fact, most will find that it’s really hard to do absolutely nothing. (Doing nothing does not mean watching TV, reading book, playing games, etc., it means doing nothing). However, many can run around the whole day trying to do something but achieving nothing. So in reality the truth comes down to this. As long as one can fool oneself that one is doing something (even if one is achieving nothing in the process) its fine, but to actually sit down and do nothing, now that is a terrible and undoable deed. Now apply the above concept to investing and see how true it is. Many feel that they should try to do something all the time, even if they achieve nothing or even loss money in the process, its fine because they are doing something; sitting down, doing nothing and waiting for an opportunity to present itself, now that is simply unimaginable.

Patience and discipline are the most important traits any trader can hope to master. Would it not be much easier to focus on your real needs and not your fantasies? Why not sit down and look for 1-3 great opportunities and wait for the trades to come to you instead of chasing them

We are almost certain that if a subscription service stated that after they produced 6 or more plays that produced wins in excess of 30%, they would issue no more plays, that the majority would throw a fit and cancel their subscriptions. This clearly illustrates the principle of wanting to get something even though nothing might be achieved by forcing a move. The wise man is happy if he can find 1-2 good opportunities a year. There is no need to chase them, just wait for them to come to you. Sometimes you have to wait a few weeks for them and sometimes months and this is what we focus on. We do not like chasing for it usually leads to trouble. All one really needs is one great opportunity a year and one will achieve spectacular results over the long term.

Is it not funny that most find it difficult to sit down and do nothing for 1-2 hours, but as long as they can pretend they are doing something while achieving nothing they are happy? There is a huge difference between the two, in one you are dealing with reality, in the other reality is eluding you; you are just living in an illusory phase.

Thus going forward, try to find out what you really want, who you really are, what are your needs, what are your goals really are? When you know what you really want, achieving it becomes a lot easier than simply aiming for some arbitrary pie in the sky dream.

Tactical Investor

SEC’s curbs on short selling a waste of time

2010-02-26T07:39:00.001-08:00

The above rule will only serve to delay the inevitable and could actually worsen the situation. For example let’s say a former high flyer disappoints the street with its earnings report. Normally the stock is bid up in anticipation of blow out earnings, but now the earnings come in lower than expected, so the stock drops 20% in one day, but short sellers are now cut out of the game. Like a dam the pressure will build up and a day later when the short sellers can jump in, it might cause the stock to drop more than 10% and so forth. This effect could go for a longer period of time then if normally market forces were allowed to play out. When one is forbidden from doing something the desire to the opposite increases twice fold; the more one is prevented from doing something the more one wants to do it. Thus this rule is just a silly piece of legislation that will not really achieve much in the long run. In the short run it might provide the illusion that it has the effect of stabilizing the markets.

Tactical Investor

Dollar and Euro Review

2010-02-18T11:34:00.001-08:00

Feb 18, 2010

A quick glance at the Euro reveals that it’s putting in broad based top formation; it has been unable to trade past 150 for any decent period of time. It is also putting in a bearish rising wedge formation. A break below 148 for 3-5 days in a row should take it down to the 144 ranges. The next step would be to trade below 144 for 3 days in a row or close below it on a weekly basis. If it achieves this, the next target becomes 141, and it could potentially spike all the way down to the 138 ranges before stabilising. Global Pulse Nov 2009.

The dollar has broken out very strongly from this falling wedge formation. A strong break out is usually a very good sign that the trend is going to last a few months. Conversely, in the picture below we see that the Euro has broken down very rapidly after putting in a rising wedge formation. Global Pulse Dec 22, 2009

The Euro exhibited further weakness by its inability to rally to 146 after testing 142. After trading as high as 145 it rapidly broke down and dropped all the way down to 140 before stabilising. This violent action indicates further weakness in the Euro and is also a signal that it could now potentially trade below 130.

The dollar, on the other hand just achieved a critical mile stone by closing above 78.50 on a weekly basis. This is the first strong signal that the dollar could potentially mount such a strong rally that it could/might catch both the bulls and the bears off guard. The dollar has generated a buy on the weekly, daily and hourly time frames; if by some miracle it generates a monthly buy signal (this based on 9 years worth of data and each bar represents one month worth of data), it could change the upside targets dramatically. However, we do not want to get ahead of ourselves as new monthly signals are usually a rare development. The euro, on the other hand has generated a sell signal on the weekly, daily and hourly charts.

The final development would be a monthly close above 81 for the dollar index; if this comes to pass it should lead to a test of the old highs with the possibility of spiking as high as 91 before a top in is place..

A monthly close below 140 for the euro would be negative development and signal that the Euro could now potentially trade all the way down to 125.

The Euro is facing a host of problems and rather than repeating them all we have attached an extract from the Jan 5th market update titled “Euro woes” that was sent out to our subscribers that covers this topic in detail.

In terms of the dollar we can make the following assertions

Technical picture

Multiple indicators have generated a buy signal and up until very recently the dollar was extremely oversold. We also have the dollar carry over trade, if this starts to unwind in the same way the Yen did, it could lead to huge spike upwards as was the case with the Yen. In the Yen carryover trade, the New Zealand dollar was the beneficiary as individuals borrowed in Yen and jumped into New Zealand dollars. Right now most of the competing currencies are the beneficiaries of the US carryover trade, but the main one is the Euro. Thus if the unwinding process starts to gather steam the Euro, Franc, Australian Dollar, Canadian dollar, etc., could experience severe pull backs.

Mass psychology perspective

The dollar is still universally despised and so when an investment is despised to such an extent, mass psychology indicates that a strong reversal is usually close at hand. From hating the dollar the majority will slowly start to embrace the dollar and this will be what drives it even higher. Unlike contrarian investing mass psychology does not advocate taking a counter position to the masses the moment they become bullish on an investment. When they change and embrace an investment, there are 3 stages, the Luke warm embrace, the full embrace and then the euphoric embrace. We will soon approach the Luke warm stage so potentially there is still quite sometime before we hit the euphoric stage. It’s only at the euphoric stage that we will start to look for an exit.

Now normally the above two developments are sufficient for us to jump into an investment. However, this time the fundamentals are also against the Euro and instead of repeating them all over again. We are just going to post an excerpt from the Jan 5 market update below.

Euro Woes

The European Union established the growth and stability pact which imposed the following two conditions on all members

1) Deficit spending cannot exceed 3% of the GDP

2) Total Government debt should not exceed 60% of GDP

The table below clearly illustrates that many of the members are blatantly ignoring these rules.

Country	Budget Deficit as % of GDP	Debt as % of GDP
Greece	-12.7%	113%
Portugal	-9.6%	53%
Italy	-5.0%	115%
Ireland	-12.2%	65%

Spain’s budget deficit could reach 90% of GDP by 2011, currently it is roughly at 60% and rising, so we have yet another contender to join the list of troubled nations. S&P has already downgraded Spain’s sovereign AAA credit rating. In fact, at this point Germany is the only country in the EU that deserves the AAA rating, the rest all face varying degrees of trouble.

Germany the head honcho is in no mood to lend money or help its fellow members as they have their own problems. Now a strong currency makes it hard for struggling countries to make their exports attractive by devaluing their currency. Under the one currency umbrella, they no longer have this option. For example, Italy had a history of systematically devaluing the lira when faced with tough economic conditions; they no longer have this option now that they are part of the Euro. Thus the next step is to simply openly flaunt the rules. If no punishment is forthcoming for breaking these rules, then there is nothing to stop other members from doing the same.

Thus there is a very good chance that something could crack here and that the Euro might not end up being as safe as so many make it to be. While the US has problems, the problems facing the EU are starting to look even more daunting. Look at the table above all 4 nations are openly flaunting the rules laid by the growth and stability pact, actually when we add Spain to the list it the count rises to 5.

This situation is going to create rifts in the EU as weaker nations now have to adhere to a fixed standard, and as a result they are going to continue to blatantly ignore these rules. This in turn is going to seriously start to aggravate the larger stronger players such as Germany and France, which could possibly lead to the one of the following outcomes.

Some members could be kicked out

Members could start to openly revolt against these rules and make demands to ease them or ask for lengthy time extensions before coming into compliance with these rules.

Either of the developments could have a very strong negative impact on the Euro. So when we look out the window it appears what we stated many times in the past might become a reality. “Every currency is rotten” and the rats are jumping from one sinking ship to another. We are also very close to entering competitive devaluation stage (better known as the devalue or die era) where every nation in order to gain an exporting edge starts to devalue its currency.

Thus individuals should not smugly gloat over the dollar’s demise, for they might be missing the real trouble that is taking place in their own backyard. This problem facing the EU is another reason why the dollar could potentially mount a stronger rally than most expect and why it might even potentially surpass all our posted targets. When the ship is sinking panic takes over and people jump before they look. Thus if anything out there makes investors feel skittish about the Euro, it could potentially trigger a mad rush for the exits. Are we saying this is definitely going to occur? No we are not but given the large deficits 5 members in the EU are running; it’s safe to say that all is not well and that the situation could take a turn for the worse very rapidly. Greece could turn out to be another Iceland, if they do not get their act together very very fast.

The US dollar for all its current woes is at least backed by the full faith of the US government; the Euro in contrast is backed by nothing. No one nation backs it, it's backed by a group of nations whose economic conditions could/might force them to eventually abandon the Euro (strong examples right now are Greece and Italy, Spain and Portugal are not far behind). Going forward the currency markets are going to become increasingly complex and entangled.

The only real competition to the dollar is the Euro and the following two articles make a fragile situation appear even more fragile.

The only real competitor right now to the dollar is the Euro and the Euro could be in trouble. Moody’s recently made the following comments on two key members.

The Portuguese and Greek economies may face a “slow death” as they dedicate a higher proportion of wealth to paying off debt and investors demand a premium to hold their bonds, Moody’s Investors Service said. While the two countries can still avoid such a scenario, their window of opportunity ’’will not be open indefinitely,’’ Moody’s said in a report today from London. Portugal, with a negative outlook on its Aa2 rating, has more time “to reverse this trend” while Greece “has significantly less time.” Moody’s cut Greece’s rating to A2 from A1 on Dec. 22. Full Story

In our opinion they should be adding Spain, Italy and Ireland to the equation and we are sure several more members are going to be running into trouble soon.

Saving the euro from a Greek tragedy

EU finance ministers are pressing their indebted and riot-prone Balkan member to embrace a massive austerity plan and plug its debilitating deficit. But with markets skeptical and the appetite for more bailouts at a low, there are deepening concerns that a Greek meltdown could deal a severe blow to the very European idea of a common currency, and set off a domino effect through Italy, Spain, and Portugal. The EU's economy commissioner Joaquin Almunia warned of a domino effect, saying Greece's debt crisis is already hurting other indebted countries that use the euro as nervous bond markets hike borrowing costs on fears that Greece could default or demand an unprecedented bailout from reluctant EU states.

"The fate of one is the fate of all," he said. "This situation in Greece is having effects in other countries." Eurozone nations are trying desperately to patch up the cracks, promising Monday to do more to run their economies in a uniform way and accepting possible warnings when they go astray -- a major shift for sovereign nations that are not keen to see more EU oversight.

But Greece is the real litmus test.

If Greece can't deliver the cuts it is promising and risks not being able to repay its debt, it will likely seek a bailout from EU members to rescue it from a crisis of its own making, where failure to curb a bloated public sector and endemic corruption have dragged down economic growth. Finland's Finance Minister Jyrki Katainen bluntly said that would be asking too much. The Greeks couldn't expect "any outside help" and "it's purely up to them how well they will treat this crisis," he told reporters. Full story

Conclusion

When we take all these factors into consideration, there is a real possibility that something could go potentially wrong in the Euro zone. Greece is a ticking time bomb and not only is the government plagued with corruption, but unless they implement very severe and painful cuts, the problem is only going to get worse. A default here could trigger defaults in other weak members such as Ireland, Italy, Spain and Portugal.

The current pattern is projecting that the dollar will mount at least a 3 month rally if not longer that could lead to a new 52 week and possibly 2 year high. A strong rally in the dollar could have far reaching effects. It will certainly lead to a pretty severe correction in the commodities markets and most competing currencies will in turn experience strong pull backs, with the potential for some to completely break down.

If you have no position in the dollar wait for a pullback before opening positions in UUP and short positions in the EURO via EUO.

Disclaimer: we have positions in EUO and UUP.

Becoming a better Investor

2010-02-17T19:59:00.001-08:00

When you recognize and understand your weaknesses that is when you can truly begin to focus on your strengths.

Sol Palha

Feb 17, 2010

One of thee main functions of the market update is to identify new trends and not only is this a time consuming task, but it’s also a difficult task. It’s a difficult task because one has to go against the herd; one has to on many occasions even go against one’s own way of thinking because one is embracing a concept that one’s own nature will naturally try to rebel against. The reason for this struggle is due to the fact that we are wired to seek the company of others; we feel safety in numbers. This may be true when it comes to real life dangers but when it comes to investing it’s a fatal error.

Once the trend has been identified, we offer suggestions on what to do and in most cases put out trades that help traders capitalize on our observations. In fact, if one just focused on the main issues we have discussed over the years, the end result would have been quite profitable. For example, we focused quite a bit on Palladium from the end of 2008 to early 2009. In the bullion portfolio, we had the label screaming buy up several times when Palladium was trading in our suggested entry ranges. Subscribers know that we do not often use the phrase screaming buy, so when we do it usually means that we think we have a unique situation at hand that won’t last long.

Towards the end of the 2009 we started to focus heavily on the markets pulling back. This is the reason we started to actively close out many of our positions and its also the reason we tightened many of our stops. So far, we have had a brief taste of what lies in store, but the main move has not begun yet. Most will wait until it’s too late to react, very few have the patience to take profits and wait for a better opportunity.

Patience and discipline are the most important traits any trader can hope to master. Would it not be much easier to focus on your real needs and not your fantasies? Why not sit down and look for 1-3 great opportunities (luckily we have managed to do this every year) and wait for the trades to come to you instead of chasing them

We are almost positive that if we stated that after finding 6 plays that produced 30% or more in gains, we would not issue any more updates for the year, most of the subscribers would throw a fit and want to cancel their subscriptions. This clearly illustrates the principle of wanting to get something even though nothing might be achieved by forcing a move. The wise man is happy if he can find 1-2 good opportunities a year. There is no need to chase them, just wait for them to come to you. Sometimes you have to wait a few weeks for them and sometimes months and this is what we focus on. We do not like chasing for it usually leads to trouble. All one really needs is one great opportunity a year and one will achieve spectacular results over the long term.

Thus going forward, try to find out what you really want, who you really are, what are your needs, what are your goals and so on? Take the time also to read all the rules we have posted in the pass coded section of our website and most of all focus on trying to become a better trader by having more patience and more discipline.

www.tacticalinvestor.com

Random Musings

2010-02-17T19:58:00.003-08:00

Feb 13, 2010

India

We are just going to briefly touch this topic today and if time permits spend more time on it in future updates. The Indian Government announced that the economy expanded roughly at 7.2% for this fiscal year; like china this is an astounding growth rate and on the surface would justify the bullishness surrounding its stock market. However, as always there is more to the story than meets the eye.

First of all, the Indian government always has a problem in managing its budget; even in good times they manage to run a budget deficit. Another problem is that you have budget deficits on two fronts one from the central government and one from the provincial governments and their total budget deficit could run well over 12% of GDP. Such a high budget deficit puts them in the league with the PIIGS (Portugal, Ireland, Italy, Greece and Spain).

India like most nations decided to stimulate their economy, but they decided to embark on monetary and fiscal stimulation at the same time. They lowered repo rates to 4.75%, but inflation is running at roughly 11% so what you have is a negative rate of interest here.

It held its lending rate, or the repo rate , unchanged at 4.75 percent and its reverse repo rate , at which it absorbs surplus cash from banks, unchanged at 3.25 percent.

Despite increasing inflationary pressures, the central bank has been under pressure from senior government officials to hold off from raising its policy rates, which they argue would undermine the economic recovery. Full story

When India's deficits get too high it relies on foreign financing unlike China and so while the growth rate is high, investors might not mind financing these deficits, but a slowdown could cause them to flee and produce a similar crisis as the one that is currently plaguing Greece.

India is also suffering from a drought and food prices are rising at roughly 15-18% a year. The best thing to do now would be for the governments to cut back seriously on public spending but the congress party in command has a history of spending heavily on public projects, and so we cannot expect any change here.

A look at some of the top stocks indicates that they are pulling back or building up patterns that suggest all is not well. Our advice if you are heavily invested in the Indian and or Chinese markets is to lighten up or completely get out until the situation mellows out. The current trend is very dangerous and inflationary forces are already manifesting themselves strongly India; a slowdown in economic growth could lead to rapid breakdown in the stock markets. The BSE SENSEX Index has already put in a rolling top formation (this is what took place in the Dow); a break below 15,500 for 5-7 days in a row, could lead to a test of the 12k-13k ranges. There are many good long term plays in India, some of which are IBN, INFY, RDY, etc., but right now they are all still trading at lofty levels and so a strong pull back will provide for much better entry points. It's time to be cautious; as they say it's better to be safe than sorry.

"There's no security on this earth, only opportunity." - Douglas Macarthur, 1880-1964, American Army General in WW II

www.tacticalinvestor.com

Oil

2010-02-17T19:58:00.001-08:00

Feb 13, 2010

"Security is the chief enemy of mortals." - William Shakespeare, 1564-1616, British Poet, Playwright, Actor

Oil recently mounted a strong short term rally and traded as high as 77 but pulled back just as fast. This inability to hold above 74 suggests that it is still in a consolidative/corrective phase; unless it trades above 74 on a weekly basis the odds favour a pull back to the 63-66 ranges.

The intermediate pattern is still bullish and suggests that by summer oil could be trading significantly higher. The first sign of much higher prices to come will be for oil to trade past 78 for 3 days in a row or close above 84 on a weekly basis. Thus going into the summer season we could be looking at higher prices and a depressed stock market.

As long as oil remains below 74, the trend will remain negative. Currently, we have weekly and daily sell signals in effect. The daily signal is moving closer to the buy zone and a new buy signal should lead to a rapid upward move in a relatively short period of time; if this occurs we will definitely issue a long trade in our VIP futures service. However, as of yet we have no buy, so do not jump into this market, unless you are opening up long term positions. A weekly buy signal would be a very good early indication that oil is getting ready to trade well past the 93-95 ranges and possibly past 100.00

Finally oil has been trading in a channel formation that ranges from 66 to 84 for almost 8 months; the longer the channel the more explosive the move. The only problem is that channel formations do not give clues as to which direction the move is going to occur. For that we need to use other tools and that's where multi time frame analysis, daily and weekly signals, etc., come into play. Preliminary indications suggest that the next big move is going to occur towards the upside. A daily buy signal would give an early warning of this break out, while weekly buy would indicate that the breakout is gathering steam and that oil is getting ready to challenge the 90 plus ranges.

From a long term perspective any price below 65 is great play to open up new positions in oil related stocks.

Markets; time to dance or Drop

2010-02-17T19:57:00.001-08:00

Feb 8, 2010

Patience is power; with time and patience the mulberry leaf becomes a silk gown.
Chinese Proverbs, Sayings of Chinese Origin

The following content has been extracted from the Feb 2, 2010 Market update that was sent out to subscribers.

The number of new highs has moved up slightly but the 20 day moving average of new lows is still leading although the market has mounted a very strong rally over the past 2 days. Another revealing factor is that the 100 day and 1 year moving average of new lows are virtually unchanged from last week’s numbers. This action clearly indicates that all is not well in the markets as the internal structure is weakening.

In one week the Dow was able to take out 10400 and 10200 and the interesting part is that both price points were taken out on volume of over 7 billion share. If the Dow remains below 10,200 today it will have traded below 10,200 for 3 days and will now issue a stronger signal that it is ready to mount a decent to steep correction. The break below 10,200 is significant for it was the bottom of a channel formation that took shape from Nov 2009. A break below a channel formation, especially when the markets are extremely overbought usually produces a strong move in the downward direction. Market update Jan 26, 2010.

The Dow traded as low as 10050 and Dow futures traded as low as 9994 and then bounced back very strongly. The break below 10,200 turned the trend negative but the Dow needs to stay below this level. Trends are determined by key price points and for a trend to remain valid the market must remain below that price point. Thus if the Dow trades past 10,200 for 3 days in a row it will neutralize the previous signal. It will not however, negate the fact that breaking below a channel formation after a strong run up usually produces a strong downward move; it will only delay the action. We have further signs that all is not well in the markets. MMM a stock that rallied strongly with Dow actually closed lower on Monday, and today it closed unchanged; in the past two days, the Dow has tacked on over 200 points. If you look at the banking sector many former higher flyers are also not performing all that well.

The Dow dropped from 10729 to 10000 in a very short period of time; the intensity of this pull back was extreme. The markets had not experienced anything like this since March of last year. Thus this pull back has fooled many players to adopt the old strategy of buying on the dip. We also have a large group of traders that sat out of the market for a very long time, and they probably view this large pull back (large only because it took place so fast) as a buying opportunity. This is more like a trap than a buying opportunity. The safest position is to be on the sidelines until a very strong sell signal or another buy signal is generated. To let out enough steam and move the risk to reward ratio in our favour, the Dow would have to at the minimum shed 1500-1800 points, and so far it barely shed 700 points.

Despite the strong rally, the Dow has mounted in the last two days, the volume has not even hit the 6 billion mark; on Monday volume barely hit the 4.7 billion share mark, and today it came in at 5.47 billion. On the 21st and 22nd of January when the market sold off, volume spiked on both days and surged past the 7 billion mark. If you need one thing and one thing only to remind you of the very dangerous structure of this market then remember this. The Dow put in 22 new highs (this is a huge number) in a period of just a few months and not even once did the volume surge to the 6.8 billion mark let alone the 7 billion mark. Yet when the market sold off, for two consecutive days in a row, the volume surged over 7 billion shares. Remember this for it is a very important development. Long term the market is clearly treading on a very shaky ground.

We would like subscribers to remember just how fast the Dow dropped from 10729 to 10050; this is just the prelude of what lies in store. If the markets should surge to test their old highs or maybe even put in new highs do not let this move up fool you. Pay attention to the volume and to the divergences.

The Dow utilities broke down one month before the markets, and so they appear to have resumed their leadership role. If the Dow should rally to new highs, a failure by the utilities to match them and surge to new highs before the Dow would be another clear signal that the markets are heading into a danger zone. Copper another leading economic indicator is trading well of its highs and the Baltic dry index has put in a double top formation.

If the Dow rallies to test its old highs without pulling back to the 9200-9400 ranges then it will be setting itself up for an extreme correction. This rapid move down was simply not enough to let out all the steam this market has built up and a strong rally now will result in a move similar to one that took place in the bond markets between Dec 2008 and July 2009. Bonds shed over 20% in 6 months, for bonds this is a massive move, so for stocks a comparable move would be in the 40% plus ranges.

Volatility readings have surged to yet another new high indicating that violent moves are going to continue to plague this market. Look how fast this market pulled back and look how fast it reversed. The moves though have still been one sided in nature (mostly to the upside) for the most part, but the next move will be for the majority of the swings to occur on the downside.

Finally, if the current daily sell is neutralized and a buy signal is issued on the daily charts, we will send out an interim update as it could be an early signal that the Dow is going to re test its old highs. Right now we still have a daily sell signal, in effect; the weekly while closer to the sell zone has not generated a sell signal yet.

Conclusion

If you take the very short term view you are going to get frustrated with the concepts of patience and discipline, but understand that one needs to look further out and check to see if everything is clear before jumping in. Big gains are not made by taking the very short term view. For several months in a row we stated that palladium was an incredible buy (several times we went out and called it a screaming buy) and from Oct 2008 to March of 2009 it did virtually nothing. Short term traders were bored by this talk but those that waited and held did very well. The same can be said for the markets; we spoke of the markets putting a bottom, well in advance of them putting in the final bottom. In fact, when we issued our targets for Dow 10,500 in Feb 2009; at that time the market was taking a beating, and we looked like bloody fools for stating that it was going to eventually rally to the 10,500 ranges. We have run into this same situation over and over and from each encounter, we have discovered the same principle always applies. Those who have no patience or discipline end up giving up all their gains and then some. Do not join this crowd for they are always looking for new members.

The daily trend is still down and all long term indicators are clearly stating that the risk to reward ratio is not in our favor when it comes to opening up long positions. Only very short term indicators are giving off some bullish readings and these indicators change direction very fast. We got a small taste of how fast the markets can move downwards when the selling started. The Dow has been trying to trade to the 10700 ranges since Nov 2009, but in just a few days the Dow dropped from 10700 back to its Nov 2009 levels. It took a few days to drive the markets back to the starting point.

Market internals are also suggesting all is not well in the markets going forward as is the volume. Therefore, despite the urge to jump into the markets, we urge long term investors to sit on the sidelines and maybe ease into a few put positions as a hedge.. Once a full fledged/Strong sell signal is generated you can start to purchase puts more aggressively.

A full fledged sell is a sell signal from our smart money indicator. A very strong sell signal would be a sell signal generated on the weekly time frames. Right now we have a daily sell signal, in effect, only.

Looking further down the line (7-12 months ahead) there are going to be many opportunities in the commodity's sector as the world’s central governments are going to continue to destroy their currencies. Furthermore, supplies of many key commodities are declining across the board. The precious metals sector is certainly going to shine strongly over the long term as central bankers are creating new money at a mind numbing rate. Many countries will have to restrict their mining activities because of electricity shortages; this is yet another factor that will come to play when the dust finally settles down. There are so many overwhelming reasons to support a very strong sustained rally in the commodities sector (especially in the Energy and Precious metals sub sectors) that we would have to write a whole article just to cover them; however, when it comes to the general markets there is very little to support a long term rally. In fact one would have to really push ones imagination in an attempt to find evidence that supports a long term rally in the markets.

Thus patience is warranted for many sectors that have rallied since March 09 are rotten to the core and will crumble once reality sets in.

.An ounce of patience is worth a pound of brains.
Dutch Proverbs, Sayings of Dutch Origin

www.tacticalinvestor.com

The Dollar

2010-02-17T19:56:00.003-08:00

Feb 5, 2010

When you get into a tight place and everything goes against you, till it seems as though you could not hold on a minute longer, never give up then, for that is just the place and time that the tide will turn. - Harriet Beecher Stowe (1811-1896) American Novelist, Antislavery Campaigner

This is one topic we spoke of extensively over the past few months and we are going to list excerpts from some past updates with emphasis on the Dec 16th market update.

The dollar is testing a 2 year support zone, and as long as it can stay above this level on a monthly basis the outlook will remain bullish.

The dollar is also putting in a falling wedge formation which is normally bullish. It also continues to issue new positive divergence signals almost on a weekly basis. There is also a very large short position in the dollar, so a strong move up will most likely produce a short squeeze which could lead to a domino effect. We notice that the move towards extremes is hitting almost every asset class. We have yet to witness an extreme event which has not produced a counter move in the opposite direction that is just as strong if not stronger.

To signal that the outlook is changing the Dollar now needs to trade past the 75.80-76.00 ranges for at least 5 days in a row. If the dollar manages to do this it will be in a position to trade to 80. Market update Nov 24, 2009.

We have been stating that the dollar is due to for a turnaround when almost everyone has been calling for its demise. Long term we agree, but in the short to intermediate time frames we feel that the dollar is going to give one last dying gasp. No beast ever gives up and dies without putting up a tough fight and the dollar is a very huge beast

The dollar has broken out of falling wedge (bullish pattern) and the euro has broken down from a rising wedge (bearish pattern). One of the most glaring bullish factors that we feel almost everyone has missed is the action that has taken place in the Gold markets. Gold surged to put in a series of new highs as the dollar broke down.

In the past 24 months, the dollar put in what we consider to be 3 important new lows. We are going to list the lows below in chronological order.

Date
Close
Low of the day
Gold

March 17, 2008
71.30
70.80
Gold traded as high a 1014 on this day

April 22, 2008
71.54
71.05
Gold traded as high as 922

July 15, 2008
72.35
71.55
Gold traded as high as 986

Gold broke past its 1980 highs of roughly 850 several months ago. When Gold traded past its March 17, 2008 high of 1014 should not have the dollar at least tested the low it put on that day. Gold then went on to trade past the 1100 mark and then past the 1200 mark and by now one would have expected the dollar to crack wide open and at the very least trade below 71.30. Strangely the dollar did not even trade below 74.50 and on a monthly basis it never closed below 75.

This is the single most glaring discrepancy we have noticed and yet no one is talking about it. The Gold bugs and even the main stream media now rants and raves about how everyone is jumping into Gold. They even mention central bankers who are supposedly busy purchasing gold. Let’s stop here for a second. Were not central bankers selling Gold when it was trading in the 300-700 ranges? Yes, everyone claims these guys are dumb and stupid, however, we think they are actually very devious buggers. They have generation’s worth of knowledge when it comes to currency manipulation. They are probably buying gold to trick the majority into thinking that Gold is going to roar upward without a correction. After all it does not cost them anything to buy Gold does it? All they have to do is print more money.

Gold traded 21% above its March 17, 2008 high. It traded as high as 1227 before pulling back. Logically that means that the dollar should have traded at least 3-5% lower than its March 17 low. Instead it actually traded 4% higher. The above data clearly indicates that something is wrong and that the dollar instead of taking a beating was actually putting up a very strong fight. Look how fast Gold pulled back when the dollar mounted a small rally. What do you think will occur when and if it trades to and possibly past the 80 mark?

If the above factor is not enough to make you ponder, consider the following factors

Psychologicallyevery Tom, Dick and Harry thinks that the dollar is toast, that investing in commodities (primarily Gold) and competing currencies are the best options available to them. It is now estimated that close to 99% of traders think that the dollar is dead. Remember that extremism always brings about the opposite result no matter how good the investment might look; in this case it would be a dollar rally. Gold used to be viewed as a contrarian investment but if you look about now, its anything but contrarian and its increasingly becoming a main stream idea. Markets are forward looking beasts and we think in the short to intermediate time frames the markets have already priced in the worst when it comes to the dollar.

Conclusion

The dollar is hated universally and the distaste for it now is at historic highs. Mass psychology usually states that when something is hated so much and that the only logical place for the investment to trend is downwards, exactly the opposite occurs, and instead it mounts a very strong rally.

A strong dollar rally will most likely put a damper on the market's ability to rally strongly, produce a pullback in the commodities sector with the possibility of a very strong pull back in the precious metal's sector, bonds will drop (rising interest rates equate to lower bond prices), etc. The fate of the dollar is definitely going to be a key factor in determining what several markets will or won’t do next year.

The dollar could either give a very strong confirmation that it is going to trade to and past 80 by closing above77.50 on a weekly basis or it can do this in two stages. It can trade past 76.43 on a weekly basis and then trade past 77.50 for 3 days in a row. The second path is slightly more bullish and could be warning that the dollar is going to trade past 82.00.

Every asset class has rallied in the face of a lower dollar, thus a strong rally in the dollar could prove detrimental to the entire market. Market update Dec 16, 2009

So how do things look going forward?

First the pattern changed slightly indicating that the dollar had to close above 78.50 on a weekly basis instead of 77.50; it did this with relative ease. It almost traded to 80 before pulling back. A close above 81 on a monthly basis will be a very strong signal for the dollar; it could potentially trade to new high and spike as high as 90; they key word to focus on is potential.. Adding more firepower to the dollar is the current turbulent situation facing the EU zone. The fact that all the big EU players have come out and stated that they are not going to help Greece reveals some important data from a mass psychology perspective.

If you are not going to do something you do not have to keep repeating it. Secondly not everyone needs to come out and say the same thing at the same time. Thirdly, if you can handle the problem then all you have to do is shut up and follow it with actions; actions speak louder than words. So far everything has been done in reverse order. Our conclusion is that Greece is in serious trouble and the politicians there do not want to really implement the necessary painful cuts as it could mean the loss of their jobs. France and Germany already know this, but they are making it look like Greece is on its own. If Greece gets a helping hand, the other beggars will start to line up. The next on the list could be Italy followed by Ireland, Spain and Portugal. If the big players help it will have a negative impact on the Euro, if they don’t help and one of the member’s defaults the outcome could be 10 times as worse.

If this situation continues Germany might just decide to pull out of the EU, and if they pull out the EU is basically dead. At this point, this is a very dramatic move, and we are not stating it’s going to happen, but individuals are getting tired of helping other countries when they are having a tough time back home. The days of handouts are coming to an end. We now have several phases in action.

The devalue or die currency battle.

Take care of your problems or rot away stage (basically survival of the fittest stage)

The protectionism era, where nations start imposing huge tariffs to make local products competitive with imported products; this will be true, especially with Chinese made products.

In terms of the dollar, we have a daily and a weekly buy signal in effect. Thus the current outlook on the dollar still remains rather bullish. On the Euro, we have a weekly sell and a daily sell signal in effect and so the outlook remains bearish. It could potentially trade all the way down to the 125 ranges. If the dollar should issue a monthly buy signal, the outlook for the dollar will turn extremely bullish, and it will be a sign that Gold could potentially correct/consolidate for the next 7-9 months before mounting another strong rally. This in turn will increase the odds that the entire commodity’s sector is going to experience a rather strong pull back. The current action in Copper and the oil markets indicates that all is not well and the other sectors could soon follow their lead.

Do not focus on just one tree but make sure you keep your eyes on the forest too and vice versa.

There is genius in persistence. It conquers all opposers. It gives confidence. It annihilates obstacles. Everybody believes in a determined man. People know that when he undertakes a thing, the battle is half won, for his rule is to accomplish whatever he sets out to do. Orison Swett Marden (1850-1924), American Author, Founder of Success Magazine

www.tacticalinvestor.com

Overseas investments and the Dollar

2010-02-17T19:56:00.001-08:00

Technorati Tags: Overseas Investments and the dollar by Sol Palha of the tactical investor

Jan 26, 2010

“For purposes of action nothing is more useful than narrowness of thought combined with energy of will.”

Henri Frederic Amiel.1821-1881, Swiss Philosopher, Poet, Critic

The theme for the past few years has been to diversify into overseas markets. This theme has been taken too far. Money has flowed into these markets at stunning rates (especially china) and if the dollar should surprise everyone by mounting a strong rally, the biggest markets to get hit will be the developing markets. The theme being pumped now in these markets is that this is where the growth is (long term yes, but in the intermediate time frames these markets are more than ready to mount a strong correction). This mantra is especially true of China, where several sectors are simultaneously experiencing bubble like formations.

China is already facing a real estate bubble in many parts of the country. There are many so called super malls where in some cases more than 50% of the shops are boarded up because of lack of traffic. Too many stores and not enough consumers; the next to get hit will be the residential real estate sector.

Another bubble in the making could be the railway bubble. It has spent billions of dollars on laying high speed tracks throughout the country and will continue to do so at a break neck pace. However, commuters are not embracing these new trains for the cost is incredibly high, thus the investment is not going to pay for itself for a long time to come.

The masses are being driven to Gold and real estate with the belief that prices can and will only go up. We could go on and on but that’s not the point. The point of this story is to pay close attention to the dollar. Pay attention to these two levels for they could provide very early clues as to how high the dollar is going to rally.

A weekly close above 78.50 could be the very first strong signal of a stronger than expected rally. Even the worst investments, never trade in one direction forever; there are always counter rallies. The strength of the rally is determined by two factors

How fast and far it pulled back. In the dollars case the correction was very hard and extreme
How despised this investment is. In the dollar’s case it is almost despised universally.

We now live in a time of extremes; one extreme move leads to another and each move seems to build up in intensity. We are only harping about this topic so much because of the far reaching implications a strong dollar rally could have in the months to come.

The only real competitor right now to the dollar is the Euro and the Euro could be in trouble. Moody’s recently made the following comments on two key members.

In our opinion they should be adding Spain, Italy and Ireland to the equation and we are sure several more members are going to be running into trouble soon.

Saving the euro from a Greek tragedy
EU finance ministers are pressing their indebted and riot-prone Balkan member to embrace a massive austerity plan and plug its debilitating deficit. But with markets skeptical and the appetite for more bailouts at a low, there are deepening concerns that a Greek meltdown could deal a severe blow to the very European idea of a common currency, and set off a domino effect through Italy, Spain, and Portugal. The EU's economy commissioner Joaquin Almunia warned of a domino effect, saying Greece's debt crisis is already hurting other indebted countries that use the euro as nervous bond markets hike borrowing costs on fears that Greece could default or demand an unprecedented bailout from reluctant EU states.

Conclusion

The current rally in the dollar and the fact that it could potentially trade much higher, in no way negates the fact that the dollar is in a long term downtrend. In the future it might not be a simple game of “as the dollar falls all competing currencies must rise”; going forward competing nations are going to have to provide a reason for investors to jump into their currencies. Resource based nations such as Australia and Canada will be in a position to do this but the Euro might find itself in a much harder place going forward. In Asian continent the Yuan also makes for a good long term investment.

In the end, the ultimate currency is still Gold. Sadly most do not even view it as an alternate currency; to most it’s just another metal, albeit a pricier one and therein lies the opportunity. For the longer the masses ignore it the higher it will trade, for a day will come when they will stampede into the precious metal sector.

“I did not wish to take a cabin passage, but rather to go before the mast and on the deck of the world, for there I could best see the moonlight amid the mountains. I do not wish to go below now.”

Henry David Thoreau, 1817-1862, American Essayist, Poet, Naturalist

Gold

2010-02-17T19:55:00.001-08:00

Jan 26, 2010

"If Columbus had turned back, no one would have blamed him. Of course, no one would have remembered him either." ~ Source Unknown

We provided many reasons in the last few articles for the potential for the dollar to rally strongly and for Gold to possibly mount a rather strong correction. We did however, forget to mention the following data in our articles, even though we spoke of this to our subscribers. This is data is very relevant even as when combined with the prior facts mentioned in the previous articles clearly illustrates that all is not well.

The first massive anomaly was the fact that while Gold went on to put in a series of all time new highs, the dollar instead of putting in a series of all time new lows, actually was trading roughly 4% higher from its all time low when Gold hit 1227. The second anomaly is revealed in the following charts.

While Gold went on to put in a series of new all time highs, the XAU, HUI and GDX instead of matching bullion highs failed to trade to new highs. At the very least the Gold bugs Index (HUI) should have put in 1-2 new highs. The fact that all 3 failed to put in a series of new highs is a very powerful intra market negative divergence signal, and such signals generally lead to strong corrections.

The dollar on the other hand, instead of trading below its March 2008 lows actually traded 4% higher, the majority are still against the dollar (though this stance is softening slightly now) and think it's going to continue falling with no counter move in between and if that's not enough we have the above developments.

Conclusion

There are so many facts that clearly validate that Gold should continue to rise and the dollar should sink into the dust. However, the worst news for now has been priced into the dollar and when too many people start to take an extreme view, a turnaround is usually close at hand. Given the fact that the Dollar has mounted an impressive rally in the last few weeks and that there are so many large discrepancies surrounding Gold's surge to new highs, caution is warranted.

The correction in Gold will only gather steam if a weekly sell signal is generated. So far, it has generated a daily sells signal and if a weekly sell signal is not generated then Gold will most likely trade no lower than 990.

Investors should keep the following facts in mind that even though the odds are rather high that the dollar is going to mount a strong rally, the long term picture for the dollar is still rather bleak. We are not long term dollar bulls, and we have not changed our long term views on the precious metal's sector. Over the long term, we still remain very bullish on this sector.

"The mode in which the inevitable comes to pass is through effort." ~ Oliver Wendell Holmes, 1809-1894, American Author, Wit, Poet

The Euro/Dollar Dance

2010-02-17T19:54:00.001-08:00

Jan 22, 2010

Technorati Tags: The Euro and the dollar by Sol Palha. Dollar is set to mount a strong rally,while Euro is going to mount a strong correction

Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand.

Albert Einstein ,1879-1955, German-born American Physicist

In the last two weeks of December we made the following comments

In the short to intermediate time frames, we would like to point to several new factors, which suggest that Gold could potentially pull back more, the dollar could mount a stronger than expected rally which should lead to a rather strong pull back in the Euro and other competing currencies. Certainly, the dollars rapid move from 74.57 to a high of 78.50 has caught a lot of traders with their trousers down. Full Article

And on the 16th of December we made the following comments

In the short to intermediate time frames the dollar is projected to mount a rally; it has already mounted a rather decent rally from its lows. Gold and most competing currencies are expected to pull back. We mentioned this in our recent article “The Gold bull; time for a breather or? ”. Since then Gold has already shed 100 bucks and the Euro has dropped from a high of 151.37 to 145.33 in a few days, a huge move for any currency. The sentiment against the dollar is extremely negative and has hit an extreme note; extreme movements always produce countermoves that are equally extreme if not stronger. Thus the dollar could potentially mount a very strong rally surprising even the most bullish of optimists. Full Article

In fact in December alone we published 3 articles on Gold, the Euro and the dollar a rare anomaly as we normally do not publish more than one article per month on a given topic. Since then the Euro has pulled back tremendously; from low to high it has shed over 7%. This is a huge move when one considers that it has taken place in less than 30 days. The dollar from low to high has tacked on over 6% and Gold has shed roughly 137 dollars.

So where do we stand now?

The dollar is very close to hitting a critical point; it needs to close above 78.50 on a weekly basis. A weekly close above 78.50 will be the first sign that the dollar is getting ready to potentially mount a much stronger rally. We stated in previous articles and repeatedly warned our subscribers that a stronger dollar would eventually affect the equity markets. Initially, the Markets ignored the strength in the dollar and traded higher in tandem with it, but now the tide has turned and the action of the last 3 days, indicates that the markets are long overdue a correction.

The Euro demonstrated further weakness by being unable to re test the 146 ranges; instead after trading as high as 145, it reversed course and traded as low as 140 before stablising.

A monthly close over 81 and a weekly buy signal from our indicators (weekly buy signals are based on 4-6 years worth of data, with each bar representing one week’s worth of data) would be one of the strongest signals, we could get in terms of the dollar mounting a stronger than expected rally.

On the same token a weekly sell signal with a monthly close below 140 for the Euro would be a very strong indication that the Euro could trade down to the 130 ranges and possibly spike as low as 125 before attempting to put in a bottom.

If Gold trades below 1080 for 2-3 days in a row, it should lead to a test of the 980-990 ranges. A weekly close below the 950-970 ranges would be the first sign that Gold could potentially mount a much stronger correction than most are expecting.

Euro Woes

The European Union established the growth and stability pact which imposed the following two conditions on all members

Deficit spending cannot exceed 3% of the GDP
Total Government debt should not exceed 60% of GDP

The table below clearly illustrates that many of the members are blatantly ignoring these rules.

Country
Budget Deficit as % of GDP
Debt as % of GDP

Greece
-12.7%
113%

Portugal
-9.6%
53%

Italy
-5.0%
115%

Ireland
-12.2%
65%

Germany the head honcho is in no mood to lend money or help its fellow members as they have their own problems. Now a strong currency makes it hard for struggling countries to make their exports attractive by devaluing their currency. Under the one currency umbrella, they no longer have this option. For example, Italy had a history of systematically devaluing the lira when faced with tough economic conditions; this option is no longer available. Thus the next step is to simply openly flaunt the rules. If no punishment is forthcoming for breaking these rules, then there is nothing to stop other members from joining the party.

This situation is going to create rifts in the EU as weaker nations now have to adhere to a fixed standard without having any flexibility to adjust monetary policy based on their own needs; the only option then is to openly flaunt these rules. This in turn is going to aggravate the larger stronger players such as Germany and France, which could possibly lead to one of the following outcomes.

Some members could be kicked out (very dramatic move and not likely right now)

Members could start to openly revolt against these rules and make demands to ease them or ask for lengthy time extensions before coming into compliance.

Finally, the richer members might be forced into bailing out their weaker neighbours.

Either of the developments could have a very strong negative impact on the Euro. So when we look out the window it appears what we stated many times in the past might become a reality. “Every currency is rotten” and the rats are jumping from one sinking ship to another. We are also very close to entering competitive devaluation stage or what we have coined as “the devalue or die era”, where every nation in order to gain an exporting edge starts to devalue its currency.

Very important final factor

Conclusion

The potential for the dollar to mount a very strong rally increases with the passage of each, especially in light of the recent negative developments in Greece. A breakdown in Greece could trigger a domino effect by first affecting other weak countries such as Italy, Ireland, Spain and Portugal. A strong rally in the dollar by default is going to lead a strong pull back in the Euro and this could in turn lead to a much stronger than expected pull back in Gold.

However, the bright spot is that a strong pull back in Gold should be viewed as a tremendous buying opportunity if it comes to pass. The long term trend of the dollar is still down and is not likely to change but it could produce a lot of acid for those betting against in the short to intermediate time frames. The long term in the Gold is up and the pattern is projecting much higher prices in the future, though in the short term the volatility is going to give short term traders a headache. The Euro on the other hand is the one where potentially things could fall apart. Several members are in trouble and thus one has to be open to the potential that the Euro could fall apart. The key word to focus on is potential.

Remember, if you ever need a helping hand, you'll find one at the end of your arm ... As you grow older you will discover that you have two hands. One for helping yourself, the other for helping others.

Audrey Hepburn

Dollar Update, Oct 15, 2009

2010-02-17T19:48:00.001-08:00

By nature man hates change; seldom will he quit his old home till it has actually fallen around his ears. Thomas Carlyle, 1795-1881, Scottish Philosopher, Author

The rapid breakdown of the dollar after putting in a series of new highs illustrates what lies in store for it in the years to come. However, in the interim some sort of relief rally is to be expected as the dollar has mounted a very hard correction in a relatively short period of time.

The 2 year chart above reveals that the dollar is very close to hitting a very strong support zone that falls in the 75.00-75.50 ranges. A test of this zone should lead to a bounce that has the potential of taking the dollar to the 80-82 ranges.

Let's take a look at some of the currencies via their corresponding ETF's to see how they are holding up.

The Pound traded to 170 ran into resistance and has since pulled back. It could potentially trade all the way down to the 145-150 ranges before mounting another rally.

The Yen is also fast approaching a zone that offers strong resistance (114.40-114.61). If it tests this zone again and breaks down, it will have put in a triple top formation, which normally always leads to a very strong correction.

FXC has just traded above a zone of strong resistance and a failure to hold above this level will result in a pullback to the 87-87 ranges. Given the intensity of the current rally, there is a strong possibility that this break out will fail and lead to a pullback.

It has experienced a brutal correction in a rather short period of time. It is trading at new 52 week low and is very close to testing its 2 year lows. However, note that it is now very close to testing a very strong zone of support, and as it is extremely oversold, there is a fairly strong chance that it will mount some sort of rally soon.

This dollar bearish ETF is fast approaching a zone of strong resistance (28.50-29.00). UUP has generated several negative divergence signals, and it is now trading in extremely overbought, hence the odds favour a correction.

Several additional factors to consider

Nearly everyone is bearish on the dollar so from a contrarian perspective this is a bullish development as the majority are nearly always wrong.

A lower dollar makes exports cheaper and imports more expensive; this is not what most nations want right now, especially as the U.S. consumer is cutting back and most economies are very fragile.

Finally, from a mass psychology perspective, the following article indicates that we are at some sort of turning point for whenever the press starts to comment on something a trend change is normally in the works.

Over the last three months, banks put 63 percent of their new cash into euros and yen -- not the greenbacks -- a nearly complete reversal of the dollar's onetime dominance for reserves, according to Barclays Capital. The dollar's share of new cash in the central banks was down to 37 percent -- compared with two-thirds a decade ago. Full story

Conclusion

We are not long term dollar bulls, but we feel that dollar is due for a relief rally as it has mounted a very strong correction in a relatively short period of time. We felt the same way from late 2007 to early 2008 and went on record to state that the dollar would mount a very strong rally that would catch the majority with their trousers down.

Additionally after studying the charts of several currencies we find that most are fast approaching strong zones of resistance, which should lead to a correction before the next leg up. As the dollar has been hammered so viciously it would not be wise to open up new bets against it now. The most prudent move would be to wait for a rally before placing new bets against it, and if you are willing to take a bit of a risk you might even consider opening up long positions in the Dollar and or short positions in the Euro.

Our long term view is that the dollar is in trouble, and it could potentially shed an additional 60% of its value in the years to come.

All charts provided courtesy of www.prophetfinance.com and www.stockcharts.com

if we begin with certainties, we shall end in doubts; but if we begin with doubts, and are patient in them, we shall end in certainties. Francis Bacon 1561-1626, British Philosopher, Essayist, Statesman
www.tacticalinvestor.com

The Dollar, Euro and Gold

2010-02-17T19:47:00.001-08:00

Dec 19, 2009

"Whenever a taboo is broken, something good happens, something vitalizing. Taboos after all are only hangovers, the product of diseased minds, you might say, of fearsome people who hadn't the courage to live and who under the guise of morality and religion have imposed these things upon us." ~ Henry Miller, 1891-1980, American Author

What we warned of seems to have come to pass. Since publishing the two articles titled "The Gold Bull; time for a breather or? And "Bonds and Gold", gold has shed almost 127 dollars. This is but a small drop in the bucket in comparison to the gains Gold has made in the past few months. We are not against gold, in fact, we are long term bulls, but we cannot simply ignore the short term developments and blindly hope that Gold will race higher. No market, not matter how strong it is can rally upward indefinitely without pulling back and Gold is no exception to this rule. Thus what we have said so far in our previous articles and what we have to say now might spoil the current party, but that's life; all parties must end in order to make way for new ones down the line.

The dollar has broken out of its falling wedge formation; this is a bullish development and the result is usually much higher prices as is being witnessed in real time right now.

The dollar broke out very strongly from this falling wedge formation and it also managed to trade past its main down trend line. This suggests that this move up has some legs behind it and that the dollar now could potentially trade well past 80. We are waiting for one more confirmation; if this confirmation comes through it will indicate that the dollar could trade well past 80 and possibly as high as 86.

One other factor that could drive the dollar even higher is the dollar carryover trade. We have seen the effects of previous carryover trades and the rapid effects they have on the currency in question as the unwinding process gathers steam. Too many individuals borrowed dollars to go long other currencies and if the dollar continues to rise, this could trigger a domino effect. As one group seeks to close out their positions, it could trigger the stops of another group and set of a chain reaction.

Thus the dollar could mount a very strong rally that could even catch the most optimists of dollar bulls by surprise; the rapid move up from a low of 74.50 to a high of 78.50 in just a few days has certainly taken a lot of individuals by surprise. Always remember no matter how bullish or bearish an investment is, nothing trades down or up forever, in between, there are always intervening counter rallies; some of these rallies are strong and some are weak.

The Euro broke down very strongly from its rising wedge formation. It is also trading below its main up trend line and this clearly validates that the Euro has put in a top and is now in a corrective phase. It could potentially trade all the way down to the 130-133 ranges.

The rising wedge formation in Gold has resulted in a down side break out and gold could potentially trade below 1000 again. This rapid move down should lead to some sort of relief rally between now and January, but ultimately Gold should at least test the 990-1000 ranges. This is where the real battle will begin. If Gold fails to hold above 990 and trades below it on a weekly basis then next level of support falls in the 940-950 ranges and a break below that would take Gold down the very strong support zone of 900.

Conclusion

Gold has moved from the contrarian investment category more to the main stream investment category, at least in the short to intermediate time frames. There is too much excitement both in and out of the Gold camp in terms of Gold. Almost everyone is negative on the dollar. Extreme sentiment always produces a strong move in the least desired direction. This is exactly what took place last time the dollar mounted a strong rally.

The strong rally in the dollar is indicating that at the very least gold will test the 990-1000 ranges before stabilising. If it fails to hold here, it could be an early indication of an even stronger pull back.

Certainly, the rapid move up by the dollar followed by rapid a breakdown in Gold and the Euro in the last few days suggests that speculation was rampant in all 3 markets with traders aggressively purchasing Gold and Euros while shorting the dollar. Speculators, however, are very happy to play the market both ways and can easily short the same market they were so enthusiastically supporting.

The unwinding of positions due to the dollar carryover trade could lead to a much stronger rally than most expect. Remember what happened to the New Zealand dollar a few years ago. Everyone was borrowing Yen to go long the New Zealand dollar. The Kiwi collapsed and the Yen soared. If something like that should come to pass now, it would result in a very strong pull back in the commodities sector.

Finally, one of the most glaring and most significant of developments and we spoke of this to our subscribers early in the game was the fact that the Dollar did not confirm the series of new highs Gold put in recently. What do we mean by this?

Gold went to put in a series of all time new highs, so by the same token the dollar should have traded below its March 2008 lows or at the very least tested them. On the 17th of March 2008, the dollar put in a multi decade low when it traded all the way down to 70.80 and ended the day at 71.30. On that day Gold traded as high as 1014; from 1014 to its recent highs, it gained an additional 21% and so at the very least the dollar should have traded 3-5% lower than its March 17, 2008 low. Instead we find that when Gold traded to 1227, the dollar was trading roughly 4% higher than it was trading on the 17th of March 2008. On a daily basis, the dollar did not even trade below 74.50 and on a monthly basis it was able to hold above 75. This is a very strong positive divergence signal in favour of the dollar.

When we combine this very strong positive divergence with all the factors mentioned above especially the dollar carryover trade, one could argue that the dollar could potentially mount a very strong rally. The rapid move in the past few days has certainly caught many off guard and could be an early signal of what lies in store the dollar, at least for the next 3-6 months.

The dollar has already traded above several key points; the first being 76.42, the second 77.50, and today it tested 78.50 before pulling back. We are waiting for one more development, which should provide an early warning signal of whether or not the dollar is going to significantly past 80.

This would mean competing currencies could experience very strong corrections and if the surprise (surprise for those who were not expecting it) rapid breakdown in the Euro is anything to go by; traders should brace themselves for a potential shock in 2010.

In terms of Gold, traders need to watch how gold holds up when it tests the 990-1000 ranges for this will be a key factor in determining in which direction it trades in the next 3-6 months. If it holds up well in the face of a strong dollar then we can assume a bottom is close at hand, if, on the other hand, it falters, then it could potentially trade a lot lower.

Finally, let's not forget that the Gold ETF is now the 6th largest holder of Physical Gold, so if the sell off gathers steam, this ETF could exacerbate the situation and accelerate the decline if it is forced to sell Gold to deal with redemptions.

The key factor to remember though is that the Dollar's strength should not be a long term development and that the pullback in Gold should be a short term development. Traders should thus view strong pull backs as buying opportunities and the stronger the pull back the greater the buying opportunity. However, as we had warned in early December when Gold was trading close to its highs, taking some money of the table would have been the prudent thing to do. No matter how good an investment is, it is always wise to take some money of the table when one's investments have appreciated significantly.

"The crisis of yesterday is the joke of tomorrow." ~ H.G. Wells, 1866-1946, British-born American Author
www.tacticalinvestor.com

Bond and Gold, 16 Dec 2009

2010-02-17T19:46:00.003-08:00

"By nature man hates change; seldom will he quit his old home till it has actually fallen around his ears." ~ Thomas Carlyle, 1795-1881, Scottish Philosopher, Author

The Fed has been keeping interest rates very low hoping that both business and consumers will start to spend money they don't have as they used to in the past. In reality, consumers continue to borrow less. Consumer borrowing has dropped for 9 months in a row. The above chart of the 30 year bond indicates that long term yields have been slowly rising. The bond market determines long term rates and not the Feds. Rising rates tend to favour a stronger dollar as higher interest rates make a currency more attractive. And a rising dollar will lead to drop in the value of Gold and many other commodities out there. The dollar is on the verge of crossing a very important threshold, and if it manages to do this then all competing currencies, commodities in general are going to experience large downward moves. Over the long run, a rising rate environment is bullish for Gold; we are, however talking about the short to intermediate term outlook. The dollar has already traded past 75.80 for 5 days in a row so the first confirmation is in place for a possible move to the 80-82 ranges.

The strength in the dollar is not going to be along term development. It will resume its long term down trend and those that use this strength to open positions in bullion and commodities related stocks will do well. As the dollar loses its value, these investments will over inflate and more than compensate for the drop in the value of the dollar. The dollar has lost roughly 40% of its value to date and in the same time Gold has risen roughly 400% from its low and Silver roughly 500%.

Additional factors to consider

The current action in the Gold markets has a lot to do with speculation (traders actually speculating via paper instruments such as derivatives and futures and not by purchasing actual gold bullion); once again, reminiscent of the top oil set in July of 2008. A lot of the current action also has to do with many big gold producers such as ABX finally deciding that its time to close their hedge books. Why now, why not earlier when Gold was trading at say 400 or 500 or for even 800 an ounce. The same question can be poised to central bankers. Why are they buying now when they were almost giving gold for free a few years ago? They are not as stupid as most Gold bugs make them out to be. Remember they have decades of experience when it comes to fleecing individuals and manipulating the currency. Perhaps we should view this action from a contrarian perspective and sell when they buy and buy when they sell.

John Paulson, the guy who made a fortune by betting against the housing industry has decided late in the game that its time to take a huge stake in Gold. His firm has a 12% stake in AU (Ashanti mining) which amounts to over 40 million shares. They also own over 30 million shares in KGC. Paulson also owns over 31 million shares in GLD making him the single largest share holder. He is so bullish he plans on opening up a Gold fund and deploying 250 million of his own money. History illustrates that individuals that strike it big once rarely are able to land a big score again. These chaps fail to understand that luck had a big role to play in their win.

Rising prices, dropping demand, excessive bullishness, and a whole bunch of speculators flocking into the market are usually the perfect recipe for a top.

Conclusion

In the short to intermediate time frames the dollar is projected to mount a rally; it has already mounted a rather decent rally from its lows. Gold and most competing currencies are expected to pull back. We mentioned this in our recent article "The Gold bull; time for a breather or?." Since then Gold has already shed 100 bucks and the Euro has dropped from a high of 151.37 to 145.33 in a few days, a huge move for any currency. The sentiment against the dollar is extremely negative and has hit an extreme note; extreme movements always produce countermoves that are equally extreme if not stronger. Thus the dollar could potentially mount a very strong rally surprising even the most bullish of optimists.

We will examine the dollar- Gold relationship more closely in a follow up article scheduled to be published this week. Gold put in several new all time highs and thus the dollar should have at least put in one if not several new all time lows; this did not occur and it has to be viewed as strong negative development for Gold, at least in the short to intermediate time frames (3-6 months).

Short term to intermediate term outlook

Impulsive traders who jumped in at bought Gold in the 1100-1200 ranges could take quite a wallop in the short term, if the dollar mounts a strong rally. If, for some reason the Chinese stop providing a floor for Gold in the 900-1000 ranges, then Gold could drift even lower. While the long term up trend is still in force for Gold, painful corrections can occur on the shorter term time frames. All this should be viewed as good news for if it comes to pass it will provide the astute investor with yet another lovely buying opportunity. If Gold breaks below the 1080-1100 ranges for several days in a row (3-5), it should lead to a test of the 980-1000 ranges. Ultimately, the correction in the Gold market will be based on how strongly the dollar rallies.

Almost all the sovereign funds took profits on the money they had invested in the financial sector and presumably these profits are still being held in dollar. Holding onto cash is indirectly going long the dollar. Perhaps these chaps are cashing out now, waiting for the dollar to rally and for Gold to pull back.

Long term outlook

Even though the dollar could potentially mount a strong rally in the short to intermediate time frames, its long term outlook has not changed. It's projected to put in a series of all time new lows and could lose up to 60% of its current value before some sort of bottom takes hold or a new currency is issued.

In the 70's the money supply was increased by roughly 12%-14% and to combat inflation the Fed's raised interest rates all the way up to 20% ranges. Helicopter Ben has increased the money supply by a stunning 120%. How high will they have to raise rates eventually to rein inflation? We suspect that rates could one day be trading well past the 20% ranges and might even surge past the 25% ranges. The only reason we are not seeing strong signs of inflation is because the banks are holding all the money that the Fed has lent them. Eventually, this money will find its way to the streets and that's when things will start to heat up. How will this economy deal with such high rates? Forget about rates in the 20% ranges, a move to 10% will have a huge impact and those that did not take the time to prepare could be in for one massive shock. We still think that what we have seen up to now is only a prelude of what lies ahead in the future. We stated before that the next 2-4 years are going to bring about unprecedented levels of change. Gold thrives in such an environment, so the long term outlook remains very bullish for the precious metals sector.

"Learn from the first and be better for the next" ~ Uyen Mai

TacticalInvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

The information contained herein is deemed reliable but no guarantee is made about its completeness or accuracy. The reader accepts this information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Investors are urged to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

www.tacticalinvestor.com

The Nov Jobs report, Dec 11, 2009

2010-02-17T19:46:00.001-08:00

A reporter interviewing A.J. Muste, who during the Vietnam War stood in front of the White House night after night with a candle, one rainy night asked,Mr. Muste, do you really think you are going to change the policies of this country by standing out here alone at night with a candle? Muste replied, Oh, I don't do it to change the country, I do it so the country won't change me. - Andrea Ayvazian

The Government's report appears to be suspect. Jim Rogers openly states that all government statistics are blatant lies. Our belief is that the numbers are manipulated but the degree and depth of the manipulation is increasingly and becoming more open.

ADP conducts are much broader based and more in-depth survey and this survey is based on hard facts. They reported private pay roll losses of 169,000 for November. The monster Job employment index which measures on line job demand also dropped. These two reports completely dispute the sudden drop in unemployment from 10.2 to 10% and also make one question the government’s claims that only 11,000 jobs were shed in Nov. To make matters worse, the government revised the Oct numbers to 111,000 from 190,000 and September’s numbers were revised to 139,000 from 219,000. Why did it take them almost 3 months to get the facts straight and then how could they be off by such a wide margin? Something is not quite right. Now economists are using these readjusted numbers to paint a rosier picture.

If one examines the number of long term unemployed individuals one finds that their numbers are growing. This number grew by 293,000 pushing the total to over 6 million. Anyone looking for a job for over 27 weeks or more falls under this category. According to the New York Times, the unofficial employment rate is 17.5%

In all, more than one out of every six workers — 17.5 percent — were unemployed or underemployed in October. The previous recorded high was 17.1 percent, in December 1982. This includes the officially unemployed, who have looked for work in the last four weeks. It also includes discouraged workers, who have looked in the past year, as well as millions of part-time workers who want to be working full time. Full Story

A jobless recovery is not one that is sustainable, especially if the stimulus for that recovery was based on borrowed dollars. It would have been okay if the government was running a massive surplus like China and then used its surplus to stimulate a recovery. Making matters worse is that this money was used to bail out the same institutions that caused this problem in the 1st place. In China this money has been deployed to build new roads, bridges, etc.; essentially, the money is being used to build up China’s infrastructure, and at the same time it provides thousands of jobs. China wins on both fronts while we sink deeper into the hole.

ADP and the monster Job employment index are based on hard numbers. These numbers are not fudged. ADP is the largest Pay roll company in the US and Monster is the largest on-line employment agency. Markets are rallying higher on these dubious numbers. Traders have to be very cautious going forward for as we have repeatedly stated all is not well here. There are so many warning signs in the air and just because the markets are not pulling back immediately does not mean the long term outlook is positive. To put things into perspective, it has been estimated that, even if the economy added between 125,000 to 150,000 jobs a month, unemployment rate would most likely remain above 10% until about 2015. Note we were very bullish on the markets when everyone was bearish and issued targets of 10,500 on the Dow back in Feb 09, almost a month before the markets bottomed, when all the experts were predicting that the Dow was going to crash and burn. Now that everyone is jumping on the bandwagon, we feel that at the very least individuals should start taking money of the table and wait for a pullback before opening up new positions.

Once the news starts to get better the focus will be on whether the Feds are going to raise interest rates or not. Thus believe it or not a string of good news could actually be the event that throws a monkey wrench into this rally. The markets have climbed a wall or worry so far, and thus they are not too far from the “plunging down a cliff of Joy" syndrome.

Unlike the precious metal's sector which has actually been driven up, for the most part, by higher demand, the Dow has put in 11 new highs on mediocre to terrible volume. If all was well, the volume should have been surging to new highs too. Instead the opposite has occurred; during the first phase of the move (6469 to roughly 9000), the markets closed in the black on several occasions on volume of over 9 billion shares. The Dow has put in 11 new highs and 13 new intra day highs and not once has the volume surged past the 7 billion mark. We think this is a very telling sign indeed. While a very strong pull back (if it were to occur) in precious metals and the commodities sector in general can be viewed as a very good long term buying opportunity, the same case could not be made for the Dow and for stocks that are not part of the commodities sector.

If one looks at the 30 year bond yield one will notice that it has been rising, even thought the Fed has kept short term rates at close to zero percent. The Feds do not have the power to determine long term rates; long term rates are determined by the markets. A rising rate environment generally favours commodities, and in the long run at the rate this government is printing money, hyperinflation could indeed become a reality. An inflationary environment is very bullish for commodities, so one can only imagine the huge upward price swings this sector will experience in a hyperinflationary environment.

None of this info is being provided to generate fear. Fear is a useless emotion that prevents one from analysing the info in a logical manner; an informed investor is usually a prepared investor.

In seeking wisdom thou art wise; in imagining that thou hast attained it, thou art a fool. - Rabbi Ben Azai

Long term analysis of the Dow, Nov 2, 2009

2010-02-17T19:41:00.001-08:00

Never invest your money in anything that eats or needs repairing.
Billy Rose, 1899-1966, American Composer of Popular Music

When we compared the current pattern to that of the 1929-1930 Era in an article titled The Dow; ominous parallels to the 1929-1930 Era , we stated that the pattern was calling for the Dow to pull back all the way to the 1400 ranges. This does not mean we are actually stating that this will come to pass right now; we are just talking about possibilities. Simple trend analysis confirms this target. Furthermore, it actually shows that if this were to occur, the main up trend line would not be violated and the bullish pattern of higher lows would still be in effect (shown by the green circles)
We have 5 up trend lines here and according to multiple trend line theory whenever you have more than 3-4 trend lines the market is ready to correct. Thus these 5 trend lines indicate that a very serious inflection point was reached.   Each trend line provides very strong support and when taken out it usually provides an equal amount of resistance. Look at the 4th up trend line, it was 1st taken out in 2003, then the Dow rallied even higher and put in a 5th up trend line. This 5th up trend line did not last long and the correction was so strong that it took out 2 trend lines (5th and 4th) in one shot. 9 out of 10 times a market mounts a rally as soon as it breaches one trend line, that's exactly what took place the 1st time this occurred in 2003 and that is why this massive correction, which started in 2008 and ended in 2009 caught everyone by surprise because it broke through 2 trend lines with extreme ease before it bottomed out.
Note the 3rd trend line was almost tested before the correction suddenly ended. This pattern is suggesting that the depth and intensity of the moves are going to keep getting more extreme in both directions. The current rally is one of the strongest the Dow has ever experienced in such a short period of time.
The intensity is picking up with each downward move; in the 1st move which ended in 2003, the Dow dropped roughly 1000 points below the 4th trend line before rallying. In the next correction which started in 2008 two trend lines were taken out. When the 5th trend line was taken out the correction actually picked up steam, slashing through the 4th and almost touching the 3rd up trend line. It also dropped almost 2200 points below the 4th trend line. This is double of what took place in 2003. Could the next move be a move all the way down to the 1st trend line? Our tools and indicators should flash several warnings in advance of this development, which will help us position ourselves accordingly if the above scenario comes to pass.
For the record, we are not yet officially calling for the Dow to pull back to the 1400-2000 ranges, at leas not yet, but we are stating that there is a very good chance that we have not yet seen the worst.
What we are stating is the following.
Multiple trend line analysis indicates that the intensity of each downward move is picking up steam. As such events occur in sets of 3; we have at the least one more downward move to contend with. It also states that eventually the main up trend line has to be tested. As this is a very long term chart, it does not mean it has to occur right now. However, if consumer spending drops as we think it will drop then in several years, there is a possibility that this could come true. Now there is a big outside factor; this is what trips most individuals for they seem to focus on absolutes. We believe that the dollar is going to lose a huge amount of its value in the years to come. Thus in present dollars the Dow might actually hit the 1400-1600 ranges, but if the dollar starts losing its value at a very rapid pace then the Dow would have to compensate for this loss. In other words, one would have to adjust the value of the Dow to take inflation into consideration to get the true value of the Dow. This is why we stated in one of our articles several years ago that even though the Dow had rallied all the way to 14,000 2007, it had actually put in a new high much earlier. In an article titled Dow 14660 has come and gone we explained how the Dow actually put in a series of new highs starting from April 2000 and culminating in April 2001 when it traded as high as 14660.
Currency movements have to taken into consideration as fixating on absolute numbers is not the way to go. We have no absolutes now as money has no fixed value other than the value it is assigned randomly because of trust and or faith individuals have in their government’s ability to maintain its value.
The key thing to look for is extreme fear, and madness. When fear is running extremely high it's always a good time to buy.
If by some miracle the Dow traded into the 1400-2000 ranges, it would be screaming buy of all screaming buys, and it would be prudent to jump in with both feet and start loading up like a madman on shares.   This is the opportunity that 100% look for but 99.9% miss. Please do not fixate or dream about this target for it will cloud your vision of what is going on now.   No one thought that the Dow would fall from 14000 to 6449 so one should remember that nothing is impossible.
As we stated several times in the last 2 months, there are subtle but not fully confirmed indications that the Dow could potentially trade to 12000 and in doing so will probably offer a perfect set up for a horrendous correction and a repeat of what took place in the 1929-1930's era.
Look at which range the 4th up trend line runs through. It's 12,000 and so we have yet another subtle confirmation of the Dow possibly trading up to the 12,000 ranges.   As the Dow is now trading above the 3rd up trend line, there is a very good chance that it will at least test the 4th up trend line, a zone that once provided strong support. The half way point between the 3rd up trend line and the 4th up trend line is 1500 points (12000-9000= 3000 and divide that by 2). Thus we would need to see how the Dow is acting when it trades past the 10,500-10,800 ranges (our initial top side targets issued back in Feb 2009) as it will most likely provide some early clues as to whether the Dow is going to make it to 12,000 or not.
Something to keep in mind
Remember nothing falls in one shot, there are always going to be massive counter rallies and during such rallies its not wise to hang onto short positions; case in point, the current rally from March 2009 has wiped out many bears.
Some facts on Gold
Gold has put in a new 52 week high every year since 2002. This is a perfect example of a bull market running on full steam.
Gold took out its all time high set back in the 80’s and has continued to trade higher, while the Dow after putting in a fake high in 2007 did nothing and then in 2008 it broke down and plunged all the way to 6469 before bottoming. When adjusted for the stronger dollar the Dow as mentioned earlier put in a new high in April of 2001 and since then has been trending lower.
Gold broke out in later 2002 and since then is up roughly 333%; the Dow is showing a pathetic gain of 33% in the same time frame.
If we perform a similar test on other hard assets we find that they have performed equally as well and some such as Silver have actually done a lot better on a percentage basis. Commodities in general have more than compensated for the wholesale destruction of the Dollar, showing gains in excess of several hundred percent. The Dow, on the other hand, when adjusted to reflect the drop in the dollar has produced a negative rate of return.

I believe that in the history of art and of thought there has always been at every living moment of culture a ''will to renewal.'' This is not the prerogative of the last decade only. All history is nothing but a succession of ''crises'' -- of rupture, repudiation and resistance. When there is no ''crisis,'' there is stagnation, petrifaction and death. All thought, all art is aggressive.

Eugene Ionesco, 1912-, Romanian-born French Playwright
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Has the Dow put in a new 52 week high? Absolutely Not

2010-02-17T19:40:00.003-08:00

People who have realized that this is a dream imagine that it is easy to wake up, and are angry with those who continue sleeping, not considering that the whole world that environs them does not permit them to wake. Life proceeds as a series of optical illusions, artificial needs and imaginary sensations. Alexander Herzen, 1812-1870, Russian Journalist, Political Thinker

A lot of noise has been made each time the Dow traded to a new 52 week high and the same chorus was once again sung when it put in back to back new highs on Monday and Tuesday. A very short and simple calculation reveals that all these new highs are illusory in nature; like a mirage in the desert, it looks real but when you try to examine it from close, it vanishes.

To illustrate the open point, let's go back one year to Nov 2008.

One year ago on the high for the Dow in Nov of 2008 was 9625. One year ago the Dollar index put in a high of 88.41 (Nov 21, 2008). The dollar closed yesterday at 75.13, and so it is trading roughly 15% lower than it was one year ago.

In order for the Dow to put in a new true high, it would have to trade above the adjusted value of 9625; we have to adjust the value as the dollar is trading at a lower level than it was a year ago. Thus if one adds 15% to the 9625, one gets 11068. Hence, we can effectively conclude that the Dow is still a rather long way from putting in a new true high and the so called 5 new highs it has put in the last 30 days are all illusory. It makes no sense to compare what the Dow is doing today to what the Dow did yesterday, unless the currency it’s trading in is taken into consideration.

Now let’s look at Gold and Silver.

In the month of Nov, 2008, Gold's highest close was 818. Yesterday Gold closed at roughly 1100. Thus in one year it is up roughly 34%.

Silver's highest close in Nov 2008 was 10.35. Yesterday it closed at 17.48 and so is showing a 1 year gain of 68%.

Thus both Gold and Silver have more than compensated for the drop in the value of the dollar. To make matters even worse the Dow would actually need to trade significantly higher just to break even; in other words, it is actually trading much lower than it was in the same time period one year ago.

Conclusion

The same exercise can be performed on a host of other commodities and the results will indicate that in most cases the underlying commodity has more than compensated for the loss in the value of the dollar. Now if one performs the same exercise on many of the stocks that are rallying to new 52 week highs, one will find that when adjusted for the weaker dollar, most stocks are not trading at new highs, unless they happen to be stocks that deal with hard assets. A perfect example of an illusory all time new highs is Amazon.

Long term the implications are rather negative; the Dow's inability to even compensate for the lower dollar means that when this market starts to correct again, the move down is going to be very hard and vicious. There is even a good chance that the March 2009 lows might not hold.

This simple exercise indicates that investing in indices such as the Dow, SP500, NASDAQ, etc., makes no sense as your rate of return would have been negative. It makes far more sense to put your money into bullion or into companies that deal with hard assets such as Gold, Silver, copper, Zinc, Vanadium, etc. As the commodity's sector in general has experienced a pretty strong run, traders looking to open new positions should wait for pull backs before deploying new money.

It isn't safe to sit in judgment upon another person's illusion when you are not on the inside. While you are thinking it is a dream, he may be knowing it is a planet. Mark Twain, 1835-1910, American Humorist, Writer
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Dow's 52 week highs not confirmed , Oct 29, 2009

2010-02-17T19:40:00.001-08:00

The wise man sees in the misfortune of others what he should avoid.

- Marcus Aurelius 121-80 AD, Roman Emperor, Philosopher

If we examine the 20 stocks that make up this average we find that at least 10 of 20 stocks have not put in new highs. The stocks are BNI, AMR, LUV, UNP, CAL, EXPD, GMT, JBLU, NSC, and OSG. The index is therefore, being carried higher by only 10 stocks.

Finally, in the early stages of the rally total volume traded surged to and past the 7 billion mark several times but not one single high took place on even 7 billion shares of volume. In fact, since the 17th of Sept total volume on the NYSE has not even once reached the 7 billion mark.

The 3 charts clearly illustrate the divergence between the Dow industrials, the Dow transports and utilities; the Dow has put in a series of new 52 week highs while the transports and utilities are struggling to get there. Prudence and caution are warranted now and traders should think twice before jumping into the markets.

The young man knows the rules, but the old man knows the exceptions.
- Oliver Wendell Holmes
www.tacticalinvestor.com

Debt Crisis, Oct 23, 2009

2010-02-17T19:39:00.001-08:00

Bad is never good until worse happens. Danish proverb

Source: Bank of Japan

The Japanese markets have still not recovered after the real estate bubble which lasted from 1986-1990 despite having dropped interest rates to zero and throwing volumes of money at the problem. Look at the above chart, total Debt in 1990 was roughly 150 of GDP: today total debt is close to 290% and the market is still in a funk. Could this be what lies in store for the U.S?

In 1990 the Nikkei was at 40,000, today almost 20 years later it is having a hard time trying to make it to the half way point despite all the money the government has infused into the economy. Worse yet the main down trend line is still intact and after all that money the Japanese government threw at the economy the Nikkei is trading close its lows; currently, it's at 9,695, roughly 75% below its all time high. Let’s remember that Japan is a big exporter and manufacturer of goods. The US, on the other hand, has lost most of its manufacturing capacity and imports far more than it exports. It’s starting of on an incredibly bad note in comparison to the Japanese.

We have listed charts from two sources; the differences are minuscule at most.

Source: Steve Keens Debt watch

Source: Ned Davis research

Surprise, surprise, the picture is simply terrible. Total debt now accounts for roughly 380% of GDP, and we have only just begun spending. The Japanese started from 150, and it took them to 20 years to push it to 250%. We are, on the other hand, are starting at almost 380%, and we have just begun our so called stimulus programs. The government is projecting a deficit of 9 trillion dollars in the next 10 years; they moved this estimate up from 7 trillion to 9 trillion in less than one year. If they increased their estimates by almost 28% in one year, do you think this estimate is going to remain unchanged for 10 years? They also raised the deficit for 2010 by 19% to 1.5 trillion.

Now here is the massive difference between the Japanese and the U.S. The Japanese consumer has saved a huge amount of money and continues to do so, they can thus (and to some degree they have indirectly financed this debt by purchasing government paper. The U.S. consumer, on the other hand is broke and strung by his heels with debt; we had two years where the savings rate was actually negative (2005 & 2006) talk about arrogance and foolhardiness. So we are entering into this mess with a Debt to GDP ratio that is 2.6 times larger than the Japanese and with the consumer completely broke. To make matters worse we are fighting two wars and trying to solve a multitude of problems when the nation is for all intents and purposes almost bankrupt. Let's not forget the rising unemployment rate which officially is close to hitting 10% but unofficially (the number of individuals that have given up looking for work plus those that are still looking for work) is probably well over 15%.

Going forward the situation is only going to get worse as the government is going to have to continually create money out of thin air to fund many of its social programs, fund the two large scale wars that are costing this nation several billion dollars a month and pour billions and billions into Medicaid and eventually into social security. The only hedge therefore would be to get into commodity based assets. Investors should use all strong pull backs to either add to or open up new positions. For example, right now the natural gas sector is relatively cheap and undervalued, some plays in the agricultural sector are also rather cheap and so some positions could be opened up in these sectors right now. We would wait for pull backs in the other commodities based sectors before opening up new positions as many of them have experienced very strong upward moves in the past few months.

It is a painful thing to look at your own trouble and know that you yourself and no one else has made it. Sophocles, BC 496-406, Greek dramatist
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Dow’s 52 week highs not confirmed , Oct 29, 2009

2010-02-17T13:32:00.000-08:00

The wise man sees in the misfortune of others what he should avoid.

- Marcus Aurelius 121-80 AD, Roman Emperor, Philosopher

The Dow has gone on to put in a series of new 52 week highs, something that has eluded both the transports and the utilities. We personally do not place too much emphasis on the Dow Theory which focuses on the transports, we. However, to do place quite a bit of weight on the utilities as they generally lead both the industrials and the transports. At the very least the Utilities should have put in one new 52 week high and more importantly they should have done it before the industrials and or the transports. As both the transports and the utilities have not put in new highs we have what amounts to a double non confirmation signal. This suggests that at the odds of the Dow mounting a strong to decent correction are pretty high.
If we examine the 20 stocks that make up this average we find that at least 10 of 20 stocks have not put in new highs. The stocks are BNI, AMR, LUV, UNP, CAL, EXPD, GMT, JBLU, NSC, and OSG. The index is therefore, being carried higher by only 10 stocks.
Finally, in the early stages of the rally total volume traded surged to and past the 7 billion mark several times but not one single high took place on even 7 billion shares of volume. In fact, since the 17th of Sept total volume on the NYSE has not even once reached the 7 billion mark.

The 3 charts clearly illustrate the divergence between the Dow industrials, the Dow transports and utilities; the Dow has put in a series of new 52 week highs while the transports and utilities are struggling to get there. Prudence and caution are warranted now and traders should think twice before jumping into the markets.
The young man knows the rules, but the old man knows the exceptions.
- Oliver Wendell Holmes
www.tacticalinvestor.com