Euro crisis; the hidden agenda

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?

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

 

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

Ultimate futures timing system

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

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?

 

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

 

  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

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

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

  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

  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%

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

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%

VIP futures 5 year win ratio 75%

Euro; the worst is yet to come

 

  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

 

VIP Futures 1 year win ratio 84.6%

VIP Futures Win ratio for 2010, 100%

VIP futures 5 year win ratio 75%

Strategic mortgage defaults the next time bomb

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.

 

VIP Futures 1 year win ratio 84.6%

VIP Futures Win ratio for 2010, 100%

VIP futures 5 year win ratio 75%

Health overhaul could cost 115 billion more

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

   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

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

 

The ultimate futures timing system

Tactical Investor

Inflation; A positive development for the Astute Investor

 

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

 

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

The Ultimate Futures Timing Service

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

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

Ultimate futures timing Service

Precipitously low market volume a sign that a correction is imminent

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

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

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

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