Roast the PIIGS, and End the Euro Crisis

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

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

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

 

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

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

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 if 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 ended 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

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

 

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.

From the book “Six Days in October: The Stock Market Crash of 1929,” by Karen Blumenthal. © Copyright 2002 Karen Blumenthal

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

Ultimate futures timing system

Tactical Investor

The Engineering of a Financial Crisis

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

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

 

Ultimate Futures timing Service

Some of the best Stock market tools on the net.

Interest rates and Bonds

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.)

 

The Ultimate stock Timing System

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Slavery and the mass mindset

 

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

 

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.

 

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