Davos Capital

What QE2 means

2010-11-04T14:54:00.005-05:00

Bottom line is that during quantitative easing, savers are losers. I look at the Fed buying as a bailout for asset prices. Destined to fail but great for the nimble trader/investor.

The New Road to Serfdom

2010-10-05T08:13:00.002-05:00

My Comments: Great speech by British member of the EU parliment Daniel Hannan.

George Soros on China, Gold, and Yen

2010-09-16T08:45:00.002-05:00

China is the winner of the crash

Gold "not safe"

Japan "right to intervene"

This is cool...Math

2010-08-28T11:21:00.003-05:00

Nature by Numbers from Cristóbal Vila on Vimeo.

My comments: Fibonacci relationship also exist in markets!

Trader Vic calling for Hyperinflation

2010-08-04T14:25:00.007-05:00

Weekly update from Puru

2010-04-09T09:03:00.001-05:00

The stealth bull-market in global stocks is climbing the proverbial ‘Wall of Worry’. Wherever you care to look, there is widespread skepticism and retail investors are still not participating in the market’s advance. Recent data reveals that investors in America continue to withdraw capital from equity mutual funds and this just shows that this bull-market is nowhere near its ultimate peak. On a near-term basis, the markets are over-extended and due for a pullback, however powerful bull-markets can stay overbought for long periods of time. In our view, as long as the monetary policy is accommodative and investors remain skeptical, the primary trend will remain positive. Therefore, we are holding on to our positions in the developing markets (China, India and Vietnam) and may add to our holdings during the next correction phase.

Over in the energy complex, the price of crude recently broke out to a new recovery high and is currently trading around US$86 per barrel. In our opinion, as the economic recovery gathers momentum, the price of crude will rise even further. Furthermore, if our homework is correct, before the end of this business cycle, the price of crude oil will trade above its all-time high recorded two years ago. In this environment, upstream energy companies will prove to be big winners and at current levels, they are on the bargain table. So far in this bull-market, the energy stocks have lagged the broad market but this may be about to change. Accordingly, we are maintaining our overweight exposure to energy and recommend oil producers and the oil services firms.

In the metals patch, the prices of base metals continue to defy gravity and against our expectation, the price of copper has climbed to a new recovery high. As we have explained before, supply and demand fundamentals do not justify this advance, therefore we will not re-invest in this sector. It is our contention that base metals are rising largely due to the easy monetary policy and speculative froth is now rampant. Accordingly, we urge caution and re-iterate our view that better investment opportunities exist elsewhere.

As far as precious metals are concerned, it looks as though gold and silver have recently put in important lows and the spring rally is now underway. If seasonal trends remain intact, both gold and silver are likely to rally until mid-May. Over the past few days, precious metals miners have appreciated considerably and this sector is still inexpensive relative to physical bullion. We are keeping our positions in gold and silver mining companies and suggest that you do the same.

In the world of paper money, it seems as though the US Dollar Index is rolling over. Conversely, the European currencies are now extremely oversold and a sharp rebound cannot be ruled out. Finally, our preferred currencies (Canadian and Australian Dollars) are performing very well and we suggest that you keep your cash in these leaders.

Finally, in the US government bond market, yields are on the rise. At the time of writing, the yield on the 10-Year Note has climbed to 3.9% and the yield on the 30-Year Bond is 4.76%. We maintain our view that the great bond bull-market ended in December 2008 and over the following months, we will see even higher interest-rates. Accordingly, we suggest that unless you are holding Treasuries for income and plan to hold them until maturity, consider liquidating your fixed income holdings.

No Housing Boom This Decade

2010-02-18T11:36:00.003-06:00

In the midst of all the bailouts you might have missed that last month, in perma-bubble Southern California the median price of the entire regional market fell by $17,500. This was the first regional price drop since April of 2009. Now one month doesn’t make a trend of course but if you only listen to the real estate industry and banking cabal you would think that all of a sudden we are circa 2003 real estate. There is this pervasive speculative attitude once again in the air even in the face of a 12.4 percent unemployment rate. The unemployment situation was revised last month nationwide and the BLS upped the number of jobs lost in this recession from the “low” 7 million to 8.4 million. So basically we were underestimating how “good” things were for an entire year (the BLS has suspect numbers because of their methodology). Yet this is part of the new economic psychology where real data is ignored in exchange for bread and circus statistics and political theater. The reality is we are not going to see any sort of housing boom for the next decade. In fact, housing will be weak for the next ten years (at least) regardless of what the government and Wall Street attempts to do.

Full Article here

My Comments: Good info. I personally want to see how the market fares after the first time home buyers stimulus. My guess is it will be another failed Govt. program that duped buyers into quick decisions. Those that took advantage of it might need a bailout if things get worse.

Point being...buy when the situation is right not because of a Govt. bribe.

Weekly Update From Puru

2010-02-05T08:07:00.001-06:00

In baseball terms, we are passing through the middle innings of the ongoing correction in the financial markets.

Over the past week, sellers dominated the markets and the counter-trend moves are now well established. Yesterday, global stock markets experienced intense selling and this has prompted the perma-bears to (yet again) announce the start of a new bear-market. In our view, this weakness in the markets is a routine pullback within the ongoing cyclical bull-market and we expect most indices to bottom out around the 200-day moving average.

As we pointed out in February’s Money Matters, technical data does not suggest the commencement of a new bear-market and there is no evidence of a breakdown in the price charts. Accordingly, we suggest that you ride out the volatility and consider adding to your positions in an incremental manner. In any bull-market, the best time to buy is when an item briefly corrects to its 200-day moving average and most stocks and commodities are likely to approach that level over the following days. Therefore, we urge you to keep your nerve and advise you to take advantage of Mr. Market. Remember, pessimism is an investor’s best friend, euphoria his mortal enemy.

The ongoing weakness in the markets is largely due to sovereign default risk in the West but this has even affected the developing markets in Asia. In our opinion, nations such as China, India and Vietnam are not in the same boat as the debt-plagued developed nations and this weakness in prices is a great long-term buying opportunity. Over the following years, these fast-growing economies will benefit from capital flows and their stock markets will appreciate considerably. Accordingly, we recommend buying on additional near-term weakness.

Over in the commodities complex, ‘risk aversion’ is the story of the day and most hard assets are under pressure. Yesterday, crude oil dropped significantly and the selling may continue for a few more days. However, this manic-depressive nature of Mr. Market does not change the reality of supply and demand. We maintain our view that crude oil is in a secular bull-market and its price will appreciate significantly over the following years. Accordingly, we are keeping our positions in the oil patch.

Elsewhere, metal prices got whacked in yesterday’s panic sell-off. Silver was down by more than a dollar and gold broke through its important support at US$1,075. At the time of writing, gold is trading at US$1,064 per ounce and further weakness looks likely. The next major support for gold comes in around the US$1,000-1,030 region and it looks as though the yellow metal’s price will decline to that level. The related mining stocks have depreciated considerably in the past few days and the selling looks overdone. Yesterday’s moves in precious metals appeared climactic, therefore we are in the latter stages of this correction. During this turmoil, do not forget that most nations in the West are bankrupt and precious metals represent your insurance policy. Therefore, do not join the herd by giving away your safety net at throw away prices.

Base metals are also facing selling pressure and as per our expectation, the price of copper is declining. A couple of weeks ago, we advised liquidating copper-related plays and suggested going ‘short’. This seems to be working out as planned and we expect the price of copper to decline by another 10-15%.

Finally in the realm of monopoly money, the US Dollar is rallying and this should not come as a surprise to our readers. As you will recall, we were expecting the American currency to strengthen. In our view, this advance is likely to continue for a few more days, so keep all your cash in US Dollars. In our view, the European currencies are most vulnerable and we would not buy the Euro or the British Pound; not even with your money! Once the rally in the US Dollar has run its course, we will advise you to buy back the Australian and Canadian Dollars, but for now, hold on to your greenbacks.

Weekly Update From Puru

2010-01-29T15:37:00.000-06:00

We are going through a routine pullback within the ongoing cyclical bull-market in stocks. Prior to this correction, stock markets were strenuously overbought and due for a consolidation. Our expectation was that the correction would come in late spring, however it seems to be unfolding a few weeks earlier.

At this stage, the technical data suggests that this is not the start of a nasty bear-market. For instance, the advance/decline line is firm, the number of new lows on the NYSE is still depressed and the yield curve is very steep. All this data leads us to conclude that the majority of the stock markets are likely to find support on their 200-day moving averages. This means that if our cyclical bull-market assumption is correct, the Dow Jones will find a bottom around the 9,500 level. Accordingly, we suggest that you hold on to your long-term investment positions and consider adding more capital after some evidence of a bottom formation.

Over in the commodities complex, the price of crude is trading around the 74 level and it may continue to consolidate over the near-term. A rallying US Dollar is keeping a lid on the price of oil but the long-term trend in energy is up. We suggest that you keep your positions and allocate more capital to upstream energy companies, oil services stocks and alternative energy businesses.

In the metals arena, the prices of gold and silver are staying under pressure. This is largely due to the strengthening US Dollar. Now, if the trend consistency in precious metals is still intact, both gold and silver must rally soon. Otherwise, we may experience a lengthy consolidation and the highs recorded a few weeks ago may not be taken out before the end of the year. In any event, we suggest that you keep your positions in this sector as an insurance policy against the madness of currency debasement.

Elsewhere, the anticipated correction in copper has now commenced. If our assessment is correct, the price of copper is likely to decline by another 15-20%, so we suggest that you wait before buying back copper related plays. Aggressive traders should remain ‘short’ copper and consider covering their positions around the $2.60-$2.70 level.

Finally, in the world of currencies and debt, the American currency is rallying and the European currencies are struggling. As you may recall, we were expecting this outcome. Our view remains that the US Dollar is in a bull-market against the Euro and British Pound, however, it will probably decline to new lows against the Australian and Canadian Dollars. For now, it looks as though the rally in the greenback has legs and we want you to keep your cash in the US Dollar. Last but not least, the government bond market is benefiting from the ongoing risk aversion, but this should not last. In our view, once this phase of risk aversion in over, interest-rates will rise and government bonds will face intense selling pressure. Therefore, we suggest that you resist the urge of lending money to bankrupt governments.

Economic Debates...Hip Hop Style

2010-01-27T11:11:00.002-06:00

My Comments: Funny cause it true...

Weekly Update From Puru

2010-01-22T15:59:00.001-06:00

The long awaited stock market correction seems to have arrived and further declines can be expected over the following days. Although the American market’s internals still look solid, stocks were strenuously overbought and due for a pullback. Remember, no market goes up in a straight line and periodic declines are a part of this business. At this stage, the ongoing correction looks like a routine decline within the ongoing cyclical bull-market. Once this period of weakness is over, stocks should resume their advance.

It is noteworthy that Wall Street’s technical indicators are still strong. For instance, the Advance/Decline line is close to its high, new highs are healthy and new lows are in single digits. Furthermore, the yield curve is very steep and credit spreads are still narrowing. All this data diminishes the probability of a major market decline or the resumption of the bear-market. Accordingly, we suggest that you hold on to your investment positions and consider increasing your allocation towards the end of this market correction.

Over in the commodities market, the price of crude has softened somewhat but the long-term trend is still up. The supply and demand dynamics in oil are so out of whack that unless the world sinks into a global depression, the price of crude will rise. In fact, we are convinced that (under the most optimistic scenario) the world’s production of total liquids will peak within the next 3-4 years and crude oil exports may peak even sooner. Now, if this seems too much of a wait, just remember that the biggest game changer in economic history is only a thousand days away! Whether you like it or not, new discoveries and new oil-fields cannot keep up with the depletion in the existing oil-fields. When this reality dawns upon the public, we will witness an epic energy crisis.

According to our best estimates, the supply of total liquids (including unconventional oil, natural gas liquids, tar sands, ethanol and hydrocarbon processing gains) will never exceed 89 million barrels per day. And if demand grows by 1.5% per annum over the next 2 years, the world will require 89 million barrels per day by 2012. That will probably be the inflection point and the day when the world faces ‘Peak Oil’. In any event, in a post-peak world, there will be big winners and big losers. If our assessment is correct, upstream oil producers and pioneers in the alternative energy sector will be big beneficiaries. Therefore, we are maintaining our exposure to these businesses and plan to increase our holdings during this market correction.

In the metals complex, gold and silver are experiencing a routine correction and this is largely due to the expected rally in the American currency. It seems as though this counter-trend rally in the US Dollar will continue for a while longer, so gold and silver may face some additional selling pressure. We see strong support in gold around the previous correction low and recommend buying more bullion around US$1,070 per ounce. Now, it is conceivable that the price of gold may test US$1,000 per ounce, but even if it does, the downside is fairly limited. In our view, gold and silver remain in secular bull-markets and short-term corrections notwithstanding, their value should increase relative to paper money.

In the base metals camp, last week we advised you to get out of everything related to copper. Well, it looks as though the correction is still in its infancy and we expect a violent decline over the following days. The price of copper has run ahead of the fundamentals and we urge extreme caution. Long-term investors should be out of harm’s way and aggressive traders should be short copper.

Finally, in the world of currencies, our expectation of a dollar rally turned out to be correct. We maintain our position that for as long as the US Dollar Index trades above the 77 level, your cash reserves should be in the greenback. Look; when it comes to investing, nothing is set in stone and market reversals usually occur when the majority of participants are not expecting them. Only a few weeks ago, the whole world hated the American currency, so this rally should not come as a surprise. We re-iterate our view that the US Dollar has already made its lows against the European currencies, however it will probably make new lows against the Canadian and Australian Dollars

Its Funny cause its true...

2010-01-08T15:46:00.001-06:00

The Banker Who Said No

2009-12-15T15:42:00.004-06:00

In late 2006 he sold $74 million of preferred stock although he had no immediate use for the proceeds. He says he couldn't resist the "stupidly mispriced" terms--as low as Libor plus 1.7 percentage points for 30 years. He wanted as much money available when the boom turned to bust. With the extra money the bank could pay off nearly all its depositors with capital on hand--nearly unheard of in the history of banking.

Then came a shocker: Amid one of the most reckless lending sprees in history, regulators focused on the one bank that refused to play along. Beal's moves confused and worried them, and so they began to probe him with questions. "What are you doing?" he recalls them asking. "You're shrinking yet you're raising capital?"

Says Beal about the scrutiny, "I just didn't fit into any box." One regulator, the former head of the Texas Savings & Loan Department, Charles Danny Payne, says, "I was skeptical at first, but I've gained a lot of confidence over the years," adding that Beal has an "uncanny ability to sniff out deals."

Next, the credit rating agencies started pestering him about his dwindling loan portfolio. They never downgraded him but scolded him for seeming not to have a "sustainable" business model. This while their colleagues were signing off on $32 billion of bum collateralized debt obligations issued by Merrill Lynch.

My Comments: A very good write up on Andy Beal.

Full Article here...

The Greatest Business Model Ever

2009-12-15T11:29:00.002-06:00

With all the banks paying back the TARP money, some folks are assuming that the great Wall Street bailout is finally coming to an end.

But of course it isn't!

Taxpayers are still guaranteeing all big bank bonds (Too Big To Fail) and subsidizing huge bank earnings and bonuses with absurdly low interest rates.

But instead of bellyaching about it, you might as well just smile and cash in. After all, that's what Wall Street's doing.

So here's how to make the world's easiest $1 billion:

Continue Reading Here:

My Comments: This is the kind of stuff I like. Pointing out what a fraud things have turned into is easy because the system has turned pretty sour. But what I've realized is that you don't make money getting "mad as hell". You almost have no choice but to find away to work within the new system for your benefit. Cause if you don't someone else will.

Look I don't like the the way things are as much as the next guy. But dont dwell on the things you can change. Just survive and prosper.

Off Topic Video

2009-12-03T11:28:00.001-06:00

My Comments: Good documentary on food. Worth the watch.

Weekly Update from Puru

2009-11-30T09:50:00.001-06:00

Global stock markets are selling off in a state of panic as jittery investors run for the hills. Yesterday, Dubai World, the government-owned investment company announced that it sought to delay repayments of its US$59 billion worth of debt. This development sent shock waves around the financial markets and once again, fear has gripped the investment community.

It is worth remembering that Dubai was one of the most leveraged states and its property market was hit especially hard during last year's financial crisis. So, is it really a surprise that it wants to delay its debt repayments? More importantly, should investors see this as an apocalyptic event? It is our contention that this senseless liquidation of assets is overdone and in the next few days, calm will return to the financial markets. After all, Dubai is not a dominant economy and Dubai World's debt burden of US$59 billion is pocket change when compared to the trillions of dollars of credit losses in the West. Therefore, we do not see this as a game changing event. In fact, we suggest that long-term investors seize this market correction as a buying opportunity. If our assessment is correct, this panic will subside in a few days time and that may be a good time to add to your long-term investment positions. We continue to like China, India and Vietnam as long-term investment destinations.

Over in the commodities markets, the price of crude oil has slipped to US$75 per barrel and this is in line with the ongoing 'risk aversion' play. It is possible that the price of oil will stay under pressure for as long as the stock market correction continues, however, the bull-market should resume thereafter. We are holding on to your positions in energy companies and have no intention of selling our holdings. Elsewhere in the energy patch, it seems as though the price of uranium is trying to find a floor and long-term investors should consider allocating capital to promising uranium mining stocks. Our homework suggests that the uranium market faces severe supply and demand imbalances and this should result in a multi-year bull-market (more on this subject in December's issue of Money Matters).

In the precious metals sector, both gold and silver are facing some selling pressure as investors dump 'risky' assets. This morning in Asia, the price of silver is down by roughly 4.5% and the price of gold has shed almost 2%. In our view, this sell-off will soon be over and long-term investors should ride out this pullback. Remember, precious metals are in a gigantic bull-market and the ongoing upleg should continue until spring next year. We suspect that within the next six months, the price of gold will climb to US$1,400-1,500 per ounce and the price of silver may climb to US$25-26 per ounce. Accordingly, we are holding on to our positions in gold and silver mining stocks and we suggest that you do the same.

Over in the currency markets, the US Dollar is benefiting from the 'risk aversion' trade. Now, unless Dubai defaults on its debt, we believe the US Dollar rally will be short lived. Therefore, we suggest that you keep your positions in the Australian and Canadian Dollars. In addition to the US Dollar, the Japanese Yen is also getting assistance from the 'flight to safety' trade, however Japan's economic fundamentals are awful, so we don't expect this rally to last either.

Finally, over in the fixed income markets, government bonds yields are declining as investors rush to the 'safety' of government debt. In our view, this flight towards 'safety' is ridiculous because various governments in the West are already bankrupt and we do not see the point in lending money to insolvent entities.

The Unemployment Rate Visualized

2009-11-25T07:50:00.002-06:00

This is a cool visual. It looks like the country is being attacked by a plague of locusts or something from a science fiction movie...

Check it out here...

Grain Charts for the Iowa Farmer

2009-11-16T16:57:00.004-06:00

Soy: Begin backward, it never had the May sell off that the other grains had and is in a firm uptrend. Some MACD downward divergence is showing up but hasn't hurt price to bad.

Wheat and Corn: Charts look the same. The Dark Blue=20EMA, Yellow=50EMA, Light Blue=100. The 20 EMA has crossed the 50EMA confirming the potential start of and uptrend. As more and more of these EMA cross the more the trend builds and runs from there. Plus there is MACD divergence. Most trend followers are in at this point and it looks as if the trend has some wind at its sails.

Weekly Update From Puru

2009-11-13T08:19:00.000-06:00

Global stock markets are still in correction mode and the pullback/consolidation may continue for another week or two. Thereafter, we expect a strong year-end rally which will probably take stocks to a new recovery high by next spring. We are in a cyclical bull-market and with record-low interest rates in most nations, it isn't difficult to see why the financial markets are going up. Governments all over the world are creating money, taking on more debt and destroying the purchasing power of paper money. This is inflationary and supportive of asset prices. Now, if the governments continue to inflate, it is possible that many stock markets may climb to record-highs in nominal terms, but they may still do poorly in real terms. Given the technology called the printing press, we are inclined to think that new lows in nominal terms aren't likely, although the US stock market may make new inflation-adjusted lows before this secular bear-market is over. If our assessment is correct, this cyclical bull-market will end when short-term interest-rates have risen significantly and the yield-curve is inverted. At that point, we will start liquidating our holdings, however we don't expect this to happen for another two years or so. Accordingly, we are maintaining our country-specific exposure to China, India and Vietnam. Apart from these developing nations in Asia, we also like energy, materials, precious metals, industrial machinery, Asian retail and American healthcare stocks.

Over in the commodities complex, the price of crude oil is correcting due to the ongoing weakness in the stock markets. We expect the pullback to be short-lived and the price of oil is likely to rise significantly over the following years. We are firm believers in 'Peak Oil' and our largest exposure is to the energy complex - upstream companies, oil service stocks and plays on alternative energy. We have no intention of selling our positions and we suggest that you also allocate a large portion of your capital to energy. Supply and demand data doesn't lie and our solid research leads us to conclude that the supply of conventional crude oil is struggling at a time when demand is rising. This supply and demand imbalance should cause an energy crisis and the price of crude is likely to appreciate considerably. Any temporary pullbacks in the oil and gas patch are buying opportunities.

As far as precious metals are concerned, real money is coming back in fashion! Given the irresponsible monetary and fiscal policies, gold has resumed its role as a store of value; an anchor amidst the reckless money and debt creation. Despite the lengthy bull-market, gold seems to be undervalued and should rise over the following years. More importantly, gold is on the verge of an explosive rally which will probably end next spring. Silver is also benefiting from this flight towards hard assets and its price should appreciate until next spring. We have some exposure to precious metals mining stocks and we will look at booking our profits next spring. In the meantime however, we suggest that you hold on to your positions in this sector.

Finally, in the world of currencies, the US Dollar is desperately trying to rally. Even though a short-term counter-trend rally is possible, we don't expect the American currency to stage a sustainable advance. Remember, the US government's obligations are now worth US$115 TRILLION and the only way America can avoid default is by creating money and debasing its currency. Accordingly, we suggest that you keep your cash in Aussie and Canadian Dollars and if the US Dollar rallies, we suggest that you use that as a selling opportunity. If our world-view is correct, US Dollar cash and American government bonds will probably turn out to be the worst assets to own over the next decade.

Great interview with Karl Denninger

2009-11-04T13:41:00.002-06:00

My Comments: In my opinion Karl does great analysis on whats wrong and how to fix it. He also has a good portfolio strategy to protect against either hyper deflation or hyperinflation. Five part interview. Well worth the time to sit down and listen.

How Goldman Conned Everyone

2009-11-03T15:07:00.004-06:00

WASHINGTON -- In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

``The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion,'' said Laurence Kotlikoff, a Boston University economics professor who has proposed a massive overhaul of the nation's banks. ``This is fraud and should be prosecuted.''

My Comments: This is old news for anyone reading my blog. Since Goldman has literally hired the government, (and I'm not being vague...they own everyone they need to) nothing will be done. The only surprise to me is why people are not rioting in the streets.

Full article here...

Weekly Update from Puru

2009-10-30T15:10:00.001-05:00

The correction in global stocks came to a halt yesterday on the news that the American economy expanded at an annualised rate of 3.5% in the third quarter of this year. As you are aware, we have been pointing out for months that the economic situation is not as dire as the perma-bears would have you believe. It is worth noting that this is not the first time that America has faced a significant banking crisis; in fact they have occurred regularly since the beginning of capitalism. It is our contention that the stimulus provided by the various governments will result in strong economic growth for another couple of quarters, therefore 'risky assets' should continue to rally into spring next year. If our assessment is correct, after some additional choppy action, we will see a strong year-end rally as under-invested fund managers join the party. Our preferred developing markets (China, India and Vietnam) should continue to provide leadership and we recommend that you hold on to your positions and add more capital during this temporary pull-back. We maintain our position that we are in a bull-market, therefore bull-market rules apply - temporary pull-backs should be bought. In terms of sectors, we love energy (upstream and energy services companies), steel, diversified miners, industrial machinery, healthcare in the US, technology and Asian retail.

Over in the commodities complex, the price of crude oil is staying firm around US$80 per barrel and we expect a serious energy crisis within the next 5 years. 'Peak Oil' is real and wishful thinking or denial will not change the outcome. Once the economic recovery picks up, expect the price of crude oil to easily surpass the all-time high recorded last summer. In this scenario, the upstream energy stocks will catch quite a bid and businesses which provide technical services to the energy industry will make a fortune. We highly recommend a meaningful exposure to both and can safely state that our largest exposure is to the energy sector. Apart from crude oil, the price of natural gas is currently correcting after the recent gains. However, once this consolidation is complete, the rally in natural gas should resume. Accordingly, we suggest that you hold on to your positions in prominent gas producers.

In the world of precious metals, both gold and silver sold off sharply in the past few days and this was due to a strengthening US Dollar. However, the American currency weakened on Thursday and both gold and silver rallied sharply. In our view, the US Dollar is a doomed currency. There is no way the US government can meet its obligations without printing money and within the next few years, we will see a spectacular currency crisis. When the US Dollar takes it on the chin, the price of gold, silver and platinum will surge and the mining companies will be prime beneficiaries. Therefore, we suggest that you keep your positions in precious metals. Over the longer-term, we have no doubt that the US Dollar will crash but in the near-term, there is a possibility of a brief rally. So, if the US Dollar Index closes above the 78 level, nimble traders may want to temporarily liquidate their long positions in precious metals.

Finally, in the forex markets, the US Dollar is desperately trying to rally although so far this advance has not materialised. At present, the entire world is negative towards the American currency and sentiment is at an extreme, so a counter-trend bounce is certainly possible. For now, we suggest that you hold on to your positions in the Australian and Canadian Dollars but if the US Dollar Index closes above the 78 level, nimble traders may want to convert their cash to the American currency.

Greed Is Good

2009-10-28T12:10:00.003-05:00

My Comments: Milton Friedman was one of a kind. I wish he was around today to help fight off the Michael Moore's of the world. Here is his defense of greed, which has been misused as of late.

Central Banks Buying Gold

2009-10-22T14:25:00.005-05:00

Starting in 1989, the world's Central Banks became steady net sellers of their gold reserves which had been accumulated over the years.

In addition to official gold sales, the banks also began to engage in gold leasing contract with bullion banks such as J. P. Morgan, Goldman Sachs, et al. The gold was leased, and the bullion bank sells it in the market, paying the lease difference in a sort of gold carry trade.

And now for something completely different, it appears that the world's central banks may once again become net buyers of gold, after a twenty year campaign of selling gold from their vaults into the public markets, creating a steady downward pressure on the price of gold, that contributed to its long bear market.

There is some thought that the central bank gold sales had been designed to support the strong dollar as the reserve currency of the central banks. Gold had been viewed as a threat. Documents which have been disclosed and quotations from the transcripts of central bank meetings do support a concern that the price of gold could rise, destabilizing the fiat regime which had been in place since the US went off the international gold standard in 1971.

My Comments: Interesting data. If the central banks that had been selling gold into a bull market are now close to becoming buyers, what does that mean for the price of gold??? This might explain the recent rise over $1,000. Once price broke out of its wedge, it took off. This reminds me of what Jesse Livermore wrote…(I’m paraphrasing)…Price usually reacts and the “why” comes later. The insiders start the buying and then let the public in on it.

That is why price is the best gauge of markets. Price reflects all information at a given period of time. It might not reflect all available information to you or I, but all available information given to “someone”.

Full article Here...

Weekly Update from Puru

2009-10-16T11:14:00.000-05:00

We want all our readers to remember that nasty bear-markets are usually followed by powerful bull-markets and business conditions never remain the same. When it comes to investing, the truth is that the financial markets always lead the economy and this is why the vast majority of economists aren't good investors. And this is precisely the reason why we don't pay too much attention to the econonic data. Remember; the economic news is always very bullish at major market tops and it is always negative near market bottoms.

For example, consider the ongoing rally in global equities. Now, nobody can disagree that we are seven months into a powerful market advance, yet most people continue to view this bull-market with skepticism. In fact, not a single day goes by without an apocalyptic forecast explaining why this 'bear-market rally' won't last! It is interesting to note that despite a huge advance in prices and extremely strong market breadth, the bears continue to call this a sucker's rally! We tend to disagree with their assessment and maintain our view that we are in a bull-market. Of course, this bull-market will be punctuated by intermediate-term corrections (reversion back to the 200-day moving averages) but the overall trend is up. Over the past few weeks, China's stock market has been immersed in such a routine correction and at some point, the other markets will also experience a healthy pullback. However, given the ultra-loose monetary policy all over the world, we have no reason to doubt our bull-market hypothesis. Our advice remains the same - hold on to your positions in the emerging markets and after a pullback, acquire more holdings in China, India and Vietnam.

Over in the resources complex, the price of crude oil has climbed to a new recovery high. This morning in Asia, crude oil is trading around US$78 per barrel and we expect this rally to continue for several weeks. Our initial target is US$100 per barrel, however, over the longer-term, we expect a new all-time high. If we don't discover gigantic oil-fields very quickly, then the price of crude oil may reach US$200-US$250 per barrel within the next few years. Whether you like it or not, 'Peak Oil' is real and it is here. Accordingly, we suggest that you maintain your exposure to upstream energy companies and the energy services stocks. Yesterday, the vast majority of our energy holdings broke out to a new recovery high and we expect much bigger gains over the course of this bull-market.

In the precious metals sector, gold and silver are consolidating their recent gains. The longer the price of gold stays above US$1,030 per ounce, the higher the probability of an explosive move over the next 5-6 months. It is our contention that the price of gold will rally to US$1,300-1,400 per ounce by next spring and the price of silver will go past its high recorded last year. During the upcoming rally, precious metals mining stocks will perform well and we are holding on to our positions. Remember, given the recent surge in gold and silver, the mining companies have become very profitable and this is why we suggest that you allocate some capital to dominant, unhedged miners.

In the world of 'monopoly' or fantasy money, the American currency is taking a serious bashing. It is noteworthy that the US Dollar Index has recently fallen below an important support level and this suggests further weakness. Our preferred currencies (Aussie and Canadian Dollars) are performing exceptionally well and we suggest that you hold on to your positions. Finally, over in the US bond market, the yields on the 10-year and 30-year maturities are rising again and we expect higher interest-rates over the following days. Therefore, we suggest that you cover your 'long' positions in US Treasuries.

The Best Investment In History...258,449% Return

2009-10-12T19:29:00.003-05:00

The single best investment — in terms of greatest return on invested dollars — has been the lobbying efforts of the major banks and finance firms.

They spent $114.2 million dollars in contributions toward the 2008 election, according to the the nonpartisan Center for Responsive Politics. The companies that have been awarded taxpayers’ money from Congress’s bailout bill spent $77 million on lobbying and $37 million on federal campaign contributions, the Center finds.

These firms political activities have yielded them $295.2 billion from Recapitalization, TARP and other assorted bailouts.

The return on investment: 258,449 percent.

My Comments: This doesn't surprise me one bit. What does surprise me is how cheaply they sold out. They bought our Nobel Prize winning president for only nine million a year! Professional athletes sign bigger contracts than that! More proof of politicians incompetence. They can't even negotiate proper bribes!

I hijacked this from The Big Picture by Barry Ritholtz. Great site...I recommend it.

Full article here...

Credit Crunch Continuation

2009-10-07T15:33:00.002-05:00

Anyone counting on a meaningful economic recovery will be greatly disappointed. How do I know? I follow credit, and credit is contracting. Access to credit is being denied at an accelerating pace. Large, well-capitalized companies have no problem finding credit. Small businesses, on the other hand, have never had a harder time getting a loan.

My Comments: Good article by Meridith Whitney. The contraction of credit is deflationary. The Govt. has handed out a ton of money to the banks but its not circulating (yet). Banks are mearly soaking this cash up. Or at least that's my take.

Full article here...

Weekly Update from Puru

2009-10-02T15:20:00.002-05:00

After the big rally since March, global stock markets are correcting their gains. This pull-back was expected given the fact that we are now approaching the one-year anniversary of last year's autumn crash. Psychologically, investors are becoming nervous and we are certain that many market participants are now expecting a repeat of last year's horror show. Well, anything is possible in the investment business, but in our view, another crash is not on the cards for the following reasons:

Remember, last year's crash was brought about by the sudden collapse of Lehman Brothers and the subsequent global margin call. When Lehman failed, all banks panicked and they pulled back their credit lines. This total freeze in credit forced the leveraged market participants to sell all 'risky' assets at any price. Today, the banking system is in a much better shape (thanks to the government guarantees and bail-outs), confidence has been restored and banks are lending again. Therefore, we do not see any imminent credit-related catalyst which may trigger a near-term market crash.

Furthermore, another reason why we are not fearful is due to the very fact that so many investors today are expecting another crash! To our knowledge, market crashes usually happen when not many are expecting them and it is unlikely that we will get a massive panic when so many are already nervous.

It is our contention that after a wobbly October, the markets will gather their poise and a powerful year-end rally may occur. So, our suggestion is that you hold on to your long-term investment positions and add more capital towards the end of this month. We continue to favour the emerging nations of Asia and recommend exposure to China, India and Vietnam. Out of our preferred markets, India and Vietnam have broken out to new recovery highs, whereas China's stock market is still caught in a medium-term correction. Based on sentiment and technical data, we have no reason to doubt our view that stocks are a few months into a cyclical bull-market which will continue until central banks start raising interest-rates. If our assessment is correct, this bull-market could go on for 2-3 years.

Over in the forex market, it is worth noting that the US Dollar is holding steady and it looks as though it may be on the verge of a rally. Yesterday, the US Dollar Index closed just below its multi-month downtrend line and if it manages to close above 78, we could see a sharp reversal in the currency markets. If that happens, the American currency will rally and all other types of paper money will decline in value. Should the US Dollar Index close above the 78 level, you may want to convert all your cash reserves to the American currency. Longer-term, we expect the US Dollar to decline against our preferred currencies (Australian Dollar, Canadian Dollar and Chinese Yuan) but nothing goes up or down in a straight line and the American currency may be about to rally over the following weeks.

Moreover, if the US Dollar strengthens, gold and silver will come under pressure. For now, we are holding on to our positions in gold and silver mining companies, but if the price of gold falls below US$925 per ounce, it will be a bad omen and we liquidate our positions. As long as gold stays above US$925 per ounce, a strong multi-month advance is possible and we will stay with our holdings but if the market becomes bearish, we will not hesitate to sell.

Elsewhere in the commodities markets, the price of crude oil is range-bound and some weakness can be expected over the following weeks. Longer-term, we expect the price of oil to sky-rocket and we are holding on to our investments in this sector. Nonetheless, we suggest that you wait for a pull-back before adding more capital to upstream energy companies and oil services businesses. Finally, it is noteworthy that the price of natural gas has zoomed in the past few weeks and it looks as though an important low is now behind us. We suggest that you hold on to your positions in this sector.

My Comments: This seems in line for now. The Demand Indicator has signaled me short/defensive as of 9/28 which seems to be good timing so far.

Gold Manipulation...A Smoking Gun?

2009-09-29T08:14:00.002-05:00

My Comments: This is a good commentary from Mike Shedlock on his blog. This is his commentary on a memorandum from then Fed chairman Arthur Burns to Kissenger and Greenspan amongst others.

Misplaced Fears

If governments today are still acting to suppress the price of gold by the same methods, let's have more of them because they clearly aren't working.

Given that the price of gold is roughly $1,000 an ounce, it goes to show that governments are not bigger than the market, and that such manipulation (even if it does still exist) can never work in the long run.

The fear should not be of government to government agreements that can never work in practice, but rather a fear that governments may tax gold sales profits at some phenomenal rate, thereby effectively confiscating gold a second time.

Link to original post here...
Link to Shedlocks commentary here...

My Comments: I think Shedlocks take is spot on. Its fun to read about the manipulation and to be informed...BUT...as he says these fears are misplaced. Over time govts. fail at everything. What you need to focus on is a plan of action to take advantage of their manipulations and use this informatin to protect yourselves. In my opinion the best way to do this is to have a plan.

Declassified Govt doc. Gold & Market Manipulation

2009-09-28T08:05:00.004-05:00

My comments: Declassified govt document from the 1968 where they discuss gold manipulation calling themselves "the masters of gold". This is a telling resource document for anyone struggling to grasp market manipulation and governments role in it.

Full article here...

Weekly update by Puru

2009-09-25T09:21:00.002-05:00

Global stock markets had become overbought and a near-term correction is now underway. Based on sentiment and technical indicators, our guess is that the overbought conditions will be alleviated via a sideways consolidation or shallow correction. At this stage, we do not expect a significant collapse in stock prices and our suggestion is that you should be buying the pull-back. It is worth noting that despite the disbelief and skepticism surrounding this rally, the markets are staying firm. When it comes to investing, sometimes the minority view is the correct one. Today, we do not know of many people who are forecasting a sustainable rally or a strong economic recovery and this bearish sentiment should keep a floor under stock prices. Furthermore, despite the strong multi-month advance, assets in money-market funds are still unusually high when compared to America's stock market capitalisation. So, if an autumn crash does not materialise, we suspect eager buyers will look for a higher return on their invested capital. In our view, emerging Asia will be the prime beneficiary of this asset reflation and we continue to like China, India and Vietnam. All these nations are fundamentally sound, their economies are growing rapidly and we expect long-term investors to benefit.

For a bigger perspective, it is worth keeping in mind that over the past decade, stock markets in the West have been a loss making proposition. Back in March 2000, the S&P500 peaked at 1,527 and almost a decade later, it is trading at 1,050. Today, the largest American businesses are trading roughly 32% below their decade-ago level and for the first time in years, they are fairly priced. For sure, during the most recent bear-market, stock valuations did not plunge to lows seen during the 1974 or 1982 recessions but this can be credited to the current near-zero interest-rates. Remember, in 1974 and 1982, interest-rates were significantly higher, therefore cash and fixed income securities offered stiff competition to stocks. Back then, this is what caused stock valuations to plummet below 10 times reported earnings. Today, interest-rates are much lower, which explains the relatively higher valuations in global equities. So, our advice is that you ignore the near-term economic uncertainty and buy into solid companies which are trading at attractive valuations. Currently, we have exposure to businesses in energy, mining, steel, agriculture, Asian retail, US healthcare, heavy construction, telecom and computer hardware.

Over in the commodites world, the price of crude oil is still caught in a trading range and we recommend that you keep your positions in upstream energy companies and energy services businesses. Whether you like it or not; the era of cheap oil is over and we will experience ugly energy shocks within the next 4-5 years. Given the grim reality of 'Peak Oil', our biggest exposure is to the energy sector and we suggest that you hold on to your long-term investments in this sector.

As far as metals are concerned, base metals have corrected over the past few days and this should continue for another few weeks. Diversified mining companies have sold off in sympathy but they should perform well as long as the equity bull-market is intact. So, we suggest that you keep your positions in dominant mining companies. In the precious metals sector, gold is still trading below its all-time high and it seems that the central bankers are trying their best to knock down the price of the yellow metal. It is our observation that over the past few days, whenever gold has rallied to challenge its all-time high of $1,030 per ounce, central banks have threatened to remove 'liquidity' from the system. The reality is that the economic condition is still fragile and central banks will not be able to tighten monetary policy anytime soon. It is our contention that short-term interest-rates will remain low for at least another year and this should be a big positive for gold and silver. If the bull-market is still intact, then gold should rise above $1,030 within the next few weeks. Otherwise, we will have to question the bull-market hypothesis. For now, we are holding on to our positions in precious metals mining stocks but if gold's price action deteriorates, we will consider selling our holdings.

Finally, in the currencies department, the US Dollar remains weak. Make no mistake, America is running a mind-boggling budget deficit and spending money it does not have. Under this scenario, short-term rallies notwithstanding, we expect the US Dollar to slide further over the medium to long-term. Our preferred currencies (Australian and Canadian Dollars) are amongst the strongest in the world and we suggest that you keep your positions.

My Comments: He is making lots of predictions and "For the record" I agree with him. BUT when someone make such bold statements as "this will happen" or " this is going to happen" they better have a very good exit strategy or process to protect themselves if they are proven incorrect. When you are so certain that an event is happening or is going to happen you can fall victim to being blindsided by the unknown.

Weekly Update from Puru

2009-09-18T15:24:00.000-05:00

Global markets are heating up and the bull-run is gathering steam. This nascent bull-market is climbing the ‘wall of worry’ and this is encouraging.

Look. When it comes to investing, nervousness is your friend, overconfidence your enemy. At present, the vast majority of people do not trust this rally and most believe that this is a dead-cat bounce or a bear-market rally. Somehow, the skeptics are failing to take note of the fact that already, some emerging markets have almost doubled and even the lagging indices in the West have risen by roughly 60%. Such large rallies coupled with the almost universal bearishness prevalent today is an indication that the bull-market has much further to run. In fact, we would not be surprised, if the S&P500 rose by another 20% by year-end.

Yes, we are aware that all is not well in the American economy and several risks persist. First and foremost, unemployment is still rising, Option-ARM and Alt-A loans are coming up for resets and nominal wages are in decline. However, most of this negative news is known by most market participants, hence it may be fully discounted in today’s prices. Remember, stocks are claims on the very long-term cash flows of operating businesses. Moreover, the vast majority of a stock’s present value is determined by what the underlying business will produce over the remaining life of the asset.

Turning to the present situation, even if the economy remains weak for another year or two and business remains sluggish, it is not necessary that stock markets will plummet again. The reason why we say this is because during last autumn’s market panic, most stocks were decimated and were already priced for a long-lasting global depression. Fortunately, the worst-case outcome has not played out and this is the reason why we are witnessing one of the strongest rallies in history. Now, given the steep yield-curve and accommodative monetary policy, it is our contention that the bull-market will continue for several months. In our opinion, the time to reduce risk in investment portfolios will come when central-banks have raised interest-rates and the yield-curve is flat or inverted. When that occurs, we will liquidate our ‘long’ holdings and re-position our clients’ capital. However, for the time being, we are fully invested in our preferred businesses.

In terms of sectors, we are maintaining our exposure to energy, materials, industrial machinery, telecom and Asian retail. Furthermore, a couple of days ago, we have acquired quality businesses in healthcare and agriculture. In our view, the fundamentals have greatly improved for our new holdings and this should translate into solid long-term growth for our clients. As far as specific markets are concerned, we continue to favour China, India and Vietnam. So far in the bull-market, all these markets have been strong and we expect this outperformance to continue over the rest of the cycle.

Over in the commodities complex, the price of crude oil is staying above US$70 per barrel and this should not come as a surprise to our readers. As you are aware, we expect the price of oil to explode over the following years and our biggest investment positions are in the energy sector. Elsewhere in the energy complex, it is noteworthy that the price of natural gas has rallied sharply over the past week and the related stocks have ignited. Long-term investors should keep their positions.

Over in the metals department, the price of gold is finding some resistance at its all-time high. If the bull-market is intact, then gold must break above $1,030 per ounce and it should not fall below US$920 per ounce. In any event, given the rapid advance over the past few days, we have captured some profits and reduced our exposure to precious metals mining stocks. If gold fails to break out to a new high, we will liquidate our remaining positions in this sector. As far as silver is concerned, it has been outperforming gold and this is bullish. For now, keep your positions but if gold struggles over the following days, then consider selling into strength. Finally, the price of platinum has broken out to a new recovery high and this is another indication that auto demand is returning. Those who believe in an economic recovery should take a look at platinum.

Finally, in the realm of currencies, the US Dollar is getting crushed and this shows that the carry-trade is back in vogue. Our preferred currencies (Australian and Canadian Dollars) are super-strong and should continue to rally over the following months.

Are Foreign Purchases of U.S. Treasury Bonds Being Faked?

2009-09-16T09:45:00.003-05:00

Everyone knows that the American government is gaming the market for treasury bonds to some extent.

For example, the government has itself bought some U.S. Treasuries.

Some writers, such as Rob Kirby and Ellen Brown, go much further, alleging that Bernanke and the boys have also used hedge funds in the Cayman Islands to secretly buy huge sums of U.S. treasuries using dollars printed by the Federal Reserve, while pretending that independent "Caribbean banks" are doing the buying. See this, this and this. I have no idea whether or not they are right.

My Comments: I keep reading about BRIC going away from the dollar and bonds but it hasn't shown up in the charts. Right now bonds are somewhat stable considering the dollar's downtrend and the index's uptrend. The articles posted are rather dated. I'd like to see updated figures of the "Caribbean banks" holdings. Important to note that I'd like to seen these numbers just for fun. Typically by the time somthing like this comes out the market has already made the appropriate move (gold breaking 1000?).

Full article here...

New Records in Gold and $ Update

2009-09-15T20:56:00.003-05:00

My Comments: Gold has achieved a record recently withe its first weekly close above $1000. I'm watching the embedded Stochastics and they are hinting at higher prices until the Stochastics close below the green line 80 mark.

The pause in the dollar was just that. We still have MACD divergence but both the dollar and gold have broken out and the momentum is buliding for bigger breaks. Dollar still has some support at the 74 level. If that fails a big move down would almost certainly follow...stay tuned.

Dylan Ratigan: Americans Have Been Taken Hostage

2009-09-15T07:21:00.003-05:00

The American people have been taken hostage to a broken system.

It is a system that remains in place to this day.

A system where bank lobbyists have been spending in record numbers to make sure it stays that way.

A system that corrupts the most basic principles of competition and fair play, principles upon which this country was built.

It is a system that so far has forced the taxpayer to provide the banks with the use of $14 trillion from the Federal Reserve, much of the $7 trillion outstanding at the US Treasury and $2.3 trillion at the FDIC.

My Comments: Dylan is easliy one of my favorate finacial journalists. He makes some great points.

Full article here

Weekly Update From Puru

2009-09-14T13:20:00.004-05:00

The stealth bull-market is gathering steam. Despite widespread skepticism and disbelief, global markets are staying firm and over the past week, a number of stock indices have climbed to a new recovery high. It is noteworthy that the market’s breadth is very strong and an increasing number of stocks are now breaking out to a new 52-week high. Moreover, the Volatility Index (VIX) has dropped to below 25 and the LIBOR has plunged to 30 bps. These are all positive developments which suggest that the market’s advance is likely to continue. There can be no doubt that on a near-term basis, the markets are overbought but so far, every pullback has been met with strong demand.

Even though the stock markets have risen significantly over the past few months, most people do not trust this rally and many are expecting another autumn crash. In our view, that time is running out for the bears and the longer the markets stay firm, the lesser the odds of a significant plunge. On the contrary, if the markets do not collapse over the next month or so, we could get an explosive year-end rally.

Please bear in mind that our investment strategy does not depend on the short-term price fluctuations and we cannot be certain as to where the market will be in a month or even six weeks from now. Instead, what we do know is that interest-rates are at record-lows in most nations, central banks are creating money and in this environment, stocks offer a formidable competition to cash and fixed income investments. Accordingly, we suggest that you hold on to your positions in quality businesses which are likely to increase their earnings in the future. As far as sectors are concerned, we prefer natural resources, infrastructure, industrial machinery and Asian retail. Yesterday, we have also added a quality health care business to our equity portfolios. Remember, millions of baby boomers all over the world are approaching retirement. As they age and their health deteriorates, dominant businesses in the health care industry should thrive. So, consider allocating some capital to the dependable medical industry.

In terms of markets, we continue to favor the emerging nations in Asia and have exposure to China, India and Vietnam. All these markets have done exceptionally well over the past few months and we expect this out performance to continue over the entire business cycle. Therefore, we suggest that you keep your positions and deploy more capital during pullbacks.

In the world of commodities, the price of crude oil is trading around US$72 per barrel and it should rise over the following years. At present, our biggest investments are in the energy complex and we suggest that you maintain your exposure to upstream oil companies and the oil services stocks. As far as metals are concerned, several base metals have climbed to new recovery highs and this is a good sign for the global economy. Investments in diversified mining companies should produce good growth over the following years, so keep your positions.

Furthermore, in the realm of precious metals, market action is heating up. Gold is currently flirting with the psychologically important US$1,000 level and the renewed weakness in the US Dollar suggests that gold may be on its way to an all-time high. For now, keep your positions in bullion and the precious metals mining stocks but if the price of gold falls below US$920 per ounce, then consider liquidating your precious metals related investments. Based on the recent market action, it seems to us that gold will climb to a new high. So, if a multi-month rally materializes (our expectation), then the precious metals mining stocks will be big winners and silver should outperform gold. Under this scenario, we will hang on to our holdings in precious metals and will probably sell into the euphoria next spring.

Finally, in the currencies department, the US Dollar has broken below important support and its weekly chart looks awful. This weakness in the American currency is a clear indication that the central-bank sponsored reflation is working and the US Dollar is again being used as a carry-trade currency. We suggest that you keep your cash in the Australian and Canadian Dollars.

The ghost fleet of the recession

2009-09-14T13:01:00.003-05:00

My Comments: Good article making the rounds. The Baltic Dry Index collapsed and hasn't recovered at all. I leads me to ask "who is going to consume enough products to get these ships moving?". The BRIC nations have relied on the US to eat every thing they produce but that bubble has popped. The only way these ships get moving is if there is a new designated eater.

Full article with some good pictures here

Weekly Update From Puru

2009-09-04T13:14:00.002-05:00

The stealth bull-market continues and the recent market action in constructive. As we approach the first anniversary of last year's crash, it is possible that we may get some near-term setbacks, however the trend for global stocks is up. We maintain our view that the bear-market is now behind us and that we are in the early stages of a multi-month advance. Today, considering the ultra-loose monetary policy and near-zero interest-rates, a case can be made that global stocks are moderately priced. Remember, in this low interest-rate environment, cash and fixed income assets do not offer much in terms of competition for equities and this is the reason why we believe that the current valuations are justified. For sure, stock markets valuations at previous bear-market bottoms (1974 and 1982) were much more compressed, however during those periods, interest-rates were significantly higher. This is not the case today and we continue to view last year's market sell-off as a superb long-term investment opportunity.

It is worth noting that last year's panic crushed all stocks and even some of the world's strongest companies experienced huge declines in their stock prices. If you are a long-term investor, such opportunities do not come around often and we suggest that you ignore the near-term uncertainty and allocate capital to dominant companies. Given the macro-economic outlook, we prefer the emerging markets of Asia and in terms of industries, we love the natural resources complex. We have considerable exposure in these areas and we also own world-class companies in several other sectors such as telecommunications, industrial machinery, heavy construction, consumer discretionary and retail. As an investor, pessimism is your friend and the negative sentiment prevalent today is providing you the opportunity to buy into solid companies at depressed prices. So, we suggest that you continue to hold on to your position in equities and perhaps add more capital.

In the resources complex, the price of crude oil is correcting its recent gains and we expect a rally over the following months. Therefore, we recommend that you maintain your holdings in the energy patch. The price of natural gas has declined even further and sentiment is now horrific. For the moment, there is no shortage of natural gas but once the industrial demand picks up, the price of natural gas will rally. So, long-term investors should hang on to their positions in quality natural gas companies. As far as natural gas ETFs are concerned, the excessive 'contango' in the futures market has turned them into a loss making proposition and a few weeks ago, we closed out our positions at a modest loss. Accordingly, we suggest that you participate in the natural gas sector via producing companies as opposed to buying an ETF which simply 'tracks' the price of the physical commodity.

The action is heating up in the metals department and over the past couple of days, we have seen some big moves in gold and silver. As you are aware, we were expecting a large move and now it will be most interesting to see whether gold can break past its all-time high recorded in March 2007. If this bull-market has legs, gold will be able to climb to a new high and stay there. Of course, we will be delighted with this development as we have significant exposure to precious metals mining stocks. However, for us to be totally comfortable with the bull-market hypothesis, gold must

Finally, in the world of currencies, the US Dollar is still bouncing along its support level and over the past few days, it has rallied in tandem with gold! This action is most unusual and we will have to wait and see. For the sake of gold's bull-market, we would have been a lot happier with the American currency weakening, however this is not what is happening. For now, we suggest that you continue to keep your cash reserves in the Aussie and Canadian Dollars, but if the US Dollar Index breaks above the 80 level, consider buying the American currency.reach a new high very soon. For now, our advice is that you stay with your positions in bullion and the related mining stocks, which should explode if gold manages to confirm its bull-market.

My Comments: The last paragraph is what we have been watching in the charts over the past few posts. One point he doesn't make is that if the dollar breaks over .80 it would more that likely coincide with sell off in stocks.

Gold and the Dollar Update

2009-09-03T23:16:00.005-05:00

My Comments: Gold has broken out of the wedge and is testing the $1000 mark...my guess is that it break over $1000 and on to new highs soon. Also note that the dollar remained range bound during this period. If the continues it is deflation, not inflation that is driving gold. no one knows for sure but the charts will give us hints/probabilities.

Click on the charts for a larger image...

China Set to Buy $50 Billion in IMF Notes

2009-09-03T15:45:00.002-05:00

WASHINGTON -- China is on track to become the first purchaser of notes issued by the International Monetary Fund, a move that would diversify its foreign asset holdings and could give the IMF's quasi-currency more clout.

The IMF on Wednesday said China has signed an agreement to purchase approximately $50 billion in notes from the fund. The notes are denominated in Special Drawing Rights, a quasi-currency issued by the fund and promoted by China as a potential replacement for the dollar ...

My comments: They continue to look for a new asset classes to move into...I dont know enough about IMF notes to comment on them. The real issue is that China seems committed to move away from the US notes.

Full article here...

Special Update from Puru

2009-09-02T09:51:00.002-05:00

It looks as though the multi-month correction in precious metals is coming to an end and very soon, we are going to get a major move. If the bull-market is still intact, then gold should break above US$1,000 per ounce within a few weeks. However, if the price of gold fails to do this, we could see a sharp decline in bullion and precious metals mining stocks. Put simply, if the price of gold falls below US$920 per ounce, it will be a negative omen and at that point, our suggestion would be to immediately sell your precious metals and related mining stocks.

My Comments: These are around the areas that gold has been trading in its wedge that I posted yesterday.

Yes, the macro-economic environment is bullish for precious metals but this has now become a very crowded trade. Most investors are positioned for an explosive rally and if gold fails to climb to new highs soon, we may get heavy liquidation from the frustrated bulls. Under this bearish scenario, the price of gold and other precious metals could plummet rapidly and this is the reason why we are suggesting that you exit your 'long' positions if gold breaks below US$920 per ounce. Although the chart pattern for gold looks like a gigantic 'inverse head & shoulders' bottom, it could also turn out to be a massive double top. Remember, gold's chart pattern is almost identical to copper, which staged a spectacular decline last year. So, we will have to wait and see how things develop.

In our view, the direction of gold's breakout will depend on the US Dollar Index, which is currently trading above a major support level. Yesterday, the US Dollar Index managed to break out of its declining trend line and this is good news for the greenback. Over the following days, if it closes above the 80 level, it will be a big positive for the American currency and a drag on precious metals. Conversely, if the US Dollar Index breaks below the 77 level, it will usher in the anticipated rally in precious metals. So, in the near-term, we suggest that you keep a close eye on the US Dollar Index as movements over here will determine the fate of precious metals.

My Comments: This is what I was highlighting in yesterday's charts. However he doesn't account for a possible recouple of gold to the green back...During the panic of 08 gold proved that it can be more then an inflation hedge...Time will tell.

In summary, if gold breaks below US$920 per ounce, we urge you to liquidate all your holdings in precious metals. Moreover, if the US Dollar Index breaks above the 80 level, we advise you to convert all your cash reserves to the American currency.

The above strategy may seem flippant to some of our readers but given all the uncertainty in the economy, we want to keep an open mind. More importantly, we want to ensure that we are prepared for all eventualities. Remember, Wall Street is littered with the graves of those who got married to one market forecast and failed to smell change. Instead, we prefer to be vigilant and will continue to adjust our investment positions based on market action.

My Comments: This is what I was showing on yesterday's post. It looks like Puru and I are on the same page...or he reads my blog. I bet its the former.

S&P, Gold, and the Dollar

2009-09-01T17:57:00.003-05:00

My Comments: Big sell off in the S&P. This is expected being at the top of a channel and could continue towards the bottom of the range as MACD and Stochastic divergence are indicating. These arenot sure fire indicators as they were indicating a selloff in late June that turned into the July blastoff.

Gold is remaining within its consolidation range. However with the S&P selling off and gold closing up with the dollar is hinting towards deflation or more deleveraging. I still think its best to wait on gold to either break out of its triangle and as we approach the apex of the triangle, gold should decide soon.

Dollar broke over its trendline that I have been highlighting in past posts. Im watching its relationshionship with gold and im seeing signs that they could be recoupleing. If this develps I will post the charts and show you what I'm talking about.

Why Are We Such Suckers For Prediction?

2009-08-31T12:09:00.002-05:00

In his book “The Black Swan” Nassim Taleb says, “We have seen how good we are at narrating backwards, at inventing stories that convince us we understand the past. In spite of the empirical record we continue to project into the future as if we were good at it, using tools and methods that exclude the rare events.” Funny isn’t it, since the big, rare, unpredictable events are precisely what shape the world. Events like the automobile and the World Wars, the internet and the Beatles.

I think it’s ironic that by accepting we have little control over most things, actually gives us greater control over what might happen.

My Comments: Great writeup and I think it can be applied to several different areas of life, investing, ect...

Full read here...

Weekly update from Puru

2009-08-28T09:23:00.001-05:00

The stealth bull-market continues and the price action remains solid. Although trading volumes have been weak over the past few months, the market's breadth is very strong with the advance/decline line breaking out a new recovery high. Moreover, the number of new 52-week lows on the NYSE have dried up to 1, whereas the number of stocks breaking to new 52-week highs have increased to 60. Remember, during last October's crash, over 2,200 stocks on the NYSE dropped to a new 52-week low on the same day! That selling panic marked the internal low for the bear-market and ever since, we have seen an improvement in the market's technicals. Furthermore, it is good to note that the Volatility Index (VIX) has now declined to 24.5 and the TED Spread (difference between 3-month LIBOR and yield on the 3-month US Treasury Bill) has plummeted to well below the historical average. This is a good indicator and confirms that the banking system is no longer stressed.

There can be no doubt that we are likely to see more foreclosures over the following year as a second wave of Option-ARM and Alt-A resets hit the US. However, we are of the view that with the steep yield curve and 'free money' from the governments, most banks will be able to withstand any credit losses which may arise from defaults. Therefore, we may see some more jitters but we'd be extremely surprised if the bear-market lows were violated over the following months. At present, our clients' capital is fully invested in our preferred businesses and markets and we would suggest that you hold on to your existing positions. If we do get a pull-back, consider allocating more capital to resources and emerging Asia. If you are good at selecting individual companies, then you can also allocate capital to quality businesses which are outside the resources complex.

For our part, we have identified superb companies which are dominant businesses in their respective fields. Before we allocate capital to any business, we carefully evaluate the financial statements of the past 10 years and we prefer to see consistent earnings growth, growing market share, high returns on equity, low debt levels and most importantly; a reasonable price tag. At present, more than 60% of our clients' capital is invested in the resources complex, but we have also selected superb businesses in the telecom, industrial machinery, retailing and consumer discretionary sector. Remember, last year's bear-market severely punished all stock prices and even the good companies weren't spared. In our view, this represents a fantastic opportunity to acquire partial stakes in outstanding businesses. Now, I must confess that I don't know where the market will be in a few weeks time, but I can say with certainty that this recession will end and and good businesses will continue to thrive over the medium to long-term. The best time to buy assets is when everyone else is nervous. Uncertainty is an investor's best friend, over-confidence is his enemy. So, we would sincerely recommend that you ignore all the 'end of the world' forecasts and convert your temporarily powerful investment dollars into sound assets. Make no mistake; monetary inflation is a fact, deflation is a theory. Over the past century, cash has lost almost all its purchasing power via inflation and this trend will continue for as long as central banks control the monetary levers. So, there is no point in hoarding cash over the medium to long-term.

Over in the commodities complex, the price of crude is trading around $72 per barrel and it should rise exponentially over the coming decade. So, allocate capital to quality upstream companies and oil services stocks. We would suggest that you avoid investing in the oil majors as they are struggling to maintain reserves and production. Instead, independent exploration and production companies should produce more growth over the medium to long-term. Over in the metals department, copper is staying firm and other base metals are also appreciating in value. This is due to an explosion in Chinese imports and perhaps due to the debasement of currencies.

Wherever you care to look, in the entire commodities complex, we are dealing with rising demand and struggling supplies. A few years ago, we entered an era of resource scarcity and this problem will intensify over the coming decade. Put simply, our planet's resources cannot sustain the emergence of an Asian middle-class. Asia has over 3 billion people and you can imagine the drain on the planet's resources even if a third of this population (1 billion) demanded a better quality of life. Fortunately, for the commodities investor, this will translate into mouthwatering profits.

Finally, in the world of currencies, the US Dollar Index is bouncing along an important support level and in our opinion, it will decline over the medium to long-term. Our preferred currencies (Aussie and Canadian Dollars) are strengthening and we expect this trend to continue. Over in the US government bond market, interest-rates have declined somewhat and we expect them to stay range-bound for a few more months. Over the longer-term however, we anticipate US interest-rates to rise dramatically as the American government struggles to raise capital.

Dollar Update

2009-08-26T16:34:00.003-05:00

My Comments: If support holds, and the dollar bottoms out, this is bearish for equities, foreign currencies, commodities, Real Estate, ect. However if it fails the opposite is true. The trend is down and we can expect it to continue until proven otherwise. I'm seeing a few hints that it might be proven otherwise.

My Comments: On the Chart.

Weekly Update from Puru

2009-08-23T16:41:00.000-05:00

The bull-market continues to climb the 'wall of worry' and the recent market action has been impressive. Rather than declining sharply in order to eliminate the overbought conditions, global stock markets are simply consolidating their recent gains. Remember; we are approaching the first anniversary of last year's autumn crash and investor sentiment is turning jittery. Nonetheless, stock markets are showing signs of strength by refusing to break down and every near-term correction is being met by renewed buying. In terms of technicals, the market's breadth is impressive with the NYSE advance/decline line reaching a new recovery high, meanwhile sagging volume remains a concern. In our view, if the markets manage to remain steady for another month or so, strong buying will emerge and we will witness rising volumes as traders return from their summer vacations. So, rather than a repeat of last year's horror show, it is probable that we will see a strong advance towards year-end.

Over the past few days, China's stock market has declined sharply but we view this pullback as a routine correction within an ongoing bull-market. Although the Shanghai Composite Index may decline further over the coming days, the downside seems to be limited and long-term investors may want to add to their positions during this period of weakness. Look. Since the turn of this decade, we have maintained that China is destined to become the next great country in the world. Fortunately, Beijing has done a fabulous job of managing China's economy during this recession and the stage is now set for superb long-term growth. Accordingly, every investor must have some exposure to China and now is the time to buy quality businesses in one of the fastest growing economies in the world. Apart from China, our other preferred markets (India and Vietnam) are also performing well and we suggest that you hold on to your long-term positions. If we do get a near-term pullback, consider allocating more capital to these developing markets.

Over in the world of natural resources, our view remains that our planet is sleepwalking into a monumental supply crunch and the end result will be a historic crisis. Whether you like it or not, hard data confirms that the era of cheap energy is over and we will see acute shortages of hydrocarbons over the following decades. It is worth noting that during this severe recession, global demand for crude oil has only shrunk by 2.6% and usage in the emerging world has continued to rise! So, what will happen when consumption picks up again? Who will rise to the challenge and produce the extra oil? Our research leads us to believe that it will be extremely difficult (if not impossible) to significantly ramp up oil production from these levels. Therefore, we expect the price of crude oil to rise exponentially over the medium to long-term. And once the depletion rates accelerate, we will see acute shortages followed by rationing. In light of the above, our recommendation is to allocate a large portion of your investment portfolio to energy (upstream oil/gas companies and oil service stocks).

Elsewhere in the commodities complex, base metals' prices are firming and this is another positive development. Yesterday, copper closed at $2.75 per pound and after a near-term correction, it should rise further. Similarly, other base metals are also rallying and this could be due to a pick up in industrial demand. As China, India and the other developing nations continue to industrialise and urbanise, there will be a huge demand for industrial commodities. Unfortunately, supplies won't be able to keep up and the result will be a big bull-market in commodities. So, our suggestion is to buy and hold on to diversified mining and steel companies as these businesses are likely to produce sound operational results over the following years. As far as precious metals are concerned, both gold and silver are in the latter stages of a multi-month consolidation period. If the bull-market is intact, we should see upward breakouts soon and the rally will probably last until spring next year. So, our advice is to hold on to gold and silver mining stocks.

In the money and debt markets, the US Dollar Index is bouncing along an important support level and it looks as though it will weaken sharply over the following months. The US is running a huge budget deficit and almost half of this hole will be financed by printing US Dollars. So, it is probable that the US Dollar will decline against the more sound currencies such as the Canadian and Australian Dollars. Furthermore, the currencies of emerging Asia should also strengthen against American money. Finally, the action in US Treasuries is choppy with the 10-year Note yielding 3.42% and the 30-year Bond yielding 4.24%. Over the past few days, yields have dropped somewhat and they could go lower in the near-term. However, over the long-term, we expect US yields to rise significantly as America struggles to raise capital from foreign investors.

Everything the Government Runs is Bankrupt

2009-08-20T20:40:00.002-05:00

My Comments: Can't add anything else. He nailed it.

Toxic Loans Topping 5% May Push 150 Banks to Point of No Return

2009-08-19T21:41:00.003-05:00

Missed payments by consumers, builders and small businesses pushed 72 lenders into failure this year, the most since 1992. More collapses may lie ahead as the recession causes increased defaults and swells the confidential U.S. list of “problem banks,” which stood at 305 in the first quarter.

My Comments: When I hear banks going broke I can only think of two things...One, they paid taxes on past earnings that were used to bailout C, JPM, WFC, BAC, GS, GE, GM, ect...Is this socialism for big business or fascism? And second, when is FDIC going to run out of money?

Full article here...

Weekly Update from Puru

2009-08-14T14:03:00.003-05:00

The stealth bull-market continues amidst widespread disbelief and skepticism. Over the past week, market action has been constructive and several technical indicators have recently improved. At present, stocks are consolidating their recent gains and apart from periodic corrections, we expect them to rally over the next 2-3 years.

Yes, the West still faces problems in terms of too much debt and rising foreclosures but the markets seem to have discounted these worries. After the horrendous decline last autumn, most major stock markets have broken out to new recovery highs and this is bullish action. Now, it is conceivable that we may get some jittery pullbacks as we approach the anniversary of last year's crash, but our suggestion is to buy the dips.

My Comments: Yes it is possible that these prices have discounted these things. But a more likely scenario is that we are experiencing the beginning of irrational prices.

We continue to favor the developing markets in Asia and recommend exposure to China, India and Vietnam. All these markets are likely to produce exceptional growth over the medium to long-term.

Over in the energy complex, the price of oil is holding above $70 per barrel and it should rise exponentially over the following decade. The reality is that dwindling supply is facing rising demand and this will translate into much higher prices. Eventually, we will see shortages and oil may only be used for aviation and agriculture. So, in our view, every investor should allocate a meaningful portion of their capital to the upstream oil companies and the energy service companies. If our homework is correct, oil drillers and oil service businesses will make a small fortune over the coming decade.

At current levels, the price of natural gas is extremely cheap and it should rally as soon as industrial demand returns. Accordingly, we suggest that you maintain your exposure to gas producing companies.

Over in the metals department, the price of copper has climbed to a new recovery high ($2.92 per pound) and this is a good sign for the global economy. Other base metals are also rallying hard and they should appreciate further over the following months. Accordingly, we suggest that you keep your positions in diversified mining companies and add more capital on pullbacks.

As far as precious metals are concerned, the action in gold and silver has been as exciting as watching paint dry. It seems as though the lengthy consolidation is in its final phase and we should see a big move over the following months. If the bull-market is still intact (our view), then both gold and silver should break upwards before year-end. So, hold on to your bullion and precious metals mining shares.

My Comments: This is what I was pointing out in my last gold chart update. Price is in a slap fight within this wedge and don't expect to see anything phenomenal until we breakout of it in either direction.

Over in the world of currencies, the US Dollar is coming under pressure against our preferred money - Australian and Canadian dollars. As the commodities bull-market gathers steam, both these currencies should benefit immensely and we remain long-term bulls.

My Comments: Take a look at my last post and chart on the dollar. Its reasonble to see that we are carving out a bottom in it. This is contrary to what Puru is forecasting. In otherwords price is hinting that there is demand for dollars at this price. I would need to see the technicals that I pointed out in the dollar to reverse downward to be fully onboard with him.

Dollar Index

2009-08-11T09:56:00.003-05:00

My Comments: You'll notice the MACD and Stochastic divergence on the daily chart. This hints that the dollar could be carving out a bottom of some kind. Pay attention to the upper trend line and if it is broken would be a signal that the inflation trade is on hold...With the Stock markets looking toppy to me, a sell off in the equities would send some cash out of Euro, Aud, GBP, CAD and back to the greenback. And keep in mind that I think the inflation trade is the big theme but its important to sideline those opinions when price starts to hint otherwise...

Weekly Update with Puru

2009-08-09T17:43:00.002-05:00

Global stock markets are consolidating their recent gains and this is impressive given the sharp rally since March. Rather than correcting sharply, stock markets are clearing the overbought conditions by grinding sideways. Our view remains that we are in the early stages of a 2-3 year cyclical bull-market which will probably end when central banks tighten monetary policy by raising interest-rates. Until that happens, asset markets should continue to benefit from the massive stimulus provided by the establishment. Now, there can be no doubt that this recession is much more severe that the typical slowdown seen in the past few decades, but the current situation is nowhere near as bad as the depression years of the 1930s. Well, it seems that other people are also coming to the same conclusion and this explains the recent re-pricing of risky assets such as stocks and commodities.

As far as stock markets are concerned, emerging Asia is providing leadership and we expect this trend to continue throughout this cycle. So far, two of our favourite markets (China and India) have led the pack. Over the following months, we expect Vietnam to play catch up. These three Asian economies are growing rapidly and long-term investors should be rewarded by owning quality businesses in these nations. Accordingly, we suggest that you hold on to your positions and perhaps allocate additional capital during temporary pull-backs.

In the commodities complex, the price of crude oil is trading around $70 per barrel and it is likely to soar over the following years. Whether you like it or not, the world's oil production is peaking at a time when usage is on the rise. All other things being equal, this supply and demand imbalance should result in much more expensive oil. If our homework is correct, the price of oil will probably rise at an increasing rate over the following years and ultimately we will see shortages. In fact, the supply situation is so dire that within a decade or two, oil may only be used for aviation and agriculture. Obviously, it is difficult to forecast how high the price of crude will go but last year's record of $147 per barrel should be easily surpassed. Over the past few weeks, we’ve allocated a major proportion of our clients’ capital to quality businesses in the energy industry and we suggest that you do the same. To be precise, we’ve invested in upstream oil/gas companies, oil drilling contractors and businesses engaged in producing alternative sources of energy. Dominant businesses in these sectors should produce satisfactory growth over the following years.

Over in the metals department, copper has shot up to a new recovery high and this is an encouraging sign. It is worth noting that most of the high-grade ore in the world has already been mined and copper companies are now being forced to mine lower-grade ore. This development together with the rising cost of energy should underpin copper’s bull-market. Along with copper, most of the other base metals are also rising and the boom should continue for the foreseeable future. Long-term investors should consider an investment in diversified mining companies. As far as precious metals are concerned, both gold and silver are still trapped in a trading range and if the bull-market is still intact (our view), they should soon commence a powerful advance. Therefore, investors should hold on to their physical bullion and perhaps allocate some capital to precious metals’ mining shares.

In summary, it looks as though the secular boom in commodities and emerging Asia has resumed and investors should focus on acquiring partial stakes in dominant businesses positioned to benefit from resource-scarcity and the urbanisation of China and India. After thorough research, we’ve identified superb companies which boast durable competitive advantages, solid balance-sheets and attractive valuations. If history is any guide, such quality businesses should deliver outstanding returns over the medium to long-term. And we suggest that you focus on the big picture by allocating your capital to the strongest companies in our preferred sectors and markets.

My Comments: Dont fight the charts and they are all pointing up at the moment. As long as you understand that this rally will end (some day) and have a plan to exit, you're okay. Fundementally the rally is bogus and if/when it rolls over we could see a big drop in either real or nominal prices. Pay attention.

Gold Chart

2009-08-06T21:44:00.004-05:00

The Right shoulder of the year long head and shoulders formation in gold is consolidating into a wedge/triangle. either directin gold decides to break out of should be a significant move. Since we are in an uptrend, I expect that gold will break to the upside. Watch this triangle as a key indicator for the timing and the completion or failure of the head n shoulders.

Insiders are selling

2009-07-30T07:01:00.003-05:00

Despite a near 50% rally in the stock market and “better than expected” earnings across the board, we’re continuing to see unprecedented levels of insider selling and record low levels of insider buying. The buyers in recent weeks have accumulated just over $26MM in stock ($16.5MM of which was one buyer). Meanwhile, the sells amount to over $300MM. That’s a staggering 1:30 ratio if you back out the one larger buy.

My Comments: We've known about this for some time now and it obviously hasn't had any effect on price. They could be wrong and as prices keep moving up they are but if prices break sharply there are a lot less people willing to step in and buy.

Full Article here...

A $100 million bonus

2009-07-28T12:13:00.002-05:00

Citigroup (C) is considering paying a $100 million bonus -- to one guy.

This is the same Citigroup that received $45 billion in bailout money. The same Citigroup that will soon be 34% owned by the U.S. government. The same Citigroup that has lost 95% of its share value since 2007.

My Comments: There is an ongoing uproar over Citigroup doing this. I'm perfectly fine with this. The man signed a contract and performed. Pay him. Case closed.

However, there is talk Obama is going to send one of his "Czars" to amend that contract. So I guess Obama gets to decide which contracts are valid and which aren't (just like the contract that GM and Chrysler had with their bondholders).

The bottom line is this guys salary (although probably excessive) is going to be taken from him. and if the govt doesn't like having to deal with these issues then next time they should just let the banks fail and he can find a new job. Problem solved.

Whats in the Bag?

2009-07-26T23:15:00.002-05:00

Visit msnbc.com for Breaking News, World News, and News about the Economy

My Comments: Great layout of the feds transactions. The whole thing reminds me of a game show where a contestant can "Risk it all!" for a chance at whats in the mystery bag. It usually turns out to be a horrible deal for the contestant. My guess is that it will turn out to be horrible for the taxpayers...

Weekly Update from Puru

2009-07-24T19:10:00.001-05:00

The recent market action suggests that the bear-market low is now behind us.

Over the past few days, most of the stronger emerging markets broke out to new recovery highs. Furthermore, over the past couple of days, even the lagging stock markets in the West managed to climb to new recovery highs. It is noteworthy that yesterday, the Dow Jones Industrial Average break through its overhead resistance and closed above the psychologically important 9,000 level. Moreover, both the S&P500 and the NASDAQ also rose to new recovery highs. This is very impressive action and consistent with our view that we are now in the early stages of a cyclical bull-market which could continue for 2-3 years. You may recall that in January's edition of Money Matters, I stated that we felt that we were already in a cyclical bull-market and it seems that our assessment was correct. Yes, it is true that only a couple of weeks ago, we were expecting a multi-week pullback but the markets resolved their overbought conditions via a sideways consolidation instead of another correction. Accordingly, we have now parted ways with our defensive investment position and in the past week, we have re-invested our capital in our preferred markets in emerging Asia and the commodities complex. Our view remains that emerging Asia and commodities remain in a secular bull-market which will probably end in a gigantic bubble in the future.

In the business of investing you must remember that economic news is always the most rosy at market tops and most negative at major bear-market bottoms. This is why we take our cues from the market action instead of the experts. Over the following months, many economists and experts will continue to be skeptical about this rally and this is due to the fact that they are psychologically committed to their bearish outcomes. We suggest that you ignore the 'noise' and focus your attention on the market action which NEVER lies. Remember, all the hopes, aspirations and fears of all market participants are distilled into the price action on a daily basis and for now, the majority of investors seem to be forecasting better times ahead. We are aware that there are no guarantees in this business and there is always a possibility that this is a false dawn, but the odds of this are diminishing by each passing day. Put simply, if you are a bear, time is not on your side. The longer the markets continue to trend upwards, the greater the chances that the central-bank sponsored reflation is working. Look. We have just witnessed the greatest stimulus in the history of capitalism and it looks as though the policymakers have clipped off the final stage of this bear-market. If our view is correct, this is a fantastic time to be investing in the strongest sectors and markets of the global economy. Capital allocated now should see above-average growth over the next business cycle.

Over in the energy markets, crude oil has bounced up from the recent lows and it should strengthen considerably over the following years. As soon as demand picks up again, our world will witness a horrific energy shock due to 'Peak Oil'. Our research confirms that the majority of oil provinces in the world are now past peak production and this will cause the price of crude to spike higher over the medium-term. So, we suggest that you allocate a large portion of your investment portfolio to upstream energy companies and the energy service stocks. Furthermore, in the energy complex, natural gas is still scraping along its crash lows and patient investors should be rewarded over the next 12-18 months. Our advice is to invest in quality natural gas companies. Finally, alternative energy companies are now extremely attractive and we have recently allocated capital to superb solar companies. We recommend that you do the same. As the various governments push towards alternative sources of energy and Mr. Obama introduces the 'Cap & Trade' system, the alternative/clean energy sector should be a big winner.

In the world of metals, the action is also bullish. Recently, copper has broken out to a new recovery high and this is an indication that the global economy may not be as weak as some suggest. Other base metals are also perking up and should rally further. This is a great time to invest in diversified mining companies which are trading at super-cheap levels. Over in the precious metals department, both gold and silver are concluding their usual, lengthy consolidations and if the bull-market is still intact (our view), then both these metals should rocket higher over the following months. We expect gold and silver to resume the next upleg within a month or so and the rally should continue until spring next year. So, this is an ideal time to load up on physical bullion and precious metals mining shares.

Finally, in the realm of currencies, the US Dollar has started to weaken again and this is another sign that reflation is working. Although the private-sector debt in the West continues to contract, various governments are borrowing massive amounts in US Dollars and this is exerting downward pressure on the greenback. Our expectation is that the American currency will continue to depreciate against the commodity-currencies (Aussie and Canadian Dollars) and it should also slide against the currencies of emerging Asia. So, keep your cash in these currencies.

China to Deploy Foreign Reserves

2009-07-22T11:15:00.003-05:00

“This is reserve diversification in a broader sense. Instead of accumulating foreign exchange reserves and short-term financial assets, the government wants the nation to accumulate more long-term corporate real assets.”

My Comments: Because of the size of their reserves, selling their dollars and bonds for other assets would take some time. If this isn't a smoke screen we will get hints when prices react.

“Everyone is saying we should go to the western markets to scoop up [underpriced assets],” said Chen Yuan. “I think we should not go to America’s Wall Street, but should look more to places with natural and energy resources.”

My Comments: Yikes!

Full article here...

Special update from Puru

2009-07-21T07:37:00.002-05:00

It looks as though the bear-market low is now behind us. Over the past couple of days, a number of leading stock markets have broken out to new recovery highs. Yesterday, both the S&P500 and NASDAQ also hit a new recovery high. This is very positive action and it seems as though the market is now looking beyond the weak US economy and it sees better times ahead. Remember, the market is rising amidst disbelief and skepticism; not many trust the rally - yet, the stock markets show no sign of correcting. The cyclical bull is climbing the 'wall of worry' and the longer the markets can stay firm, the lesser the odds of a dramatic plunge.

In our view, central-bank sponsored reflation seems to be working in the emerging markets and our preferred investment themes (emerging Asia and resources) are showing leadership. It is noteworthy that China is setting new highs on a daily basis and Hong Kong has also broken through its overhead resistance. Furthermore, South Korea and Taiwan have also reached new recovery highs. Over in Latin America, Mexico has climbed to a new recovery high and Brazil is about to play catch up. Given that the stronger markets are breaking to new highs, we will be very surprised if the markets resumed their bear-market.

Based on the bullish market action, we are parting ways with our defensive investment position and re-investing capital in our preferred companies. We are also re-investing capital in China, India and Vietnam. It is our contention that emerging Asia will provide stellar returns over the following months as more and more capital flows to this part of the world. So, we suggest that you ignore the apocalyptic forecasts and allocate capital to the strongest segments of the economy. If history is any guide, this cyclical bull-market should continue for 2-3 years and it will only end when central banks start tightening monetary policy. In the meantime however, investors in emerging Asia and commodities should be able to make some large profits.

Finally, it seems as though the 18-month consolidation in gold is nearing completion and if the bull-market is still intact, the yellow metal should rally sharply over the following months. We expect a break above $1,000 per ounce within the next 3 months and this will set the stage for a move to roughly $1,300 per ounce by next spring. So, this is an ideal time to add to your gold holdings.

My Comments: H's completely changed his tune and I agree with it...to be clear I have no idea what is going to happen and I don't "think" that we are beginning a 2-3 year bull market, but prices are moving higher and that's all that matters as long as you have an exit strategy...What if the market only runs for one year then crashes...or how about a new bubble that no even thought about gets blown up and popped...the markets change and we need to adapt to them...If you think your going to buy and hold any asset, your in for rough times...

Greenlight Holds Bullion

2009-07-20T06:22:00.005-05:00

Greenlight Capital Inc., the $5 billion hedge-fund firm run by David Einhorn, told investors it switched all of its holdings in a gold exchange-traded fund into bullion during the second quarter.

“At a minimum this will provide some savings as the costs of storing gold are less than the fees” for the SPDR Gold Trust, the New York-based firm said yesterday in a letter to investors.

Einhorn, 40, told clients in January he was buying gold for the first time amid the threat of inflation from higher government spending. The firm, started in 1996, held 4.2 million shares of SPDR Gold Trust in the first quarter, making the gold- backed ETF its biggest holding. Gold has climbed 5.8 percent this year.

The firm’s Greenlight Capital LP fund gained 16.3 percent in the second quarter, bringing its return this year to 21.5 percent boosted by investments in Ford Motor Co. debt, according to the letter, a copy of which was obtained by Bloomberg News. The fund lost 23 percent last year.

My Comments: I keep hearing gold bugs talk of a Comex default and there not being as much gold as reported...well, if more and more funds trade in ETF for bullion we will find out if there is any truth to it at all...

Full article...here

How Ron Paul Would Fix the Economy

2009-07-17T08:52:00.004-05:00

My Comments: To sum it all up...Let capitalism work. Strong businesses survive and the weak die.

Flip Flop by Puru

2009-07-16T06:07:00.002-05:00

You may recall that last autumn, I stated that the bear-market had ended and that a new cyclical bull-market had commenced. Back then, the entire world was gripped in fear and some of my readers felt that I had lost my mind. Well, the recent market action is supportive of my view and the rally of the past few days suggests that we are in the early stages of a cyclical bull-market.

As you are aware, a few weeks ago, we liquidated all our ‘long’ positions in stocks and commodities (except natural gas). This was a tactical move to protect capital as we were expecting some sort of correction after the strong rally off the March lows. Well, it looks as though the market is working off its overbought condition by simply consolidating sideways rather than declining in a decisive manner. This is extremely bullish and a sign that demand is returning at higher levels.

Look. We all know that the US economy is weak and there are immense problems in America’s housing market. However, in the business of investing, the markets usually lead the economy and the recent market action suggests that the bears are losing the battle. At this stage, I don’t really know why the market is rallying but the fact is that prices are trending higher. Furthermore, several other technical factors are also suggesting that we are indeed in the early stages of a cyclical bull-market.

Consider the below data:

The VIX has now dropped below 30

The LIBOR rate is below its long-term average

New lows on the NYSE have shrunk to 2

New highs have expanded to 40 – highest reading since October 2008

Advance/decline line has broken out to a new high

Credit spreads have narrowed considerably since last autumn

Asian markets are leading the way with China at a new 52-week high

Markets are rising on horrendous economic news – climbing the “wall of worry”

Most people don’t trust this rally

Looking at the chart of the Dow Jones (Figure 1), it looks increasing likely that the bear-market low is now behind us. Note that the price has now climbed above both the 50-day and 200-day moving averages; something which didn’t occur throughout the bear-market. Moreover, the MACD indicator (bottom panel of the chart) has just turned bullish and this shows that the Dow is likely to go higher.

Figure 1: Dow Jones about to confirm bull-market?

For the moment, we are still maintaining a defensive investment position but we will re-invest capital in our preferred holdings in resources and emerging markets IF the Dow manages to close above 9,100. In doing so, the Dow will confirm the bull-market and we will ride the profitable trend over the following months.

My Comments: This seems like a fair analysis and it show that he has learned something important...deal with what is and not with what you think. Its okay to have opinions and convictions but have a plan when they turn out to be wrong.

S&P 500 Rally Poised to End, DeGraaf Says: Technical Analysis

2009-07-15T22:45:00.002-05:00

The U.S. stock market may follow a path similar to Japan’s benchmark Nikkei 225 Stock Average from 1992 to 2000, he said. The average fell 40 percent during that span even as it posted five quarterly advances of at least 10 percent.

“Japan from 1992 to 2000 was in what aviators call a phugoid -- which is just this long oscillation in price,” deGraaf said. “It looks to us like there’s a reasonable probability that we’re going to enter into a similar period, with more government intervention and all these things that tend to come about after a bubble, particularly one that’s been driven by credit.”

My Comments: Our up current situation is often compared to Japan's "Lost Decade"...Recently we've had an explosive rally with surprising earnings...All of this contradiction leads to one thing. Confusion. A simple solution is to accept the uncertainty and use it to your advantage. Understand that it doesn't matter what happens next or who predicts what if you have a plan...

Full article here...

Cap and Trade and the Illusion of the New Green Economy

2009-07-08T12:40:00.003-05:00

I don’t think Al Gore in his wildest dreams could have imagined how successful the “climate crisis” movement would become. It is probably safe to assume that this success is not so much the result of Gore’s charisma as it is humanity’s spiritual need to be involved in something transcendent – like saving the Earth.

My Comments: And the kicker is...Al Gore isn't even a scientist...He's a failed politician. I feel like this fact is a punchline to a stand up comics joke...sadly it isn't.

And who will decide how many credits will initially be given by the government to each company/farm/industry? Does anyone expect that these decisions will be impartial, without political favoritism shown toward one company over another, or one industry over another? This is one reason why some high-profile corporations are now on the global warming bandwagon. They (or at least a few of their executives) are trying to position themselves more favorably in what they see to be an inevitable energy-rationed economic system.

My Comments: This thing was born out of corrupt minds and all decisions will be made based on who kisses the rings of the politicians.

The only answer I can come up with is: more money and more power for government. As a former government employee, I am familiar with the mindset. While the goal of a private sector job is to create wealth, the government employee’s main job is to spend as much of that wealth as possible. A government agency’s foremost goal is self preservation, which means perpetuating a public need for the agency.

My Comments: Bingo! This is the point of the whole thing. Money from you to the Govt...This is s great article and there are simply too many great points to outline. A must read.

Full article here...

Market Manipulation

2009-07-07T11:37:00.004-05:00

My Comments: As I've said before the rally started via fake earnings from FASB mark-to-market rule change. Some how the markets have continued to run...the traders in the videos suggest it has been manipulation...No one really knows but its a good hypothesis.

More Logic from Nassim Taleb

2009-07-06T12:35:00.001-05:00

The Great American Bubble Machine

2009-07-02T11:18:00.004-05:00

My Comments: Great write up on Goldman Sachs and their role in creating past bubbles...Cap N' Trade looks like it will be passed. Goldman will be a kid in a candy store...

Read it here...

S&P and DOW

2009-07-02T06:39:00.004-05:00

My Comments: Head & Shoulders and divergence on Dow and S&P

A Late Weekly Update Puru

2009-06-29T08:44:00.001-05:00

After dark pessimism last autumn, the pendulum has now swung towards optimism and extreme greed.

Over the past few months, we've seen a big rally in risky assets (emerging markets, commodities, junk bonds and major currencies) and on the flip side, we've seen sell-offs in US Treasuries, US Dollar and Japanese Yen. A swift economic recovery is now 'baked in the cake' and most investors seem to be convinced that the worst is over. Put simply, the whole world is (once again) 'long' inflation and 'short' the US Dollar. And as per our expectation, policymakers are fanning the flames of enthusiasm and taking credit for solving the crisis.

In our view however, the market is wrong to worry about immediate hyperinflation and the 'green shoots' hype is pure nonsense. In the real world, unemployment is still rising (America lost another 627,000 jobs last week), millions of people are losing their homes, nominal wages are in decline and private-sector debt in the West is contracting. All these negative forces are ensuring that the policymakers' wishes of further inflation aren't coming true as the private-sector debt bubble isn't expanding. Remember, central banks can take the horse to the water but they can't force it to drink!

In light of the above facts, we are concerned that this year may turn out to be a repeat of last year. It is likely that when investors realise that the economy is in fact getting worse and hyperinflation is a myth, there could be another round of panic selling in the following months. In such an event, emerging markets and commodities may be hit especially hard and we could see sharp rallies in long dated US Treasuries, US Dollar and Japanese Yen. It is worth noting that despite all the bullish noise, the US Dollar isn't falling apart and the Japanese Yen is also showing signs of firming. And over the past few trading days, long dated US Treasuries have carved out a bottom. Furthermore, over the past couple of days, credit spreads have started to widen again and this may be a sign of distress in the credit markets. In any case, we maintain our view that isn't the time to be taking any risk and investors may want to liquidate most of their 'long' positions. It looks as though most of the 'risky assets' made an intermediate-term top earlier in the month and the best outcome here would be a sideways grind. However, another massive sell-off can't be ruled out. So, our recommendation is to get out of harm's way.

Over in the commodities arena, crude oil and copper are in the process of forming a top and they are likely to decline over the following weeks. So, investors may want to liquidate their trading positions. Natural gas is in the process of forming an important low and we still have exposure to this commodity. After a base formation period, we anticipate a big rally in the price of natural gas. In the precious metals department, both gold and silver are caught in a sideways grind and we expect the consolidation to continue for a few more weeks. During this correction phase, we expect silver to underperform gold but once a new upleg commences, both silver and gold are likely to rally.

In the world of currencies, the US Dollar and Japanese Yen are trying to bottom out and all other currencies are vulnerable. Additional distress in the credit markets may be the catalyst which ushers in the next contraction and such an outcome would benefit the US Dollar and Japanese Yen. So, our suggestion is to keep your cash in these pieces of IOUs.

Finally, in the fixed income market, government bonds are in the process of bottoming out. As per our expectation, yields have dropped off over the past few days. At the time of writing, the yield on the 10-year US Treasury Note is 3.55% and the yield on the 30-year Treasury Bond is 4.33%. Considering the pathetic economic environment and negative consumer price inflation in America, real yields are currently attractive and we expect them to decline further over the following months. Remember, at the end of last year, fear drove yields to multi-decade lows and another deflation scare later in the year could do the same again. At this juncture, we are very 'long' US government bonds.

Special Update from Puru

2009-06-23T08:23:00.001-05:00

The markets have taken a turn for the worse and it looks as though an intermediate-term top is now in place. Yesterday, global markets fell hard and it seems as though the expected summer contraction has commenced. Yesterday's bearish announcement by the World Bank was the catalyst of the sell-off and weakness continues in Asia this morning. Furthermore, other danger signs have popped up over the past few days (strong US Dollar, rising Japanese Yen, rising gold/silver ratio) and this is enough for us to run for cover.

Accordingly, we're liquidating all our remaining 'long' positions in emerging markets and commodities today (with the exception of physical natural gas). And we're allocating the vast majority of our clients' capital to long dated US government bonds. For our more aggressive accounts, we're also allocating some capital to a leveraged bearish bet on financial.

It is our belief that the market is wrong about hyperinflation and we'll probably see another deflationary scare over the autumn months. It is worth noting that Quantitative Easing (QE) has NEVER worked and the economy is nowhere close to recovery. Under such conditions, hyperinflation (surge in the supply of money and credit) is out of the question and we suspect investors are about to find that out the hard way! We'll discuss this in detail in July's edition of Money Matters but for now, we're giving you a head's up on the looming contraction.

If our assessment proves to be correct, stocks and commodities will decline over the following weeks and the oversold US Treasuries will rally in another flight towards safety. So, we're cutting back on risk and positioning our clients to benefit from the summer/autumn contraction. Even if we're wrong, it is highly unlikely that the markets will rally hard from here, so we'll still have ample time to buy back into our preferred 'long' holdings in resources and Asian emerging markets. But for now, caution is the order of the day.

Insiders Exit Shares at the Fastest Pace in Two Years

2009-06-22T16:17:00.005-05:00

June 22 (Bloomberg) -- Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago.

Insiders of Standard & Poor’s 500 Index companies were net sellers for 14 straight weeks as the gauge rose 36 percent, data compiled by InsiderScore.com show. Amgen Inc. Chairman and Chief Executive Officer Kevin Sharer and five other officials sold $8.2 million of stock. Christopher Donahue, the CEO of Federated Investors Inc., and his brother, Chief Financial Officer Thomas Donahue, offered the most in three years.

Sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007, two months before credit markets froze, as the S&P 500 rebounded from its 12-year low in March. The increase is making investors more skittish because executives presumably have the best information about their companies’ prospects.

“If insiders are selling into the rally, that shows they don’t expect their business to be able to support current stock- price levels,” said Joseph Keating, the chief investment officer of Raleigh, North Carolina-based RBC Bank, the unit of Royal Bank of Canada that oversees $33 billion in client assets. “They’re taking advantage of this bounce and selling into it.”

Full article here...

Gold Breakthrough

2009-06-22T07:49:00.001-05:00

Click on the chart for my update...

Weekly Update from Puru

2009-06-19T13:24:00.001-05:00

The Weekly Update sent out on 29 May 2009 discussed the 'green shoots' hype and noted the extreme bullish sentiment. Back then, we stated that we'd sold the strength and raised 50% cash in our clients' accounts. Well, the financial markets continued to rally for a few more days but they've corrected sharply over the past few trading days. Our technical and sentiment data suggests that the markets are extremely vulnerable to a sharp contraction over the summer/autumn months. Accordingly, we're cautious and our managed portfolios are diversified and hedged - 50% 'long' stories (emerging markets and commodities), 35% long-dated US Treasuries, 10% natural gas and 5% 'short' financials for our aggressive accounts.

At present, the investment community is positioned for immediate 'hyperinflation' and a further debasement of the US Dollar. We don't think 'hyperinflation' is going to occur in the next 12-18 months and when others come to the same conclusion, we are likely to see a fall in stocks/commodities and strength in US Treasuries, US Dollar and Japanese Yen.

So, why don't we believe in immediate 'hyperinflation'?

Look; much of the Western world is currently undergoing secular deleveraging whereby households and corporations are repaying debt. These people are stuck between a rock and a hard place and there is no way they are going to take on even more debt in order to oblige policymakers. So far, the stimulus has not caused a massive surge in inflation because this money is currently sitting as excess reserves within the banking system. And unless borrowers are willing to borrow and lenders are willing to lend, we won't get any hyperinflation. The fact is that (after years of excessive borrowing and consumption) American households are now paying back their debt; something which hasn't happened in over 5-6 decades! And in our view, it is extremely improbable that people will go deeper into debt. In the past, such debt contractions have occurred very infrequently and none of them resulted in 'hyperinflation'. Therefore, if our view is correct and we don't get an immediate economic recovery, there will be another revulsion towards risk and a flight towards 'safety'. So, our advice is to take some money off the table and stay hedged over the summer months.

The fact is that most stock and commodity markets are overbought from a technical perspective and sentiment is at a bullish extreme. In other words, market risk is currently high and we don't want to take any chances. And neither should you! The best outcome over the summer months would be a sideways grind and there is no reason why you should risk your entire capital in the hope of capturing minor additional gains. History has shown that market crashes usually occur in autumn and we're now approaching 'Disasterville'. Whether or not we'll see another crash this year is anybody's guess but our current investment position has prepared us for (almost) all outcomes.

Over the following weeks, we expect most stocks and commodity markets to correct or consolidate (best case scenario), so wait before adding to your 'long' positions. On the other hand, we expect strength in long-dated US Treasuries, so nimble traders may want to gain some exposure for a multi-week trade. As far as currencies are concerned, both the US Dollar and Japanese Yen will probably rally in tandem with a contraction in the credit markets, so keep your cash in these currencies.

Finally, gold and silver are correcting as per our expectation and long-term investors can start buying both at current levels. The downside in gold is much more limited here and real money should have an explosive rally over the following 10-12 months. Precious metals mining shares are still correcting and our recommendation is to wait before adding to your positions. Once the correction has run its course, we'll allocate a large amount of our capital to this sector which is poised to do extremely well.

Gold Charts

2009-06-17T13:52:00.003-05:00

My comments: I just learned how to post charts. Below is a daily gold chart with notes. Please click on the chart for a larger version and to read my notes. Also please forgive my grammatical and spelling errors. Its difficult to edit text on the charts...

Below is a cup and handle formation developing in gold. If we don't break the upper handle trendline and do break the lower trendline on the triangle, this trade would have failed. Read more about a cup and handle here...

My comments: The chart below shows trendline support...if prices move below the trendline we could have a sell off...

China sells US bonds to 'show concern'

2009-06-17T12:04:00.002-05:00

A decision by China to reduce its US Treasury holdings suggests concern about the US attitude towards its economic woes, Chinese economists were quoted as saying in state media Wednesday.

The remarks, coming after US data showed a modest decline in Chinese investments in US government bonds, were in contrast to an earlier statement in Beijing which had said the recent sell-off was a routine transaction.

"China is implying to the US, more or less, that it should adopt a more pragmatic and responsible attitude to maintain the stability of the dollar," He Maochun, a political scientist at Tsinghua University, told the Global Times.

According to US Treasury data issued Monday, Beijing owned 763.5 billion dollars in US securities in April, down from 767.9 billion dollars in March.

My Commets: It’s interesting that this comes after the BRIC nation summit. With Russia exiting bonds and now China slowly moving away this must have been a discussion at the summit. However, the amount of bonds reduced was very, very small and seems more like a financial “warning shot across the bow”. But this is creating a dangerous trend…

Full article here…

Key Quotes from Biden on the Stimulus

2009-06-15T22:22:00.004-05:00

"No one realized how bad the economy was. The projections, in fact, turned out to be worse. But we took the mainstream model as to what we thought -- and everyone else thought -- the unemployment rate would be."

"Everyone guessed wrong at the time the estimate was made about what the state of the economy was at the moment this was passed."

"The bottom line is that jobs are being created that would not have been there before."

"Can I claim credit that all of that's due to the recovery package? No. But it clearly has had an impact."

My Comments: I guess we all can rest well knowing that Joe Biden is taking out loans in our names and "creating" jobs. I'm glad he's taking the time to pat himself on the back for spending a bunch of money that isn't his. Thanks Joe.

Full article here...

The Myth Of the Rational Market

2009-06-15T19:46:00.004-05:00

In the 1990s and 2000s, in fact, this myth of the rational market was embraced with a fervor that even Irving Fisher never mustered. Financial markets knew best, the thinking went. They spread risk. They gathered and dispersed information. They regulated global economic affairs with a swiftness and decisiveness that governments couldn't match. And then, as debt markets began to freeze up in 2007, suddenly markets didn't do any of these things. "The whole intellectual edifice collapsed in the summer of last year," former Fed chairman Alan Greenspan said at a congressional hearing in October.

Well, maybe not the whole edifice. For all its flaws, Fisher's economic approach delivered genuinely important insights. He proposed in 1911 that the government issue inflation-linked bonds; in 1997, the Treasury Department finally got around to doing so. If anybody in power in Washington had been willing to follow his advice in 1930 or '31 (which essentially amounted to "Print more money"), the Great Depression might not have been so great. For the past two years, the Federal Reserve has been working right out of the Fisher playbook, and while the results haven't been perfect, they've been a lot better than those of the early 1930s. The economics that Fisher espoused--reborn after his death in 1947--should not be discarded. But clearly, there are some issues with it.

My Comments: Small excerpt from a soon to be released book. Plain and simple, markets aren’t rational, as in the price of assets rarely reflect their real values...

Full article here...

Weekly Update by Puru Saxena

2009-06-12T11:24:00.003-05:00

Global stock markets continue to grind upwards amidst overbought technical and euphoric sentiment. It is interesting to observe that Weimer hyperinflation has replaced the global depression hype and everyone seems to be preparing for runaway inflation. Whilst is it true that our world has never seen such a massive stimulus package, it is worth noting that central-bank sponsored inflation is currently locking horns with private-sector credit contraction.

Our view remains that global stock markets are over-extended and a multi-week correction/consolidation is in order. Whether the trend reversal occurs now or in a week, this is not the time to allocate fresh capital to over-brought assets. If our assessment is correct, a better buying opportunity will probably present itself later this year. Remember, some emerging markets have almost doubled off the crash lows and such moves are unsustainable beyond the short-term. Our preferred markets (China, India and Vietnam) have been amongst the best performers and we’ve recently sold half of our positions in China and India. After the correction is over, we’ll re-invest the capital.

Over in the energy markets, crude oil continues to rally and some froth is beginning to emerge. Only a few months ago, everyone was calling for twenty dollar oil and now, analysts are talking about much higher prices. Our expectation is that crude oil will correct somewhat over the following weeks. So, hang on to your positions but wait before adding new capital. Natural gas seems to have bottomed out and we recommend that investors play the upside on the physical product. After the horrific crash last year, the price of natural gas should rise over the following months and this action is likely to benefit gas producers. So, hold on to your positions in gas companies.

In the world of currencies, the US Dollar remains weak and it is struggling to carve out a bottom. Sentiment is horrendous towards the greenback and the entire world is predicting a dollar crash. Look; we are no fans of the US Dollar but other currencies aren’t much better. And whenever you see universal agreement in the markets, it usually pays to go the other way. Our belief is that the US Dollar is poised for a bounce and major world currencies such as the Euro, British Pound, Aussie and Canadian Dollars are due for a pull-back. The next wave of credit-contraction will probably send the American currency higher.

Real money (gold and silver) continues to consolidate after the recent gains and we expect a further correction over the following weeks. It seems to us that gold’s pullback will end above $900 per ounce, so investors can start buying on any near-term weakness. Silver will probably correct more than gold, so wait before adding to your positions. After the summer correction is complete, we anticipate an explosive move in all precious metals. Remember, so far in this bull-market, precious metals have had huge rallies every two years. So, if this trend consistency remains intact, we’re likely to see much higher prices by next spring. Precious metals mining shares are currently over-bought and investors should wait for a correction before adding to their positions. If our thesis about an explosive move in precious metals is correct, the mining shares will record huge gains over the next year. We’re patiently waiting in cash before we allocate 10% of our clients’ capital to the precious metals mining equities.

Finally, in the bond market, long dated US Treasuries are extremely over-sold and any correction in stocks and commodities will probably be the catalyst for a rally in US government bonds. After touching almost 4% on Wednesday, the yield on the 10-year Treasury Note dropped somewhat on Thursday and this could be the start of a trend reversal. The 30-year Treasury Bond is also very oversold and it may rally over the summer months. Although bonds represent lousy long-term value (you can thank the money-printing central banks), nimble traders may want to play the upside over the following weeks.

Russia to sell U.S. treasuries, buy IMF bonds

2009-06-11T15:51:00.002-05:00

MOSCOW -- Russia will reduce the share of U.S. treasuries in its forex reserves, the world's third-largest, a senior central bank official said on Wednesday, driving the dollar broadly lower.

Russia holds about 30% of the reserves, worth US$404.2-billion, in treasuries. Central bank first deputy chairman Alexei Ulyukayev said it would buy bonds issued by the International Monetary Fund and also up the share of reserves held in bank deposits.

Russia had earlier pledged to buy about US$10-billion worth of bonds to be issued by the IMF as part of a fundraising effort to help countries hit by the global financial crisis.

My Comments: I've read further on this and it turns out they wont be selling bonds but they will just roll them over into the IMF when they mature. This could counter the panic of such a large debt holder as Russia selling out. Either way this is a vote of no confidence for the dollar and our debt. And it leads me to ask...Russia is buying IMF bonds...China is still buying bonds but diversifying into commodities...Who is going to buy all of our newly created debt?

Weekly Update

2009-06-08T22:28:00.002-05:00

Global markets are overbought and due for either a correction or consolidation. We're now in the seasonally bad time of the year and the best outcome here would be a mild correction. From a sentiment perspective, most investors have factored in the 'green shoots' and they've positioned themselves for a near-term economic recovery. For sure, certain economic data is pointing towards some improvement, however (so far) nothing has been done to help the distressed homeowners. The West is dealing with a massive debt overhang and policymakers are only transferring private-sector liabilities to the state. These gigantic losses are real and politicians have decided to distribute them amongst the unsuspecting public. Unfortunately, a second wave of foreclosures is now creeping in and we may not get a swift and robust economic recovery. If the housing situation worsens, then all bets will be off and the financial markets will probably face a sharp decline. At this stage, we think any correction will end above the March lows and we're sitting on a large cash position to capitalise on such a weakness. After the horrendous crash last autumn, it is unlikely that the markets will continue to head higher without a rest. Look; market risk is currently high based on technical and sentiment indicators and we'd recommend that you keep roughly 50% of your investment portfolio in cash. This way, if the market moves higher, you'll still benefit but if we get a correction, you'd be able to re-invest at lower prices.

Over in the energy complex, crude oil reached $70 per barrel last week and is giving back some of its gains today in Asia. Over the following days, we're likely to witness a correction in crude oil. On a different note, natural gas is still trying to carve out a bottom and should be accumulated by long-term investors. The price of natural gas is extremely inexpensive and should rise significantly over the coming year. So, we'd suggest that you buy into physical natural gas or the producing stocks on any near-term pullback.

In the currencies markets, the US Dollar Index is finding some support around this area and a sharp rally wouldn't surprise us here. Most people are now bearish about the US Dollar and sentiment is at an extreme, so a rally of 5-7% can be expected. On the other hand, most major currencies are now overbought and due for a correction. If our assessment is correct, the next few weeks should coincide with strength in the US Dollar and pullbacks in the Euro, British Pound, Aussie Dollar and Canadian Dollar. So, nimble traders may want to act accordingly.

As far as precious metals are concerned, both gold and silver are likely to correct over the following weeks but we don't expect a major decline. During the correction phase, silver will fall more than gold but both should be bought later this year. Same rules apply for precious metals mining stocks. Our recommendation is to wait before adding to your positions in this sector. If a rally in the US Dollar materialises, precious metals will correct and you'll be able to buy into real money at lower prices.

Finally, in the fixed-income sector, US government bonds are now very beaten down and the next phase of credit contraction should usher in a big rally. At the moment, everyone is convinced that the US will enter hyperinflation and US government bonds have suffered accordingly. However, in last week's speech, Mr. Bernanke made it clear that the Fed wasn't going to keep monetizing debt by printing money. So, we may not get hyperinflation in the near future and the 30-year US Treasury Bond should appreciate over the summer months. Make no mistake; as a result of all the bailouts and stimulus packages, the cost of living will probably double within the next decade, however we don't foresee huge inflation over the next six months. When others come to the same conclusion and there is another flight towards 'safety', US Treasuries will probably rally in tandem with the US Dollar.

My Comments: Sorry for the delay. Next update will be more timely

Thriving firm's new bet: Hyperinflation

2009-06-05T09:29:00.002-05:00

A hedge fund firm that reaped huge rewards betting against the market last year is about to open a fund premised on another wager: that the massive stimulus efforts of global governments will lead to hyperinflation.

The firm, Universa Investments, is known for its ties to gloomy investor Nassim Nicholas Taleb, the author of the 2007 best-seller "The Black Swan," which describes the impact of extreme events on the world and financial markets.

The new strategy, designed by Spitznagel, aims to post big gains if inflation and interest rates take off as they did in the 1970s. Universa will invest in options tied to commodities such as corn, crude oil and copper, as well as options on stocks such as oil drillers and gold miners.

"We think these things are going to see massive volatility," Taleb said in an interview.

The fund will also bet against Treasury bonds, which tend to weaken in inflationary environments. Last week, Treasury yields shot to their highest level since November as prices fell on inflation concerns. Oil topped $66 a barrel. Gold is creeping toward $1,000 an ounce.

My Comments: Nassim Taleb is an investment legend and coined the widely used term "Black Swan". More on him here...The markets don't care about his opinions or investments and they are going to do what they are going to do. But high inflation is something I've been expecting to happen and its nice to see bright minds on the same page.

Full article here...

China Laughs at Geithner

2009-06-04T14:49:00.002-05:00

Treasury Secretary Geithner is another economic incompetent. He told China that he stood for a "strong dollar," but that China should let its currency appreciate relative to the dollar, which, of course, would mean a weaker dollar. He simultaneously told China that their investments in US Treasury bonds were safe.

His Chinese university audience, being economically literate, laughed at Geithner.

Full article here...

Telling Quote

2009-06-02T22:34:00.000-05:00

"The American people will never knowingly adopt socialism. But under the name of ‘liberalism’ they will adopt every fragment of the socialist program until one day America will be a socialist nation without knowing how it happened… I no longer need to run as a Presidential candidate for the Socialist Party. The Democrat Party has adopted our platform.
– Norman Thomas, six-time U.S. presidential candidate for the Socialist Party, 1944

Global Crisis ‘Inevitable’ Unless U.S. Starts Saving, Yu Says

2009-06-02T08:14:00.003-05:00

My Comments: Just a few highlights

June 1 (Bloomberg) -- Another global financial crisis triggered by a loss of confidence in the dollar may be inevitable unless the U.S. saves more, said Yu Yongding, a former Chinese central bank adviser.

It may be helpful if “Geithner can show us some arithmetic,” said Yu. “We need to know how the U.S. government can achieve this objective.”

He questioned whether there would be enough demand to meet U.S. debt issuance this year.

Referring to the Federal Reserve “as the world’s biggest junk investor,” and to Chairman Ben S. Bernanke as “helicopter Ben,” Yu said the Fed has dropped “tons of money from the sky since the subprime crisis.”

“The balance sheet of the Federal Reserve not only has expanded like mad but is also ridden with ‘rubbish’ assets,” he said.

Full artile here

Series 3 and Opening Paragraph From The International Forecaster

2009-05-31T23:25:00.005-05:00

My Comments: I've passed the Series 3 and will be listing it with a CTA soon...more on that as it develops.

Opening paragraph from Bob Chapman, The International Forecaster. The dollar and bonds are sinking, fast...and in real terms(priced in gold) stocks may soon follow...all of this money has been running as fast as it can into anything real gold, silver, commodities, ect...If stock markets begin to roll over and the proceeds choose not to hide in bonds or cash but instead real assets, that will be a scary sign that we could be on the door step of big inflation...

What we are about to tell you may be the most important information that we have imparted in almost 50 years. something very bad is looming – we don’t know the exact configuration yet, but we think the key is the collapse of the dollar, which will send gold and silver to considerably higher prices. These events could unfold over the next 2 to 4 months. There could be devaluation and default of the US dollar and American debt. You must have at least a 6-month supply of freeze dried and dehydrated foods, a water filer for brackish water, and assault weapons with plenty of ammo and clips. You should put as much of your wealth as you can in gold and silver coins and shares. You should not own any stocks in the stock market except gold and silver shares, you should not own bonds the exception being Canadian government securities, you should not own CDs, cash value life insurance policies and annuities. And, needless to say, except for your home you should be totally out of real estate, residential and commercial because it will remain illiquid for many years to come. Continue to pay your normal debts down because we do not know how they will be treated when we arrive at devaluation and default. We certainly don’t want to have to tell you this, but the way things are shaping up it doesn’t look good. As we write this the dollar is breaking 80 on the USDX. Interest rates are climbing, and have broken out to the upside. Gold and silver are poised to break into new high territory and the stock market is preparing to retest 6,600 on the Dow. You have been warned, act accordingly.

Weekly Update

2009-05-22T07:27:00.000-05:00

After the recent joy in the financial markets, it seems as though an intermediate trend reversal is upon us. Over the following weeks, the US Dollar, Japanese Yen and US Treasuries should rally and everything else is likely to decline.

Over the past two months, global financial markets rebounded sharply and they seem to have run ahead of the economy. Today, there is a lot of hype about the 'green shoots' and risk appetite has returned with a vengeance. Consider the following:

a. The US$ has fallen sharply over the past few days
b. US government bond yields have risen sharply
c. Major world currencies (Aussie, Canadian etc.) have risen sharply
d. VIX has collapsed
e. Credit spreads have narrowed
f. LIBOR has declined to 0.73 bps

Most importantly (and worryingly!), there seems to be a widespread belief that the actions of the policymakers have stabilised the economy. At this stage, nobody knows whether this is true but the financial markets have fully discounted this outcome. So, if the much-anticipated second-half recovery doesn't take place, financial markets will probably weaken over the summer months.

After the horrific crash last autumn, we certainly don't want to be caught in the eye of the 2009 storm! Accordingly, we are liquidating roughly half of our 'long' positions in order to capture the recent gains and limit the downside over the tricky summer months. Now, if the markets continue to head higher, roughly 50% of our clients' capital will still participate in the advance. However, if do get another sell-off over the coming weeks, only half of our clients' capital will be exposed to market risk. Once the market risk has subsided and the correction has run its course, we will re-invest capital in our preferred growth producing assets.

Based on the market action over the past few days, it seems to us that a multi-week correction has now commenced. The Dow Jones has recently formed an important double top and it has broken below its rising uptrend channel. Usually, such breaks are followed by further declines and it looks as though the Dow Jones may fall to the 7,400-7,500 area. Moreover, the Japanese Yen has started to strengthen again and this is a negative omen for the financial markets. If the economic news and credit conditions worsen, the Dow Jones may fall even further than the above estimate. So, we are protecting our clients' capital by selling into this strength. It is our firm belief that taking some money off the table at this juncture is prudent and will give us the opportunity to re-invest at lower levels.

In summary, we suspect that stocks, most commodities and precious metals will decline over the following weeks. Accordingly, our advice is to sell at least half of your 'long' holdings into this strength. If a correction unfolds, it will be positive for the US Dollar and Japanese Yen so we suggest that you keep cash in these currencies over the summer months. Longer-term, we prefer the Canadian and Australian Dollars but they've gone up too much too quickly and may fall over the coming weeks.

Gold Technical Picture

2009-05-21T14:54:00.004-05:00

My Comments: I concur with every said in the video...Seasonally gold should be weakening. However price is indicating further upward momentum. And this is why you need some technical analysis to compliment fundamental analysis and seasonal trends. Using price as an indicator, in my opinion, trumps all other indicators in short to medium terms...wait for pull backs and use tight stops.

Ditto for silver...

Video here...

The Madoff Affair

2009-05-20T20:33:00.001-05:00

Jim Rogers on CNBC Asia

2009-05-20T14:44:00.003-05:00

My Comments: Completely agree with him on the suckers rally. He seems to think we see new market lows. I'm not so sure of this. I agree that the problems haven't been fixed, but with what is going on in the recent downturn of the dollar and bonds, investors might not hide there. If we see the inflation that he is predicting some of money will go to stock markets and could use a the large correction that he mentions as a buying point.

My Comments: Choosing silver over gold is a vote for inflation. Yes the IMF continues to talk about selling Gold...It should push gold lower but if central banks and Govts buy it all up then it might depend on what they decide to do with the gold if the purchase it.

Iraq objects to Floating Tankers, May Cut Oil Output

2009-05-18T16:26:00.003-05:00

My Comments: Good write up on oil contango...Short of a currency collapse, short to medium term the supply overhang will keep oil prices in check...I still "think" we have seen the bottom and prices prob will get up into the $60's and $70's...but they will struggle untill the contango ends...

What isn't mentioned in the article is that the supply overhang greatly discourages production and exploration which only adds to the long term supply problem...

Full article here...

Weekly Update

2009-05-15T07:24:00.001-05:00

It looks as though the much anticipated correction/consolidation is here. Global stock markets made a recovery high a few days ago and since then, they've faced some selling pressure. Now, we're aware that many people are waiting for a huge cataclysmic decline but so far this hasn't happened. On the contrary, global markets aren't declining by much and the more time passes by, the lesser the chances of a major crash. So, if the bear market is indeed alive and well, it is for the bears to prove. If stocks don't fall to a new low soon, the bulls will be proven right. Our view remains that there is an 80% probability that the bear-market is now over and we are in the early stages of a cyclical bull-market where prices could rise for 2-3 years.

Look; we don't believe that the global economy will suddenly jump back to life. However, as investors, we must keep in mind the gigantic policy stimulus which has been administered all over the world. Never before in history have we seen such a huge policy response. And it seems that the markets have already started to feel its effect. For instance, the 3-month LIBOR rate has now declined to 85bps, which means that banks are starting to lend to each other. Furthermore, credit spreads are narrowing and this is another positive development. Technically, the Volatility Index (VIX) has also declined to below 32 and over 36% of the stocks on the NYSE have climbed above their 200-day moving averages. Now, whether you believe in the 'Green Shoots' hype or not, the credit and stock markets are showing signs of improvement. Our expectation is that after a near-term correction, global stocks will resume their advance. So, we'd suggest you deploy additional capital during this pullback.

Commodity markets are mixed with some strength in the energy complex and choppy action in the metals. Crude oil is now trading just below $60 per barrel and we expect it to reach $70-75 with the rally in equities. As per our expectation, the price of natural gas has sprung back to life and we foresee further gains in the weeks ahead. Although there is plenty of supply at the moment, we expect natural gas production to fall towards the end of the year. Most gas companies have reduced their exploration & drilling activity and this should create supply problems in a few months time. So, we recommend that you maintain your exposure to the energy complex. As far as metals are concerned, gold is still trading below US$1,000 per ounce and it should stay subdued over the summer months. The yellow metal is likely to form an important low in July/August so wait before adding to your positions in bullion and the miners. A similar story should play out for silver - lows in the summer followed by a powerful rally.

Over in the bond market, US Treasuries have firmed somewhat and yields are starting to decline. After peaking at 3.29%, the 10-Year US Treasury yield has dropped back to 3.1% and the 30-Year US Treasury yield is currently sitting at 4.06%. As the stock/commodity markets correct over the following days, it is likely that the US government bond market will strengthen and this implies lower interest-rates. So, our near-term view on US government bonds is slightly positive at this point. Longer-term though, we expect a major decline in US Treasuries and a rise in yields.

Finally, in the currencies department, the US Dollar Index has broken below its March low and this is bearish. Furthermore, it seems as though the US Dollar Index has formed an important "head & shoulders" topping pattern, which means that the American currency should decline in the period ahead. Over the past few days, major world currencies have strengthened against the US Dollar and our preferred currencies have been the biggest beneficiaries. Both the Aussie and Canadian Dollars have appreciated sharply and they should rally some more against the world's reserve currency. So, keep your positions and buy more Aussie and Canadian Dollars on any near-term pullback.

Stocks fall on weak retail sales, foreclosure jump

2009-05-13T23:21:00.005-05:00

Investors are looking at the economy more skeptically.

Stocks retreated more than 2 percent on Wednesday and bond prices rose after two reports suggested the economy is not bouncing back as quickly as investors hoped.

The Commerce Department said retail sales unexpectedly fell in April for the second straight month, while RealtyTrac Inc. reported a troubling rise in home foreclosures.

My Comments: Back to reality. I've discussed this for some time. May is a seasonally weak month and for this to be a healthy begining to a bull rull its important to have significant retracements to test to conviction of the market. Funny how a "retail slump" is unexpected. To whom is it unexpected? Retail slumps are the new norm.

S7P500 Broke an uptrend line. Former resistence/now support at 873 needs to hold to maitain a bullish chart...

Full atricle here...

Enjoy the rally while it lasts - but expect to take a sucker punch

2009-05-11T12:06:00.003-05:00

Bear market rallies can be explosive. Japan had four violent spikes during its Lost Decade (33pc, 55pc, 44pc, and 79pc). Wall Street had seven during the Great Depression, lasting 40 days on average. The spring of 1931 was a corker.

James Montier at Société Générale said that even hard-bitten bears are starting to throw in the towel, suspecting that we really are on the cusp of new boom. That is a tell-tale sign.

"Prolonged suckers' rallies tend to be especially vicious as they force everyone back into the market before cruelly dashing them on the rocks of despair yet again," he said. Genuine bottoms tend to be "quiet affairs", carved slowly in a fog of investor gloom.

My Comments: I like the way he put this...my guess (and its just a guess) is that Dow 8500-9000 could be good shorting grounds or at least go overweight in cash.

We can now test the Friedman-Bernanke hypothesis that the Fed could have halted the Depression by letting rip with bond purchases. Japan was not a proper test. It eked out a recovery of sorts earlier this decade by embracing QE, but only in the context of a global boom and a yen crash.

My Comments: As much as I liked Milton Friedman, I doubt this works...

Full article here...

Puru's Weekly update

2009-05-08T17:46:00.004-05:00

Market conditions continue to improve amidst widespread disbelief and skepticism. Our view remains unchanged - there is an 80% probability that the bear-market is now over and we are in the early stages of a strong bull-market which will last until the central banks start raising interest-rates. The developing markets in Asia and Latin America bottomed out last autumn and they've now gone past the January highs. Markets in the West seem to have bottomed out in March and as per our expectation, they are under performing the emerging markets. Look, we've had a very strong rally since March and the markets may correct over the following weeks but there is no guarantee of this happening. In any event, we expect the bear-market lows to hold and it wouldn't be surprising if the S&P500 closed the year around the 1,100 level.

My Comments: Its to still to early to make a call on the S&P500. Especially with the banks cooking the books. Wait for a retracement and analyze further.

The broad economy remains weak for now but there are some early signs of improvement. Our world has never experienced such a large scale policy response and it is our firm belief that this wall of money will do wonders for asset prices. Although the broad economy may only recover by year-end, financial markets are already moving in anticipation of this recovery. Now, we are aware that many astute investors are waiting for further declines but this may be wishful thinking based on their psychological commitment to their bearish bias. The longer the market holds up, the lesser the odds of another vicious decline. Time is a great healer and with interest-rates and bond yields at record-lows, it is only logical that investors are moving cash towards growth producing assets. So, our advice is to follow the money rather than the expert opinions of economists and pundits. Remember; it is darkest before dawn and economic news is always most bearish around major market bottoms. In our view, this is a superb opportunity to allocate capital to the fast-growing economies of Asia and Latin America.

Over in the commodities markets, it is nice to the energy complex showing signs of life. Crude oil is now trading around US$56 per barrel and we expect it to climb to US$75 per barrel by year end. If the economy recovers by then, we may see still higher levels. Whether you like it or not; our world faces a severe liquid fuels crisis and every investor must allocate a large portion of their capital to energy. Most of the world's largest oil fields are now past peak production and capital spending on new projects has diminished significantly. This isn't a conspiracy theory, 'Peak Oil' is a fact! Over the following years, the price of energy will sky-rocket and upstream oil companies and oil servicing stocks will make a fortune. We recommend exposure to them along with physical crude oil. Apart from crude oil, natural gas seems to have formed a low and should now play catch up with oil. Recently, we bought physical natural gas and it is our belief that the price of this commodity will be much higher in the future. Finally, the price of uranium has also perked up and uranium stocks are on fire. So, after a near-term correction, investors may consider buying into some of the uranium miners.

My Comments: I really like the Natural gas recommendation here. It should flatten out, and pull back some but it is forming a rounded reversal pattern. Try UNG the Nat Gas ETF...Peak oil is a truth and will impact oil prices if it plays out the way he says. However what if during late 2008 we experienced Peak Demand? This could curtail oil prices even in a Peak Oil scenario. I'm not sure what will happen and I'm not making a prediction or a call, I just want to me prepared to protect my capital in either scenario. As of right now the timing is right and for Puru's call and its safe to buy oil and natural gas.

In the metals department, the action is choppy. Silver and copper have firmed in the past week but we are now entering the seasonally weak time of the year. Accordingly, we suggest that you wait for the usual summer pull-back before adding to your positions in this sector.

Over in the fixed income markets, US government bonds are weakening. The 10-year yield has now risen to 3.29% and the 30-year yield has gone up to 4.26%. For many months, we've been warning about the bubble in US Treasuries and it seems that our assessment is proving to be correct. Although US government bonds may rally in the near-term, their long-term outlook is pathetic at best. Courtesy of the global policy response, a wall of money is now here and an inflation tsunami is headed this way. Best to get out of cash and fixed income assets.

Finally, in the world of currencies, the US Dollar is rolling over and major world currencies are now rising. Our preferred currencies (Aussie and Canadian) have rallied nicely and they should go up some more. The European currencies are also benefiting from the US Dollar weakness and any further strength in the Euro and Sterling would be a good opportunity to exit.

Gold Technicals

2009-05-06T19:22:00.003-05:00

I've shared this technical outlook on gold with a few people...this is a good presentation of the point I was trying to make. The trend line is in the process of being broken and a couple consecutive closes over $920 (previous short term high) would look bullish. The point that he fails to mention is that May is a seasonally brings in a weak period for gold lasting into the summer months. This could be a final blastoff before the summer correction/consolidation.

Another angle to play it is silver, which looks more bullish than gold right now.

Just my thoughts...

Video here...

If Insiders are selling, why should I be buying?

2009-05-06T07:56:00.002-05:00

I recently wrote about reports that insider selling was at record highs and buying was practically non-existent. The selling has become even more alarming in the last week and the buying has slowed to an absolute trickle. Below you’ll find the list of latest insider buys and sells. The sells are staggering with the amounts ranging from $3MM to $63MM (and I was only able to copy one page). The buys, on the other hand, are meager and range from $100K to $635K (the $800K purchase is a few months old and shouldn’t be in the data). You’ll also notice that the screen came up with just 18 total purchases vs 170 total sales (the lowest of sell screen data were sales of over $400K which is not shown here due to the large size of the results).

Full article here.

My Comments: If they are selling why should we be buying? This say just about as much for the rally as the change in mark-2-market to mark-2-fantasy. Nothing has changed except people are still making bad decisions(i.e...buying this rally). Sell in may and go away is the saying. To be fair we could rally all through May. But from this point things are less predictable.

Weekly Update From Puru

2009-04-30T10:06:00.005-05:00

It looks as though global equities are in the early stages of a cyclical bull-market. Most emerging markets in Asia and Latin America formed higher lows in March and they've now gone past the January highs. So, in technical terms, nations such as China, India, Brazil, Taiwan and South Korea are already in bull-markets. Now, the sceptics will argue that this isn't possible, that stocks shouldn't be going up! However, in this business, you take what the markets give you and at present, the markets are saying that the worst was discounted last autumn. Although it is possible that we may see new bear-market lows, current market action doesn't feel like an abrupt and swift bear-market rally. Rather, global stocks are rising gingerly and most importantly, not many believe that this advance is sustainable. So, perhaps the new bull-market is doing what it always does - climb the wall of worry!

In the near-term, most markets are overbought and a correction can't be ruled out but so far, the overbought conditions are being relieved by sideways consolidation. At present, stocks are rising despite negative news and horrendous investor sentiment. This is a good sign and with a record-high level of short interest in the emerging markets, we may get an explosive rally as the shorts are forced to cover their positions. Accordingly, we suggest that you hold on to your positions in China, India and Vietnam. Should the markets correct over the following days, perhaps consider allocating additional funds. In terms of sectors, energy, materials and infrastructure plays are likely to provide leadership and technology should also be amongst the winners. In terms of losers, we recommend that you stay well clear of financials (most are cooking their books), utilities and healthcare companies in the US.

Over in the commodities pits, crude oil is rallying nicely and we expect it to rise significantly over the following years. Global oil supplies have peaked, production is in a terminal decline and this may be the last chance to load up on cheap energy. According to the IEA, global depletion is running at roughly 5% per annum and 580 out of 800 of the world's largest oil fields are now past peak production. This doesn't bode well for oil production and as soon as demand stabilises, we'll see sky-rocketing prices followed by shortages. The IEA estimates that we'll see a serious energy crunch by 2012-2013. Our guess is that US$147 per barrel achieved last year will be easily surpassed within the next 4-5 years. So, this is a great time to allocate more capital to the energy sector. Furthermore, the price of natural gas has taken a big hit since last July and it is trying to put in an important low. In our view, the downside is now very limited whereas the upside is huge, so consider allocating some funds to gas.

As per our expectations, most metals are currently correcting. After a sharp rally, copper and platinum have given back some gains and they should decline further in the weeks ahead. So far, gold hasn't declined much but we suspect its price will weaken over the summer months. Same applies to precious metals mining shares. So, our advice is to wait for a pullback before committing additional funds.

Finally, in the currencies markets, the US Dollar Index is weakening and major world currencies are likely to rise over the following weeks. If we get a good bounce in the Euro and British Pound, our recommendation would be to sell into strength. The European economy is in a terrible condition and their currencies should reflect this over the medium to long-term. If we were forced to select some currencies, we'd pick the Aussie and Canadian Dollars which are currently depressed.

My Comments: I agree with just about everything. We need to see a pull back and then consolidation in equities, before attempting to buy. With a market that has dropped as much as these have the odds are against a v shaped bottom and lots of indicators are signaling caution. Doesn't mean that we can't rally further.

It is also rather early to call this a new bull market. I'm not ready to say that yet.

Mark Leibovit of VRtrader.com on Gold

2009-04-27T10:59:00.002-05:00

The United States has the largest gold supply in the world, estimated to about 261 million ounces, unless there is another huge fraud being perpetuated on the American public at Fort Knox. I have gone out on the limb in the absolute belief the United States will return to the Gold standard which was abandoned back in 1971 by then President, Richard M. Nixon. If the United States allows the Gold price to rise (or drives it higher) and then pegs the US Dollar to an inflated Gold price, a great deal is accomplished. The ever-growing United States debt now has collateral. The national debt would now be on its way to being balanced. If the national debt is 10 trillion dollars and Gold is trading at $10,000 an ounce, the United States now has 2.6 trillion dollars in Gold or roughly a 25% backing. My belief is that the size of the United States Gold reserve is much greater than reported and what the United States doesn’t have it can easily confiscate either by demanding redemption of Gold from private holdings, or by creating a new North American currency (the rumored ‘Amero’) which would then include very valuable mineral resources of Canada and Mexico. Though the latter event currently appears very unlikely, the former could easily occur.

Read full article here

My Comments: I don't buy the assumption that the Govt. has more gold than they say. I would venture a "guess" that they indeed have less. Since gold inventories aren't audited we don't really know but the fact that they aren't and should be creates reasonable doubt. Enough doubt question how much gold the U.S. has and where did it all go? My guess is that its been sold into the market to keep prices low. But only price pays not opinions.

Ten principles for a Black Swan-proof world

2009-04-23T14:35:00.003-05:00

By Nassim Nicholas Taleb

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.

In other words, a place more resistant to black swans.

My comments: I agrre with just about everyting but #6. Standardize, regulate and allow investors to loose if they invest in them. That could be good enough rather than completely banning them. If investors know they will will not be bailed out and the losses are theirs and theirs only they wont take the risks that helped created this problem.

Golds rally

2009-04-23T14:26:00.002-05:00

Great rally today. The rally has led us to the 50ema which could be resistance. We will need to break over this level and hold for a few days to negate the bearishness. News on the stress test will be coming out tomorrow so that will run most markets for the day.

What is gold doing?

2009-04-14T18:38:00.005-05:00

To me it looks like gold is going to head south from logic or manipulation...

Logic=markets are rallying and m2m has been replace by mark-2-fantasy, so who needs it as a safe haven? Also inflation is coming back and gold is priced in as a deflation hedge and thus overpriced by the small amount of inflation that is coming up. So if inflation is heading back then why not buy gold you say? Well because copper is at 2.1 and oil is under 50 and they are the better bargains right now…this makes logical some sense to me.

Manipulation=the price was strangely brought down before the announcement of the fed buying bonds and we got a $70 reversal in no time. Had gold remained flat like most other markets we would have been north of $1k and been back in the headlines with every trader and investor in a mad panic with gold holding above the $1k with it as support rather than resistance…that day seems like a rather obvious manipulation.

Well instead of being over 1k with it as support we are looking like we will sell off with the safe haven/inflation logic above. And most investors and traders are saying, “well if it could move higher after the fed bought bonds then it may never and we have a solid double top, plus the IMF is selling so there is no reason to buy…the gold move is over”. And for now the charts are saying some of the same things. Technically it does look like it could be a double top(Bearish) or the right shoulder of an inverse head-n-shoulders (Bullish). But the 20 and 50 EMA are crossing which usually means a reversal in trend. MACD is pointing lower but stochastics are oversold. If we rally to the EMA's and fail then prob go rather lower from there. I for one might buy some puts on the GLD as a hedge…

Stay tuned...