The Banker Who Said No

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

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

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

Weekly Update from Puru

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

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

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

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

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

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

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

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

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

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

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

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

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?

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

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

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

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?

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

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

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

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

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

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

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

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

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

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?

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

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

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

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

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

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

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

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

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

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.