Insiders are selling

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

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?

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

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

“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

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

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

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

Flip Flop by Puru

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

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

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

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

The Great American Bubble Machine

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

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

A Late Weekly Update Puru

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

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

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

Click on the chart for my update...

Weekly Update from Puru

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.