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Key Market Indicators

Rate Type Month Last Change
Fed Funds Rate August .25 0.0
Unemployment June 6.1% -.2%
Rate Type Month Last Change
Inflation (average) June 1.76% +.07%
Gold (oz) August $1,310 -$7.00
 
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OverHyped
Oct 27, 2011
Two stories hit today that sent the Dow Jones Industrial Average soaring, ending up 339 points and almost 3%. A deal to restructure Greece’s debt was struck in Europe, and the US Bureau of Economic Analysis issued that Real GDP increased 2.5% – that’s growth from last quarter, not for the year. 
 
Here’s quarterly GDP growth for the year thus far:
                        Quarter           Growth
                        1Q’11               .4%
                        2Q’11              1.3%
                        3Q’11e            2.5%
                        Average           1.4%
 
First, this is an advance estimate for the third quarter. The advance estimate for the first quarter was revised down one full percentage point. Keep in mind that this estimate can change.   
 
Second, and should this third quarter estimate hold up, 1.4% annual GDP growth stinks. A number that low can never improve the employment situation – and that’s what “the market” really needs right now. Until that changes, days like these are a trader’s dream.
 
Here’s how the stock market action looks year to date. (DJIA +5.5%, 15-51i +12.9%.)
 
ytd2011-10-27-11
 
Over-hyped markets are the markets to sell in.  If you haven’t rebalanced your portfolio (both macro and micro) now is a good time to do it. Remember, it’s sell high – not sell at the highest.
 
PS: [10/29/2011]  There is relatively little to celebrate when Real growth is less than half the rate of inflation.  There's no reason to buy into the hype.
Contradiction II
Oct 26, 2011
In a weekend Wall Street Journal article entitled, When Funds Lend Stock, Who Gains? author Jason Zweig explains how a new study uncovered that many mutual fund managers skim proceeds from stock lending programs (mostly used in transactions for short sales.) In other words, mutual funds are lending stocks that investors own – but keep the majority of the proceeds for themselves. 
 
Shocked?   
 
In fact, a researcher put it this way: “The people managing your money may sometimes be managing it more to benefit themselves than to benefit you,” said finance professor John Adams of the University of Texas at Arlington. 
 
In another WSJ article entitled, Numbers Game Offers Investors Little to Count On, (written by Jonathan Cheng) a senior investment officer and chief economist at OppenheimerFunds rationalizes current stock market volatility this way: “This is a market that’s not trading on fundamentals.” 
 
Exactly.
 
The US economy is in recession. Speculating that it’s not, as the media and stock markets are currently doing, has nothing to do with market fundamentals. Fundamentally, the Dow shouldn’t be trading above the midpoint. But there it is.
 
1551i-10-26-11
 
 
See also:
 
 
 
Bearer of Bad News
Oct 25, 2011
Investors woke up and read the news today. The Dow Jones Industrial Average gave away all of yesterday’s gain and another 100 points today. As mentioned, yesterday’s front pages were plastered with the unfortunate realities that surround investors on a daily basis. These Wall Street Journal headlines say it all: 
            Dour Europe Data Stoke Recession Fears
            EU Finance Chief Cancel Talks
            Hedge Funds Face Investor Pruning
            Lean Companies Ready to Cut
 
It’s always a bad sign when the finance chief calls off financial talks – you know what I’m saying? Finance people love to talk finance. But in “dour” times, and when all options look bad, even financial chiefs look to dodge conversations about money. That’s where Europe is today. And it will continue to pressure stocks and rally gold – as will the market condition in the US. 
 
Many people don’t know how important hedge funds are to American enterprise. They make investments and lend money to companies that traditional banks won’t consider. If investors pullback from hedge funds, then they pullback from companies that need financing to grow. This causes businesses to shrink, which will add more pressure to the economic cooker brewing in the US. 
 
As mentioned in my book, market forces are more powerful than any investment or collection of investments. Negative market forces produce poor investment returns because there is less profit, less money, and less growth potential.  And despite their best efforts, even quality stocks go down in poor markets. 
 
Well-managed companies stay ahead of the curve by staying ahead of market conditions. So when you see that “lean” companies are looking to get leaner, that’s smart businesses telling you they expect to see a shrinking market – a.k.a. recession (which the stock market has been predicting recession for some time now.)  This, too, will pressure stocks to go lower and unemployment to go higher. 
 
None of this is good for investors.  Sorry to bring you the news.
 
Stay tuned...
Land Grab
Oct 25, 2011
These are the kinds of days that the stock market can make you scratch your head.  The news is overwhelmingly negative.  Yet the DJIA headed higher by 104 points.
 
There is so much to say about today’s news.  I’d love to hit it all but don’t want to get lost.  Today, I start and stay here, on a nerve, with these two Wall Street Journal headlines:
               Fed Wants to Bet the House, Again (10/22/2011), and
               Home Lending Revamp Planned (10/24/2011)
 
Let's take them in order.
 
When the US government took-over Fannie Mae and Freddie Mac in 2008 they assumed a lot of debt, asset-backed securities – and title to approximately $6 trillion of American land.
 
Land – God isn’t making any more of it.
 
In the wake of the 2008 "financial crisis", the Federal Reserve responded with a tactic called "quantitative easing" – the process of printing new money to buy back outstanding debts.  Since the "crisis," the Fed has purchased an additional $2 trillion of mortgage debt – also backed by titles in American land.  Unlike the Louisiana Purchase, these land grabs (amounting thus far to $8 trillion) have been conducted covertly and under guise of proper monetary and fiscal policy.  Nothing could be further from the truth.
 
And now they’re thinking about doing it again.
 
As I write this piece the Federal Reserve is contemplating more "quantitative" action in hopes that it will lead to lower interest rates and thus help the struggling housing market.
 
Are they kidding?
 
High interest rates are not the reason for the troubled housing market.  Interest rates are already at historic lows and still money isn’t moving and banks aren’t lending.  Fractional changes in interest rates from here cannot be expected to produce the viable, long term economic growth required to correct the unemployment situation.
 
FYI: The only way to fix the housing market is to fix unemployment.  Money games can’t do it – and the Fed knows it.  But again, that’s really not what they’re trying to do. 
 
Instead, with this monetary action, the Fed will print more money to acquire more American land in which to use as collateral in order to borrow more foreign currency (i.e. from China.)  In other words, they’re taking our land to leverage it in the world marketplace to obtain more capital – to spend beyond their means.
 
Doesn’t this all sound quite familiar – say like, the "subprime mortgage crisis"?  Is it me – or doesn’t this seem like déjà vu all over again?
 
Like its predecessors, this money game won’t work either.  Besides, America doesn’t need more debt, a third mortgage, more inflation, and a weaker currency.  Printing more money will do just that.
 
Today, in a very appropriate place to launch another shell game, President Obama unveiled his new solution to the housing market fiasco in Las Vegas, Nevada.  It, like the Federal Reserve plans mentioned previously, is incompetent, unappealing, and too small in thought.  In fact, one Goldman Sachs economist projects that the President’s new housing plan could generate a mere $24 billion of additional economic activity (a.k.a. spending.)  Again – who cares!
 
Twenty-four billion isn’t a fly on a multi-trillion dollar elephant’s ass – and that’s exactly what America has right now.  A few billion won’t change a thing.  Listen, sooner or later we have to stop these people (US governance) from taking our money and stealing our land with a devalued currency.  This is getting ridiculous.
 
It appears that not only is it time to: Lose Your Broker Not Your Money – but also time to: Lose Your Politician Not Your Independence.
 
There’s more to talk about – and all of it is bad for investors.  Stay tuned…
An "Occupational" Problem
Oct 20, 2011
Many have already opined on the problem with the Wall Street "occupation" movement. Some say its lack of leadership, others insist it’s the lack of a coherent message, or unifying theme, like the Tea Party had when they began some years ago. Sure many Tea Partiers had ancillary issues that were important to their individual selves, but their unifying message, without a doubt, was: Less Government, Less Federal Spending. Period. End of story. 
 
The problem for the Wall Street occupiers, as I see it, is that they fail to see the other half of the equation. 
 
It is totally understandable to have great disdain for the Wall Street establishment (don’t forget the title of my book: LOSE YOUR BROKER NOT YOUR MONEY.) Wall Street is made from a bunch of lying, thieving, capitalist pigs. They bankrupted the US financial system and sidestepped disaster with multimillion dollar bonus packages paid for by the United States taxpayer. Many "occupiers" want their money back – and who could blame them? 
 
But shouldn’t these "occupiers" also be angry with the government – you know, those people that bailed Wall Street firms out with our money? 
 
As mentioned in my book, I get my information from lots of places. Just today, research from a Wall Street firm regarding the Euro-Zone crisis crossed my desk. To temper investor angst, the research tried to explain that Europe has more than enough assets to fix its problems, "and most importantly, the ECB can print as much money as they need (very much like the US Federal Reserve.)"
 
Many times our government prints money and gives it to banks, like investment banks located on and around Wall Street. When the US government needs more money they issue bonds which Wall Street sells for them. They’re partners in business, they work hand-in-hand, and are equally responsible for the disastrous market conditions we are currently experiencing. To be for one and against the other is equivalent to stepping on the brake and gas pedals at the same time. It produces a lot of noise and smoke but not much movement.
 
Movements need traction; and it is completely illogical to be anti-Wall Street and not anti-government. They’re partners in crime, and have been for a very long time. Both are villians.
 
Many Americans, me included, feel as if Wall Street has stolen a piece of their net worth – because they did.  But the US government facilitated that by bailing them out with our money; and by making it easy for the Wall Street establishment to steal our money through laws and regulations (i.e. IRA and 401k laws.) Like I said, they’re partners in crime.  To be anti-Wall Street and pro-Government is to be misguided.  And that’s the problem with the current "occupation" ensemble.  It loses credibility by just "occupying" Wall Street in New York City -- and not also "occupying" Pennsylvania Ave in Washington DC. 
 
And let me say one more thing:  Should they decide to do so, they ought to serve Tea and have a Party.  I'd really look forward to that.
Fly in the Ointment
Oct 18, 2011
The Dow Jones Industrial Average followed yesterday’s 247 point drop with a 180 point gain. The news looks the same, as seen with these Wall Street Journal headlines:
            Markdowns Put Goldman in the Red
            BofA Swings to Profit in Muddled Quarter
            France’s Credit Rating Under Pressure
 
But today the market’s real nemesis fired another alarming headline:
            Wholesale Prices Indicate Continued Inflation Pressures
 
This is the fly in the ointment. 
 
As mentioned in previous blogs, inflation is a great threat to economic condition. It will force interest rates higher, as the cost of debt (interest rates) increases with the cost of money (inflation). Higher interest rates will slow this already sluggish economy; add more trouble to adjustable rate mortgagees; and increase unemployment (as the cost of doing business increases.) 
 
But even more importantly, inflation eliminates one of the government’s greatest tools to spur on economic activity – as inflation will drive interest rates, not the Federal Reserve. 
 
This adds to the trouble. 
 
Runaway interest rates will wreak havoc on “the market” – the stock market will selloff, gold will resume its bull-run, and loan defaults will add stress to an already troubled banking system. 
 
Prepare now. There’s plenty of time. (DJIA 11,577)
 
 
Xref:
Europe - Yadda, Yadda, Yadda
Oct 17, 2011
Today’s Wall Street Journal top headline boasts a recurring theme:
            European Woes Knock Stocks Back Down
 
If you’ve been reading my blogs you know all about the global currency crisis – and that Europe is in real trouble.  Yes.  No question.  But take a look at these other WSJ headlines from today’s cycle:
            Wells Fargo Profit Rises, Revenue Slips
            Accounting Gain Boosts Citigroup Profit
            Hedges Haunt Morgan Stanley
 
And how about this one as a kicker:
           Credit-Card Issuers Vie for Risky Business—Subprime Borrowers
 
In a nutshell, bank revenues are shrinking, their accounting departments are playing games, and even though some banks can’t get out from under the last sub-prime debacle – many are chasing the same bad bet.
 
Are you kidding me?
 
Banks haven’t learned their lesson.  And why would they?  There’s no respect for free money – and that’s what banks have been getting for far too long.
 
I’ve blogged about asset allocation in the past but never about rebalancing your portfolio. The action zone midpoint is a great place to do this.  It’s also a good time to check your industry rankings. The 15-51 Indicator ranks financials fourth in priority order.  That’s too much for an environment like this (see above headlines.)  Financials should be last in priority for your stock portfolio, or even better, completely removed from the portfolio all together.
 
They’re just not worth the risk.
 
Stay tuned…
 
Bragging
Oct 14, 2011

                   Year-to-Date *

                   thru 10/14/2011

DJIA              +0. 6%

15-51i           +13.7%

 
You know, the secret to investment success is not: Buy Low and Sell High – it’s less is best. That’s what I demonstrate in LOSE YOUR BROKER NOT YOUR MONEY. Bigger is better in businessnot investment. With investment, less is best.
 
Superior 15-51 construction outperforms market construction every time – always, consistently, over the long term. (Here’s the long term proof.) 
 
But besides the ease and simplicity of its method, the best attribute of 15-51 construction is its resilience – it goes down less and recovers faster than “the market.” It outperforms even in the short term because it’s built better.  It's stronger.  That's why it produces superior results.   
 
Oct142011
 

So far this year (2011) the 15-51 Indicator is outperforming the DJIA by 2,283%.*

This kind of above-average performance makes it easier to Buy Low and Sell High – in other words, 15-51 construction makes it easier to make money. 
 
Step 1: Read My Book
 
Don't Be Fooled
Oct 12, 2011
The fastest way to correct the course of the U.S. economy and add jobs is as follows:
 
1.     Cut Market Taxes (1):
a.      Consumer/Individual: 25% Highest Rate, 5% Lowest Rate(2)
b.      Business/Corporate: 15% Highest Rate, with deductions allowing rates as low as 5%
c.   Investor/Long Term Capital Gains & Dividend Income: 15%, with deductions allowing rates as low as 5%(2)
3.      Tighten Monetary Policy & Regulatory Loopholes
4.      Drastically Cut Government Spending & Bogus Regulations
5.      Aggressively Pay Down National Debt
 
(1)       Look for future blogs discussing tax rates and recommendations.
(2)       Except for those below the poverty line.
 
All five must be done to fix the Market; otherwise we’ll remain twisting in the wind and gold will continue to outperform. 
 
GoldvDow_10-11-11
 
 
PS: Any new tax, be it a Value Added Tax (VAT) or national sales tax, is a horrible idea.  Taxes always get abused and never go away.  Connecticut residents know this all too well.  No new taxes!!!
 
 
Fixing the Market: Unleashing American Ingenuity
Oct 11, 2011
Right now Wall Street and talking heads are speculating about the possibility of a "double-dip recession." This is semantics. The U.S. economy has been in recession for years now and has never truly recovered. A double-dip, therefore, is an impossibility.
 
To plug the gap in GDP caused by the "financial crisis" of 2008 the US government has gone on an unprecedented spending spree that has done nothing to correct the market’s problems but instead has pushed us closer to Europe. And as we all know, several European countries are on the brink of bankruptcy – and it’s reckless government spending that put them in that position. 
 
That can happen to us, too! 
 
Right now, the US has a $15 trillion economy and $15 trillion in national debt – that’s 100% leverage. Failing European countries like Greece have 120% national debt to GDP ratios. Not only are we heading in their direction – we’re in their neighborhood! 
 
The income statement for the U.S. government for fiscal year 2011 looks like this: 
                                                                                                                                       Trillion
                 U.S. Tax Receipts (Revenues)          $2.1  
                 Government Spending (Expenses)       -$3.8
                 Surplus/-Deficit                     -$1.7
 
Just like your personal situation, the only way to pay off debt is to spend less than you take in. That said, the US government must cut $2.0 trillion of spending this year in order to reduce its debt load. This must be done soon or we will run the same course as Greece, Spain, Portugal, Italy, and France – to name a few. 
 
For instance, if the annual US government deficit is removed (hence a balanced budget) from GDP our national debt would be 115% of GDP. In other words, we’re roaming around a bad neighborhood and nightfall will soon be upon us!
 
Such a drastic reduction in government spending would also return the US economy to recession, which would cause the stock market to correct and selloff.  Good.  As mentioned in my book, corrections are healthy sign of life and much required for inflated conditions such as the one we are in. (It sure beats pretending recession doesn’t exist while bankrupting our grandchildren.) 
 
So how do we plug the economic gap left by dramatically reduced government spending? 
 
Cut Market taxes! Flatten the tax code! And throw out all of this bogus regulation that doesn’t work and is clogging the arteries of American enterprise! (i.e. Sarbanes-Oxley, No Child Left Behind, Dodd-Frank, and ObamaCare, to name a few.)
 
What the government needs to do right now is incentivize economic growth and vitality. Lower taxes increase spending power for consumers and provide greater incentives for investors to invest and businesses and entrepreneurs to create and innovate. Thats what we need!
 
For instance, when taxes on rich people go down they’re more willing to take on more risks – in other words, they're more willing to invest in new businesses, new products, and new markets – the riskiest of all propositions. Why?  Because they stand to make more money on their success. 
 
Profit is the motivator of all markets. 
 
Lower taxes on investment (capital gains taxes) provide greater incentive for investors to invest in a fragile economy where risks are so high. They also provide more room for investors to offset losses which are sure to occur in the high risk times and high risk venues that propel markets upward -- like product and market innovations. This is the kind of investment that creates long-term job benefits. America needs that, too.
 
One story not being covered by the mass media is the fact that President G.W. Bush outraised President Obama. President Bush averaged $2.4 trillion in tax revenues during his last term in office, while President Obama is raising just $2.1 trillion. Both presidents were big spenders, though President Obama makes his predecessor look like a fiscal conservative. 
 
Lower taxes increase revenue – the key is not to spend those revenues (like President Bush did) but to payoff debt!  America needs more free-market investment and less government spending right now. Lower taxes are means to that end. 
 
And for those who believe that higher taxes will solve America’s problems – it’s time to think again. Just as increased debt ceilings result in more debt, higher taxes only translate into more reckless government spending. And that’s two things we don’t need right now.
 

America needs more ingenuity – lower taxes and less government are incentives enough. 

UnChanged
Oct 07, 2011
Here's today's key Wall Street Journal headlines:
  • Stocks Retreat
  • Moody's Cuts U.K. Lenders (banks)
  • Fitch Cuts Spain, Italy
  • EU Steps Up Crisis Response
  • Payrolls Rise as Striking Workers Return
Even though mixed signals are part of the game, it's easy to see that investors are scared and Europe is in real trouble.  Nothing's changed.
 
XRef these blogs for more info:
 
Enjoy the weekend!
dan-
Desperado
Oct 06, 2011
Stock market hostilities won't subside until central governance stops throwing money around and starts fixing the Market’s problems. President Obama’s speech today was another desperate plea for more money; and he’s looking more like a subprime mortgage borrower did during the housing collapse – please, please, just one more re-finance – than a chief executive officer. And it’s hurting the Market.   
 
So far this year the Dow Jones Industrial Average is down 5.5% (indicating recession once again) and the 15-51 Indicator is up just 4% (well off its 18% per year historical average.) See the chart below. 
 
2011Comp
 
 
Often times “uncertainty” gets the blame for stock market volatility. But uncertainty always surrounds the stock market. Mixed signals are part of reality – and provide the room and fuel for speculation. Check out these Wall Street Journal headlines from today:
            U.S. Stocks Lose Steam (and the Dow ended up the past few days)
            September Retail Sales Are Solid Ahead of Holiday Push
 
Since no one knows exactly what will happen and when, uncertainty is omnipresent. Mixed signals are part of the game.  Always. 
           
So what’s driving the Dow down as illustrated in the above chart? 
 
Incompetent central governance. It’s not fixing problems like it should be (see my blog series: Fixing the Market for more details). Instead it’s playing shell games with money and manipulating GDP with reckless government spending. The only thing that’s doing is driving up national debt and depreciating the dollar. More of it, like President Obama’s new jobs bill proposal, will only continue those negative trends. 
 
What makes the matter even more daunting is when other countries follow our irresponsible lead, as can be seen in this WSJ headline:
Bank of England Expands Quantative Easing
 
This is all bad for money and markets.  That’s why the above chart looks like it does. And it’s also the reason for gold’s torrid run since the housing bust.
 
GoldComp
 

The dollar is too weak.

 
 
Rest in Peace Steve Jobs
Oct 06, 2011
Today is a very sad day.  Apple icon Steve Jobs died today. 
 
May God rest his soul and bless his family, friends, coworkers and employees – and every investor at every corner of the world.  Today we lost someone very special.  
 
And those in the iCloud got one legend richer.  Godspeed!

 

Flag_Half_Staff_Best 

WeatherMan
Oct 03, 2011
When you know how "the market" works it's much easier to predict than the weather.  That makes stormy days like today easy to see coming, which in turn makes them easier to handle and manage. 
 
Nothing has changed.  Recession isn't a real possibility -- it's a reality.  A global currency crisis still exists, and unlike the "financial crisis" in 2008 when we were talking about several large banks failing, this time we're talking about countries failing.  Did you hear that? 
 

Countries are failing!

 
That's why we're experiencing days like these.
 
Stay tuned...
Fixing the Market: Strengthening the Dollar
Oct 03, 2011
First things first, it’s quite hypocritical for the US government to continually excoriate the Chinese for manipulating its currency by not allowing it to appreciate. I don’t understand the US stance. The Chinese currency has risen steadily and in dramatic fashion for more than a decade while at the same time the US government has been purposely urinating on the dollar.  What China does with its currency doesn’t amount to a hill of beans if US governance takes care of business with the US dollar. 
 
Because the US is the freest country in the world, it’s a major market problem when it’s not the strongest currency in the world.  This needs to be addressed quickly to avoid further demise. Like Rome, however, a strong dollar can’t be built in a day.  It will take time and a multi-faceted approach.  
 
First we must acknowledge the obvious: more of any one thing means less value for that particular thing.  For example, if diamonds could be found everywhere they’d never appear on an engagement ring.   They’d have no long-term value and women would find such a gesture insulting.  And who would blame them.
 
The same is true for stocks.  If Apple printed another trillion shares of its stock it wouldn’t be trading at $300+ per share.   The new abundance of shares would dramatically devalue existing share already in circulation. 
 
The same is true with money.  When central governance floods the market with currency like it has for the past several years, the dollar weakens.  A weak currency brings on inflation (the general rise in prices) because more dollars are required to purchase the same amount of goods. 
 
That’s why President Obama wants to raise taxes – to remove currency from circulation in an attempt to ward off inflation.  But that’s the wrong way to do it.
 
As we know, another major market problem is that banks aren’t lending money.  The reason for this is because there’s no money in money.  Interest rates are too low and inflation is heading right for us.  Banks are operating on such tight margins right now, and with inflationary pressures rising there’s very little room to take risks – so they’re not lending.  Instead, banks are trimming their workforces and getting paid by the Fed not to lend.  
 
We need to turn this around.
 
It’s time for the Fed to start raising interest rates. This will give banks more incentive to take risks and lend money. It will also raise the value of the dollar because there would be more interest in borrowed money – in other words, more value in US debt.
 
Higher interest rates will also give the Fed a mechanism to remove currency from the market without raising taxes. Bond values and interest rates have an inverse relationship, meaning as interest rates rise bond values fall.
 
Right now the Fed is trying to lower long-term rates (and raise short-term rates) with a stupid policy called, "Operation Twist." Instead, it should be raising short-term rates with new debt issues and using the proceeds to purchase existing debt at lower rates trading at discounted prices.  In such a case, $1 dollar of new debt will be able to purchase $1+ dollars of existing debt – thus removing currency from the market and warding off inflation. 
 
Would the government’s interest expense go up because of this? 
 
Yes. 
 
But banks would have more incentive to lend, taxes would not increase, excess currency would be removed, and the dollar would strengthen.  And that’s what we really need right now. 

IBAWinnerSealJPEG

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