(Josh Brown / RegisteredRep) “There are some stock market land mines that will invariably destroy anyone foolish enough to stand on them for an extended period of time. .. Until you’ve been blown up by a few of these murder holes yourself, it’s hard to recognize them. Below is a list of the dark alleys you never want to wander down for your own future financial well-being. .. These alleys are strewn with various land mines, any of which could become your very own murder hole at any time. You probably won’t listen anyway, but don’t say I didn’t warn you.”

SPACs – “According to Reuters, the last big wave of 57 SPACs that debuted at the height of the credit bubble in 2007 had raised a combined $11.3 billion. That’s a whole lot of “dumb money.” The best thing that could’ve transpired for those 57 companies would have been the return of cash that occurs when the clock runs out and a deal hasn’t been consummated. In fact, there were a few hedge funds involved with some of those SPACs that were forcing that dissolution to occur using the voting power of their stock positions. .. If it weren’t so true, it would almost be laughable how horribly and slowly these things die. And by the way, many of these SPACs have been China-related in recent years. For investors, the China-SPAC combination is like being beaten up after school and then coming home to find that your parents have moved away without telling you. .. And just so you know, the investment banks that make these stepchild IPOs are almost always connected to an aggressive brokerage sales force. How else could $100 million be raised for such a hare-brained scheme?”

Chinese Reverse Mergers – “The short sellers who have attacked and unmasked the Chinese RTO fraud machine have done investors a favor in the long run. I’ve advised people to avoid the entire China stock sector until the companies grow up a bit and start acting like professionals. After all, if the legendary John Paulson can be taken in by these charlatans, what chance do you have?”

One-Drug Biotechs – “The vast majority of drug trials fail to satisfy the FDA, and approvals are the exception, not the rule. .. If you must own biotechnology, try to go with a larger company that has several drugs on the market or in development. It may not produce a 10-fold return, but it also won’t vaporize your portfolio on an FDA setback.”

Private Placements – “So I’ll tell you what happens and what will always happen when retail brokers bring their clients private banking deals. By the time a company is desperate enough to go to broker/dealers for funds, it means that it is already at the end of its rope. The retail brokers are offered a 10 percent commission to show the deal to their clients. They are also promised warrants and stock options should the company end up going public. (It won’t.) This exorbitant compensation for the brokers is a huge red flag. .. The higher the commission or selling concession a broker is paid to sell a product, the worse that product will be for his or her clients. Brokers take note: selling a client a private placement that pays you a tenth of that money back is the same thing as telling your client to go f*%k himself. And by the way, the more interesting the company, the more dangerous the private placement offering.”

Other investor traps to watch out for:

• “Oil and gas limited partnerships. (If you’re being cut in on them, the wells are dry.)
• Principal protection funds. (They always come out after the market’s been killed and cap your upside on the recovery.)
• Insurance brokers selling asset management. (Does your hairdresser also repair the roof on your house?)
• Stockbrokers selling guaranteed-return equity-linked annuities. (Yeah, that’ll end well.)
• Reverse convertibles and other structured products. (They will pit you against both the market and the banker — good luck!)
• Brokers with one day left in their pay period. (They will call you with the news that “we need to rotate and move some things around.”)
• Brokers with thick New York accents and Boca Raton area codes.
• Anyone who claims to have a “system.” (Why? Because there is no such thing, and if there were, you would be the last person to hear of it.)
• Anyone who calls himself a “financier.” (He’s guaranteed to be full of sh*t and probably wears dress shoes with no socks.)
• Financial advisors who self-clear or self-custody client funds. (Always be sure there is another pair of eyes on your money, preferably a large corporation’s.)
• Currency brokers and forex sites. (Nobody knows anything; this is all highly leveraged speculation, and the brokers are actually trading against you when you take a position.)
• Managed futures funds. (The fees are so over the top that your actual return will look nothing like the advertised return.)
• Movie investments. (The latest telemarketing scam; no studio worth investing in is going to unleash an army of cold callers to raise funds.)
• Closed-end fund IPOs. (These funds should only be bought at a discount in the secondary market. Within 90 days of the IPO, the “penalty bid” phase ends and brokers can freely dump shares while keeping their commissions — you will be down 15 percent in a blink.)”

Full Story: Staying Out of the Murder Holes (Joshua Brown / RegisteredRep)

And let’s not forget to mention double and triple ETNs (Exchange-Traded-Notes) that will evaporate your portfolio faster than you can say “WTF“?!… 

Full Story: Collateral Damage: TVIX’s Fall Could Have Broader Implications (TVIX, VXX)

(TheReformedBroker) “When stalking a growth stock awaiting better entries or looking for new growth stock ideas, one of the best things you can do is get a hold of Wall Street’s Upgrades and Downgrades each morning.  .. Typically a fast-growing company will stumble on a specious analyst downgrade and then the accumulation will resume as the institutional fans of the story get over it and come back with buy orders.”

Examples of B.S. downgrades:

“Valuation - growth stocks don’t trade on ‘valuation’, they trade on sentiment and the expectation of future earnings, see the numerous valuation-based downgrades of lululemon and Whole Foods.

Dropping Coverage - believe it or not there are institutions who will actually sell on the news that a brokerage firm is dropping or suspending coverage in a name due to an analyst leaving or something.

Channel Checks - there is only one thing sell-side analysts suck more at than tackle football and that is ‘channel checking’ – they literally cannot do it in such a way that there are actionable insights to be gleaned from it.  Think about how many times you heard about strength in non-Apple tablets (there never really was any) or weakness in the iPhone 2 (also, never really happened).  Channel checks are a money-loser in most cases – wait for the actual hard data, forget what people say they’ll do or think they’ll do.

Short-Term Pressures - chances are if you are interested in a growth stock investment, what happens tomorrow or the next day has little to do with anything.  For example, I saw an analyst downgrade Buffalo Wild Wings, one of this moment’s greatest growth stories, because of a rise in chicken wing costs in early February.  And while the analyst was correct in terms of those costs rising, it’s really a trivial, short-term matter to anyone who intends to invest in the business.

Strategic Direction - some people are meant to run businesses and others are meant to analyze and critique them. When a company announces a new strategic direction or goal, the knee-jerk Wall Street response is to cut it to neutral due to ‘uncertainty’.  I have no interest in seeing sell-side analysts vote on the strategic decisions of a company – management often knows more about their market than the eggheads do.”

Full Story: Growth Stock Strategy: Buy Bullsh*t Downgrades (TheReformedBroker)

(BloombergMarketsMagazine) “Cash generates minuscule returns. Commodities, especially gold, can soar or tumble in an instant. In these perplexing times, Bloomberg Markets magazine in its January issue asked 10 billionaires 14 questions covering their views on the global economy, where they see opportunities and who gave them the best advice.”

Some highlights:

John Paul DeJoria (Primary Assets: Stakes in John Paul Mitchell Systems and Patron Spirits Co. Residence: Los Angeles Industry: Retail):

“Influential indicators? Beauty salons. Typically, customers will visit every six weeks; in downturns, that drops to every eight weeks. When the frequency starts to go up again, it indicates the economy is improving.”

“Where to park $1 million in cash?  Twenty-five percent in gold, 25 percent in silver, 25 percent in NYSE blue-chip stocks that pay a dividend and 25 percent between Asian and European blue chips that pay a dividend.”

Eli Broad (Primary Assets: Investments, art Residence: Los Angeles Industries: Banking, real estate):

“Influential indicators? Consumer confidence, unemployment and political gridlock.”

“Best investing advice? Don’t bet the farm.”

“Margin in portfolio? Not in this uncertain world.”

“Where to park $1 million in cash? High-quality multinational consumer companies such as Procter & Gamble Co., Coca-Cola Co., Kraft Foods Inc. and Johnson & Johnson. (JNJ)”

Peter Hargreaves (Primary Asset: 32.2 percent of Hargreaves Lansdown Plc, the U.K.’s biggest retail broker Residence: Bristol, England Industry: Financial services):

“Fixed-income investments? German bonds for the currency play when the euro implodes”

Where to put $1 million in cash? $500,000 in Singapore dollars and $500,000 in Norwegian krone.”

“Is there a money manager you would trust with your entire portfolio? Me.”

Full Story: Billionaire Prokhorov Touts Gold as Trump Embraces Foreclosures (BloombergMarketsMagazine)

(TheReformedBroker) “Sometimes when stocks gap down on earnings they don’t bounce – they keep going and going lower, never to be heard from again. But I knew $LULU would at least bounce, even if it eventually retests the lows from this morning where I bought in (41.75 to 42.25). This is because LULU didn’t miss earnings or revenue or guide lower for the coming quarter – it simply didn’t blow The Street away by the same magnitude that it had in prior quarters. It still grew faster than most other public retailers and it still has more room to grow than any retailer I can think of.”

“Only an imbecile looks at +30% revenue growth as a ‘disappointment’ – especially amidst a market full of other stocks that couldn’t grow their top line revenues if their lives depended on it. And the fact that LULU may not have met sell-side analyst expectations means absolutely nothing to me. Because I’ve seen this short-term myopia before back when Coach ($COH) was a young, mid cap growth story during the last recession (2002 – 2003). It would blast the Street’s stupid expectations out to Jupiter three quarters in a row and then have a quarter that was just okay. People couldn’t wait to write it off and say it was “decelerating” or had peaked. And then it would smash the numbers for another three or four quarters in a row just to piss the naysayers off.”

“Short-termism is foolish when you’re talking hyper-growth potential and a young company with nothing but room to expand. I’m not telling you LULU is cheap or ‘deserves’ a 30 multiple or blah blah blah. I’m saying that stocks don’t get punished for growing revenues at a 30% clip for long. I knew they’d bring it back simply for the fact that, well, there just aren’t any other LULUs to buy, plain and simple.”

Full Story: lululesson (TheReformedBroker)

(MartinArmstrong) “Politicians everywhere are sitting on their hands because they believe that if they do nothing and maintain the status quo mixed with austerity to save the bankers somehow we will grow our way out of this one as before. The problem is they fail to distinguish between a private generated financial crisis and a Sovereign Debt Crisis where they are the problem.

The people are just not to be given a right to vote on any of this and if the system can grow out of it, in two years everyone will forget about it – that’s the plan. To clarify why I have been critical of the austerity in Greece and the property taxes, Schumpeter describes the Business Cycle as a force of Creative Destruction. These are periods of tremendous economic transition. It is one thing to impose property taxes and insist upon government reducing its work force that sound like solid conservative economic advice for Greece. However, that presumes there are private sector jobs waiting in the wings.  What is taking place in Greece is that there is no private sector alternatives at this time. Laying people off is one thing. To impose then property taxes that are due irrespective of income then subjects those same people to massive waves of foreclosures for failure to pay the tax. The US Great Depression was so bad NOT because of the stock market crash, but (1) the sovereign debt crisis that wiped out savings and reduced capital in the USA contributing to over 3000 bank failures, and (2) the Dust Bowl that eliminated agrarian jobs when agriculture accounted for 40% of the civil work force resulting in the ‘hobo’ lifestyle.  It was WWII that provided the  ‘transition’ reducing unemployment and transformed farmers into skilled labor. The Great Depression after the Panic of 1857 was followed 4 years later by the US Civil War, which was also the ‘transition’ at that time relieving unemployment.

Today, there is no plan. There is no transition, only austerity. The politicians are doing NOTHING whatsoever for any reforms they reject because it would change the way they have been doing business since WWII. Italy’s debt is bigger than Spain, Portugal, and Greece combined.  It is too big to be bailed out and there is no PLAN B to even address what happens if sitting on their hands blows up in everyone’s face? Stay away from ALL government debt! This is a wave of Creative Destruction. We are in a transition to a completely new world ahead.”

Full Story: Italian Head of State Pledges to Resign Schumpeter’s Creative Destruction? (MartinArmstrong)

(MartinArmstrong) “Government Is Living in a State of Denial.  They speak, see & hear nothing of a debt crisis. .. Italy is the third largest bond issuer and nobody in government has figured out that this a Sovereign Debt Crisis yet?  What Government FAILS to understand is they are the PROBLEM!

Because government is the PROBLEM, they live in a state of denial and cannot correct the situation for they cannot objectively look at themselves. Instead, they attack the people. Fannie Mae asks for $7.8bn as losses continue. Morgan Stanley has been accused over mortgage bond issues and MF Global goes bust exposing the truth that SEC & CFTC never audit the NY banks and are incapable of detecting that they may be trading with client’s money.

.. the whole theory upon which the banking system has been constructed is unsound. Banks take short-term and demand deposits and lend long-term. When a financial crisis unfolds, a run on banks emerges because people want their money. Since the bank’s obligations are short-term to demand but their assets are loans of medium to long-term, they don’t have the cash and fail.  For you see, banks were not supposed to lend out your money.  ..  Banks began as merely a place to store your assets. They were not intended to lend your money out to someone else. When they realized they could make profit doing so, the scam eventually became the standard operational procedure. Formulae were then devised to calculate at any one time how much ‘reserves’ did they have to retain for normal operations. That was worked out with experience settling on 6%. So if they retained 6% of deposits as cash, they could cover normal business withdrawals with no problem. The problem became during a crisis and everyone wanted their cash and the bank simply does not have that cash and you end up with a bank run. It is ironic that what began as a scam simply became institutionalized. This is WHY the entire financial system is dependent upon CONFIDENCE!

What is unraveling even more quickly is the fear that banks will be hit with panic runs because of their holdings in sovereign debt. After a 50% haircut in Greek bonds, now it has become trendy not only to sell Italian bonds but also to publicly announce they have done so to try to maintain CONFIDENCE of their depositors.  The very reason politicians have suppressed the right of the people to vote and have forced austerity upon the people, has been to maintain the confidence of their bankers. But in the end game, the bankers exist based upon the confidence of the people in their sound management of their deposits.

.. The people may be shut out of the polls denied democracy when it is needed most, but the FREE MARKETS will respond as capital votes in its own self-interest that does not match the political nonsense.

SEQUENCE OF AN ECONOMIC PANDEMIC

At first blush, how capital responds depends entirely upon the (1) monetary system and (2) the freedom of capital movement. In a closed economy, the first reaction is to buy ALL tangible assets. These tend to be everything from durable commodities (metals), art, coins, stamps, and gold (assuming it is not a gold standard of some sort). This is the category I refer to as  ‘moveable assets’. The second tier of assets tend to be real estate that I refer to as ‘fixed non-movable assets’ meaning their value is limited to the territorial jurisdiction of the nation. In a non-communist nation, stocks and corporate bonds will also attract capital as a safe place to park funds.  In an open-economy where capital is free to leave, then the first blush is to FLEE to a different land in which case the local assets, including stocks and corporate bonds, will initially crash. This is typically indicated most pronouncedly in the collapse of the local currency against world currencies or in this case rise in the dollar vs decline in euro. They eventually swing back ONLY after the crisis manifests in a new currency or a debased/devaluation of the local currency takes place. The capital-flows will the swing back in the opposite direction.

Under today’s circumstances, the first blush response will be for capital to flee Europe and run to the United States as a safe port parking in US government paper. This is likely to further the deflationary effects within the United States by ensuring interest rates remain low as they did during the Great Depression for the same reason. However, banks are living off of the largest spreads perhaps in modern history so while rates of interest on cash will decline further and move in real terms NEGATIVE after inflation, banks should NOT be expected to lend money more easily. They will maintain their huge profit margins. Therefore, the first blush of the  Sovereign Debt Crisis in an open society tends to be currency based rather than even movable assets.

During the inflationary boom into 1929, gold declined in purchasing power for assets were rising against gold. During the collapse, the value of money rose (gold) as assets declined. Under a gold standard, the value of gold in fact DECLINES with inflation and RISES with deflation.

So for now, we are in the first blush mode where capital will fee to the dollar rather than assets and that may confuse the hell out of a lot of people. Therefore, under the current conditions, gold need not rise on the first blush for the bulk of capital will flee to the dollar. On the second swing where capital flees all currency, then we will see the Private vs Public assets manifest meaning they will rise as expressed in terms of currency.”

Full Story: Government is Living in a State of Debt Denial (MartinArmstrong)

Click for Nov 11, 2011 Martin Armstrong Radio Interview (FSN)

(Interloper) “Mr. Achuthan has been arguably the most accurate economic forecaster over the past five years and perhaps more importantly, is apparently using new analytical techniques and indicators – his emphasis on short and long-leading economic indicators is an excellent example. As he noted this morning, he was virtually alone among prominent economists in predicting a slowdown for the latter half of 2011, even if his predicted official recession has yet to become evident.”

” .. Achuthan presented his view that despite recent stronger data a US recession was still on tap, followed by Steve Liesman (fairly) asking ‘What about recent stronger GDP and consumer spending data’, followed by Achuthan saying that it didn’t matter because there is contagion in the data whereby more indicators were turning negative, followed by Liesman asking (again fairly) ‘like what’, and Achuthan responding something like ‘it doesn’t matter what, it matters how many‘. .. Liesman continued to badger his guest with ‘what do investors do today?’ ”

“.. Achuthan, in other words, is telling investors you something you will not hear from any employee of a brokerage or investment bank (well, maybe SocGen): wait.”

“.. My real issue is with those who will complain, ‘Why would I listen to that guy? He can’t even tell me which indicator he’s basing his conclusion on’. These people want THE ANSWER, stated bluntly, with conviction. To these people I respond; there is nothing you should be more afraid of than a market pundit who is certain.”

“Certainty is a tremendous marketing tool but there is a reason that the ‘con‘ in con man is short for confidence. Remember that it would only take one highly-leveraged trade to make someone wealthy enough to never work again. This implies that if the ‘certain’ dude (and its 99% of the time a dude) was really 100% sure, they would be leveraged 200-1 on the trade and, if it were successful, you’d never see them again outside of Saint Tropez-situated photos in celebrity magazines. In truth they are not sure – it’s a marketing gimmick to attract your investment dollars.”

“We are naturally attracted to certainty and we want to believe that someone has the answer because psychologically the random nature of markets is repellent. But in the end it is most often a trap and all investors should remember what a portfolio manager once told me: ‘People don’t like to hear it but we are in the probability game, not the certainty game.’ ”

Full Story: Liesman vs Achuthan and why investors should be terrified of certainty (Interloper)

(GlobeInvestor) “ETNs expose investors to the risk of losing all or most of their principal. That’s because ETNs are set up as unsecured, long-term debt obligations of the issuer, Ms. Pelant explains. ETF investors don’t face the same default risk because ETFs own a pro rata stake in a basket of stocks, bonds, or derivatives held by a custodian in trust and legally separate from the issuer, she says.”

“When Morgan Stanley’s viability came under question in September , its family of Market Vectors ETNs sold off dramatically. ‘The Market Vectors Remnimbi/USD ETN (CNY) plunged more than 25 per cent versus a 1-per-cent drop in a comparable ETF,’ observes Greg Newton, a veteran financial journalist who writes the NakedShorts blog.”

However, if the ETFs don’t actually hold the securities that make up the fund, and instead use synthetics or swaps rather than physicals, investors may also be exposed to much more credit and counter-party risk than they realize. And as Jeffrey Gundlach discussed at the recent DoubleLine Luncheon at the New York Yacht Club, “Never, ever take counterparty risk. It is the one risk you are almost never rewarded for taking. Unless you are running $800 billion dollars, there is no need to use swaps, synthetics or baskets – trade cash markets and avoid any trades that require a counterparty.”

(HistorySquared) “In light of the counter party risks inherent in ETFs, especially those that use synthetic swaps rather than the physicals, there might be an inexpensive way to express a bearish view on some of the European banks.

For example, in 2008 Lehman Brothers had several failed ETNs. ‘The three ETNs were Opta Lehman Commodity, Agriculture and Private Equity. In September 2008, these ETNs halted trading when Lehman Brothers failed. Currently, the final results are being sorted out, but it appears that Lehman ETN holders will receive 2 cents on the dollar from their original investment.’ ”

These are some clever lower-risk trading ideas for expressing a bearish view on the future solvency of a particular counterparty:

“Perhaps there are some far OTM options on some of the Socgen ETFs that are worth a look . Or a less risky trade could be long an ETF with physicals underlying the ETF that is issued by a more secure bank, and short the highly correlated Socgen ETFs. A potentially catastrophic event could be triggered by Deutsche Banks popular x-trackers.”

Full Story: ETFs as Tail Risk Trades (HistorySquared)

(Bloomberg) “ETFs that use swaps to clone stock, bond or currency returns have been criticized by regulators and firms including Fidelity Investors, which say clients risk losing money should the banks writing the derivatives become insolvent. Outflows from Lyxor are another blow to Societe Generale, France’s second-largest bank, whose shares have tumbled this year as the escalating sovereign-debt crisis squeezes lenders’ funding.

‘It’s an issue of counterparty risk related to the financial health of the backing bank,’ said Jose Garcia Zarate, an ETF analyst at Morningstar Inc. in London. ‘Fears over synthetic replication have been building up, and at the same time, fears of banks’ peripheral-debt exposure have grown. Put those two together: bingo!’ ” — Swap ETFs, Lyxor Have Record Outflows (Bloomberg)

(TheMarketTicker) “Like paper coupons a Groupon has a ‘use by’ date. They’re attempting to leverage social media to ‘widely distribute’ the Groupons to consumers, and for this they get a piece of the action. The merchant effectively pays a ‘vig’ to Groupon for running the distribution system and collecting the money; once a Groupon is redeemed the merchant gets the paid price less a discount.”

“You, the merchant, are selling a “regular” $40 product or service for $20.  But in fact it’s not $20; Groupon takes a piece of the ‘sale price’ of $20 as well, so you might receive $18.  And you receive it late: The consumer buys the Groupon from Groupon.  This goes to Groupon’s balance sheet as ‘cash’ and the payment to the merchant is an accrued liability.  The merchant gets paid only when the groupons are redeemed.”

“Essentially Groupon ‘lives’ on the float. .. the firm is surviving on two things, neither of which is likely to continue: 1. Non-redemption – the consumer buys and then doesn’t use.  2. Delays in payment – Groupon ‘aggregates’ these coupons and pays merchants when the aggregation reaches a given level.  They have the use of the money in the meantime.  That’s nice for them, not so nice for the merchant who just delivered a good or service they didn’t get paid for in the present tense!”

“I don’t like this one bit as a prospective merchant – especially the second. .. As a consumer I’ll buy a $20 pizza for $10 (one of the deals being offered right now in my area.)  But the entire reason I’ll go to that pizza place is that the pizza is $10 — at $20 I’m not a customer!  In this particular case the merchant gets nothing for their trouble except a guaranteed loss and delayed payment!  It’s not a ‘loss leader’ as I won’t come back without the discount, it’s a loss maker.”

“I don’t see the business case for this company as I don’t see the sell-through on a consistent, forward basis.  Consumers will always take something for free: The store willing to give away steak will give away every piece of it they have!  That’s not the question: Will the people then come back and pay full price for the second slab of meat?”

Full Story: Groupon: Another Pets.Com (TheMarketTicker)

Groupon isn’t even profitable, though losses “appear” to be narrowing. It posted a net loss of $10.6 million in the third quarter, compared with a net loss of $101.2 million in the second quarter. And for the short period of time the stock was trading north of $30/share, the company was being valued above $19 BILLION. Even if they earned $100 Million next year, that would be about equivalent to receiving 1/2% annual interest that you can’t collect for all the risk incurred. And people wonder why they lose money investing… Well, it should at least make for some “fun” bubbley chatter at the next cocktail party.

Anyway, back to watching investors play hot potato with $GRPN.

First day of trading UPDATE:

(TheHippo) “The reality of the matter and one that I have believed in is that during crisis there is NO SAFE HAVEN! It is a figment of your imagination and the collective mind of the market. As a friend of the family who was a trader said, ‘when markets drop the correlation becomes 1′. What he was saying is that when a crisis occurs there is no safe haven and there is no place to hide.”

“So then the question becomes what does one do? Outside of the obvious, which is short the market. Go back and look at the charts and look at what happened EACH AND EVERY TIME. The market went back up. This should not be a surprise to you, and should be rather obvious. Yet nobody during those times says, ‘buy equities, bonds, though they did say buy gold’. All you hear are about Safe Haven plays (which don’t work) and how you need to step back and wait.”

“I am a numbers guy. I focus on the statistics and let it define my plays. So when you see these charts a dropped market is a screaming buy! It does not matter what, but everything is a screaming buy. So why don’t people buy? .. Easy answer it’s about the psychology. Buying in times of market turmoil is very very difficult. I have read this Contrarian book that said people would rather be wrong with the crowd than be right in the individual.”

Full Story: Understanding Safe Haven Plays and Market Turmoil $AGG, $PCY, $GLD, $BTI (Haah-TheHippo)

In times of turmoil, your only real safe haven is holding straight CASH in your home currency. Your greatest defense against future crisis and turmoil is proper position sizing (keep your positions small and manageable), stay clear of leverage (especially overnight), and always keep a chunk of cash on hand to take advantage of any great opportunities that may arise. From the article, $PCY (PowerShares Emerging Mkts Sovereign Debt ETF) looked mighty interesting around those October 2008 lows. Historically speaking, many great fortunes have been some of the greatest fortunes made have been in times of crisis. Find opportunity when others panic, and keep your position size small and manageable so that you can always consider adding a bit more if the opportunity becomes even juicier.

(StockChartist) “I often cringe when I see charts posted on other sites where the author inserts a sloping trendline and then jumps to the conclusion that the trendline will act as some sort of wall of support or resistance as the case may be. The first thing I do when I look at the same chart on my system is to look for and usually find what might be horizontal lines that project a dramatically different interpretation. The question is “Which trendline, sloping or horizontal, prevails and trumps the other?” In making a decision as to whether to buy (or sell) and two lines lead to different conclusions which should you pay more attention to?”

“.. if I have to choose between an ascending (or descending) trendline and a horizontal one to drive my decisions I would look to the horizontal one. I can’t easily calculate where the trendline will be a month or two out. But I can easily see whether there are any horizontal trendlines that mark where buyers and sellers have traded places for control of a stock’s trend. Those are the transfers of power that I rely on to help me anticipate what might be ahead for a stock (or Index).”

Full Story: Sloping or Horizontal Trendline: Which is More Trustworthy? (StockChartist)

(PeterBrandt) “How a chartist draws a line can make all the difference in the world between a good call or a bad call, a profit or a loss.”

“.. ‘Brandt, you are bearish one day, bullish the next and bearish the next. Can you make up your mind?’ The answer is a loud, ‘NO!’ I am a chartist. I believe that charts provide set ups with certain reward to risk parameters and trigger points. I do not believe that charts are useful for price forecasting. I am on record with this stance dating back 30 years. When I get a chart screaming a certain message I develop a strong opinion, weakly held. I will hold and state that opinion until the price action tells me something else. Then my scream will carry a different message.”

Full Story: The two faces of Silver (PeterBrandt)

(Mish) Great article by Mike Shedlock on the Greek/Euro Dilemma – “Is there any reason Greek voters should not be given a choice? I think not. They may not make a wise choice but what is the likelihood that political hacks and political opportunists will?”

“Take a good look at Iceland. In repeated attempts, political hacks (with banker’s interests in mind) attempted to sell Icelandic citizens into debt slavery. A referendum saved the day. Sadly, voters were forced to repeat the referendum, and once again voters made the correct decision. .. Iceland is now in full recovery simply because it told the EU and IMF to go to hell.”

“Greece does not have an easy way out. However, its problems are no doubt far worse than if it told the EU and the IMF to go to hell two years ago.  Greece should have gone bankrupt long ago. Heck, it should not be in the EU in the first place, and the EU is primarily to blame even though Greece lied to get in.”

“(PeterTchir) If a leader in the Middle East finally gave into months of protest and decided to give the people a real say on an important issue, the Western leaders would be rejoicing. .. But if a fellow Western leader dares let his people express their wishes more directly than via “their representatives” they are all shocked and outraged. In the meantime other Greek politicians are busy taking advantage to gain power rather than helping their citizens.”

“(PaterTenebrarum) The eurocracy is at its heart deeply undemocratic – if it were up to the ‘technocrats’ leading it, national subsidiarity would have long ago become a relic of the past and democratic interference with their plan to erect a socialist super-state would be kept to a bare minimum. .. This can be seen by the fate suffered by previous referendums: when the Irish and French e.g. said ‘no’ and ‘non’ respectively to the Lisbon treaty, the referendums were simply repeated to get the ‘right’ result. As Stalin once sagely remarked, it doesn’t matter who votes for what anyway – what matters is who counts the votes. So far, the eurocrats have always gotten the results that they wanted, by hook or by crook.

Shall I tell you the truly terrifying thing about the EU? It’s not the absence of democracy in Brussels, or the ease with which Eurocrats swat aside referendum results. It’s the way in which the internal democracy of the member states is subverted in order to sustain the requirements of membership. ..

I wish I could convey the sheer horror that his proposal provoked in Brussels. The first rule of the Eurocracy is “no referendums”. Brussels functionaries believe that their work is too important to be subject to the prejudices of hoi polloi (for once, the Greek phrase seems apposite). Referendums are always seen as irresponsible; but, at a time when the euro is teetering on the brink, Papandreou’s proposal was seen as an act of ingratitude bordering on treason. ..

Eurocrats are prepared to pay any price rather than admit that the single currency was a mistake – or, more precisely, to expect their peoples to pay, since EU officials are exempt from national taxation. The peripheral countries are to suffer poverty, unemployment and emigration, the core countries perpetual tax rises, so that supporters of the euro can save face.”

“(DanielHannan) Euro-enthusiasts in Brussels and in Athens are ready to bring down an elected government rather than allow a referendum. Yet the funny thing is that Papandreou is a Euro-enthusiast. He fervently wants to remain in the euro, and had been planning to campaign for a Yes vote. His sin, in the eyes of Brussels, was not to hold the wrong opinions, but to be too keen on democracy. ..”

“Whose Skin Are We Saving? No eurocrat or politician outside of Greece gives a rat’s ass about helping Greece. The only skin they want to save is their own.  That realization coupled with my earlier proposal that Papandreou was tired of beatings, meetings, and riots is by far the most likely reason Papandreou decided to “walk away” from the mess via referendum.”

Full Story: In Praise of Papandreou’s Referendum Decision; Eurocrats Terrified of Democracy; Parade of Cowards (Mish)

As usual, this is more about bailing out the banks and protecting those who made foolish investments above all else.  It’s also interesting to note that while private bond holders of Greek debt was expected to take a 50% haircut, my understanding is that the ECB (who currently owns about half of all outstanding Greek bonds) would still be holding their Greek bonds at par.

This is not to say Greece is not also at fault.  There’s plenty of blame to go around.  However, to this day the War Reparations forced upon Germany after World War I are still largely blamed for leading Germany into hyperinflation and the eventual rise of Hitler.  And perhaps Germany eventually owning and/or controlling most of Greece’s key assets to pay back its debts is not something those “pesky” Greek citizens are willing to accept quite that easily.

Regarding Papandreou’s recent changes to his top military staff, while only Papandreou and his closest confidants know exactly what’s going on, given he called a referendum to offer the people a “say”, it would seem unlikely he is considering a “military coup”.  I would speculate his motive would more likely be to assure that the military will remain loyal to the “best interests of Greece”, as opposed to the “best interests of the European Union”.

(MartinArmstrong) “The most important aspect is the economy. Screw that up and you get war, depression, and starvation. We then elect a whole bunch of people to posts and automatically assume these people have the (1) real intelligence ABOVE average to comprehend such complex subjects, and (2) they understand the right thing to do. Where did we ever get these ideas? Most of the staff members employed by politicians are smarter than the people they work for. But unless they believe an economic crisis is possible, they will not even look at the issue.” — Martin Armstrong, Happy Days Are Here Again

(Interloper) “Outside of the entertainment factor, the primary differences between the two archetypes is that the first has risen to their position by attracting new money while the latter holds their position by effectively managing money. Type One*, with a travel schedule encompassing 150 days annually is dependent of their model for performance because they have much less time for specific analysis – hence the preponderance of more black box, momentum strategies. They are also much more dependent on their analysts and traders back at the office who must make the majority of the day-to-day decisions. Type Two* on the other hand, only really cares about the analysis. They are pissed when the marketing department drags them put of their cave before they’ve finished investigating a fishy footnote in the last quarterly statement. (Don’t think I’m exaggerating with that, btw. I personally know PMs that will spend weeks on a single footnote).”

“Here’s the important part: the industry loves them some Type One PMs. Momentum managers trade a lot more than value managers and this keeps the trading desk commission train rolling. The accommodating Type One manager is, unbelievably, available for evening functions where Financial Advisors can bring their top clients who, inevitably will be running around with blank checks by slide eight. Everybody makes money.”

“If you’ve read this far you have probably guessed where my preference lies. For my own money, I would much rather have the plodding, boring manager who obsesses about every aspect of a potential or existing holding, rarely straying from a concentrated portfolio of companies they are completely comfortable with. Like Buffett, they do not feel compelled to make changes (and thus rarely get referrals from capital markets) and will literally wait years for a stock to drop to valuation levels they find attractive. Type Twos will also avoid hot sectors and thereby escape the attention of the individual investor until the market craps out, and they don’t feel like putting more money into the market anyway. I pay Type Twos, in other words, to exhibit the discipline that I don’t have.”

” .. it remains important to understand the industry’s bias in this regard and that ‘best manager’ may mean something much different to the average investor than on the trading floor.”

* “Type One: Physically attractive, Ivy League (Harvard or Wharton, almost always), momentum-based investment strategy. .. They will be compelling, energetic, will pause and answer your question in a non-patronizing way. They will linger after the presentation until everyone has left, happily chatting about markets or whatever else the fellow-lingerers want to talk about. .. They are, in short, marketing machines.

Type Two will be older, having spent far more time as a senior analyst due to a dearth of personal charisma. They will likely not be Ivy League. Type Two will execute a more fundamentally-based investment process. Their longer performance track record has a better chance of being stronger, beating the index by a few percentage points per year by holding value during bad years. Type Two’s presentation will be so dull that you’ll want to gouge out your eyes after half an hour.”

Full Story: PORTFOLIO MANAGER SEARCH PRO TIP: FIND THE WORST PUBLIC SPEAKER POSSIBLE (Interloper)

And finally, this short passage from Michael Lewis’ book “The Big Short” seems to perfectly capture the essence of these points:

“In Dr. Mike Burry’s first year in business, he grappled briefly with the social dimension of running money. ‘Generally you don’t raise any money unless you have a good meeting with people,’ he said, ‘and generally I don’t want to be around people. And people who are with me generally figure that out.’ He went to a conference thrown by Bank of America to introduce new fund managers to wealthy investors, and those who attended figured that out. He gave a talk in which he argued that the way they measured risk was completely idiotic. They measured risk by volatility: how much a stock or bond happened to have jumped around in the past few years. Real risk was not volatility; real risk was stupid investment decisions. ‘By and large,’ he later put it, ‘the wealthiest of the wealthy and their representatives have accepted that most managers are average, and the better ones are able to achieve average returns while exhibiting below-average volatility. By this logic a dollar selling for fifty cents one day, sixty cents the next day, and forty cents the next somehow becomes worth less than a dollar selling for fifty cents all three days. I would argue that the ability to buy at forty cents presents opportunity, not risk, and that the dollar is still worth a dollar.’ He was greeted by silence and ate lunch alone. He sat at one of the big round tables just watching the people at the other tables happily jabber away. ”

How I wish I had been there that day to sit with him.

(RobertSinn) “Notice that bullish sentiment in the AAII survey tends to serve as a leading indicator, however, it should be noted that the last time bearish sentiment was as low as it is now the S&P 500 ($SPY) suffered a 4-5% pullback in mid-July..”

“I can honestly state that one of my biggest mistakes during the past month was not paying enough attention to the record low net long exposure of hedge funds and the record bearish sentiment of active managers as seen below..”

“Sentiment is just one tool among many in a market participant’s arsenal, however, it increases in importance at market extremes/inflection points..”

Full Story: Bullish Sentiment Reaches Highest Level Since April (RobertSinn)

Other sentiment readings to keep an eye on include COT (Commitment of Traders) exposure – where Large Speculators (ie. hedge funds). I’ve often noticed that when Large Speculators on the COT reports are heavily bullishly or bearishly positioned, it tends to lead to sharp reversals in the not-to-distant future. Last year’s Euro crisis was another great example of this.

One more great site for Daily Sentiment Data is Market Harmonics. They offer free proprietary NASDAQ Daily Sentiment Index, Rydex Nova/Ursa Sentiment Indicator (S&P 500 Sentiment), and Option Buyers Sentiment Gauge (OBSG) charts, to name just a few.

(Interloper) “The confusion between the brilliance of a strategy and the ability to execute on it is at the heart of every poorly managed company. Far too often, a lack of corporate performance is blamed on a bad strategy when the strategy was perfectly fine. In other words, the architect is always blamed when the house falls collapses but the fault is more likely to lie with the builders.”

“There is a pervasive myth, propagated rabidly by biz schools and business consultants,  that a new “great management paradigm” has just arisen (cough-sixsigma-cough) that will transform your company into a global behemoth. The truth is that there is no premium on corporate strategy ideas – they are everywhere. The talent that is almost nonexistent is execution.”

“What Jack Welch actually did in practice was fire entire buildings full of people in under-performing businesses, to the point where he was given the nickname Neutron Jack.  Anyone could have come up with the idea of getting rid of poor businesses and focus on their successful counterparts, but it took a singular talent like Welch to execute.”

“What Buffett does, for instance, is about as complicated as Welch’s strategy – buy companies with consistent long term ROE assisted by competitive advantage when they are trading, ignored, at lower than historical valuation levels. His execution of the strategy, the unparalleled discipline, is what sets him apart.”

“All of this is not to say that managing money or global industrial companies is easy. The point is that, while there are multi-bazillion dollar industries trying to convince you otherwise, “The Plan” doesn’t really matter, it’s the person implementing the plan that does.”

Full Story: CEOs and Investors: Strategy/Execution Distinction Separates Good from Bad (Interloper)

(ContrarianEdge) “Investing is not an idea-­per-hour profession; it more likely results in a few ideas per year. A traditional, structured working environment creates pressure to produce an output — an idea, even a forced idea. Warren Buffett once said at a Berkshire Hathaway annual meeting: ‘We don’t get paid for activity; we get paid for being right. As to how long we’ll wait, we’ll wait indefinitely.’ ”

“I do my best thinking in the morning. At 3:00 in the afternoon, my brain shuts off; that is when I read my e-mails. We are all different. My best friend is a brunch person; he needs to consume six cups of coffee in the morning just to get his brain going. To be most productive, he shouldn’t go to work before 11:00 a.m.”

“And then there’s the business news. Serious business news that lacked sensationalism, and thus ratings, has been replaced by a new genre: business entertainment …” (WHY, you ask? cuz that’s what people want)

“You may think you’re able to filter the noise. You cannot; it overwhelms you. So don’t fight the noise — block it. Leave the television off while the markets are open, and at the end of the day, check the business channel websites to see if there were interviews or news events that are worth watching.”

“Numerous studies have found that humans are terrible at multitasking. We have a hard time ignoring irrelevant information and are too sensitive to new information. Focus is the antithesis of multitasking. I find that I’m most productive on an airplane. I put on my headphones and focus on reading or writing. There are no distractions — no e-mails, no Twitter, no Facebook, no instant messages, no phone calls. I get more done in the course of a four-hour flight than in two days at the office. But you don’t need to rack up frequent-flier miles to focus; just go into ‘off mode’ a few hours a day: Kill your Internet, turn off your phone, and do what you need to do.”

Full Story: A Few Simple Rules For Money Managers (ContrarianEdge)

Isn’t it amazing how, no matter at what level, it always seems to boil down to a small group of “elites” trying to control all the money, all the power, all the “stuff”, and all the other people…

(NYMag) ” .. we’ve had issues with the drummers too. They drum incessantly all day, and really loud.’ Facilitators spearheaded a General Assembly proposal to limit the drumming to two hours a day. ‘The drumming is a major issue which has the potential to get us kicked out,’ said Lauren Digion, a leader on the sanitation working group.”

“But the drums were fun. They brought in publicity and money. Many non-facilitators were infuriated by the decision and claimed that it had been forced through the General Assembly.”

” ‘They’re imposing a structure on the natural flow of music,’ said Seth Harper, an 18-year-old from Georgia. ‘The GA decided to do it … they suppressed people’s opinions. I wanted to do introduce a different proposal, but a big black organizer chick with an Afro said I couldn’t.’ ”

” To Shane Engelerdt, a 19-year-old from Jersey City and self-described former ‘head drummer,’ this amounted to a Jacobinic betrayal. ‘They are becoming the government we’re trying to protest,’ he said. ‘They didn’t even give the drummers a say … Drumming is the heartbeat of this movement. Look around: This is dead, you need a pulse to keep something alive.’ ”

“The drummers claim that the finance working group even levied a percussion tax of sorts, taking up to half of the $150-300 a day that the drum circle was receiving in tips. ‘Now they have over $500,000 from all sorts of places,’ said Engelerdt. ‘We’re like, what’s going on here? They’re like the banks we’re protesting.‘ ”

“All belongings and money in the park are supposed to be held in common, but property rights reared their capitalistic head when facilitators went to clean up the park, .. ” (For those supporting Communism, it always seems like a great idea ’til someone tries to take your stuff)

“In response to dissatisfaction with the consensus General Assembly, many facilitators have adopted a new ‘spokescouncil’ model, which allows each working group to act independently without securing the will of the collective. ‘This streamlines it,’ argued Zonkers. ‘The GA is unwieldy, cumbersome, and redundant.’ ”

Full Story: The Organizers vs. the Organized in Zuccotti Park (NYMag)

(Interloper) “There is no conspiracy as to the selection of IPOs and secondary offerings beyond popularity. They are giving you what you want, what they can sell, and in a number of instances its crap, either in terms of objective business quality or the valuation levels stipulated at issue.”

“It is an axiom among professionals marketing investment ideas to long-only funds or individual investors (for all their faults, hedge fund managers are much better at this) that you know you have a great investment idea when it is completely unmarketable. Publish as many copies as you want, but stock ideas in out of favor sectors will sit and gather dust until the paper rots. What sells, both in term of ideas and new stock, are those in sectors that have been gapping higher for the longest time, despite the risk that said trend is nearly exhausted and valuation levels are approaching the ridiculous.”

“When you’re young, you look at television and think, There’s a conspiracy! The networks have conspired to dumb us down. But when you get a little older, you realize that’s not true. The networks are in business to give people exactly what they want. That’s a far more depressing thought. Conspiracy is optimistic! You can shoot the bastards! We can have a revolution! But the networks are really in business to give people what they want.” — Steve Jobs (1996 Wired Magazine Article, Steve Jobs: The Next Insanely Great Thing)

“Referring back to Jobs’ quote, the fault is not in the networks or the investment banker, it’s with the audience.  If PBS started getting monster ratings for in-depth, intelligent documentaries, the other networks will quickly follow suit.  In exactly the same way, if investors stopped buying secondary offerings in hot sectors, which they freaking know is a bad idea but can’t help themselves, and entertained the better risk/reward potential of out of favor ideas, they would get more of them.”

Full Story: Zero Hedge, Steve Jobs and who’s really responsible for the despicable cesspool of new stock issuance (Interloper)

“Arithmetic, Population and Energy” may very well be one of the most important videos you’re likely to watch.  While the math behind the exponential function is relatively simple and straight forward, its repercussions in markets, for resources, and for society as a whole are widely misunderstood or outright ignored.  In fact, in relation to population growth alone, the Chinese seem to be the only ones who “get it”.  Ironically, their distasteful “one child per family” population policy has done more to conserve energy, reduce pollution, and conserve resources than pretty much any other, more “politically-correct”, initiatives taken to date.   Lack of understanding of these concepts is also one of the most basic ways politicians and governments (in conjunction with the media) mislead its citizens.  “In Growth We Trust” – All our problems stem from Exponential Growth.  For those who invest in the stock market, it’s also one of the most important key concepts to understand for those interested in generating substantial returns. And of course, its ramifications for our future are immeasurable and incomprehensible if not directly addressed sooner than later.

A few notable quotes:

“It is the nature of the human species to reject what is true but unpleasant and to embrace what is obviously false but comforting.” — H.L. Mencken’s social philosophy

“Thinking is very upsetting.  It tells you things you’d rather not know.” – cartoon

“The Greatest Shortcoming of the Human Race is our inability to Understand the Exponential Function.” — Dr. Albert A. Bartlett

Complete YouTube Playlist for Parts 1 to 8
]]> http://www.vlogolution.com/hot/2011-05-14-most-important-video-youll-ever-see-the-exponential-growth-function/feed/ 1 http://www.vlogolution.com/hot/2010-12-15-insights-to-identifying-potentially-lasting-market-bottoms/ http://www.vlogolution.com/hot/2010-12-15-insights-to-identifying-potentially-lasting-market-bottoms/#comments Thu, 16 Dec 2010 00:40:39 +0000 http://www.vlogolution.com/hot/?p=864

Back in February 2009, with the markets plunging relentlessly day after day, after day…  I still recall how many traders were waiting in anticipation for some sort of crazy, panicky, high volume day to mark a capitulation bottom.  This latest market downswing took the DOW down nearly 30% in just over two months from 9,088 to a low of 6,470 on March 6^th, 2009.

Many traders whose market analysis and insights I respect seemed to be waiting for some massive “fireworks”-type event that would all but shout “THE LOW IS HERE”;   a sign that all the weak hands have most likely thrown in the towel, and that it was now time to BUY BUY BUY hand over fist.

Of course, Mr. Market will never make it quite that easy, even for its smartest participants to figure out what its current “jig” will be.  The DOW closed below 6,700 for several days before breaking out higher and closing above 6,900 on March 10^th, 2009 on a bit higher average volume.  It also marked the first day since this leg of selling began in early February that the DOW was able to close above its downward-sloping trend-line.  However, that super-charged high volume capitulation day we were all looking for and expecting to occur never materialized.  While in September and October 2008 the VIX volatility index hit highs just over 80, in February and March 2009 the VIX topped out in the low 50’s.  This peak was 35% lower than its earlier spikes, even though the market was now trading at lower price levels.

(read more...)]]> http://www.vlogolution.com/hot/2010-12-15-insights-to-identifying-potentially-lasting-market-bottoms/feed/ 0 http://www.vlogolution.com/hot/2010-05-19-the-perfect-storm-lessons-learned-from-the-dow%e2%80%99s-1000-point-flash-crash/ http://www.vlogolution.com/hot/2010-05-19-the-perfect-storm-lessons-learned-from-the-dow%e2%80%99s-1000-point-flash-crash/#comments Wed, 19 May 2010 22:02:53 +0000 http://www.vlogolution.com/hot/?p=622

Was the May 6^th, 2010 intraday crash and recovery just another one of those once-in-a-lifetime rare anomalies -– a rare confluence of events coming together to form the “Perfect Storm”?  And if a “Perfect Storm” generally occurs so infrequently, why does it seem that we are presented with a newsworthy “Perfect Storm” in the markets on an almost regular basis?  With all the misinformation and outrageous reasons the media and its “pundits” offer, perhaps it’s time to revisit exactly how markets work, and what (or who) may be to blame.  It’s a lot easier to blame a “fat finger” or some naughty short-sellers for a huge market-selloff, than to accept that markets do not always have a buyer for every seller.  Very simply, when a large number of market participants decide they all must sell (or buy) at the exact same time, an “air pocket” of price action will form.  Anyone who has traded a market knows that this type of single-sided liquidity “crisis” occurs every day in the markets to various extents, especially after significant news events are released.  While these relatively smaller moves may not be nearly as significant as a 1000 point intraday drop and overall market selloff, the dynamics are more or less the same.  The setup develops with a large number of market participants all thinking the same way (ie. very strong bullish or bearish sentiment), generally due to a strong extended trend in a market.  When the market finally turns, the large group of participants on the wrong side of the trade all decide to reverse course at the same time, at similar stop levels, just to save their leveraged hides.  Does the trading term “slippage” ring a bell?

(read more...)]]> http://www.vlogolution.com/hot/2010-05-19-the-perfect-storm-lessons-learned-from-the-dow%e2%80%99s-1000-point-flash-crash/feed/ 1 http://www.vlogolution.com/hot/2010-05-01-mind-over-money-documentary-on-irrational-markets/ http://www.vlogolution.com/hot/2010-05-01-mind-over-money-documentary-on-irrational-markets/#comments Sat, 01 May 2010 22:23:36 +0000 http://www.vlogolution.com/hot/?p=616

NOVA recently released an interesting and insightful documentary, “Mind over Money”.  How can markets be rational when humans are not?  It helps explain why stock in bankrupt companies can still go up 500% before going to zero.   The movie presents studies that show how people will emotionally overbid for items even though they know they’re over-paying for it.  For example, one study had a man purchase a $20 bill for $28.  In another study, a class of traders irrationally bid up an asset they knew would become completely worthless within 15 time periods.

Watch “Mind over Money” free online (about 53 minutes long) at the following link:

Watch NOVA’s “Mind over Money” Documentary

Martin Armstrong is the author of the Economic Confidence Model based on an 8.6 year business cycle theory inspired by the work of Nikolai Kondratieff.  Two years ago, the cycle once again accurately predicted the peak of the last economic cycle years in advance.  February 26, 2007 yielded some of the tightest credit spreads ever (easy access to credit), and the housing market had already begun its sharp decline.

He is currently in prison, indicted in 1999 on charges of defrauding Japanese investors.  His trial would have made more sense had it taken place in “Alice in Wonderland”.  Without getting into all the details here, just the fact that he was in jail for seven years for contempt of court should be enough to make any American cringe and wonder how that’s possible in the great ‘ole USA.  He finally caved in and plead guilty in 2007 to the fraud charge.  In return, he was given an additional five year prison term in addition to the seven he had already served!  Now, if this were any ordinary American schmo, perhaps he could be written off for one reason or another as just another guy with a crazy “they’re out to get me” sob story.  However, when you look deeper into the facts, and then consider that Mr. Armstrong was also one of the most respected financial research advisers to scores of powerful figures from central bank executives to heads of multinational corporations to heads of state, it really makes you wonder what’s going on with the “Rule of Law” — the real glue that holds our country together.  Armstrong even authored the most insightful and thorough analysis of the 1929 crash ever assembled on behalf of the Reagan administration in the ’80s.

From his jail cell, Martin Armstrong continues to write some of the most insightful and interesting essays I’ve come across on a variety of topics from market cycles, to rule of law, to the history and cycles of politics and war.  Since he has access to little more than an old typewriter (and no whiteout), you must understandably have a bit of patience with his “what I’m thinking about now” writing style.  Would I be showing my age if I can still recall the nightmare of using a typewriter for school papers?  It’s horrible.

Regardless, I’ve learned more useful knowledge about world history (and our own history) from Armstrong’s essays than I ever learned in school.  And it’s more fascinating than you can even imagine.  Everything’s been done and tried before.  And here’s some food for thought…  in the six thousand or so years of civilized history, can anyone find one example where socialism actually succeeded with a happy ending?  But I guess that’s why most politicians don’t bother to learn any of history’s lessons.  It would just interfere with their agendas and other questionable motives.

The following text is an excerpt from Martin Armstrong’s latest essay entitled “Objective vs Subjective Analysis” (pages 10-12).  I’ve also taken the liberty of making some small corrections here and there to make the text more readable while still hopefully maintaining Mr. Armstrong’s full meaning and intent.

(read more...)]]> http://www.vlogolution.com/hot/2009-11-11-martin-armstrong-on-market-predictions-and-objective-vs-subjective-analysis/feed/ 4 http://www.vlogolution.com/hot/2009-07-24-trading-for-control-and-avoiding-the-confidence-trap/ http://www.vlogolution.com/hot/2009-07-24-trading-for-control-and-avoiding-the-confidence-trap/#comments Fri, 24 Jul 2009 23:23:20 +0000 http://www.vlogolution.com/hot/2009-07-24-trading-for-control-and-avoiding-the-confidence-trap/

Most traders and investors at one time or another have fallen into the “confidence” trap. Sometimes it’s a result of believing in the infallibility of their research. Other times it’s due to having a presumed “hot” hand — they’ve finally got the game figured out and can do no wrong. Maybe they’ve gotten caught up with some hot new money-minting trading system with a great historical track record. Or perhaps they’ve been drawn in by someone else’s hot streak, in a chat room for instance (novice traders, trying to skip a few steps, are notorious for succumbing to this). All the calls turn out great, and even the fundamental and technical research that’s shared always seems right on the money. However, up to that point they’ve just watched –- and they’re kicking themselves for missing out on yet another huge gain. Let’s take our fictional trader and call him Bernie.

Bernie decides he’s not going to miss out on the next opportunity that comes up. When the next “hot stock” is revealed, it happens to be a stock that he himself already had on his radar. The additional research backs up his conviction. Everything seems right, and the stock appears perfectly poised for a huge move. Bernie’s confidence level for the trade is higher than ever. Forget about what he can afford to lose, this is the trade that’ll make his year!

Bernie decides to accumulate a position much larger than normal — 3 times as large in fact, equating to about a quarter of his total account size. At first, all seems to be working out great and the trade has even moved a nice 5% in his favor. Two days later however, he wakes up to find the stock down 25%, blowing right through any stop levels he may have considered. The company out of the blue announced a dilutive secondary offering to “better take advantage of opportunities that may become available” or some other similar mumbo-jumbo.

Bernie feels caught, but he figures the big picture still hasn’t really changed, and that prices should find support around the offering price. In fact, he decides to double his position around the offering price if he can. The company’s valuation seems cheaper than ever, and the company will now have even more cash to materialize its goals.

However, as the price continues to drop, Bernie starts to wonder… More investors, increasingly disgusted by the management’s apparent lack of regard for their investing well-being, decide to throw in the towel. By the end of the week, the stock is down another 38% just from the offering price! The same stock that traders and investors all loved at $9 just a few days earlier, they now hate at $5. Even those investors who bought into the secondary are feeling completely betrayed.

Ironically, if the research and valuations are accurate, the stock should be more attractive than ever at these levels. Of course, it doesn’t matter anymore, as most traders (including our newbie trader Bernie) decided to throw in the towel as the stock sells off in a panic around $4/share leaving Bernie with a whopping 44% account loss (requiring a 125% increase in account value just to reach breakeven). Several days later, the stock is trading back around its offering price. How’s that for the perfect reaming. Bernie feels crushed, blames the guy in the chat room for putting out such a horrible call, and calls him a fraud despite the fact that all his other picks turned out pretty well.

(read more...)]]> http://www.vlogolution.com/hot/2009-07-24-trading-for-control-and-avoiding-the-confidence-trap/feed/ 0 http://www.vlogolution.com/hot/2009-04-28-dendreons-70-pork-over-by-the-nasd/ http://www.vlogolution.com/hot/2009-04-28-dendreons-70-pork-over-by-the-nasd/#comments Tue, 28 Apr 2009 23:27:09 +0000 http://www.vlogolution.com/hot/?p=437

Here’s to another great oversight job by the SEC and the NASD. For anyone who caught any of the trading in Dendreon today (NASD:DNDN), this is exactly the type of situation that can be the death of you as a trader. Once you see it unfolding, the best thing you can do is STAY THE HELL AWAY. For those of you who missed all the “fun”, basically DNDN tanked nearly 70% in a bit over two minutes from 1:25pm to 1:27pm down to around $7.75 and was halted a few minutes later. Trading did not resume until 6:15pm when the stock reopened at about $24 per share and traded as high as $27.65 within minutes before pulling back a bit.  You think maybe a few people got caught in the early fun and games that took place by some market-manipulating private trading elite?  I’d bet on it…

The Nasdaq Stock Market said it was investigating two minutes worth of transactions in Dendreon Corp because they may have resulted from a brokerage error.  Transactions executed between 1:25pm and 1:27pm were under review, the New York-based exchange said in an e-mailed statement.  Anyone who made any trades in DNDN during that time were now panicking due to the trading halt, since they have no clue what their position would be by the time it’s all over (as the stock may gap huge and/or the trades may be broken). In such a case, if it was really some massive broker error or some other strange sheistery, the proper way to handle it would have been to BREAK EVERY TRANSACTION right up to the time just before the debacle began.  But, that would of course mean that those politically-connected friends of the NASD who made a fortune from this mess (you know, like Bernie Madoff until he went just a wee bit too far) would have to give it all back, and that’s just NOT PLAYING FAIR!

So, the Nasdaq Stock Market announced that it would let stand those hairy two minutes worth of transactions in Dendreon that it initially suspected were the result of a brokerage error!  Nasdaq announced its decision in an e-mailed statement at 3:06pm.  The statement also asserted that the ruling “cannot be appealed”.  Of course not… then their pals couldn’t have booked their 100%+ of porkified profits once DNDN reopened for trading later in the day!

Getting caught in something like this is a trader’s worst nightmare, and my heart goes out to any trader who may have been sideswiped and reamed in the rear by the elite powers that be.

What can be learned from this? Trading is war, and you’re on your own. Your only protection is that you’re always in control of your position size. Remember the importance of discipline, and always consider worst-case scenarios when managing risk.  Speaking of which, anyone else notice some of the “Swine Flu” stocks may be attempting to build new higher bases today (ie. NVAX, BCRX)?

(read more...)]]> http://www.vlogolution.com/hot/2009-04-28-dendreons-70-pork-over-by-the-nasd/feed/ 2 http://www.vlogolution.com/hot/2009-04-26-make-some-pork-from-the-swine-flu-outbreak/ http://www.vlogolution.com/hot/2009-04-26-make-some-pork-from-the-swine-flu-outbreak/#comments Sun, 26 Apr 2009 23:52:21 +0000 http://www.vlogolution.com/hot/?p=433

Another year, and another pandemic-potential flu virus outbreak. This year’s hoopla is over the swine influenza (H1N1) virus (swine flu) outbreaks in pigs which has also traversed to humans. Granted, this is frightening stuff. Perhaps what’s more frightening about this outbreak than other recent avian flu outbreaks is that not only are these closer to home, but that there have already been confirmed cases in humans from California to New York City. The outbreak seems to have spread from Mexico outward, as eight students at a New York Catholic high school that contracted swine flu had been to Mexico over spring break just two weeks ago.

Grounding ourselves back to reality, with so many protective measures now being taken, it’s likely that this outbreak will eventually fizzle out like those in previous years. Already many of the students are recovering, and with the heightening level of awareness people will be extra cautious. For those who want extra protection, I’ve heard that Sambucol (black elderberry extract) may be helpful in warding off flu virus attacks.

In the meantime, with all the hype around this outbreak (#swineflu is the top tweeted phrase on Twitter today!) is there some way to Pass Me The Pork on this crazy PIG FLU?!

Already Friday, several of the top flu vaccine “penny stocks” began moving sharply higher, and there’s likely more potential opportunity for greater moves higher on Monday. The current leader is NASD:NVAX (Novavax, Inc.), already up 75% on Friday alone. Scientists at Novavax have successfully developed the first multi-strain flu vaccine, though it may not be FDA approved in time to help with the current flu outbreak. As these stocks will already likely gap even higher pre-market Monday morning, you better watch the price action closely, don’t chase, and consider scaling in as higher bases form. If it’s too wild, stay away and wait until they calm down.

Some of these stocks may also turn out to be great shorts later this week. For disclosure purposes, I already managed to pick up some shares in a few of these stocks on Friday so I already have a nice little cushion, and will watch closely Monday for the opportunity to add more (or begin unloading if one of these stocks just goes completely berserk).  But remember… Don’t stick around too long, hit and run baby! Well, enough rambling…

Here’s the list of stocks to consider (NVAX – Novavax, BCRX – Biocryst, GNBT – Generex, SVA – Sinovax, and MYL – Mylan/Roche/Tamiflu/oseltamivir). From the charts and data below, you’ll also notice a few of them have built up a significant short interest for some seriously whopping short-squeeze potential. Do your due diligence, don’t blink, and you just may be able to turn these pigs into some of your own PORK!

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