Guardian Angel Protection

HELP WITH ROUTINE FINANCIAL TASKS

2011-08-15T12:42:00.001-05:00

AS WE GROW OLDER ....

If you are like many senior citizens, you may find the routine tasks of bill paying and paperwork organization becoming more and more difficult as time passes. Some studies have revealed that up to 30% of the senior population has some difficulty managing routine financial tasks such as bill paying. There can be many reasons why performing financial tasks can be more difficult as we age. Arthritis, poor eyesight, memory lapses are just a few problems that can make routine tasks hard.

SOME EARLY WARNING SIGNS

Do you put off opening your mail?

Do you have piles of letters and papers?

Have you made the same payment twice?

Do you not recognize people or companies you have made payments to?

Have you made some unusually large donation?

POTENTIAL PROBLEMS

Late Payment Penalties

Increased Interest Rates

Identity Theft

Mail/Telemarketing Fraud

THE SOLUTION

Daily Money Management services include:

Mail/Financial Statement Organization

Budget Development

Bill Paying

Fraud Statement Review

Tax Document Organization

Medical Bill reviews/claims (including Medicare and Insurance)

WHO'S LOOKING OUT FOR YOU?

Gary Lewis, Certified Adviser for Senior Living (CASL)

Guardian Angel Protection

Honest

Dependable

Experienced

Affordable

E mail me at gary@assetdesigncenter.com, or call
708-724-9108
West Suburban Chicago area.

YOUR FIRST STEP

2011-07-30T09:15:00.000-05:00

EMERGENCY CASH RESERVE

It's not your Piggy Bank, or that $100 you have stashed away in your drawer, it is the first item that one should review when developing a financial plan. Find out how more about this #1 planning recommendation at Emergency Reserve Funds.

PREVENTING ELDERLY FINANCIAL ABUSE

2011-06-22T11:28:00.000-05:00

CAN FAMILY MEMBERS BE TRUSTED?

Not long ago, the American Bar Association reported a heart-wrenching tale of a senior and her son. Mom gave her son Power of Attorney, sold her home and gave the money to the son. The son had promised to use the money to build an addition to the home where mom could live, INDEPENDENTLY.

Months passed an no construction happened. The son then dropped mom off at a nearby hospital and refused to pick her up. After a stay at the hospital, mom had to go, but where? Mom, having given her son all her money suddenly found herself impoverished. And what was worse, since mom gave her son the money, she was not eligile for Medicaid to cover nursing home costs!

Such stories are, unfortunately, not uncommon. While many would expect "trusted advisers" to take advantage of seniors, studies have shown that family members are more likely than strangers to exploit their elderly relatives. While in most cases, family members sacrifice selflessly helping a senior loved one but this is not always the case. One study showed that 60% of substantiated Adult Protective Services cases involved an adult child. Studies have also shown that grandchildren and other family members are equally as likely to financially abuse a senior.

When it comes to handling your day-to-day financial chores, consider using a professional who has your best interests at heart. While many try to avoid the costs by having a family member manage the finances, one always needs to be aware, "Who Can You Trust?"

Our Guardian Angel Protection services provide help with your routine financial tasks at reasonable costs. For more information, visit our Services Page.

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2011-06-20T09:50:00.002-05:00

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Heading for the Exits

2010-12-03T08:29:00.000-06:00

Just as everything looked so good, reality comes back to haunt us. The long awaited monthly jobs number was reported this morning and much to the chagrin of market bulls, the number was a bust. The unemployment rate again rose to the Springtime highs of 9.8% and a mere 39,000 net jobs were created in the last month.

We had been anticipating the stock market's test of the highs. Normally, this is a three-week test of the high but with the Thanksgiving holiday last week, perhaps the market timing got a little displaced. Seldom do things in the market play out "exactly" as one would expect. Gee, the market would be no fun if it were that predictable. But this week, stocks played catch up, exploding sharply to the upside but still not getting above the 11,400 level. It came close but whoops, not today.

It appeared that the market could take out the highs as pre-market trading was flat to positive, but then, the big number hits and markets sharply reversed course. The Dow was up nearly 50 but now is down nearly 50 with normal trading still yet to begin. It appears that we are going to fail this test of the high. It is an Intermediate test of the high so the down draft could last for several months. In fact, such a well defined test of the highs could mark a major top. I can't see the Dow ever getting to 12,000. While it may bounce around between 10,000 and 11,000 for another year or so, all signs indicate that we are going to go down and go down hard. I predict a Dow 5,000 or even lower after 2012.

JURASSIC PARK ECONOMY

You know how that movie played out. The mad scientist played around with genetics, making it certain that the animals couldn't breed on their own and all things would be kept under control. Well, our Federal Reserve and other central banks around the world have been tinkering with nature and the outcome is going to be just as deadly.

With this in mind, you are going to want to position your portfolio VERY CAREFULLY. There is a real danger of not only a major stock market collapse but also a fleeing from the dollar and treasury securities which could cause a major panic around the globe. If you wish to immunize your portfolio against the potential hazards that are clearly evident, contact me for a free consultation.

Let's Get Back to Reality

2010-11-15T09:40:00.000-06:00

Here we are, end of the year again. If you had a properly diversified portfolio, you have done well. Despite all of the fears and concerns, bonds are up, stocks are up, gold is up, everything is up!

But of course, if you are well-versed in the markets, all boats do not float in the same direction as a rule. We diversify so that we get a blend of returns, expecting some asset classes to decline while others rise. In fact, many depend on that $3,000 capital gains loss exclusion to help our taxes along some. When all asset classes are rising, then you need to really be on guard. When sentiment changes, you will experience losses in all classes as well. This is not good. This is why financial planners encourage diversification.

As a fee-only financial planner, I insist on doing an analysis of the client's financial life before I do anything else. To try to "make as much money as I can" is not compatible with financial planning. You automatically disregard risk and disregard the probability that you will achieve your long-term financial goals. Like Vegas, the market will always find a way to take your money.

WHAT SHOULD I BE DOING?

The end of the year is at hand. At the very least, one needs to REBALANCE the portfolio. If you have nice gains in one asset class, take something off the table and put it in a class that has underperformed. Right now, the only class that may be underperforming is Real Estate.

Do the basic things that you need to be doing. But more importantly, do a financial plan. Why?

BENEFITS OF A FINANCIAL PLAN

When I do a financial plan, I learn what the client's goals are. Then, we generate financial projections to see whether or not the client can achieve their financial goals. Oftentime, they can do it by adding a small sum to their savings and achieving a required rate of return. Should it be any different? Why would an individual take on more risk than he or she can survive on? Run yourself like a corporation. Try to get a required rate of return on your investments.

The financial plan will show you what you need to earn each year to achieve your goals. Why take extra risk when you don't need to? You don't need to put all of your money into your retirement or other goal seeking accounts. You can put excess funds into futures or other high-risk investments if you choose. But why take a chance with your retirement money?

Financial planning helps you to establish your needs. Learn what you need to earn to achieve your goals, then develop an investment strategy to earn what you need with the least amount of risk.

Are We Starting to Get Back to Reality?

2010-11-15T07:47:00.001-06:00

Retail Sales Rise, Rates Surge

Are we finally breaking out from a multi-year low? Rates have been manipulated by government and Federal Reserve actions for more than a decade now. Have we finally reached a bottom?

It seems that we are in an intermediate term move higher. Time to be long interest rates - short goverment bonds.

The long term stock market prognosis remains negative however. Should the stock market turn south, the flight to quality will again push interest rates lower, perhaps down to test the 2% level on the 10 year. One can never predict with certainty.

Rates have been historically low, even though the credit quality of the US Government is suspect at best. I have been short bonds now for more than a year, primarily using TBT for most clients, futures for more aggressive clients. We are certain to again test 4% and I believe, break through with a vengence.

The last time we tested 4%, we broke though but then sold off with a vengence. It must have been a Fed target rate which caused them to buy Treasuries aggressively. Rates plummeted to 2.4% from 4.1%. What incredible volatility we have witnessed in rates (10 year). But markets are interesting in that they test support and resistance level, then do what is required to bust through.

We did not break new levels on the low end and have established credible support. 10 year rates will now blow though 4%. It's the Trendsetter Slingshot Effect. They pull levels down lower and when the rubber band is released, it pushes prices (rates in this case) through tough resistance.

I hope for some backing and filling here. Building a channel would be nice, But I'd say it's time to be aggressively short on Treasuries. Sell bonds.

What effect will sharply rising rates have on stocks? Write me at gary@assetdesigncenter.com to get my next stock report.

Where Will the Fed's Dollar Debasing Policy Take Us?

2010-11-12T11:29:00.000-06:00

While Treasury Secretary, Timothy Geitner, and Federal Reserve Chairman, Ben Bernanke, feel that the addition of $600 billion more to the money supply will help the US recover from a severe recession, the rest of the world does not agree. Already, we can see that the dollar is at decades low levels against many of the world's currencies.

Over the past 10 years, the dollar has fallen from around 110 to the mid 70s. With additional Quantitative Easing, or the addition of even more dollars into circulation over time, many expect the dollar to continue moving much lower.

Although interest rates are only now starting to nudge up, reaching about 2.75% on a 10-year Treasury Note, the government's intent behind the additional Quantitative Easing is to make money even more cheap for the banks and investment institutions.

It's clear to see that interest rates have been extremely low over the past 10 years. We are currently at levels reached nearly two years ago when the world economy was in crisis. Yet, our government and Federal Reserve believe that interest rates need to be lower still. Unfortunately, their actions may have serious consequences. Already we see the price of oil again skyrocketing boosting gasoline prices. Food also is moving higher in price. And as the government tries to pressure China to boost the value of the Yuan, China's currency, if successful, prices of cheap goods, which American has come to depend on, will start to rise. This will surely take its toll on the already pressured US consumer.

In a recent article by John Browne A Bad Plan Poorly Disguised , Mr. Browne suggests that the US may be purposely devaluing the dollar to cheapen it's debt. Although we do not have "official" inflation, the declining value of the US Dollar surely means inflation for average people who consume food and drive cars.

Eventually, China and other countries that are supporting the US's trillion plus annual budgets, will eventually say enough is enough . China has been warning us for well over a year now. Yet the US appears to only show arrogance in the face of our new landlords. The US may believe that China has no recourse but to continue buying US debt lest the value of these securities fall dramatically. But it may just appear that we have China over a barrel here. The US economy tetters on the brink of disaster. A sudden sharp rise in interest rates will truly destroy our fragile economy. How would the US support its already massive debt payments if interest rates would double?

The day of reckoning will come. The Fed has been trying to manipulate the economy now for years and each period of effort has resulted in still another bubble. First it was high tech, then real estate, and now bonds. They say there is no bubble. But they said that about real estate too!

Are you prepared for the day when the stuff hits the fan? If you took big losses after each of the previous bubbles bursted, then you are probably not prepared. Rising markets cause complacency. But as discussed a month or so ago, I see the Dow back down below 5,000 perhaps as soon as 2012. The Fed cannot continue their reckeless experiments. Yet they cannot stop. It reminds me of the Barings Bank or Orange County bankruptcies. Once they set forth on this dangerous past, they have to keep doubling up on their bet to try to get back to even. In the end, there is only one result. Bankruptcy.

Few are telling you how to prepare for the debacle that I believe will come. Contact me if you'd like more information

End of Year Tax Tips

2010-11-10T11:53:00.002-06:00

By Justin Ransome
There’s still plenty of time to put last-minute planning techniques into play, but remember to consider your individual circumstances and consult a tax adviser. There is an extra wrinkle of complexity this year as the 2001 and 2003 Bush tax cuts are set to expire at the end of the year. Many members of Congress have expressed support for extending these tax cuts to some, if not all, taxpayers either temporarily or permanently. Without Congressional action, tax rates will rise to as high as 39.6% on ordinary income and 20% on capital gains.

This uncertainty can make year-end tax planning tricky for even the most tax-savvy taxpayer—acting before knowing what Congress will do renders some planning a crapshoot. It may be prudent to prepare your strategies now, but wait to see what lawmakers do. With that in mind, here are 10 last-minute tax-planning tips (keeping in mind that Congressional action can affect which strategies make sense):

1. Adjust timing of income and deductions.

In years in which tax rates remain the same, it is generally recommended that income be deferred and deductions be accelerated – why pay tax today when you can put it off until tomorrow? However, if tax rates increase next year, it may be wise to reverse this strategy. Paying tax now at a lower rate may save you taxes in the long run. Generally this means you want to accelerate income into the current year and defer deductions into next year. There are plenty of income items and expenses you may be able to control. Consider accelerating bonuses, consulting income or self-employment income. On the deduction side, you may be able to defer state and local income taxes, interest payments and real estate taxes. But beware of the alternative minimum tax (AMT), which can affect timing strategies.

2. Bunch itemized deductions.

Many expenses can be deducted only if they exceed a certain%age of your adjusted gross income (AGI). Bunching itemized deductible expenses into one year can help you get over these AGI floors. Consider scheduling your non-urgent medical procedures all in one year to get over the 7.5% AGI floor for medical expenses. To get over the 2% AGI floor for miscellaneous expenses, bunch professional fees such as legal advice and tax planning, and unreimbursed business expenses such as travel and vehicle costs. If you can defer bunching these itemized deductions until next year, you may get a bigger bang for your buck!

3. Maximize “above-the-line” deductions.

Above-the-line deductions are especially valuable because they reduce your AGI. Many valuable tax benefits are limited based on your AGI. Common above-the-line deductions include traditional Individual Retirement Account (IRA) and Health Savings Account (HSA) contributions, moving expenses, self-employed health insurance costs, alimony payments and any bank penalties you may have had to pay for early account withdrawals.

4. Consider charitable contributions carefully.

Think about giving appreciated property to charity so you can deduct the full value without paying capital gains taxes. But don’t donate depreciated property. Sell it first and give the proceeds to charity so you can take the capital loss and a charitable deduction. As always, double-check the limits and substantiation rules before making any contributions. And don’t forget to consider whether an increase in taxes next year would make your contributions and deductions more valuable then.

5. Make up a tax shortfall with increased withholding.

Don’t forget that taxes are due throughout the year. Check your withholding and estimated tax payments now while you have time to fix a problem. If you’re in danger of an underpayment penalty, try to make up the shortfall through increased withholding on your salary or bonuses. A bigger estimated tax payment can still leave you exposed to penalties for previous quarters, while withholding is considered to have been paid ratably throughout the year. Also, now would be a good time to consider how the expiration of the Bush tax cuts might affect your tax liability and, thus, your tax estimated payment for 2011. To avoid any penalties, the best action plan would be to make sure you pay estimated taxes equal to 110% of your estimated tax liability.

6. Leverage retirement account tax savings.

It’s not too late to maximize contributions to a retirement account. Traditional retirement accounts like 401(k)s and IRAs still offer some of the best tax savings in the Internal Revenue Code. Contributions reduce taxable income at the time you make them, and you don’t pay taxes until you take the money out at retirement. The 2010 contribution limits are $16,500 for a 401(k) and $5,000 for an IRA (not including catch-up contributions for those 50 and older). Remember that contributions to your IRA can be made as late as April 15, 2011. Regardless of whether tax rates go up, it almost always makes sense to put as much money into tax-favored retirement vehicles as you can.

7. Roll over into a Roth account.

“Roth” versions of traditional retirement accounts, such as 401(k)s and IRAs, also provide a great savings opportunity. You don’t get a tax break when you put money into a Roth account, but the money grows tax-free and is never taxed again if distributions are made properly. Rolling over into a Roth account now may make sense. Tax rates are low, and the value of many accounts has been artificially depressed by the downturn. Paying tax on the rollover now could save you if tax rates go up and your account recovers. Starting this year, the $100,000 AGI limit on these rollovers is lifted; thus, even high-income taxpayers can convert their retirement accounts this year. Understand that you will be required to pay tax on the converted amount and will need to plan accordingly. For 2010 only, you will pay half of the tax associated with the rollover in 2011 and the other half in 2010 unless you make an election to pay the tax in 2010, but make sure you have considered tax rates in those years.

8. Consider selling assets.

If your capital gains rate will increase in 2011, you can consider selling assets now to take advantage of today’s low rates. Stock and other securities can be sold and bought back immediately allowing the payment of tax without changing position. This gives you an increased basis in the asset for future sale but it may make more sense to take advantage of today’s low rates to diversify a concentrated position. If much of your portfolio is tied up in one stock or asset because you’re deferring the tax bill on a large gain, keep in mind that rates only have one way to go from here. But be careful because the time value of money still often makes deferral a better strategy and there are many other factors to consider – including whether your tax rate actually increases.

9. Don’t forget to use annual gift tax exclusion.

If you may have to pay estate taxes eventually, consider establishing a gifting program for your children and grandchildren to take advantage of the annual gift tax exclusion. Gifts of up to $13,000 per donee ($26,000 for married couples) are generally excluded from gift tax in 2010 and will be removed from your estate, with no limit on the number of donees. In addition, payments of tuition to an educational institution for the benefit of your children or grandchildren are excluded from gift tax.

10. Watch out for the “kiddie tax.”

The “kiddie tax,” which requires a portion of a child’s unearned income to be taxed at the parents’ marginal rate, has been expanded to apply to full-time students under the age of 24 whose earned income does not represent at least one-half of their support. Be careful transferring income-producing assets to your kids.

Justin Ransome is a partner in Grant Thornton’s Washington National Tax Office. For more information, visit GrantThornton.com.

Health Care Taxes You Need To Know About

2010-10-07T08:21:00.003-05:00

Health Care Reform: 13 Tax Changes on the Way

By Joan Pryde

Here are 13 changes in the massive overhaul that could impact your tax bill, for b

etter or worse.

1. A new 10% excise tax on indoor tanning services on services provided after June 30, 2010.
2. The new law gives small firms tax credits as incentives to provide coverage, starting this tax year. Employers with 10 or fewer workers and average annual wages of less than $25,000 can receive a credit of up to 35% of their health premium costs each year through 2013. The credit is phased out for firms larger than that and disappears completely if a company has more than 25 employees or average annual wages of $50,000 or more.
Beginning in 2014, the system changes. The law requires each state to establish a health insurance exchange -- a marketplace where individuals, the self-employed and small businesses can buy health insurance coverage. The government-regulated exchanges would offer insurance policies with different levels of coverage and price tags. Small firms that sign up with one of the health exchanges to be created can receive a credit of up to 50% of their costs -- with the same phaseouts for average income and size as the earlier program. The credit disappears after 2015.
3. A requirement that businesses include the value of the health
care benefits they provide to employees on W-2s, beginning with W-2s for 2011. The amount reported is not considered taxable income.
4. Elimination of a deduction employers now take for providing Medicare Part D prescription drug coverage to their retirees to the extent that the federal government subsidizes the coverage. This will not take effect until 2013.
5. Doubling the penalty for nonqualified distributions from health savings accounts, to 20%, beginning in 2011.
6. A limit on the amount that employees can contribute to health care flexible spending accounts to $2,500 a year, but the cap won’t take effect until 2013. This was previously left to the employer's discretion, with many firms choosing a limit of $4,000 to $5,000 or so
7. A ban on using funds from flexible spending accounts, health reimbursement arrangements or health savings accounts for the cost of over-the-counter medications, starting in 2011.
8. Starting in 2013, a 0.9% Medicare surtax will apply to wages in excess of $200,000 for single taxpayers and over $250,000 for married couples. Also, for the first time ever, a Medicare tax will apply to investment income of high earners. The 3.8% levy will hit the lesser of (1) their unearned income or (2) the amount by which their adjusted gross income exceeds the $200,000 or $250,000 threshold amounts. The new law defines unearned income as interest, dividends, capital gains, annuities, royalties, and rents. Tax-exempt interest won’t be included, nor will income from retirement accounts.
.
9. A hike in the 7.5% floor on itemized deductions for medical expenses to 10%, beginning in 2013. But taxpayers age 65 and over are exempt from the cutback through 2016.
10. A new 40% excise tax, beginning in 2018, on high-cost health plans, levied on the portion that exceeds $10,200 for individuals and $27,500 for families. The provision is aimed mostly at gold-plated plans offered by employers, although it can affect individual policies
11. A new tax on individuals who don't obtain adequate health coverage by 2014 -- this is often referred to as the individual mandate.. The tax is to be phased in over three years, starting at the greater of $95, or 1% of income, in 2014, and rising to the greater of $695, or 2.5% of gross income, in 2016.
12. Providing a refundable tax credit, once the individual mandate takes effect in 2014, to help low-income folks purchase coverage. To be eligible, a person's household income must be between 100% and 400% of the federal poverty level, generally around $11,000 to $44,000 for singles and $22,000 to $88,000 for families. The credit is a sliding scale, based on income. Low-incomers get a credit for all costs. Then, as income rises, the credit phases out.
13. A nondeductible fee charged to businesses with 50 or more employees if the firms fail to offer adequate coverage. The fee will equal $2,000 times the number of employees, though it won’t count the first 30 workers in that calculation.

The Writing Is on the Wall

2010-10-04T14:46:00.005-05:00

Interest rates continue to stay low and are threatening to break through and go much lower. There probably won't be any worry on the street until the rates test the 2.0% level on the 10-year rate. Below that, many believe that we are in a deflationary state. In MY younger days, 3% to 4% was the NOMINAL rate with inflation tacked on. Times have changed.

I have shown in previous blogs throughout the years that interest rates and the stock market always come to meet each other. When we see the bonds rallying and the stocks rallying, you know, there is something wrong. This undermines the whole theory of diversification. When business is good, the stock market goes up along with the demand for money. Thus interest rates rise and bonds fall. When the economy is weak, the stocks fall as do interest rates as the demand for money is weak. We see INFLATION in general, with all asset classes rising as now, when the government pumps money into the economy.

Oh, they say that they aren't doing it. The banks aren't lending. The money is sitting idle. But one need only look at practically every asset class out there to see that all boats are rising as excessive dollars are looking for a home.

THE INTEREST RATE CHART ABOVE reflects our times. Not to mention that rates have been falling for years and years, look how dramatically rates fell when failing to get through the 4.0% level! I certainly don't believe that we are having the major test of the low. IT COULD BE but with the Fed ever present in the Treasury market, vowing to keep interest rates down, any upward move in rates is sure to be short-lived. What happens though if rates do break down again?

LONG TERM DOW CHART

Well friends, anyone who has passed Technical Analysis 101 knows the OBVIOUS HEAD AND SHOULDERS formation. I think that one of the keys to success in trading as a technician is being aware of the possible formations that are brewing. As a formation such as this generally is symmetrical, we can expect that the right shoulder, currently building, can continue topping out for another year, maybe more. This has been presenting incredible trading opportunities resulting in many 10-15% moves already this year. It's still possible to be making tons of money now without sacrificing a bias to the downside.

SHORT SHORT SHORT SHORT

What's wrong with this logic??? If you can be long stocks AND long bonds in a diversified portfolio, why would it be bad to be short stocks and short bonds in a portfolio? With both stocks and bonds rallying, it seems like suicide to continue holding the typical modern portfolio. Wouldn't you think???

While I like to trade for profit, on peaks and valleys, I add on positions to a core BEAR portfolio. I hold positions in DXD and SDS for a potential down move in the stock market and TBT for a move down in bonds.

THE TECHNICALS SAY

When we analyze the Head and Shoulders formation, the rule of thumb is that you draw a line connecting the neckline. I like to maintain the neckline at just shy of the 8,000 level and not a declining neckline as others might draw. But then you take the distance from the neckline to the peak of the move - 8,000 to 14,000 - 6,000. the market should fall by the same distance below the neckline as it rose above the neckline. OUCHHHH!!!!

I massage the data and look at the chart on a log chart but still. 5,000? 4,000? The risk is there.

Of course, if the market makes new all time highs, then this scenario is off. But let's look at the potential scenario politically. The Republicans make gains in the Congress in the next election. Gridlock continues for two years. A displeasing 2012 election, a bankrupt country, Tea Party grows and the fever is reminiscent of mid-1700s France! A DOW 4,000? I CAN SEE IT!

Can you? What are YOU doing to protect yourself? AND REMEMBER, the FLASH CRASH CAN HAPPEN AGAIN. No Stop loss order can protect you in a collapsing market. Ask any future trader who has experienced day after day of limit up or down moves. It really can get ugly out there. This is not a do-it-your selfer market.

Recast Your Mortgage to Lower Payments

2010-10-04T12:23:00.003-05:00

Some homeowners who already have refinanced into low-interest-rate mortgages are using a little-known strategy to make their monthly payments even smaller.

Called "recasting" or "re-amortizing," the strategy allows a borrower to lower the monthly payment on an existing fixed-rate home loan for a small fee without having to apply for a new loan and without having to pay reappraisal and other fees.

Recasting also may enable homeowners to save on interest paid over the life of the loan, merely by putting a large sum of cash against the principal, whether or not they have refinanced already.

The bad news? Banks don't advertise the strategy, perhaps because it is less lucrative than refinancing a mortgage. And not all loans are eligible. To find out more, you will have to ask your lender directly.

At J.P. Morgan Chase & Co.'s Chase Home Finance unit, less than 200 mortgages a month are recast out of 10 million home loans outstanding, a spokesman says. At Bank of America Corp., about 200 to 300 a month recasting requests are received out of about 14 million home loans serviced by the company, a spokesman says. Neither bank has seen increased demand.

Here is how it works: A homeowner asks his loan servicer if he can put a large sum of money against the outstanding principal on the mortgage. Ordinarily, doing so would enable him to pay off the loan early, but he would still have to pay the same monthly note. But if the lender agrees to recast the mortgage, he may be able to reduce the monthly payment over the remaining term of the loan.

For example, a person with a 30-year $300,000 fixed-rate mortgage and an interest rate of 4.75% who recasted one year into the loan by putting in $60,000 toward the principal would trim his balance to $235,371. Assuming there were 29 years left on the loan, that would result in a monthly payment of $1,247 instead of the original $1,565.

Recasting can be a good choice for borrowers who have cash and want to reduce monthly payments but who can't refinance, such as those with no-documentation loans, most of whom can't get the same types of mortgages today due to tighter regulations, even if they have high income and good credit. (Self-employed professionals often find themselves in this boat.) And at a time of low interest rates on certificates of deposit and U.S. Treasury bills, paying off a mortgage early is a relatively safe investment that brings a return at least equivalent to the interest rate on the mortgage itself.

There are downsides to the strategy. Many financial experts advise against putting additional cash into one's residence, arguing that higher returns historically have been available in the financial markets and interest rates on bonds are likely to rise eventually.

They also warn of the possible tax consequences of retiring a mortgage early, because mortgage interest on a primary residence can be tax-deductible.

Mortgage recasting resembles a "cash in" refinancing—a newly popular strategy in which a borrower pays down principal on an existing loan in order to qualify for a new loan with a lower interest rate. In a recasting, though, the interest rate and the number of payments remain the same, and there are no transfer and title costs.

Getting permission to recast a loan can be tricky. The loan must be in good standing, and you need to secure permission from the loan servicer, who may or may not be the original lender. If the loan has been sold to an investor, the servicer also must secure its approval.

Since nearly two-thirds of all outstanding mortgages have been sold to investors via mortgage-backed securities, some homeowners could find this step difficult, especially those with subprime and "jumbo" mortgages. (Jumbos are loans that are too big to receive government backing through Fannie Mae, Freddie Mac or the Federal Housing Administration.) If approved, the borrower will need to sign a modification agreement, a legal document recording the change of contractual terms.

Each lender sets its own fees and requirements. Chase requires a minimum $5,000 principal payment to recast a loan and charges a $150 fee, for example. Bank of America generally charges $250. It suggests at least $1,000 be paid toward the principal, but has no minimum.

John Henry Low, a fee-only financial planner in Pine Plains, N.Y., says homeowners should have one to three years in savings as an emergency fund before tying up additional cash in their homes, even if the account is "paying nothing."

A financial adviser in Pennsylvania says he refinanced a $270,000, 15-year mortgage in November 2009 on a second home at a 4.25% interest rate. This year, he inherited some money and instead of having money "sitting around in a money-market fund earning a fraction of 1% interest," he decided to put $75,000 to pay down principal on his mortgage.

So he requested a recast in a letter to Chase, which had acquired the loan. To get it, he paid a $150 fee.

With 14 years remaining on the mortgage, his balance was reduced to $170,020, factoring in additional payments he had been making toward the principal. This reduced his monthly payment of principal and interest from $2,032 to $1,322, excluding escrow payments—a savings of $710 a month.

If he puts the $710 monthly savings back into the principal, he will pay off the mortgage in a little less than eight years, saving $24,300 in interest. He also has the flexibility of a reduced monthly payment "in case I lose my job or something in the future," he says.

You don't need to recast your loan in order to save thousands of dollars in interest over its life. You can simply make additional payments toward principal on an existing mortgage without paying a dime in additional fees, or make a 13th mortgage payment each year—assuming, of course, the loan has no prepayment penalty.

One thing in homeowners' favor: The recent overhaul of banking regulations has severely restricted prepayment penalties on new mortgages.

Write to M.P. McQueen at mp.mcqueen@wsj.com

Aldi customer accounts compromised :: CHICAGO SUN-TIMES :: Business

2010-10-02T10:47:00.000-05:00

Aldi customer accounts compromised :: CHICAGO SUN-TIMES :: Business

I Can Find Out EVERYTHING About You!

2010-10-01T06:17:00.002-05:00

Pretexting: Your Personal Information Revealed

When you think of your own personal assets, chances are your home, car, and savings and investments come to mind. But what about your Social Security number (SSN), telephone records and your bank and credit card account numbers? To people known as “pretexters,” that information is a personal asset, too.

Pretexting is the practice of getting your personal information under false pretenses. Pretexters sell your information to people who may use it to get credit in your name, steal your assets, or to investigate or sue you. Pretexting is against the law.

How Pretexting Works

Pretexters use a variety of tactics to get your personal information. For example, a pretexter may call, claim he’s from a survey firm, and ask you a few questions. When the pretexter has the information he wants, he uses it to call your financial institution. He pretends to be you or someone with authorized access to your account. He might claim that he’s forgotten his checkbook and needs information about his account. In this way, the pretexter may be able to obtain personal information about you such as your SSN, bank and credit card account numbers, information in your credit report, and the existence and size of your savings and investment portfolios.

Keep in mind that some information about you may be a matter of public record, such as whether you own a home, pay your real estate taxes, or have ever filed for bankruptcy. It is not pretexting for another person to collect this kind of information.

There Ought to Be a Law — There Is

Under federal law — the Gramm-Leach-Bliley Act — it’s illegal for anyone to:

use false, fictitious or fraudulent statements or documents to get customer information from a financial institution or directly from a customer of a financial institution.
use forged, counterfeit, lost, or stolen documents to get customer information from a financial institution or directly from a customer of a financial institution.
ask another person to get someone else’s customer information using false, fictitious or fraudulent statements or using false, fictitious or fraudulent documents or forged, counterfeit, lost, or stolen documents.

The Federal Trade Commission Act also generally prohibits pretexting for sensitive consumer information.

The Link to Identity Theft

Pretexting can lead to identity theft. Identity theft occurs when someone hijacks your personal identifying information to open new charge accounts, order merchandise, or borrow money. Consumers targeted by identity thieves often don’t know they’ve been victimized until the hijackers fail to pay the bills or repay the loans, and collection agencies begin dunning the consumers for payment of accounts they didn’t even know they had.

According to the Federal Trade Commission (FTC), the most common forms of identity theft are:

Credit Card Fraud — a credit card account is opened in a consumer’s name or an existing credit card account is “taken over”;

Communications Services Fraud — the identity thief opens telephone, cellular, or other utility service in the consumer’s name;

Bank Fraud — a checking or savings account is opened in the consumer’s name, and/or fraudulent checks are written; and

Fraudulent Loans — the identity thief gets a loan, such as a car loan, in the consumer’s name.

The Identity Theft and Assumption Deterrence Act makes it a federal crime when someone: “knowingly transfers or uses, without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of federal law, or that constitutes a felony under any applicable state or local law.”

Under the Identity Theft Act, a name or SSN is considered a “means of identification.” So is a credit card number, cellular telephone electronic serial number or any other piece of information that may be used alone or in conjunction with other information to identify a specific individual.

Protect Yourself

Even though the laws are on your side, it’s wise to take an active role in protecting your information.

Don’t give out personal information on the phone, through the mail or over the Internet unless you’ve initiated the contact or know who you’re dealing with. Pretexters may pose as representatives of survey firms, banks, Internet service providers and even government agencies to get you to reveal your SSN, mother’s maiden name, financial account numbers and other identifying information. Legitimate organizations with which you do business have the information they need and will not ask you for it.

Be informed. Ask your financial institutions for their policies about sharing your information. Ask them specifically about their policies to prevent pretexting.

Pay attention to your statement cycles. Follow up with your financial institutions if your statements don’t arrive on time.

Review your statements carefully and promptly. Report any discrepancies to your institution immediately.

Alert family members to the dangers of pretexting. Explain that only you, or someone you authorize, should provide personal information to others.

Keep items with personal information in a safe place. Tear or shred your charge receipts, copies of credit applications, insurance forms, bank checks and other financial statements that you’re discarding, expired charge cards and credit offers you get in the mail.

Add passwords to your credit card, bank and phone accounts. Avoid using easily available information like your mother’s maiden name, your birth date, the last four digits of your SSN or your phone number, or a series of consecutive numbers.

Be mindful about where you leave personal information in your home, especially if you have roommates or are having work done in your home by others.

Find out who has access to your personal information at work and verify that the records are kept in a secure location.

Order a copy of your credit report from the three nationwide consumer reporting companies every year. An amendment to the federal Fair Credit Reporting Act requires each of the major nationwide consumer reporting companies to provide you with a free copy of your credit reports, at your request, once every 12 months. To order your free annual report from one or all of the nationwide consumer reporting companies, visit www.annualcreditreport.com, call toll-free 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can print the order form from ftc.gov/credit. Do not contact the three nationwide consumer reporting companies individually. They provide free annual credit reports only through www.annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

Your credit report contains information on where you work and live, the credit accounts that have been opened in your name, how you pay your bills and whether you’ve been sued, arrested or have filed for bankruptcy. Checking your report annually can help you catch mistakes and fraud before they wreak havoc on your personal finances.

If You Think You’re a Victim

If you think you’ve been a victim of pretexting, the FTC recommends that you:

Report it to your financial institution immediately. Close accounts that have been tampered with and open new ones with new Personal Identification Numbers (PINs) and passwords.

Contact the fraud departments at one of the three major credit reporting companies immediately. Tell them to flag your file with a fraud alert including a statement that creditors should get your permission before opening any new accounts in your name. The company you contact will transmit your request to the other two.

Contact your local police as soon as possible, and ask to file a report. Even if the police can’t catch the pretexter, having a police report can help you in clearing up your credit records later on.
Contact the Federal Trade Commission as soon as possible. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-ID-THEFT (1-877-438-4338), or use the complaint form at www.ftc.gov/idtheft. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

If you’ve been a victim of identity theft, file a complaint with the FTC by contacting the FTC’s Identity Theft Hotline by telephone: toll-free 1-877-ID-THEFT (1-877-438-4338); TDD: 202-326-2502; by mail: Identity Theft Clearinghouse, Federal Trade Commission, 600 Pennsylvania Avenue, NW, Washington, DC 20580; or online: www.ftc.gov/idtheft.

The FTC has published a free booklet, Take Charge: Fighting Back Against Identity Theft. This comprehensive guide includes information on what consumers can do to reduce their risk of ID theft; how consumers can protect their personal information; the steps consumers can take if they do become victims of ID theft; and a directory of government resources available to ID theft victims. For your copy, visit www.ftc.gov/idtheft.

The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. Watch a new video, How to File a Complaint, at ftc.gov/video to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre10.shtm

Debit Cards Carry Risks

2010-09-30T14:53:00.001-05:00

One of the big selling points of debit cards, highlighted in ad campaigns and on bank websites, is that you'll have "zero liability" for losses if your card is lost or stolen—just like credit cards.

Turns out that's only sort of true.

In fact, nearly every debit card comes with restrictions in cases of theft. Some banks limit your coverage if you are slow to report a lost card or potential fraud. Some don't cover fraudulent ATM transactions. Some may require that you show "reasonable care" in protecting your card or PIN number.

The matter is a significant one. There were 38.6 billion debit-card transactions last year, far more than the nearly 23 billion credit-card transactions, according to the Nilson Report newsletter in Carpinteria, Calif. Banks encourage customers to use debit cards, since they are far more lucrative than cash or checks.

Debit cards, by contrast, are covered under a different law, and the rules are much more complex. If you call your bank within two business days of discovering your card is missing, your losses are limited to $50. But if you wait, you could be on the hook for up to $500. And if you don't report the problem within 60 days after it shows up on a statement, you might face unlimited losses.The loopholes grow out of different federal regulations for different cards. Under federal law, your losses from unauthorized charges on your credit card are limited to $50, and there is no time limit for when you must report the problem. Many issuers go further, waiving all losses due to unauthorized credit-card use.

In the late 1990s, Visa and MasterCard went beyond those requirements, promising reduced liability for their branded debit cards. But there are several loopholes: Visa's "zero-liability policy" doesn't cover ATM transactions, some business cards or PIN transactions that don't go through the Visa network. It does cover transactions where you sign, which bring in more revenue than PIN transactions.

MasterCard doesn't cover any transactions that require a PIN, and it won't cover more than two theft events in a 12-month period. You must also exercise "reasonable care" to prevent your card from being misused. But that term is subject to interpretation. Have you failed to show reasonable care if you forget your card at a restaurant? That depends on the circumstances and your bank, a spokeswoman says.

Discover Financial Services and PayPal debit-card policies require losses to be reported within two business days. Bank of America, which has been advertising its zero-liability policy heavily, offers a 60-day window, as does Wells Fargo. Like many banks, they go beyond what Visa and MasterCard offer, covering ATM and PIN transactions, for instance.

To avoid problems, you should keep cards you don't use often in a safe place, protect your PIN and check your account regularly for suspicious activity. Here are few other things to keep in mind:

• Many banks—but not all—will replace your missing funds the next day. In a 2009 survey of how the 25 largest banking companies handle debit cards, Javelin Strategy & Research found that 20% of the large banks didn't replace missing money the next day, down from 28% in 2008. Under federal law, banks have up to 10 days to replace the funds.

• Expect any additional protections to come with stepped-up fraud monitoring of both debit and credit cards. Though fraudulent dealings constitute far less than 1% of all transactions, they are costly, reaching close to $7 billion globally last year, up 7% from 2008, says Dennis Moroney, a research director at TowerGroup, which advises financial-services companies.

Sophisticated software from Fair Isaac, the company that created the FICO credit score, tracks the real-time activity of more than 2 billion cards worldwide for issuers, scoring transactions based on spending patterns, where they are made, their size and other factors.

The higher the score, the more likely the bank may decline the purchase until you clear it, or call you afterward to confirm the transaction was legitimate.

Mike Urban, senior director for FICO's fraud products, says that about 20 calls may be made to customers for each fraudulent transaction caught, a ratio that allows the majority of crooked deals to be stopped without unduly disrupting consumers.

• Though they say "debit card" on them, prepaid debit cards have fewer protections than regular ones. These cards, which have money loaded on them and aren't connected to a bank account, aren't covered by debit-card regulations.

Issuers like Wal-Mart Stores may limit losses and replace funds, and Visa and MasterCard offer the same zero-liability protections for prepaid cards as for their debit cards, with the same loopholes.

—karen.blumenthal@wsj.com

Medigap Plans Improving

2010-09-29T07:13:00.002-05:00

By RICARDO ALONSO-ZALDIVAR, Associated Press Writer – 1 hr 16 mins ago

WASHINGTON – Seniors with high drug costs will soon have more options to help them cope with Medicare's prescription coveragegap.

Reversing a steady decline, the number of prescription plans covering at least some brand-name drugs in the "doughnut hole" coverage gap will triple next year, from 35 to 106. That's according to an analysis of Medicare data to be released Wednesday by Avalere Health, a private research firm.

At least two plans covering some brand-name drugs in the gap will be available in every region of the country.

The enhanced coverage carries a higher monthly premium. And the plans offer only a limited range of medications in the gap, most often drugs to treat chronic illnesses.

Nonetheless, some seniors may be willing to pay more for greater peace of mind. Some of the most widely used medications, including Lipitor for high cholesterol, are not available as generics.

"The coverage of generics in the gap has been fairly stable, but there has been very little coverage of brand-name drugs," said Bonnie Washington, an Avalere researcher who worked on the study. "This is the first year we have really seen it come back."

The coverage expansion is partly the result of prodding by Medicare officials to get private insurers to offer more robust plans, Washington said.

Medicare's drug coverage gap is a cost-control idea that has never been popular.

In 2011, the gap will start after Medicare beneficiaries and their insurance plan have spent $2,840 on medications.

After that, seniors are responsible for roughly the next $3,600. That's the "doughnut hole."

Once total spending reaches about $6,440, Medicare's catastrophic coverage kicks in and beneficiaries pay only a small amount.

President Barack Obama's new health care law closes the gap by 2020 through a series of discounts. Next year, seniors get 50 percent off brand-name drugs in the gap and a smaller break on generics.

But Medicare will continue to count the full retail price of medications in computing the coverage gap. So that means seniors will pay a lot less to get through the doughnut hole.

About 4 million people now face the gap largely on their own.

The Avalere study also found benefits will improve for low-income people whose premiums and co-payments are covered by taxpayers. For the first time since the drug benefit was offered in 2006, 9 million low-income beneficiaries will have a bigger number of plans to pick from. For those who want to stick with their current plan, coverage will be more stable.

Medicare's open enrollment begins Nov. 15 and consumer advocates say the more than 17 million seniors enrolled in private prescription plans should take a particularly close look at their benefits for next year. Millions face double-digit premium hikes unless they shop for a cheaper plan.

Premiums will go up an average of 10 percent among the top plans that have signed up some 70 percent of seniors, according to an earlier Avalere analysis.

___

Online:

Avalere Health: http://www.avalerehealth.net/

HELPING SENIORS WITH THEIR BILLS

2010-09-19T13:13:00.003-05:00

THE WORK OF A DAILY MONEY MANAGER

by Gary A. Lewis, CFP, CASL

Have you ever heard of a DAILY MONEY MANAGER? I hadn't until I took coursework for the Certified Adviser for Senior Living (CASL) financial designation. But the more I looked into it, the more I realized how important such a service is, especially for seniors who are having problems with their vision, arthritis, diminishing mental strength or unwillingness to pour over the countless disclosures and disclaimers received each month.

The DAILY MONEY MANAGER can do a number of things for you but the most important ones are sorting through your mail, writing out the checks for your signature, balancing your checkbook and other accounts, and making sure that your bills get paid on time.

While I had spent many years as a financial planner, helping rich people get richer, I had often felt unfulfilled. Unless I was actively helping money go to charity for estate planning purposes, there was no real social value of what I was doing. Daily Money Management for seniors is different. I get to visit my clients once or twice a month. There is usually some time left after bill paying to talk with them. Well, I prefer to listen to them.

I serve the West Suburban Chicago area and would love to spend a little time with you to visit, learn about you, and discover if there is some way I can help you with your day to day finances.

If you wish to learn more, please contact me at gary@assetdesigncenter.com

Rates Will Never Go Up Again!

2010-08-06T10:49:00.003-05:00

Rates are breaking lower, dropping below 2.85% on the ten-year basis. As the chart above shows, the recent levels were holding but a break through now shows that we can expect the 10-year rates to test the 2.0% level.

The stock market continues to remain at relatively high levels even though interest rates, another barometer of the economy, languishes at lows, continually making new lows.

As long as the Fed keeps rates down to zero, the bank arbitrage between the cost of money 0% and guaranteed income Treasuries will continue. It now becomes a no-brainer that rates will continue to fall and we will drift into the dreaded DEFLATION!!!!

I reviewed my notes from 4 years ago and the economy was weak, unemployment was rising and interest rates were falling. We were coming off of 5% on the 10-year. What a bond market rally! It is the mother of all bubbles. I guess you've got to be long the bond market. There is little hope for our economy at this point, not until we have a new administration.

Will we get to the point when the dollar is so devalued that interest rates will have to rise? On no, at that point, the Federal Reserve will step in and buy the Treasuries.

One thing for sure, if the interest rates ever do rise, it will probably cause another economic disaster for the banks as well as countries that continue to pour into Treasuries at miniscule rates. When are we ever going to get our economy together? Is there any hope???

Fed Policy is Killing Us

2010-07-30T11:35:00.003-05:00

As the 10-year rates fall below 2.9% and the 2-year rate falls to around 0.5%, it's becoming obvious that the economy is not what is driving the bond market rally, it's the Fed creating still another BUBBLE!!!

When will they stop creating economic bubbles for the benefits of their cronies? While I have been in the Bearish Stock Market camp since 2005 and still expect a test of the lows, I have been encouraged by the corporate earnings that have been coming out in recent weeks. There is an underlying strength in the economy that can come out if we let it. Yet, interest rates continue to plummet. WHY?

It's becoming obvious, although I will check the data, that as the Fed continues to lend money to banks at nearly 0%, the prudent thing to do for them is, of course, buy the treasury market and it's guaranteed return. As long as the Fed continues to provide funds for free, why shouldn't we expect those, who can get free money, to go crazy buying everything in sight?

It's not going to change. While I think that the interest rates HAVE TO GO UP based on the amount of debt we have, the bond market keeps rallying, shaking out the shorts with dramatic moves.

The European crisis is over. I should have staked my dough in the Euro instead of screwing around with a manipulated US system. At first, it appeared that we were derivative trades of Europe. But with Europe doing fine (basis the Euro which is now 130+ versus the dollar), it appears that there is something VERY WRONG with the US stock market and bond market.

After the Flash Crash in May, I got ALL OF MY CLIENTS OUT of the stock market to as much extent as possible. In fact, I don't even want to advise on the stock market anymore as it is now nothing more than a casino with the billion dollar hedge funds, with their computer algorhythms moving the markets. There is no real investment here. It's all a game.

The interest rates, which one would believe was a true reflection of the economy, now also appear to be manipulated or really, out of the market's hand. It doesn't correlate with the economic reality. If it does, then WE ARE TRULY IN A DOUBLE DIP RECESSION and are headed for a depression.

I am really sad. As those who have followed me have noticed, I haven't been writing at all for the last few months. My despair continues and my faith in the US economy wanes. I am not a politician nor do I work for a government. This is where all the money is going.

I suppose that the long-term rates are going to go down very low. This effect WONT STOP UNTIL THE FED RAISES RATES. How sad that the Congress has given the Fed even more rights to screw up our economy. If you are not a banker or a politician, expect that the worst is still to come.

I'm going to start looking at markets away from the US. I just don't think that they are fair anymore. Perhaps no markets are. Unfortunately, the alternative is to start your own business. But you can only do this if you are cash-flushed or have some rich friends.

Good luck America.

Should Stock Averages Be So High?

2010-07-27T12:50:00.004-05:00

I often like to compare the 10 year treasury rate to the SPX or other major index to see if things are flowing as they should. I've long believed that rates and stock averages should be correlated as a strengthening economy lifts not only stocks but the demand for money. Thus interest rates. But this is not what we have been seeing.

Rates on the 10-year treasury topped out in April after breaking through the 4% level. The surge was short-lived and for the next three months, rates have dropped hard. First it was the European crisis that caused a "flight to quality" and a run on Treasury securities, pushing rates lower. But since then we have seen the Euro currency trade back up to 130 against the dollar from 119, nearly a 10% jump. Yet interest rates have hardly budged to the upside.

I first started observing this correlation back in 2005 and noted in a different blog how the two were sorely out of line. When stocks crashed though, the SPX came back down to meet the TYX 10 year rate! Again, we see quite a divergence in pathways. Again, is the rate chart reflecting the true reality of the market? Is the world-wide treasury market a more convincing indicator of what is truly going on? Or should we buy into stocks, that rally without much conviction in terms of volume?

I suppose that it's best to be short both the Treasury Market as well as the Stock market. At some point, these two chartlines will again meet up, either by the falling stock market, dropping to meet the low level of rates, or with rates rallying (and Treasuries selling off) to meet the higher stock market average. Or will it be a combination of both?

In either case, such a divergence will probably render the traditional stock/bond diversification methods null and void. With Treasuries already so high, yielding a scant 3% on the 10-year, how much more can they rally should the stock market again collapse? Will we wind up like Japan? with low rates and no growth? This can't last much longer. Which market will give it up the most? I don't know. I remain short, more so the treasuries than the stocks, but none-the-less, I have little confidence in either market.

2010-07-26T16:31:00.005-05:00

The S&P 500 and other major indices have been crossing the 200-day moving average. Will this be the catalyst for increased buying? Or are we just completing a head and shoulders topping formation with an ominous descending neckline?

There can be no doubt that corporate earnings have been impressive. Even a perma-bear such as myself has restrained myself from adding shorts so far on this move. In fact, a month or so ago, I even purchased a bunch of C at $3.67. It felt right at the time and wasn't really based on any technical studies. It's just that I've been following the markets since the 70s and markets have rhythms, which after awhile, you just feel.

I'd like to short the stocks now but I want to see if some extra upside might kick in. Lots of news coming this week including GDP and Durable Goods on top of earnings. Perhaps finally we will stop being a derivative play of Europe and start acting on our own.

One thing that troubles me still though is rates. If rates and the SPX were acting as they should be, that is, being correlated, we would also see rates breaking above 3.5% but no, they are languishing at the 3% mark, and threatening to drop to 2.50% on the next wave down.

A strong pop for stocks might start pulling some money out of the treasuries and into stocks. With the little volume in stocks, it's evident that only the institutions are pushing stocks around, as evidenced by the 1,000 point collapse in early May. I certainly wouldn't recommend stocks for anyone after that event. It shows that any wealth in the market could be wiped out in seconds. I was short the market then and was watching it, tick by tick from my home in Mexico. But instead of jumping for joy at making a killing, I was spooked! It was as if the machines had taken over Wall Street. I've seen this Terminator movie many times in the past. It was even proposed in a Tom Clancy book, I believe it was Executive Decision, when a computer code got placed into the market system and when activated, collapsed the US financial system.

Anyway, I heard one proposal that as long as short term rates remain near 0%, all of the other rates will continue to be arbitraged down and that is one reason for the continuing decline in longer term rates. Or perhaps there is just no belief in the US stock market while President Obama is in power. Will we have to wait until November elections to see some pop in interest rates? Or are they really reflecting a new reality? DEFLATION.

Even Inflation Can't Boost Bond Yields

2010-04-22T08:39:00.002-05:00

After breaking above 4% at the beginning of the month, the first time in 9 months, the 10-year interest rate has quickly moved to the other extreme. Even this morning's Producer Price Index (PPI) numbers, an indicator of inflation at the wholesale level, came in higher than expected. Food prices rose 2.6% from last month, the largest increase in 26 years! Yet interest rates continued to fall.

It seems clear that interest rates must rise soon, especially if what the stock market is telling us is true. Business is booming! The recession is over! Banks are earning billions of dollars now every three months! One would think that such incredible results would spur interest rates even higher. Imagine the blessing to the banks and other institutions that are able to borrow are virtually 0% interest and participate in the massive market moves! Seems as if it is just another government give-away.

Could it be that the world is still a messy place economically and there is no safe place to put your money? Or is it just the normal gyrations of the markets? Still, as the economy supposedly booms and the Federal Reserve continues to keep interest rates at a minimum, there is sure to be some bubble popping down the line. WHen interest rates finally do rise, all will be running for the door to get out of their safe plays! Will the economy be able to withstand another bursting financial bubble?

When Will Fed Put on Brakes???

2010-04-14T15:02:00.004-05:00

Stock markets soared today breaking though 1200 on S&P and 11,100 on the Dow. Interest rates (10-year) bumped up moderately but I believe this is going to be the key. Long term analysis of the 10-year trend indicates that this rate could rise to 4.5% but perhaps not until the end of 2011. Until the Federal Reserve finally admits that there is real strength in the market, stocks will continue to rise. Probably also until the end of 2011. With this in mind, and considering the Dow's current trend. Dow Industrial levels could break as high as 13,000.

As long as the Fed says they are on hold, you've got to go with this madness. But the results following this rally will be disasterous. When you feel wonderful about the market, it's probably time to sell. But this feeling is not likely to take hold for another year.

The details are available by SUBSCRIPTION ONLY. Write to me at gary@assetdesigncenter.com to get a free copy of my next newsletter.

Booming Economy But...

2010-04-14T08:07:00.003-05:00

Corporate earnings have started to come in and thus far, the verdict is good. Earnings are up and the bank profits are soaring!!! Retail sales are also strong but inflation is non-existant. Thus interest rates, after surging to yearly highs a couple of weeks ago, have fallen back.

On the ten-year rate, the 10-week moving average comes in at 3.77%. The current rate is holding the 3.80% level after busting 4% last Monday.; At that time, our report to subscribers showed how each time we neared 4%, rates fell back dramatically. Prior to the recent test, the last move to 4% occurred more than 9 months ago in June of 2009. Many say that we are in a trading range between 3.75% and 4.00% on the 10-year note. But the actual range in the past year has been between 3.2% and 4%. Certainly a move back down to 3.2% could only be caused by negative economic news.

Few today believe that we could have a "double dip" recession, meaning that the economy could retest the lows of last year. It's full speed ahead - or at least, that is what they want you to believe. The way I see it, it really doesn't matter to the executives. They make their millions whether they do a good job or not. If they fail, Uncle Sugar bails them out and they still walk away with millions. Little has been said these days about the "off-shore" special interest accounts that banks and corporations have off-shore. Here lies the risks. Another recent story in the Wall Street Journal showed how banks are leveraged to the hilt during the month, trading excessively on high margins. However, when it comes time to report, this huge amount of leverage falls to within acceptable parameters. Nothing has changed and the banks are setting us up for another disaster.

I continue to add to my short market positions as I am in it for the long haul. The market excesses thus far have not outlasted me and as we crossed 11,000 on the Dow, I again added to my short market positions. I continue to believe that interest rates will soar. While the deficit has been reduced some $100 billion over last year, gee, $40-50 billion in the hole is still a lot. Yet many rejoice saying hey, the bailout is working!!!

We are only halfway through the week and it has been a hard week for bond bears. Each day, in overnight trading, rates have risen, only to be slammed down once trading opens in the states. It's a no-brainer for 24-hour traders. Play interest rates to rise at the end of trading in the US and play them to fall just prior to the market open in the US. It's worked every day for the past week or so. Yet come next week, we expect that rates will try for the 4% level again. We are establishing longer-term puts now in anticipation. The trends show this to be the best bet.

Jim Grant Critiques Alan Greenspan

2010-04-10T08:40:00.000-05:00

Financial Tips For Seniors

2010-03-29T11:14:00.001-06:00

Invisible Abuse: Financial Exploitation and Senior Citizens

By: Elizabeth Ryan

Financial abuse and material exploitation of the elderly may not cause physical injuries or leave scars, but they can have devastating effects and ruin the lives of victims. An elder’s entire life savings can disappear, leaving the victim unable to provide for his or her own needs and causing harmful stress and agitation.

Financial elder abuse and material exploitation occur when an abuser uses an elder’s money or assets in a manner contrary to elder’s wishes, needs, or best interests, or for the abuser’s personal gain. Oftentimes, elderly victims are exploited because of vulnerabilities associated with advanced age, such as impaired mental capacity. Abusers can be caregivers in nursing homes or assisted living facilities, professionals hired by the elder (such as accountants), strangers, or family members.

Financial elder abuse can take many forms. The abuser may steal money or items from the elder’s bank account or home, sell or transfer property against the elder’s wishes, use the elder’s credit cards for unauthorized purchases, use the elder’s name to open new credit accounts, and create or alter a living trust or will for the abuser’s benefit. Financial elder abuse also can take the form of telemarketing fraud, identity theft, predatory lending, home improvement scams, and estate planning scams.

Unexplained behavioral changes, such as sudden secrecy or reluctance to speak freely, may be warning signs of financial elder abuse. If an elder appears withdrawn, helpless, frightened, or angry, this may also indicate that abuse is taking place. Some of the warning signs of financial elder abuse can be explained by other causes, and no single indicator can be taken as decisive proof. However, a pattern of multiple warning signs may suggest that a problem is present.

The following are warning signs of financial elder abuse:

Unusual bank account activity, such as ATM withdrawals at a bank the elder cannot travel to

Signatures on checks and documents that do not match the elder’s signature

Checks or documents signed despite the fact elder cannot write or understand what he/she is signing

Unexplained change in spending patterns or unusual/out of character purchases

Unusual medical charges or nursing home charges

Generous gifts to a person the elder has only met recently

Change in lawyer or bank for unknown reason

Change in who has power of attorney for unknown reason

Stranger who initiates close relationship with elder and offers to manage finances and assets

Factors which make elders susceptible to financial abuse include isolation, loneliness, physical and/or mental disabilities, and lack of familiarity with financial issues. Elder financial exploitation often goes unreported. The senior may be unaware that exploitation is taking place or remain silent due to intimidation by the abuser. The elder victim may also be embarrassed about the situation or worried that making accusations will cause him or her to be labeled senile or too demanding.

Reporting financial elder abuse can save the assets, dignity, and health of an elder. If you suspect abuse, it is better to err on the side of caution in order to protect an senior from victimization.

About the Author

To learn more about elder abuse and nursing home abuse, visit IQ Nursing Homes, a site dedicated to providing informational resources and legal help for nursing home residents and their families.

(ArticlesBase SC #527608)

Article Source: http://www.articlesbase.com/ - Invisible Abuse: Financial Exploitation and Senior Citizens

Full Speed Ahead

2010-03-17T07:48:00.003-06:00

Nine out of ten FED OFFICIALS say the economy is still very fragile and chose to maintain interest rates at very low levels. The stock market took this queue as an indication that the markets will continue to rise for, as analysts say, another six months.

We can see that already, small cap stocks are up 10% for the year before even the first quarter ends. As long as the Fed is going to keep rates at zero, it's likely to expect that the stock market will continue to rise with little fear of setback. Thus far, any setback has been mild and immediately challenged by the Fed or other government officials.

As I have often said in this blog, the markets can continue to be irrational for a much longer time than I can remain solvent. It's so sad from my perspective that the Federal Reserve has tried its best to manage the business cycles for far too many years now. Today's news speaks of how the Fed is lobbying to retain its current level of power and it's continued desire to be the master RISK REGULATOR. Yet, they are creating another bubble. We are not so far from the last highs and even then, the markets were over-inflated. Where were we at when Senor Greenspan claimed that there was irrational exuberance? With our economy continuing to crumble, we are in excess of those irrational levels and the Fed wants more!

For those of us who watch things closely, there is little doubt that we are still in a very fragile state but it's because the rules continue to allow banks and other "too big to fail" entities to hide risk in offshore entities. When the FASB pushed to move these assets back on bank balance sheets, the Federal Reserve complained that virtually no bank would be solvent if this rule came to pass.

We are still in a world of hurt. The interest rate market proves that. Rates are not rising despite all the hype that the economy is improving. DONT BELIEVE IT. Watch interest rates and not the stocks. The stocks are merely a respository for those who can't take the low interest rate pain any longer. Many are forced into the market by the Fed's continued policy of low rates. Those on fixed incomes are especially hurt as prices continue to rise yet fixed income sources fall.

We continue to liquidate long positions at each level higher. Our long term picture shows a massive head-and-shoulders formation developing. It could take several years to form the right shoulder. But this being said, we expect a trade range of 10,000 to 12,000 over the next two years. Then look out below. It's going to take a while for today's policies to ripple through and eventually destroy the American life as we know it today. But it will probably happen. Yes, we can go higher on the market and it's inevitable, with the Federal Reserve's intentions, we will push this market higher. It will keep going up until it pulls in every last penny. Then look out below. Welfare state for today's rich and poor alike.

Employment Numbers Improve, Rates Rise

2010-03-05T09:42:00.006-06:00

Everything seemed to be in place for rising rates. All we needed was the piece of news to get the ball rolling. The news arrived in the form of a better than expected unemployment number. Despite warnings that the snow storms of late probably caused unemployment to rise more than normal (imagine getting laid off because you couldn't get to work because of a snowstorm!), the unemployment rate steadied at 9.7% and the job losses were minimal.

Ten-year rates rose immediately, jumping from a base of 3.60% to 3.69% at this moment. While we can never totally predict what is to happen, we were confident that rates were headed higher. Just take a look at the daily cycle indicator above. After making a fine base, it is moving up!

Look at the monthly chart. Sure, the stochastic indicator below appears to be breaking down, but this is from a base of the 3.60% rate that was in place when this chart was generated. More importantly, if we go with the basic chart pattern of a three period test, we can see that the interest rate should rise to test the previous high of above 3.8% set three months ago. Should rates stall here, we would want to change our outlook for higher rates. For now though, we believe that the economy is beginning to rebound. We see it in our analysis of Micro and Small Cap stocks, that are rapidly rising. We believe that this is a sure sign of a recovering market.

Look at the weekly chart of 10-year rates. Last Friday, we held the low of three weeks prior. This generally indicates good support. The three-week test of the low is generally a solid buy point for me. To confirm, we need to see some upside, preferrably breaking through the recent highs of 3.8%

Finally, if we look at the daily chart, we see that yesterday's action tested the lows, albeit on a four-day basis instead of three. This however could have been expected as the trading world seemed to have come to a standstill in anticipation of today's unemployment numbers.

It's like the perfect storm for a rate rise. We can see solid indicators from every time frame showing that now is the time for a move higher and possibly a breakout of the 4% level on the 10-year rates.

Good News Hurts Bonds

2010-03-04T10:39:00.002-06:00

The markets don't believe it. 10-year rates are testing recent lows at 3.59% despite a great Greek bond auction, lower jobless claims and other news of economic strength. It just shows that the market DOES NOT BELIEVE THE DATA. Is it all a sham? Do markets relate to news?

With the unemployment number expected to be really bad because of the snow storms. "yes dear, it snowed today so I got laid off!", look for opportunities to short the treasuries. When we finally break through the 4% level on the notes, it's going to be an explosive move.

Rates WANT TO GO UP But....

2010-03-04T09:49:00.003-06:00

The investment world waits as tomorrow's unemployment report is the pivotal moment in this week's trading action. Each day, rates have spiked up in the morning only to drift lower. Today, we are testing the lows in a four-day testing action. Normally yesterday should have been the test but who knows what is going to happen next?

I must admit, I have been playing the rates to go up since 2005 and still rates have continued to decline. This can't be a good thing as it shows that the U.S. economy has been week for years now. Yes, if you are blessed and a banker or CEO making your millions, you are probably oblivious to such trivial things as interest rates. Lower rates continue to help your business (if you are lucky enough to be credit-worthy).

There is little doubt that for years, rates have been artificially supressed. But there is such a conflict. On one hand, the government wants us to feel confident that we are turning the corner and headed upward. Being an older person, had the government done absolutely nothing, then for sure, we would be on the upswing. Cycles are cycles and they do what cycles do. All the kings horses and all the kings men.... so the rhyme goes. The government merely doled out trillions to their buddies and their efforts have done little to affect the cycles that are going to occur no matter what.

The trip for higher rates has been a long and painful venture. Yet it is inevitable. How can an entity continue to print more money, borrow more money and spend without end and expect it's base rate to be zero? Is the king really wearing clothes? Or is this all a big facade???

Look Out Ben, Rates Likely to Surge

2010-02-26T10:08:00.004-06:00

What a surprise. Consumer confidence is down! The recent economic weaknesses are shining through causing havoc on the markets. Such market movement really drives home the total disconnect between Wall Street, Economists, Politicians and the everyday public. Hardly a day goes by where I don't talk to someone who tells me that they've never seen it this bad. So many are discouraged and feel helpless. The fear is pervasive, as it has been for many months now. How can it be that Wall Street has been so confident. I guess when you make millions and millions each year, you lose touch with reality.

But I had expected some weakness in rates this week as I am a strong believer in the three-week testing mechanisms that the market so often displays. It's hard to make a strong surge through the 3.8% mark on the 10-year notes without some kind of testing of recent low levels. I believe that this is what is happening this week. It appears that we are making a strong basing action here, positioning ourselves for a push upward.

It's no surprise that consumer confidence is low. The job market's weakness has been continually understated. It seems that the whole bailout package was intended to bolster the banks and hopefully, give confidence to the public. But the public has no confidence, not only in the financial system but in our political system as well. But none of this matters. The markets are still being driven by trillions of dollars of new money being injected into the system but this cannot last forever. While Ben Bernanke wants to keep rates low and will do all he can to do it, in the end, the markets do what markets do. At some point, even the Federal Reserve and the Government will not be able to keep rates down.

The trillions of dollars have been bolstering a lot of economic numbers. GDP projections are for upwards of 6% growth! How can bonds realistically be rising? How can interest rates be falling? This cannot be reality. How does an economy eke out a 6% growth and interest rates languish? At some point, the investing public and holders of debt are going to rebell, pushing rates sharply higher.

They have kept interest rates low for years now and in the end, holders of the long bonds are going to be punished. It's too bad for those who had sought a safe investment in one of the mightiest countries in the world. But business and market cycles are inevitable. No matter how much the government and Federal Reserve have tried to manage the ebbs and flows of business, like Mother Nature, you can only tinker for so long and then Nature unleashes her force.

The three-week test of the low has been a very reliable indicator over time. While nothing is fool-proof, one only need to look at the trends. There is a persistance for upward rates. The only way that the government is going to be able to stop it is for them to come out and tell us that in reality, all of Obama's efforts have been in vain. But that's not how the administration puts it. They are basking in the glory of supposedly heading off another depression. But as our leaders' past efforts have only led to more and more bubbles, I'd bet that perhaps the final bubble has been forming and when this bubble bursts, we will be happy that we had been positioning ourselves for the upward spikes in rates.

Consumer Confidence Stops Rate Surge

2010-02-23T09:17:00.003-06:00

Once again, as the 10-year rates try to break above the current 3.80% resistance, a piece of negative news rattles the markets. Consumer Confidence, as reported by The Conference Board, plunged to 46.0 this month, down 10 points from a revised January reading of 55.9. The 1-year Treasury rate fell to 3.2 after battling to get above 3.8 the past few days.

As the above chart shows, this setback may only be temporary as rates have been showing a strong persistance to the upside. While we don't expect rates to blast through the 4.0% level without some strong news, like China bailing out of Treasuries or something like that (WHOOPS, That is already happening), we do expect that it is only a matter of time that it will happen.

We expect that this upward trend in interest rates will continue despite government and Federal Reserve efforts to hold rates low.

Europe Debt Crisis Fails to Sway US Rates

2010-02-05T10:01:00.002-06:00

We have been hawkish on interest rates for a very long time now and have been adding on to our Ultra Short Bond position (TBT) and even going short the interest rate futures. While there has been some volatility in the interest rates as many fear that the sovereign debt issues in Europe will ripple through the system just as the mortgage-backed securities did recently. Yet look at the long term chart of the 30-year interest rate. This monthly chart shows that there is definitely upside momentum. It's almost a sure thing that rates are going to test the 5% level. As the European crisis is hardly making a dent (and isn't even noticeable) in this chart, We will be adding to our short position today.

Mother of ALL Head and Shoulders

2010-02-05T09:21:00.006-06:00

Predicting that the market could fall to 7,000 a few years ago was not that much of a challenge. Anytime you get a well-formed shoulder, as happened from 1998 to 2003, and the market then takes out the high level for that period (12,000), one has got to start thinking of the head and shoulders formation. While it is often difficult to time the market top, one can remain confident in the notion that the market will eventually fall.

And fall it did. My biggest surprise was when prices continued to run through this neckline. Now, the runup we have witnessed seems incredible for many but if we view things in the context of the head and shoulders formation, it shouldn't have been improbable that the market could climb as high as 12,000. Even now, with the Dow average breaking below 10,000, if we view the trading action that occurred between 1999 and 2000, we can see that there was a relatively long-term trade range between the 10,000 level and above 11,000 almost touching 12,000.

Normally we see the right shoulder reflects the activity of the left shoulder. This means that this market formation is usually very symmetrical. Chances are we are going to see another market meltdown with the Dow average dropping down to 7,000 or lower. But an important thing to remember is that it could take three or four years for this to occur!. In the meantime, there will be great profit opportunities. But as markets again test high levels, you might want to establish short positions in equities, and perhaps selling long term puts or buying long term calls, at the bottoms. But only be selling puts against stocks that you are short.

Normally, we project the downside target of a head and shoulders formation by measuring the neckline to the peak of the head. Since this is a symmetrical formation, we can expect the price to fall by a similar amount. Notice though that the neckline to peak is 7,000 points (from 7,000 to 14,000). A 7,000 point retracement would bring the Dow to 0! Ouch. A look at a log chart though shows a price target down below the 4,000 level.

It's always good to have a long term philosophy in the overall market when positioning your trades. We will be looking or a bottom in this market move and provide some buying ideas both for individual stocks as well as for diversified portfolios. If you have a special interest in following our ideas, be sure to contact me at gary@assetdesigncenter.com to be sure that you receive all updates and ideas.

Market Finds Reason To Fall

2010-02-04T19:05:00.006-06:00

World markets dropped sharply as US economic news added on to fears that Greece and other European sovereign debt has become the new sub-prime debt. The Dow Industrial Average ended the day below 10,000 for the first time since November, but clawed its way above the key number during settlement. It closed at 10,002. The S&P Index also made new lows. We have been following this move since the beginning when the S&P triggered the Stop and Reverse sell signal. The news doesn't really matter. The truth is, the market has been tired for a long time. Much of the run up has been due to institutional trading, employing massive amounts of liquidity injected into the system in an attempt by the government to stabilize a plummeting economy.

That party is over now and it's sure not going to be pretty. I for one am one of those super-bears who believe that the market will at least test the previous lows and possibly break through. This, in itself, is not bad if you are prepared as we are. We have not been in the market this year except for ultra short positions in the Dow Jones (DXD) and Bonds (TBT).

That the market was poised to fall had appeared obvious for a number of days. We have pointed out how certain stocks that were the favorites last year have been dropping hard and fast. If you look at the losers on the list, you'll see that the losers are not confined to a specific industry but range across all sectors. It was inevitable that the overall market would eventually follow. With many stocks down 20% already for the year and the US Market just down 4.5%, it's very likely that more significant market downside is probable.

US STILL OUTPERFORMING

As bad as it may look here at home, the rest of the world looks even worse. A lot of it is due to a stronger dollar against other world currencies. The Japanese Yen is doing even better, having gained 4.7% thus far in 2010. As a result, losses in Japanese markets have been moderated by gains in the currency. The Japanese Market ETF (EWJ) is THE ONLY world market ETF that is up. It is still +1% on the year

Will Rising Rates Cause Next Bank Meltdown?

2010-02-01T07:40:00.003-06:00

While nothing is ever certain in the markets, it sure does appear that the 10-year treasury rate is going to move higher. It's just a matter of days or weeks, according the my interpretation of the chart. Of course, we could have one last "hurrah" here and then Greece collapses or some other cataclismic event that would cause the world to flock to US Treasuries again. Sometimes I wonder if these events arent coordinated, especially at times when rising rates appear certain.

I was pleased to read that finally, I am not alone in the bond bear camp. A story in Bloomberg this morning notes how Wells Fargo has been unloading the carry trade.
Wells Fargo Betting on Higher Rates The carry trade is the easy, taking money from the government for free and then giving it back to them for treasury securities that pay a higher rate. Believe me, if we had this option in life, none of us would ever have to work again. Banks get to do this with the excuse that there is no loan demand.

But of course, there could be risk, I think, in doing this. Or is there? Seems to me that last year, FASB eliminated the mark-to-market provisions in bank accounting, therefore, even if treasuries owned by banks declined in value, they wouldn't have to note the decline on the balance sheet as the bonds will eventually go back to par. I believe that is how it works and probably why the government pressed the accounting standards board to make these changes.

Anyway, I suppose that the big banks could languish, waiting for the treasuries to mature while those who had been nimble and swift, such as Wells Fargo, take advantage of rising rates and the normally rising demand for money that causes this. This is apparently the Wells philosophy.

Everyone else seems to be playing a game of chicken, including the Federal Reserve. The interest rate game that has been going on in an attempt to save banks that lost big gambles is threatening us all. A bad future move by Bernanke can either lead us into Carter-era inflation or depression. And of course, everyone will defend Bernanke saying that he did the best he could, under unusual circumstances.

I for one will avoid the politics and try my best to profit from whatever situation the world hands me. I believe that playing the interest rates to rise this year will probably be one of the better trades to make.

Dollar, Bonds Surge The World Is Not a Safe Place

2010-01-29T14:45:00.003-06:00

The dollar surged today but interest rates, despite a very strong 5.7% increase in the GDP, fell back sharply. This means only one thing. There is FEAR out there in the world. Don't neglect the implications of the SAFETY TRADES. There is something going on. Take some profits while you have the opportunity.

Will S&P Hold 1075?

2010-01-28T11:53:00.003-06:00

Markets continue to drop instilling fear into all, but is this the end? Last week, I reported how the daily SP data has broken through the Parabolic Stop and Reverse (SAR) signal. It appears that today, SP weekly data is now breaking through the Parabolic SAR as well. When I view the SP data in my own market analysis system, I see indications of a continuation to the decline - accelerating momentum to the downside, increasing volatility, etc. But before I scream sell, I am going to look for some support at the 1075 level and a mild rebound to the 1110 level. At that point, should the market stall, I would guess that I will be pulling the plug and looking for additional downside opportunitites.

It's important to note that asset classes across the board are going down. There is little place to hide. If you want to have some safety, you need to understand the various risk management tools that are available. You must remember that in this liquidity driven rally, everything went up and money has been plentiful. When the fed pulls the plug and starts draining liquidity, probably every asset class is going to decline. This is no place for amateurs to be messing around. Those who dont utilize a competent money manager that has a command of all of the risk management tools available may find themselves again with huge losses. But for those who are paying attention, big gains are possible despite the market's direction.

Key Reversal May Mark TOP!!!

2010-01-27T21:27:00.004-06:00

Notes and bonds rallied sharply on weaker than expected housing data on Wednesday. By day's end however, long-dated treasury securities like the 10 and 30 year instruments were down, closing the day's trading session at their lows. Probably lots of the move was a result of the Kansas City Fed President's disagreement with the rest of the board that interest rates should remain at low levels.

In evening trading, note futures are down 8 1/2 ticks while bond futures are off 14. This could the beginning of the end for the bond rally. We went short at 117-24 for the notes and were tempted earlier today to add on as the notes topped the 118 handle. But no additional trades were established.

2010-01-26T17:37:00.004-06:00

Stock markets closed lower after rallying for most of the day. It might have been predictable that the market would grow weak at the end of the day as robust rallies continued to fade throughout the day. Markets moved into negative territory after Elliot Wave guru, Robert Prector, predicted that this is our last chance to sell with the Dow above 10,000. Bear Market & Beyond

Analysts with bullish views countered that China's rapid growth and recent moves to slow it prove that the market has further to run. But having rallied virtually straight up since March, Prector stresses that the indicators he follows show that we are in a position similar to recent market tops and that the next leg down may be dramatic.

Although the stock markets overall are down only slightly this year, it hasn't been a pretty sight for metals and other basic material stocks that rallied hard last year. In just the past two weeks, we have seen dramatic moves to the downside in many stocks. It certainly does look as if the liquidation has begun.

World Markets Tumble

2010-01-22T17:55:00.007-06:00

As reported earlier this week, the S&P Index broke through the Wilder's Parabolic Stop and Reverse technical indicator, informing all that it was time to sell. This time, the indicator worked like a charm as the markets continued to tumble on Thursday and Friday. The obvious catalyst was China's decision to slow lending to curb what they felt was an overheated Chinese economy. Then President Obama, stunned by losing a Senate seat in Massachusetts, retaliated against the banks yesterday, again stimulating market selling. Today, Obama's desperation seemed to spook the market with many saying, "he has no clue." For sure, it's Fannie Mae, Freddie Mac and AIG that is the big black hole in the bailout package. These are now government-controlled entities that are the biggest losers but went unscathed while big banks are facing new taxes and trading restrictions. Suddenly, the banks are being seen as being picked on by Obama. Ummm, unintended consequences for sure.

WORLD'S WORST FOR THE WEEK

European countries got hit the hardest for US investors. Market losses were further compounded by a strengthening in the US Dollar. The ETFs that are tracking these markets are priced in Dollars, and the Dollar gained 1.4% this week against foreign currencies. Gold, by contrast, was down just 3.3% this week. In this case, holding gold in your portfolio was a better choice than holding international stocks. Something you should consider.

Concern continued to weigh on the Euro as many analysts were talking about the PIGS (Portugal, Italy, Greece and Spain) getting slaughtered. ALthough we had been very bearish on the dollar last year, it did appear to hold a base and this year, I expect it to be strong in the face of rising interest rates and possible chaos in other parts of the world. In the end, if the dollar collapses, is there really any hope for the rest of the world? Despite all of our chaose at home in the politcal arena, US investments are still the investments of choice.

US WINNERS AND LOSERS

While losers far outpaced winners with 27 advancers and 180 losers in my database, some stocks managed to do quite well this week. Kroger was the star performer up over 5% but coming from oversold lows. We owned Kroger last year and it was one of our few disappointments. Perhaps this year, supermarkets will rise again!!

WHAT WE ARE DOING??

The market is still overbought in my book but I will be looking selectively for individual stock plays to enter into. But for now, I am convinced that interest rates will rise. We shorted the 10-year note future today. Follow my interest rate and currency trading at Current Interest Rate Trades.

Interest Rates Poised for Big Move Up

2010-01-22T10:20:00.005-06:00

The other day, I was reviewing the potential for a reverse head and shoulders formation building up in the 10-year interest rate. It appeared that a breakout through the 4% level would lead to a move up to the 6% rate. Over time though, we can see that there has been a very strong persistance for rates to move lower. Has this been the Greenspan work? Keep rates down at any cost? Rates will probably have to move up on some powerful economic force to get through the 4.5% level illustrated by the dark trend line that I added. The move will likely be swift and persistent, perhaps some news out of China? Perhaps the demise of Bernanke? A huge move in the dollar? Whatever it is, the market could be setting up for it.

Notice the weekly chart of the 30-year rate as well. Look at this huge bottoming formation!

We did break out to the 5% level last year, a sort of "test the waters" move. Rates quickly fell back though but held support on the rising moving average line. We have continued to find support on the rising moving average line. We are quickly running out of room between support and resistance. SOMETHING HAS TO GIVE!

If you don't pay attention, you may find yourself getting killed in your diversified investment portfolio. Consider that rising rates result in lower bond prices, thus your "conservative" portion of your portfolio will be under stress. You should review this situation with your investment adviser as soon as possible. While many advisers will avoid making "tactical" moves, how you position the fixed income portion of your portfolio is very important. The longer the duration of your fixed position, i.e., going out 20 to 30 years, the more volatile your bond prices will be. Shorter termed instruments have less volatility because they will mature at par in a shorter period of time. When you are facing rising interest rates, you want to have shorter-termed fixed income maturities to avoid volatility. If you believe that rates will rise sharply, you might even want to be in cash and then systematically put it into the fixed income instruments yielding higher rates.

If you are really aggressive and want to hedge your fixed positions or even play the rising interest rates, instruments such as the ProShares Ultra Short 20+ bond ETF (TBT) is one way for the average person to participate. For each 1% bonds go down, TBT goes up 2%! If you are a real player, futures and options on futures are the way to go. See what I am doing in this arena at Current Interest Rate Trades

Be careful about your stocks as well. The market has been rising steadily as low interest rates and dollar liquidity has forced dollars into investments across the board. Higher rates are likely to cause the bubble to burst on the equity market as smart money will take their huge market profits and park it into higher interest rates. This is certainly not the time for the "faint of heart." If you don't have an investment adviser and are trying to do it all on your own, you may find yourself getting pounded once again and doing the wrong thing at the wrong time.

Higher Interest Rates Coming Soon?

2010-01-20T17:35:00.003-06:00

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I've been talking about the US Dollar as a "flight to quality" move as the debt of Greece and other European nations have recently been downgraded by debt rating agencies. And it seemed that the dollar would have to stage some kind of upside move as everyone has been bearish on the dollar. The huge run on gold has shown that there is very little faith in the dollar as the printing presses in Washington have been operating at maximum capacity. But maybe, just maybe, the dollar move is foreshadowing a real move in the dollar, not caused by a global crisis, but instead, higher interest rates?

The dollar has been subdued not only by dilution coming from the printing of more money, but also by the extremely low interest rates kept in place by the Fed. What would happen though, if interest rates were to break out of these low levels and move to say 6% on the 10-year note? I'd bet that there would be a strong demand for the dollar. Is this possible?

It sure does look like it. The chart above clearly appears to be reflecting a reverse head and shoulders pattern. And with a low on the rates at 2% and the neckline at 4%, should 10 year rates break out above the 4% level, there is a strong chance, based on technicals, that the rates will move to 6%.

It appears that for now, rates may fall a bit further, especially if there is a "flight to safety" move going on. Or perhaps it is just trying to gather enough steam to push it through the strong 4% resistance that is sure to come.

No matter what, it appears that the dollar should be moving higher. Those of you who have married their gold position, be careful. You may be in for some great pain.

Euro Collapse, China Tightening Adds to Market Fears

2010-01-20T15:39:00.007-06:00

A sharply declining Euro currency added to an announcement by the Chinese government that they would be slowing credit activity to slow their rapidly surging economy. The combination led to stock market declines across the world with US investments in foreign markets getting hit the worst.

While a losing day is never pleasant for anyone, as the table above illustrates, the US did the best ending the day just down under 1%. Keep in mind that the instruments reflected in the tables are country ETFs, priced in dollars. Normal market losses are compounded by the strengthening of the US dollar. Most invest in international stocks to protect against a falling dollar. The US dollar however, has appeared to have reached a base and as illustrated earlier today, is showing a strong move up. One must always be careful about being too heavily invested in foreign stocks, gold and other hard assets as the US Dollar always shines in the time of any world crisis. The potential for a bankrupcy in Greece appears to have started such a move to safety.

SOME WINNERS

Despite a down day, a number of stocks showed pretty good strength included State Street Corp, discussed earlier today. Archer Daniels Midland, coming in at #9 today, was upgraded by Citigroup with a new target price of $37.

Some Hidden Gems in a Sea of Red

2010-01-20T11:34:00.004-06:00

State Street Corp (SST) is up more than 6% this morning along with several other banks that reported strong earnings. If SST can hold break out levels, certainly appears to be headed much higher. Few other bright spots exist this morning as a strong dollar is wreaking havoc on foreign stocks and ETFs. Both Sweden (EWD) and Spain (EWP) are off nearly 4.7%. The All US stock ETF (IYY) is down 1.52% while the All World MINUS US (ACWX) is down twice that amount at 3.19%. Metals and mining stocks are all down sharply.

US Treasury securities were up across the board, reflecting FLIGHT TO SAFETY!!!

Market Rumbles, Is This "THE BIG ONE?"

2010-01-20T09:30:00.005-06:00

As Earthquakes continue to rattle the Carribean region this morning, shaky bank earnings, rising rates in China and continued weakness in the EuroFX all shook the US markets this morning. Can this be the start of "THE BIG ONE?" You know what I mean. The equity markets have been running higher and higher, non-stop since last March. Just notice how far the SP Index has run in just a couple of months? If you believe that this is normal, the you may be seriously mistaken. We have been running on fumes for a very long time; or more government stimulus and promises of eternal low interest rates. Notice though that today's market move brings the price level down to a dotted line indicating the Wilder Parabolic mark.

WILDER'S PARABOLIC

This indicator signifies trend changes. Once the price crosses through the dotted line, the follower needs to Stop-and-Reverse, meaning, sell your position and take a short position. Notice how well this indicator has worked during the two major trends in this chart. The indicator does not work well in sideways markets though. Bollinger Bands are the preferred tool in consolidating markets. Following the Wilder Parabolic would cause you to constantly be buying the high and selling the low. Thus it's important to use other tools to help you navigate the market. Still, one needs to be looking at everything and knowing the implications of various indicators.

I don't mean to be crying wolf. After all, I got out of the market in June last year and now am just utilizing interest rate and currency trades, totally avoiding the stocks. As I mentioned yesterday, my year end studies showed me nothing but overvalued stocks. I had seen this before, most notably in 1987 when I sold out and went to the Carribean for three months. My guess was correct as shortly after I left, the market crashed hard. My only exposure was to the gold market (ABX) as I thought it could be a banking crisis that would be the market meltdown catalyst.

I doubt that gold would serve as a safety trade. Again, the world flocks to the dollar.

Is it already happening? With Greece's bankrupcy threat weighing on the Euro, and perhaps other events that remain hidden, has the flight to the dollar already begun? Interest rates also are down sharply this morning translating to rising bond prices. Strong dollar? Strong bonds? Weak market? I think that the ground is starting to shake. CAN YOU FEEL IT?

Up Up and Away in my Beautiful Balloon (bubble)

2010-01-19T15:58:00.006-06:00

Markets continued moving higher, today on the thought that perhaps the Health Care Bill won't pass if a Republican takes office in Massachusetts. Healthcare issues were higher, as reflected by healthcare SPDR (XLV), which rose 2.4% today. XLV is up 6.2% on the year.

Overall, leading the pack in my portfolio is Sandisk, rallying sharply but just back to the trendline from oversold conditions.

In foreign markets, China rallied 3.1% but like Sandisk, only was bouncing from oversold conditions to the trendline.

RUSSIA CONTINUES TO SURGE

By far, the hottest market is Russia, up over 11% so far this year after tacking on another 2.8% today. Hot money continues to follow hot money.

Basic Material Stock Stats tell the Story

2010-01-19T13:05:00.005-06:00

Generally, at the beginning of the year, I design a number of investment portfolios; some geared for $100,000 portfolios and others for $1,000,000. Although I am a technician by trade, when looking at stocks that I want to discuss here, or refer to those interested, I have to know my stuff, and that means looking at the fundamentals.

I have to admit, that I did not design stock portfolios this year and the reason is, I was unable to find high quality stocks that presented any kind of value. Just take a look at the table above. The stocks represented here are industry leaders! All members of the Basic Materials sector. PE's are high! Very high. The stocks are now awaiting the economy to catch up and provide the earnings to justify high prices. Perhaps Transocean (RIG) is the only "cheap" stock in the group, despite having gained more than 10% in as many days this year. RIG continues to advance today, up another 1% as I write.

BASIC MATERIALS are not the only "expensive" stocks. Virtually every industry I reviewed in every sector looked the same. But prices continue to rise and a review of momentum across sectors and countries show that stocks are still headed higher. But this could be and probably is, a trap. There are other ways to make money than to bet on the direction of a stock or market. In uncertain markets such as this, I like trading the volatility by selling options. I generally stay far out of the money so that if the underlying instrument does go through my limit, I wind up buying or selling something at an extremely advantageous price. Most of the time, I am making sure that volatility is declining and as a result, options expire worthless.

If you are interested in seeing some actual trades, move on to Current Options Trades to see what I am up to.

World Stocks Bonds Advance

2010-01-16T10:51:00.006-06:00

Stocks around the world have gotten off to a great start this year. Chile (ECH, +9.6%), Austria (EWO, +8.7%) and Russia (RSX, +8.6%) thus far have led the charge.

The US, overall, has gained 2.1% with MicroCap Stocks (IWC, +3%) outperforming. Value stocks, which lagged growth stocks in 2009, have outpaced Growth stocks thus far.

The Commodity Index (GSG, -0.2%) is the only laggard in the benchmark table. This is despite the fact that the dollar has continued to decline in 2010 (UUP, -1.3%).

(click on tables to view)

INDUSTY PERFORMANCE

Industrials have led thus far in 2010 propelled by Boeing (BA, +12.4%) and US Steel (X, +12.6%). Energy, Healthcare and Financials have also shown strength thus far in 2010. Overall, technology has lagged despite a 12% surge from Omnicell (OMCL, +12.1%). Profit taking in stocks that moved sharply last year, i.e., Priceline (PCLN, -4.4%), have held this sector down.

WINNERS ABOUND

All of our top ten stocks have displayed double digit growth this year with MGM-Mirage surging 32%.

RATES HEADED HIGHER

2010-01-04T11:51:00.004-06:00

After a decade long decline which included a phenomenal blowoff last year pushing the 30-year rates down to the 2.6% level, longer-termed interest rates appear to be headed much higher in 2010. While monthly demand continues to appear strong at the auctions, foreign countries, especially China, have made it clear that they are unhappy about financing the U.S.'s recovery.

While it is clear that China has been seeking ways to diversify away from the U.S. Dollar, any significant slowdown in their purchases could have a huge affect on interest rates, regardless of what the Federal Reserve and Treasury try to do to keep rates low. Higher rates would also require even more U.S. borrowing to support their burgeoning deficit. Soon the Congress will be voting again to raise the debt limit even higher. It sure does seem silly to even have a debt limit when they routinely raise it.

While the very long-term trend on rates is down, low rates are truly fiction. In a free, unmanipulated market, rates would be much higher. Eventually, they will have to rise no matter what happens in the economy. Should the economy strenghten, then surely rates will rise to reflect the demand for money. But even a weak economy can evenutally hurt as dollar flows to foreign countries continue to decline, leaving fewer dollars available to buy treasuries.

It's fortunate that there are now instruments available to play this potential move. I had been expecting higher rates since 2005 and frankly, the futures market just doesn't appear to be the most efficient way to play such a move. But ETFs such as the ProShares Ultra Short (TBT) instrument continues to be my favorite way to play.

After climbing more than 30% in 2009, I continue to hold TBT and include it in all of my managed portfolios.

Dollar Gains Highlight Week's Trading

2009-12-19T21:14:00.004-06:00

Stocks continued trading sideways for the fifth straight week. Strength in the dollar was the main attraction but gold managed to hold it's own.

Dollar Rebounds - Weekly Market Wrap

2009-12-11T17:38:00.005-06:00

The US Dollar posted strong gains this week perhaps reflecting optimism in the economy. Or is it that the dollar had just gotten oversold and other asset classes such as gold - overbought? Or did rising interest rates cause a move back into the dollar.

Utility stocks moved higher, with the index being the star performer of the week, gaining close to 4%.

Major US stock indices closed slightly higher, maintaining the year's. Foreign stocks, hard assets and bonds moved lower.

WINNERS AND LOSERS FOR THE WEEK

Is This The End??

2009-12-08T14:23:00.003-06:00

Dollar gains limited asset gains today as the SP fails against strong resistance. Declines in foreign currencies and gold were supported by continued global economic weakness. This again sent the pack running for the safety of the dollar and Treasuries, which rallied today.

The SP weekly chart above shows pretty heavy resistance at current levels. We looked at this last week and compared the SP with interest rates, noting the correlations. If the charts mean anything, this could be the time when equities and rates begin to fall precipitously. Despite the claims by the government that we are now on an uptick, the truth is that much of the gains, especially in the financial sector, has been engineered by the government. Federal Reserve Chairman Bernanke commented yesterday that interest rates will remain at current low levels indefinitely. This totally snuffed out any breakout efforts for interest rates.

As I mentioned many times, the government cannot, will not allow interest rates to rise if they can help it. A sudden surge in interest rates, although inevitable, will most likely doom the US economy. They are totally out of tools here.

I can only laugh as President Obama today stated that we must spend our way to prosperity. OMG! Can he mean it? I had always had a somewhat open-minded point of view and many have even called me liberal. But I never totally believed that Democrats were totally "TAX AND SPEND." Well, my best experience was Bill Clinton under whose tenure I had the most prosperity in my life. I even worked at the government during his tenure and was happy to see the ranks of government workers and federal deficits melt away. But now I know what "TAX AND SPEND" really means. I never, in my wildest dreams, ever expected that this is what the Democrats were all about. Spend spend spend.

I am finding it difficult to hire workers. When I contacted my Congressman about what I can do when people prefer to take unemployment rather than accept a job, I have gotten no response, despite several attempts to contact him. Ummmmm, surely I digress.

Well, it's beyond me how a socialist state can see a 30% stock market gain. What do the experts see that I don't? I've been a bit fearful of the markets since 2005 and my attitude is no different. 0% interest rates going on indefinitely can only have one end effect, another market meltdown. I see that things never happen in the time frame that you expect. I am so thankful for the invention of 2x and 3x short ETFs. It's impossible to be short, difficult to buy puts and certainly, the futures are too short termed to play this concept out for the long term. Despite some of the hard knocks the ultra short ETFs have recently received, I continue to add on. Eventually, everthing is going to collapse. My only concern is that when it does, will the dollars that I win be worth anything.

Choosing Value versus Growth Does Make a Difference

2009-12-05T13:18:00.004-06:00

Some interesting observations regarding portfolio components. Notice how the Intermediate Diversification porfolio outperforms the Maximum Diversified portfolio. Additional diversification is supposed to first of all, reduce risk and often improve performance. In this case, the maximum diversfied portfolio, that contains mixtures of Value and Growth capitalizations, underperforms the simpler Intermediate portfolio, which only includes large cap, mid cap, small cap. Obviously, I need to do my homework and choose value and growth allocations in a better managed way so those using the Max diversified portfolios don't suffer.

Also, notice how the riskiest (#9) portfolios all outperformed the SP 500, even in the basic allocations. I use the IShares Total Market ETF (IYY) in some of my portfolios. Notice how the IYY has outperformed the SP 500 this year.

Although there are differences between the results of the three diversification models, you can get a good idea of how well your portfolios are meeting benchmark portfolios. If you are underperforming benchmarks for your risk tolerance by a reasonable amount, you might want to consider getting better advice. If you are outperforming these returns by a reasonable amount, you might want to review the amount of risk you are taking.

You should always understand your risk tolerance level and diversify your portfolio accordingly. Keep in mind also that mutual fund fees and expenses can eat away at your net return. You must be aware of your costs as expenses must reduce your return. If you are still getting strong returns despite high costs, then you must be taking more risk in your portfolio.

In the end, always review your investment decisions with a qualified financial planner who is not trying to sell you products.

Small Caps Lead Market Higher - December 4, 2009

2009-12-04T16:50:00.003-06:00

Small cap stocks (as measured by the Russell 2000 ETF) outperformed other capitalizations this week. The markets again posted across the board gains except for bonds and gold. Small cap stocks generally lead the market higher in the initial stages of an economic recovery however restricted credit has limited growth in this area thus far.

Utilities posted strong gains reflecting hopeful economic data.

Airlines shined in recent days as traffic numbers were improved and again, signs of an improving economy and lower oil prices resulted in double digit gains for AMR and Southwest Airlines (LUV)

Will the Correlations Hold?

2009-12-04T10:03:00.003-06:00

When I plugged in my 30-year interest rate data on an existing S&P chart, I was surprised to see how the channel lines were nearly identical! Sure does appear that the rates are on the verge of breaking out while the S&P continues to fail against resistance. Only time will tell whether the current correlations will hold.

Interest Rates in Play

2009-12-04T09:15:00.006-06:00

Stronger than expected employment numbers pushed interest rates higher this morning with the 30-year rate exceeding 4.25% and the 10-year rate pushing to 3.50%. The 30-year rate's next target appears to be 4.43%, recorded exactly one month ago on November 4th. A move above this level could result in a real interest rate surge.

PERCEPTION IS EVERYTHING

One only needs to look at the stunning surge in gold prices to see the potential for a dramatic interest rate move. Gold surged over 20% in less than 2 months, bouncing off the $1,000 level to over $1,200. Although the US Dollar was continually weakening, the strength of the gold move overwhelmed that of the dollar. The gold move grew legs of its own as higher prices always brings in more buyers. With so much money out there and the market very well set on continuing lower interest rates - remember, the FEDERAL RESERVE said that they will keep interest rates low for the foreseeable future - a great many of market participants are positioned according to Fed-Speak. But sometimes, the market is just TOO BIG. Bigger than Ben Bernanke. What happens if rates shoot up 20%? What will the reaction be then?

Will the charge turn to higher rates? What will happen to all the countries and institutions that are heavily invested in intermediate and long-term US bonds? Is this why the government pushed the Accounting Standards Board (FASB) to discontinue mark-to-market accounting for banks? Banks and other institutions heavily invested in longer-dated treasuries would be devastated and another banking crisis would again arise!

AND THEN WHAT??

And then what if China, Saudi Arabia, India and other countries start seeing huge losses on their bond holdings? Will they be sellers or buyers? How much more debt would the government need to bring to market to pay the higher interest rates? ARRGGHHH, how easily things could spin out of control. As you can see, the Federal Reserve and US Government will do everything that they possibly can to keep interest rates low. A surge in interest rates could potentially break the US. It is what many economists fear the most.

The question even came up yesterday in Federal Reserve Chairman Bernanke's reappointment hearings. He was asked about Dr. Roubini's (Dr. Doom)previously correct forecast that the US would having the housing crisis and his current prediction that Federal Reserve actions will result in just what I have been discussing here. Bernanke somewhat dismissed Roubini's forecast as being based on a poor economy while Bernanke was confident that his actions during the recent market meltdown, saved the economy and we are now on the uptick.

It was interesting to note that one Senator reviewed many of Bernanke's previous assurances about the housing crisis and other economic calamities. All the way to the end, Bernanke assured congress that there is no danger of a market collapse. Also interesting was that many of the senators complained of how the Fed and Treasury appears to be in a culture of rewarding failure instead of punishing it. In the case of Bernanke, it was clearly evident that he had failed in his first term to achieve any of the goals he set when he was appointed as Fed Chairman. Yet, congress will again reward failure with a second term. It's clear the the pattern of failure starts with the government. As failures continue to be rewarded and problems get glossed over instead of corrected, I am confident that in the end, interest rates will explode to the upside and the stock markets will collapse as a result.

LEARN HOW TO HEDGE

In the course of this blog, we have discussed methods of playing interest rate movement including ETFs, Futures and Options. A simple way to play rising interest rates with a bit of leverage is with the Ultra Short 20year + bond ETF (TBT). Review earlier writings to learn more about it and what I've been doing with this instrument.

As interest rates again start to look interesting, and we approach the new year, I will again be trading interest rate futures and options and will be discussing my ideas here. You can also see what I am doing in real time by reviewing Interest Rates Trading Results .

But What About Taxes???

2009-12-01T08:36:00.003-06:00

The market begins December with gains across the board. Gold is surging to the 1,200 level and the S&P presses against long term trend lines on the weekly basis. Yet even with a suspect economy, the market is not even thinking about the tax burden that appears to be on the horizon. Are taxes a good thing for the market? Is it merely a redistribution of capital from the middle class to corporate executives? It's really hard for me to figure out the logic of today's economics.

Case in point, HEALTH CARE STOCKS helped lead the market rally last month reaching nearly double digit gains in aggregate. I for one had calls on Merck which were exercised as the stock surged into the 30s at expiration. After the health care vote, MRK and other health care stocks advanced sharply. While Obama appears to be a socialist, there is no doubt that the policies being put into place will benefit the large corporations at the expense of the middle class and the poor.

TAXES, TAXES, TAXES

At what point do taxes begin to sap the economy? Or is it that the consumer has already been taken out of the equation? This morning the talk was of the new WAR TAX, ranging from 1% to 5% on any income to support wars. Is this nothing more than corporate welfare? As a child of the 70's, I am well aware of the continuing power of the military industrial complex. A war tax will just give the green light to move on and spend even more for war.

There is no doubt that we are still in a very capitalistic environment. The government is clearly sapping money from the middle and lower class and funneling it to big business. Does big business really control the government? Think about it.

FED TO BEGIN PULLING PLUG

Or, Last One in is a Rotten Egg. With all of the above being said, what happens when the Fed begins pulling the plug on the extreme liquidity that they've added to the market? Well Gold shrugs it off as it surges again to the 1,200 level. Has the bubble taken on a life of its own? Will future Fed actions result in market drops? Or will new taxes prop up CERTAIN industries that have an interest in the new Obama economy????

In the end, the market is definitely bumping up against resistance. The Fibonnaci gurus are looking for 1121 on the S&P and the market confirms that it is having trouble getting up to this level. It should be an interesting month for sure.

November Shines For Stocks

2009-11-30T22:09:00.005-06:00

It was hard to be a loser in the market in November. Every category posted gains. Latin America was a leader on the international scene posting better than 11% gains for the month. Basic Materials and Healthcare led the charge in industry sectors.

(click to enlarge)

Gold - Commentary by Alan Greenspan

2009-11-27T22:40:00.004-06:00

Gold and Economic Freedom

by Alan Greenspan

[written in 1966]

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each
implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the
most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors,the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

Alan Greenspan

This article originally appeared in a newsletter: The Objectivist published in 1966 and was reprinted in Ayn Rand's Capitalism: The Unknown Ideal

WHAT IF??? The Safety Trade Doesn't Work???

2009-11-27T13:20:00.004-06:00

"What can they be thinking?' I keep asking myself as the Federal Reserve and US Treasury Department vow that they have a strong dollar policy. Even as the US Dollar continues to collapse, no doubt due to current monetary policies, our money leaders assure us that they are supportive of the strong dollar. Even as Japan and other countries shiver as the dollar reaches new lows and they vow to begin buying dollars, our leaders tell us one thing but enact policies that clearly show that they are shooting for different results.

This is not the time or place to discuss political issues so in defense of our leaders, I can only surmise that they truly understand the global financial situation AND KNOW, the in the event of a financial meltdown, the world will flock to the US Dollar in search of safety. Such is what happened this morning as news of a possible Dubai meltdown spread through the markets. Gold was down some $40 early, the Euro dropped significantly and the dollar rallied above the 75 level. As the dollar rallied, markets collapsed but then the attitude changed. Still enjoying my holiday, I paid scant attention to the talking heads commenting how a Dubai meltdown might actually be good for the US economy. Well, again, I sure didn't catch the jist of this comment but in the end, the dollar again began drifing down and markets recovered.

And now I ask, what happens if the dollar isn't the safe haven that it once was. What happens if foreign government and institutional investors refuse to buy into negative interest rates? Will the US really ever pay back all of the debt they are accumulating? What happens to the US Dollar and the economy if we have yet another banking system meltdown (a sure thing in my mind) and yet the dollar remains weak? Arggghhh! The US will have to devalue, default on debt payments much like our neighbors in the Gulf, interest rates will soar, fiat currencies will become worthless.

WHERE CAN YOU PUT YOUR MONEY????

I tend to agree that we are in the down part of the K-Wave or long term cycle and that all forms of assets will devalue. With this in mind, the concensus is that the safety of the dollar is the place to be. But look at the hourly chart of the dollar today. In the end, the dollar gave up the rally and headed back down.

REMEMBER LONG TERM CAPITAL???

This hedge fund, featuring Nobel Prize winning economists as model developers amassed billions in investments. The assumptions that they built in appeared to be flawless UNTIL!!!! In the end, economic assumptions are just that. Assumptions that will change over time and sometimes in a heartbeat, without warning. Yet the Federal Reserve and Treasury continue to act apparently with total confidence that their assumptions will hold true into the future. We can print as much money as we wish and borrow as much as we wish and the world will continue to beat a path to our doorsteps. The Government and Federal Reserve has made investments that no rational person would undertake. Has it been a blatant give-a-way? Are politicians and theoretical people so niave?

THE BEST BET, BE LIKE THE GOVERNMENT

In my mind, the best bet for individuals is to act just like the government. They know that all of the debt they amass now will eventually be worthless. Either they have no intention of ever paying it back or if they do, it will be in dramatically deflated dollars. Consult with your adviser to see if such a strategy makes sense for you. If you have nothing to lose these days, take it to the limits. As deflation pervades the economy, all of your assets will deflate in value. If all you have is debt, then that will also deflate. What do you think? Not the conventional line of thinking...but what is the government thinking? Shouldn't our leaders be setting the example??? Perhaps they are.

Market Shoots for the Stars as Dollar Deteriorates

2009-11-23T12:11:00.002-06:00

Stock prices surged as comments from a Federal Reserve official suggested that the Federal Reserve should continue aggressively purchasing mortgage-backed securities to keep interest rates low. The market received additional support from a 10% surge in existing home sales last month over the previous month.

As short-term interest rates remain at virtually 0% and continued economic life-support measures provided by the US Government and Federal Reserve, it doesn't appear that the markets will ever back down. Unfortunately though, this success may come at a great expense, the demise of the US Dollar. While Fed officials assure us that they have the talents to reduce the amount of dollars in circulation to hold off future inflation, each time they have held interest rates low, it has resulted in severe market crashes and economic downturns.

How can they possibly believe that they will be smart enough to pull the plug this time at the right moment? They have missed it EVERY TIME!

The markets now are truly reflecting the BIGGER FOOL THEORY. Again, asset prices are built like a house of cards, depending totally on immense world-wide injections of liquity and pretty much free money to the banks. I know so many people are happy to be getting back what they had lost but be careful. A much greater crash looms on the horizon.

Healthcare, Bonds Up but Market Sags

2009-11-21T07:49:00.005-06:00

S&P remains in breakout range. This week's fallback was nothing compared to what terror awaits the market as the health care movement advances today in the Senate. The moderate decline on a three-week test basis indicates that the market may explode next week.

What might this be predicting? Failure of the Health Care reform? Or passage? Healthcare stocks were strongest this week. What does it all mean? I guess you just need to follow the money.

The Real Economic Truth

2009-11-17T12:07:00.003-06:00

What is the real Economic Truth?

Granted, one data point does not reflect the state of the world or a trend. But today's GDP number, coming in negative, should affirm that the fear of deflation is real. Many talk about it but they are currently in the minority. We can see it in the price of gold. Is this a sign of deflation? Of course not. There are strong voices on both sides. Some say gold will hit $2,000 an ounce while others feel that we are in deflationary times and the asset rallies are nothing more than Fed engineered bubbles.

Have you Ever Heard About the Kondrotieff Wave?

Odes to poor Nikolai Kodratiev, a soviet economist in the early 1920s who postulated that economies move in long waves. Poor guy got executed for his capitalistic beliefs but the theory is still out there. These cycles last about 60 years and in agrarian times, I suppose that the cycle worked. Having been looking for this downturn in the economy - and not just the economy - but real deflation, back in the late 80s and early 90s, over time, I began to dismiss the theory, believing that perhaps it worked in agrarian times but no longer.

Perhaps, a good question to pose to Alan Greenspan or Ben Bernanke is "are you aware of the long waves and have you been actively trying to fend them off?" There is no doubt that the Fed and the government have been trying to manipulate the economy and eliminate natural business cycles. But it can't be done. And perhaps we are starting to see the beginning of the end. Well, it shouldn't be the end as these cycles have persisted for centuries. There are those who are attuned to them. One is Bob Prechter of the Elliot Wave Theorist. As far as I know, he is the only one who is proclaiming the deflation story. I'm sure there are others. Dear reader, inform me. The world can read these blogs. I invite you to contribute your thoughts and ideas.

Just days ago, I spoke of the TBT on the verge of a breakout. The TBT (as I call it) is an ETF that moves inversely to interest rates at 2Xs. Since the near break out, the TBT has fallen 5%. Bond yields have fallen swiftly. Yet even though the economy appears to be extremely weak, stocks continue to rise. We are again in this land of irrationality where everything is going up. Again, FED POLICY is the culprit. Is it not evident that they are out to destroy us? And yet many fight for the independence of the Fed, the President wants Ben B. to continue at the helm and no one looks at how the Fed and it's owners are scarfing up all of the US mortgages and federal debt. We worry some about China, but what about the owners of the Federal Reserve????

DEFLATION WILL KILL THEM!!!

For sure, inflation is the key to success for the bankers. As long as inflation persists, their scam can continue forever. But what happens when deflation hits? The bankers cannot allow this but in the realm of the infinite, they cannot prevent the inevitable cycles from occurring. For years they have done their best to continue to inflate the economy. How many times now have they brought interest rates down to nothing???? And what economic catastrophes has it brought upon us? But they can't continue to keep playing this game. They can't continue to inflate the economy any longer. It has run out of steam.

TIME FOR A REASSESSMENT

I can't deny that I was one focusing hard on TBT and rising interest rates. I AM NOT GOING TO ABANDON SHIP! But over the short term, I wonder if I shouldn't be long bonds, short gold and pretty much SHORT THE WORLD?

WHAT DO YOU THINK?

Do you have an opinion? Let me hear it!

Market Portfolio Results through Nov 13 2009

2009-11-16T10:32:00.007-06:00

(click to enlarge)

With the Standard and Poors 500 index rising above 20% for the year, I'd like to post the year-to-date performance of the 27 portfolios that I have developed to give you an idea of what you should be earning this year with a standard diversified portfolio. If your 401(k) plans and other accounts are allocated correctly, your performance should be similar.

The portfolios are broken into three levels of diversification. Generally, the larger the dollar amount of the account, the greater diversification that we choose. Risk levels range from 1, being the most conservative, to 9, being most aggressive. An moderate investor with $100,000 would most likely find him or herself with an Intermediate-Diversified Portfolio #5. While this portfolio slightly underperforms the S&P 500, notice how the volatility is considerably lower, meaning that there is less risk than the market.

Overall, if you review the volatility levels and the annual performance of the portfolios, you should be able to see that a diversified portfolio can provide solid returns with less risk.

For more information about what you should be doing now with your financial situation, contact Gary by e mail at Gary@assetdesigncenter.com

Weekly Wrapup - Stock Market - November 13, 2009

2009-11-14T08:00:00.002-06:00

Summation Index Fails to Confirm Highs

2009-11-12T15:32:00.003-06:00

While the Dow Jones Industrial Average has made new yearly highs this week, other indicators have fallen short of confirming the breakout. One such indicator is the Summation Index. The index number is generated by adding the net gains or losses in advancing issues over declining issues. My index uses some 200+ stocks representing different industries in the US economy. The index may be a better indicator of market momentum. As advancing issues outpace declining issues, the resulting number can only increase each day. Even though the market advanced for six days in a row, ending today, one can see how the indicator failed to take out recent highs.

The topping process can be a long and drawn out affair. Observing high and low points in the chart over the last few months, we see that the chart pattern rose gradually over time, setting higher highs and lower lows. Should the market be rolling over, one might expect a mirror pattern of the trip up, with the index making moderate new lows but then rallying up, only to fall back to make new lows.

One can never predict a market collapse. After all, there is little good news in the economy. Sure companies are starting to make money but it's only a result of reduced labor costs as businesses continue to cut back on the workforce. Banks only need to borrow at the Fed window for 0% to 0.25% and buy treasuries at 3% to 4%. Sign me up for a $billion on this trade. But the trade COULD BACKFIRE, depending on the level of greed the banks choose. For example, if a bank borrows at the current low rate at near zero from the Fed and buys a 10 year note paying 3.5%, there is always the danger that the Fed could begin raising rates. This would be a double whammy for the banks and other organizations taking advantage of this trade. First of all, the Fed lends overnight, the shortest of terms, so financing would need to continue on a daily basis. The Fed has, in the past, raised interest rates swiftly in the past. In addition to their costs to carry the investment go up, the value of the 10 year treasury would fall as interest rates rise. It wouldn't take long before an institution, if they are required to mark-to-market their investments, would be underwater. The Fed's plan would fail and banks again would be going bankrupt.

Again, ANOTHER FEDERAL RESERVE CREATED BUBBLE COLLAPSES. The next time, there will be no options left. Start growing the bananas guys!

Short Bond ETF Ready to Surge?

2009-11-10T12:22:00.003-06:00

Over the past year, I have been discussing the Ultra Short 20+ Bond ETF as one way to profit from rising long-term interest rates. While the US Treasury's massive, billion dollar plus auctions continue to attract more than adequate demand, rates appear to be creeping up from low levels hit when it appeared that the financial world would be quickly coming to an end. Reviewing the chart pattern, it appears that the ETF, ticker symbol TBT, is poised to break through previous resistance.

LONG TERM RATES HARD TO CALL

Rates have stayed low for an extended period of time. It all starts with the Federal Reserve who is keeping the rates that they charge at 0% to 0.25%. Banks have been profitable lately but it's not due to retail business, imagine that you can receive money for free and then turn around and invest it at 2% to 4% in riskless Treasuries. Why take a risk? It's easy money. Can you imagine the million dollar bonuses for doing this? Unfortunately, none of us can take advantage of 0% interest rates. Only the banks have this privilege.

But the mere fact that the Fed continues to hold rates down to 0%, even though economists have reviewed recent market data and have determined that the recession is over. Of course, if you are able to manipulate data the way the government can, any imaginable outcome is possible. But is it the reality?

The Federal Reserve lowered interest rates to 0% as an emergency measure to prevent the total collapse of the banking system. Now that the world has supposedly recovered and businesses along with the stock market are booming, why are we still at emergency level interest rates? It's a good question and one that can't be ignored, especially when we are considering long-term interest rates. These rates react to growth and strength along with inflationary concerns. With short term rates at all time lows, it's obvious that there is little to no growth or strength in our economy. But the longer the Federal Reserve keeps interest rates at these low levels, it could cause inflation down the road. Many believe this and longer-termed interest rates rise when this sentiment is stronger.

Unfortunately, all of the world's best economists in government and banks couldn't see the mess that they were creating so how can a blog writer such as myself ever think that I can figure out the future? I can't. What I can say though is that the chart pattern of TBT is very indicative of having formed a solid base and the trading instrument appears that it will break out. Should it run through the 49 price level, I've got a feeling it could hit 55 over the short run. But if interest rates ever do take off as a result of inflationary pressures caused by the Fed and Treasury, you just might be able to salvage your retirement with this one.

Stocks Attempt Breakout!

2009-11-09T10:10:00.003-06:00

Stocks surged this morning as the US DOllar continued to plumment. The chart above shows that once again, the S&P 500 is trying to take out the dominate downtrend line on a weekly close basis. The last data point is this morning's trade at 1084. While the week is just beginning, should we maintain these levels through Friday's close, expect a new, major surge of money into the market, pushing prices again up to the old highs!

Does this sound irrational? Yes, but who could have imagined that the markets would have recovered so dramatically. For sure, the big banks (although we hear about continuing bank failures and mortgage defaults)continue to do well and bankers continue to receive their multi-million dollar annual bonuses. Ever-increasing unemployment numbers are dismissed as commentators report that businesses no longer need employees to grow profits.

PLAY IT SAFE

While I have been generally dismissing the continued rally since taking profits in June, I have been participating somewhat by using longer-termed options. I currently hold call option positions for Archer Daniels (ADM), Applied Materials (AMAT) and Williams Energy (WMB). Also in my portfolio are put positions for Boeing (BA) and JB Hunt (JBHT). I previously held Merck calls and they were exercised, the stock was held a little longer and then sold at a profit.

Although I have traditionally been an option seller, as many of my articles attest to, in times like this, it seems to be the prudent way to play the market. With options, you can defend your annual targeted gains but still have some participation in the markets without risking too much of your capital. If the markets continue to soar, you will profit. Should the markets suddenly reverse, your losses will be limited to the cost of the options.

CONTINUE TO DIVERSIFY

As I mentioned, I have some diversification in my option portfolio with some call positions against some put positions. This enables me to perhaps profit no matter what the markets do, I have something on the up side as well as something on the down side. It's also important to buy as much time as you can. My call options are out until 2011! as I like my call choices as bona fide stock picks, but I don't want to ruin my performance record for the year. There is still a lot of risk in this market and the huge runup just continues to show that government and Federal Reserve policies cause asset bubbles. It really is a casino-like atmosphere here but investors have no choice except to participate in high-risk investments. Those who have tried to be conservative cannot exist. Interest rate vehicles have been artificially held down to historically low levels while the cost of goods, services and taxes continue to rise sharply.

Should you wish for more information about how you might better manage your risk, contact me at gary@assetdesigncenter.com.

End of the Year Planning

2009-11-02T15:41:00.004-06:00

TIME TO PREPARE

Already it's November! Where has the year gone? For many of us, it has been a very successful year. Our investments rebounded nicely and we find ourselves back on track with our financial goals. For others, times have been rough. Still, we must stay focused on our long-term goals and not let set-backs hurt us more than they should.

YOU CAN MAKE IT IF YOU PLAN

Doesn't matter if your retirement date is five years away or 20. Doesn't matter if you're gainfully employed or laid off. You must have a plan!

Did you know that some 401(k) plans charge very high fees, making it extremely hard for you to make money over time? What should you do? What choices should you make?

Asset Design Center is now offering a concise Retirement Plan that includes a full analysis of your current 401(k) plan expenses and options, analysis of your other IRA accounts along with long-term projections to help you plan for your future. Contact us today at retirement@assetdesigncenter.com to learn about this opportunity. If you are doing it right already, we'll tell you and the consultation will be free.

NEEDS ANALYSIS FOR YOUR OVERALL SITUATION

Move into the end of the year with a special offer on the world famous NaviPlan Needs Analysis. For a low price, we will create your personalized NaviPlan Needs Assessment showing you what important areas of your financial life you need to attend to in 2010. The plan is portable meaning that you can take it to any of your current advisers for implementation if you wish.

As always, should you wish, we will provide you with our unique "Guardian Angel Protection" for your financial affairs so you can be sure that your advisers are working for you! Learn more about the Navi Needs Analysis by writing us at Needs@assetdesigncenter.com.

Stock Market Winners and Losers for 10-30-09

2009-10-30T15:01:00.003-06:00

Click on images to enlarge

Mexico's a Better Bet?

2009-10-30T12:45:00.003-06:00

It might not surprise you that the Mexican stock market, as measured by the exchange traded fund tracking the Mexican market (EWW). After all, Mexico is still considered a developing economy where stronger growth is expected. Many of us know however that Mexico's troubles are probably worse that those of the US so one might shun investing there.

I always operated under the assumption that those in Mexico would be better off changing their pesos to dollars and investing in the US. The Mexican Peso dropped some 30% against the dollar last year and with this in mind, I thought that it would be a "no-brainer" for Mexicans to keep their money up here. But surprise surprise!

Over the past three years, holding Mexican Pesos has proven to be a better strategy than investing in the SP500! Not only that, but peso accounts generally pay a much greater rate of interest than dollar investments. The Mexican Peso Exchange Traded Fund (FXM) currently offers a 3.5% dividend.

Who could have guessed???

GDP Gains Boost Interest Rates

2009-10-29T10:17:00.003-06:00

Wall Street cheered this morning and the government reported a stronger than expected 3.5% increase in the US Gross Domestic Product (GDP) the amount of goods and services produced in the country. Is this the end of the recession? Can economic growth continue? Or is this surprising jump merely a result of the government's stimulus packages?

Interest rates jumped after fally back yesterday. As I am always on the alert for three period patterns, I look at today's run in rates somewhat skeptically. Is this a short term top? Or will rates follow through and break through and surge higher? We will be watching closely.

GEARING UP FOR 2010

As 2009 draws near to an end, we are gearing up to begin our interest rate trading again for 2010. In 2009, we generated a 30% gain through the beginning of June. Since that time, we had not been active in the trading arena. Generating high returns over a short period of time is a very stressful activity. Along with the unnecessary stresses of government intervention on numerous occasions, it didn't seem appropriate to risk handsome annual gains anymore than necessary.

As we move into 2010, we will again strive to duplicate the 30% returns that we saw in 2009. If you are interested in learning how we intend to achieve this objective, send us an e mail for more information.

You can see our trades and recommendations at 2009 Interest Rate Trading Results. If you are not able to get access, drop us an e mail for the key code.

Slow and Steady ALWAYS Wins the Race

2009-10-27T09:46:00.005-06:00

The Case-Schiller Real Estate Index data for August was revealed today showing that for the third straight month, real estate values across the country rose. Those in Minneapolis can rejoice with a 3.3% rise in prices while on average, prices across a 20 city range rose just 1.2%. One must also keep in perspective the level of supply held by banks that has yet to reach the marketplace and first time buyers were helped along with a potential $8,000 tax incentive.

While I remain skeptical on the numbers, it is clear that real estate has outperformed the stock market by a large amount over the past ten years. While I was in California as a financial planning director for a large organization, real estate was an integral component of our financial planning advice. Clearly, accumulating wealth in California required a component in real estate, not only for the nearly 7% average annual gain the market was achieving there but also for the tax breaks that clients were able to take advantage of.

Can you imagine the advice of cutting back on your 401(k) investment to buy a bigger piece of real estate? Well, it made sense. If you think through things logically, while you do get some level of tax reduction from contributions to your 401(k), you also get tax breaks from mortgage interest and real estate taxes when you invest in a home. When you retire, for many of us, the kids are now gone and we don't need so much house. What a great time to downsize. The good news is that when you sell your principle residence and achieve a gain, up to $500,000 of the gain can be tax-exempt!!!! Try taking $500K out of your 401(k) and get the same results. You will be taxed to the max!

As the chart shows, real estate, even with the huge downdraft it has experienced, has still outperformed stocks across the country over the past 10 years! For those who have constantly claimed that real estate was a bubble and too risky, they have failed to see the overall bubble in stocks as well. Again, who is selling what and to whose advantage????

It's clear from the chart above that real estate has been the better investment over the long term and if you plan carefully, probably can help you in your financial dreams if used appropriately and with the proper planning.

THE LOST DECADE

It's unfortunate though that those who have been saving regularly and following their financial adviser's advice could be down significantly over the past 10 years. $100,000 invested ten years ago (not counting dividends, reallocations, etc) would be worth only $77,296 now where as the average real estate investment of $100,000 would now be worth some $162,300. What a difference, no? Those who did purchase homes and had stocks as well can find some comfort in the overall diversification they held. Those who chose to rent and invest the savings lost!!!

SLOW AND STEADY

But what if someone had a good understanding of all of the tools available in the marketplace and designed their portfolios to achieve an 8%, after-tax, annual return? Holy Mole!!!, One would have more than $220,000 now with just an 8% annual, after-tax return!!!!

WHERE ARE THEY NOW???

I remember in 2002, so many begged me, Gary, can you get me 5% a year? I would be so happy with this kind of return. Sure, they had experienced account devasting 30% annual losses in 2001 and 2002. How quickly they forgot!!! Markets went crazy again, spurred on by goverment and Federal Reserve policies which cause people to think that they deserve 30% annual gains (at a minimum) or else they just aren't playing the game right. It's incredible how many people I talk to in the course of a month and when I ask them, what kind of stock market return would you expect me to achieve for you? I've not heard less than 25% expectations since 2002!

Yet, if you look at mutual funds or other accounts that experience a lot of year-to-year volatility, you will find that they just don't do as well as Slow-And-Steady. A consistent 8%-10% return is not only obtainable with the right strategies, but will enable you to achieve your goals!! If you are in your 50s or 60s and focusing on retiring soon, can you afford to leave your fate to the whims of institutional investors who gyrate the markets? Can you compete now with the billions of shares traded daily, pushing the market to and fro? Billions go in, billions come out at the mere rumor of news. In the end, we are supposed to ignore the day-to-day fluctuations, but I propose that this is no longer true. YOU MUST BE ACCOUNTABLE and not allow yourself to be at the mercy of a conventional money manager who will allocate you 50-70 percent stocks, 30-40 percent bonds. They are all going to crash as they are all at bubble levels! Real estate too. While it has done well in comparison to stocks, the next downdraft WILL WIPE YOU OUT! if you don't use all of the tools available in the marketplace now.

YOUR CONVENTIONAL MONEY MANAGER CAN'T HELP

No offense to the guy or girl who is recommending the research-proven techniques of asset allocation and diversification. But take it from me. I have been in the market about 35 years now and no system or idea lasts. You must use all of the tools available now. You must at least diversify with real estate and even managed futures if you can but more so, you must use the risk-management derivative tools available in the REGULATED marketplace today to manage your risk. People shy away from derivatives because THEY DON'T UNDERSTAND THEM! Or their friends who might have dabbled in it lost everything!! Derivatives are RISK MANAGEMENT TOOLS!!!! They REDUCE YOUR RISK if used appropriately. They lay off the risk THAT YOU DON"T WANT to those who are more willing to take on high risk.

I propose that it's so easy to make a required rate of return each year that will allow you to achieve your goals. You know, corporatations have a minimum required rate of return that must be expected to achieve in every investment they take on. They pay big bucks for finance managers to understand this stuff and they don't enter into investments without having a good idea that #1, they will achieve their required rate of return, and #2, have a good idea of what other outcomes might occur should they be wrong. I have an MBA from Northwestern in this very specialty so I know how it's supposed to work. Yet when individuals try to manage their financial lives, they fall far short, they have no idea of what they need to achieve, leaving their fate to the whims of the marketplace.

NO MORE

You too can achieve your financial goals just as the corporations do. Doesn't matter how well you are doing in the moment. I know a lot of us are struggling. But what is worse is that most don't even know what they need to be doing. They don't have a clue!!! You know the old cliche, if you were going to take a vacation, how much planning would you do? You research where you want to go and either get a map if you are driving or get plane tickets, etc. You get the hotel, you do all of the planning. But how many people spend even this much time in planning out their end game?

How much money do you need to be earning each year? How much do you need to save? And most importantly, how much do you need to be earning on your assets to achieve your goals? If you are just pouring money into your 401(k) and thinking that you are going to be OK, forget it, you are going to lose. Taxes are going to kill you in the end. You've got to plan it all out and focus on knowing what you need and focusing on your annual rate of return in your investments to get where you need to be.

Who cares if the market is up 30% in the moment. Did you get WHAT YOU NEEDED? What happens if the market drops 50% by the end of the year, did you retain what you needed? All through my blog, I have been comparing the market to Las Vegas. If you are just playing the game, you are going to go home busted and be at the mercy of Social Security (if it even exists down the road). You had better wake up and take responsibility for your financial future. If you think you can do it on your own, best of luck to you. Hate to tell you but this is a big game, just like Texas Hold'em. The players want ALL OF YOUR MONEY. They won't be happy until they have it all. Do you understand the game? Can you compete? Can you keep up with it and also have a full time job? If you can, you are a better person than I. Probably you are in the wrong business and you should be making the 10s of millions a year like some others I know.

But if you are the normal person, you had better focus on your work and your income and leave this other stuff to people who know it well. Not only do the professional FINANCIAL PLANNERS have the ability to find ways for you to reduce fees and taxes as well as improve your budgeting, some of us who know the range of risk management tools can help you not only develop your plan but help you achieve it.

ACCOUNTS OPENING UP FOR 2010

Our focused stock accounts gained 15% by June and now hold just a 1050 SP December call short that will provide us with a 20% annual gain should the SP be below 1050 at the end of December. It's 1067 right now. Our managed interest rate accounts gained 30% by the beginning of June. We are done until January. You too can achieve your required rate of return but do you even know what it is? If you are moving forward without having a comprehensive financial plan that covers your financial position (budget, cash flow, net worth, debt, ..), income taxes, insurance coverage, investments and other areas; chances are high that you are going to fail. Start right, manage your budget, establish a budget. Even if you are a do-it-yourselfer, take the right steps. I will guide you on this path. Those who want to receive the Homework Package to start doing their own financial planning (FOR FREE), be sure to contact me.

I will give it all to you for free if I must. Otherwise, the big bankers and investment houses are going to take it all away from you. You have nothing to lose and more than 30 years of my experience to gain. I invite you to write if you wish. Otherwise, the homework package to you is free and I will deliver it to you if you are on my list.

All the best and good luck for the end of the year. If you want to achieve your goals, be sure to write and I will show you how you can do it!

Markets Sell Off as Rates Rise

2009-10-26T11:29:00.003-06:00

Markets reversed sharply this morning as interest rates rose. The US Dollar strengthened in response to rising rates. There has been a very strong correlation in the falling dollar and rising asset prices. As the dollar fell, stocks, bonds, gold and other hard assets rose in value. Rising rates have the potential to cause the "PERFECT STORM" in your investment portfolio as most asset classes may fall. Naturally, bonds fall as rates rise, but as higer rates invite investors to again move into the dollar, the stock market, oil and gold may fall as well. Those who are not using all of the risk management tools available may find themselves just as they were last year, bailing out of the stock market, trying to preserve whatever is left after a number of recent market crashes.

Roubini Predicts Doom

It's not only me that has concerns about the current situation. Dr. Roubini, in an interview today with business channel CNBC commented that the dollar won't continue to fall forever and when it does start to strengthen, there will be a collapse in asset prices across the globe.

I'm sure that you've seen stories about how some people made BILLIONS of dollars profiting from the recent market collapse. Don't be a hostage to the whims of the market. You can control your profits in any kind of market through proper risk management techniques. To learn more about how you can protect yourself from disaster and position yourself for profits in the future, feel free to e mail me.

Many Expecting Interest Rate Rise

2009-10-26T07:23:00.004-06:00

Interest rates are on the rise! Ten-year treasury rates are once again breaking through the 3.5% level while the longer termed, 30 year rate is breaking to new recent highs at 4.33%. With additional supply hitting the market this week, many are concerned that interest rates must rise soon either through market forces or by the Federal Reserve signalling that it will soon begin raising rates.

Many experts say that the 0% rate set by the Federal Reserve was a good policy when the markets were crashing and the Fed needed to implement emergency measures. It is now clear, with stock markets up significantly from their lows, that we are not in a panic mode any longer and rates need to rise. Most believe that the Federal Reserve was responsible in a large part for the past bubbles including the High Tech bubble and Housing bubble. Both which led to stock market crashes. By keeping rates so low again, new asset classes are reaching bubble levels. Low interest rates have led to a weakening dollar and very high commodity prices. Despite a weakened economy, the price of oil is again above $80 and many believe that soon it will be well above $100. It's not that there is demand for it, since oil is priced in dollars, as the dollar weakens, prices of oil, gold and other commodities rise to compensate for the lower dollar. The Federal Reserve could cause the dollar to strengthen by raising interest rates.

As mentioned before, the Ultra Short 20 Year+ Exchange Traded Fund (symbol:TBT) rises when interest rates rise. Since many hold both stocks and bonds in their portfolios, and both stocks and bonds have been rising, they need to consider ways to protect themselves when the markets fall. Without prudent money management and risk control, investors could find themselves watching their life savings dwindle.

Last week's action in TBT might have been a three week test of the low and a reversal, breaking through the trend line. If we are in fact establishing a base here, one could expect TBT to test the 60 level again. A break out of this level can lead to significantly higher prices.

Market Fails To Break Resistance Level

2009-10-23T18:46:00.002-05:00

The S&P 500 index failed to break through a key resistance level for the second week in a row suggesting that the highs for the year may be in. The SP index briefly broke through 1,100 on Wednesday but fell back to close the week just below 1.080. Holding above the 1,100 level would surely have brought in a brand new buying surge. This still may be seen next week as GDP data will be released. However, the treasury will auction off still another $130+ billion in government debt. Up to this point, most auctions have met with strong demand, especially in the shorter maturities.

Obama Economic Adviser Says Best Growth Prospects Behind Us

Dr. Christina Romer, testifying before the Joint Economic Committee said that we have already seen the most we can expect out of the stimulus package. Despite other administration officials who stated recently that only 40% of the money has been used and that the additional 60% will be stimulating the economy well into 2010, Romer, stated that unemployment will remain high next year.

The assumption that there was still 60% more of the stimulus money available to pump into the economy was certainly an impetus to rising stock prices. While earnings have been better than expected for many companies, the economy continues to teeter, especially in the banking sector.

Bank Failures Continue to Rise

More than 100 banks have failed thus far in 2009 and many others are feared to be on life support. While the FDIC has remained mum about the state of their bank book, many believe that the organization that guarantees your bank savings is also on the verge of collapse. The FDIC however has a line of credit for $500 billion to cover excessive losses. No worry, the taxpayer can handle it.

Industry Data 10-23-09

2009-10-23T18:01:00.002-05:00

Winners and Losers 10-23-09

2009-10-23T17:56:00.002-05:00

Markets Poised for Run at New Highs

2009-10-20T10:17:00.003-05:00

While no form of analysis can ever be 100% accurate, the above chart shows major resistance existing at current SP levels. Should the market close this week still ever higher, I can't see any real resistance until the Fed pulls the plug on easy money. Easy money has been a key catalyst for the past two bubbles: high tech and real estate. If you want to see a bubble in the making, just look at what is happening now. How can this be?

True, companies are showing increased profits or less worse than expected losses, but much of the gains are on the backs of ever increasing unemployment. You must be a capitalist and think only of stock gains if you want to survive in this economy. Basic Materials companies will continue to improve as the third world continues to make gains against the US.

It's all about growth in the third world. Soon the US will be the third world despite what the S&P does.

Most Market Sectors Continue to Advance

2009-10-16T17:45:00.002-05:00

Fed Deficit Out of Control

2009-10-16T16:47:00.002-05:00

Federal Deficit Triples is only the beginning. Can interest rates stay down forever? How will the government work its way out of this one? Only one way to fix it, MORE TAXES.

From what I understand of the new Health Care legislation, the reason that it won't add to the budget is because taxes will be collected up front and then benefits won't begin until 2015! Ummm, sounds a little like Social Security, huh? Even though I despise banks, I would rather see this pre-paid tax money managed by Goldman Sachs instead of Congress.

What do you think? Is this the Hellbound Train leaving the station?

Last Shorting Opportunity??

2009-10-16T08:04:00.004-05:00

The market has moved "ALL THE WAY" back to the last bastion of resistance. What a run we've had. I don't believe it. I never believed it. It's only proven that once again, there is no reality in the market. How I wish that the move in the market really reflected, at least, my vision of economic realities. Intrinsic problems with the economy continue, only now, the US Government has gone "all in" on the play, trying to fend off eventual collapse. Only now, when the banks finally do collapse, it's going to take the government with it.

But as I have seen in the past, irrational behavior can go on much longer than anyone can either stay in business having a realistic understanding of things, or stay solvent. Isn't this the way it always is? You could be right in a law suit, but if your opponent has more money than you, your opponent will always win as legal costs will eventually wipe you out. Does't seem to be any different in the market. You could be fundamentally right, but you can never fight the trend, especially if the trend is being engineered by the Federal Reserve and the US Government.

But as we have seen in bubbles past, they ALWAYS collapse. Nothing based on fiction can stand on its own. The true problem is that the banks and funds play so loosely with our money. Heads they win, tails they win. Big bonuses continue at the banks. Yes, they collapsed the system and got bailed out. Now the system gets inflated and they take huge bonuses. There is no better job in the world than being a banker.

I expect to be buying some more SDS and DXD today. This is the last level of resistance in my book. Should the market break through and hold, there is no reason not to believe that the markets will surge to new highs. There is no reality in the market. If the Fed has tripled its balance sheet and so much money is in play, why can we not expect asset values to also triple? While there is no inflation according to official sources, a tripling of the Fed's balance sheet and injection of so many dollars has to have some significance. As the Fed has stated that they will not raise interest rates in the near future nor drain reserves, perhaps playing to market to go down is folly. The powers that be want us all to be "ALL IN" but in the end, things will collapse and we will all be penniless, at the mercy of the banks.

New Highs Possible is 2010?

2009-10-14T10:06:00.004-05:00

With most analysts now expecting the market to continue higher throughout the fourth quarter of 2009 and the first quarter of 2010, will there be any resistance left? The Fed has been said to be on hold to raise interest rates "for years".

A breakout above the trend line shown in the chart will certainly bring in a whole new batch of money. Will there ever be any resistance? Is there just too many dollars out there looking for a home? Or is the US really in great shape?

Banker's Pay Increases 20%

2009-10-14T09:39:00.002-05:00

US Firms on Route to Award Record Pay in 09: Report, according to an article on the cnbc website this morning. Still, in another article on Yahoo - Treasury said to be unprepared on AIG bonus plans.

The US Taxpayer certainly did a great job in propping up the banks and continuing to enrich the elite banker class. After suffering through was many consider was very close to another great depression, banker pay and bonuses hardly skipped a beat. Even with the firms suffering huge losses and almost certain bankrupcy, bankers came through the turmoil receiving 20% raises, thanks to us.

Even if you are an investor in stocks, where is the capitalist system in action? Why do all of the profits flow through to salaries and bonuses instead of to the shareholder? What is the point of being an owner of a large public company if the true profits don't flow through to the shareholders?

Weekly Market Statistics

2009-10-09T15:39:00.004-05:00

Bulls Win Again

2009-10-09T15:11:00.003-05:00

A final spurt in buying pushed mahor averagees to new highs for the year. The S&P surpassed the prvious weekly closing high level of 1068, closing at 1071.49. Televison commentators were giggy with delight watching every final closing adjustment as markets set new highs.

Still looks pretty toppy to me but I wouldn't be surprised if the market continued rallying some into next week's option expiration day. I for one had expected a fallback in October but purchased Put options out to next year. Those who had been playing for an October fall using October expiration options may be headed for total loss. I can remember many times though seeing the start of major market moves the DAY AFTER my options expired. Can you ever buy enough time?

Well, my days of crying WOLF are over. Twice now I have blasted e mails out warning of a top and it appears that twice my signals are falling through. There is probably too much money out there still looking for a home for any market fallback any time soon. Just today, a major brokerage firm called another stock to go $100 higher! Brings me back to the late 1990s when absurd price targets were floated out there by the investment banks and the stock immediately soared to those levels. I suppose we are just at the beginning of irrational exuberance. Even Alan Greenspan was so early with his Bearish call. The market went considerably higher after his call but long gone are the days where markets reflect reality.

What is the reality? If the markets start falling again, will the government again step in and add even more liquidity? They say that only 40% of the stimulus money has been used. If this could cause a 400 point runup in the S&P, imagine what could happen if all of the money was deployed. NEW HIGHS????

Bulls Bears Duke it Out!

2009-10-09T10:43:00.004-05:00

Who says that watching the stock market tape isn't exciting? Over the past two days, stock market bulls and bears have been battling for supremecy. The Bears, who have been beaten up badly and working hard to push the market down. The Bulls however, keep making a comeback. This is in light of a big move in interest rates and Fed Chairman Ben Bernanke asserted that interest rates WILL RISE sooner than later.

Shares of TBT, often discussed in this blog, are rallying off of lows on this news.

Ultimately, it could be the course of interest rates that will define the market top or bottom. Certainly the TBT chart shows a very fine bottom in place. As interest rates rise, TBT will also rise. And as has been often discussed in this blog, bonds and stocks have been moving up together. With the end comes, expect both stocks and bonds to fall. TBT though goes up when bonds fall. Consider speaking to your investment adviser about adding such an instrument to your portfolio. Experts fear that the Federal Reserve will not drain liquidity quickly enough to limit inflation. TBT could be an ideal way to protect yourself against rising rates.

Only 521,000 New Claims

2009-10-08T08:07:00.003-05:00

WHAT????!!! And this is good news? Stocks appear to continue to rise on the news and the S&P 500 appears set to open around the 1063 level. But is this enough??

Last week we advised to be prepared for the "three week test of the high." It is coming in right on queue but will the market break through? That is the question. Each time we have seen an indication of a top, the market continued to keep rolling on as trillions of dollars continue to find a home with a better yield than US Treasuries. Should the SPX not close above the 1068 level tomorrow, expect the market to begin backing down. The three week test of the high generally marks the beginning of significant intermediate term moves.

Stock Bond Reality Check

2009-10-06T21:14:00.005-05:00

As expected, the stock market is surging this week, trying to surpass the highs set three weeks ago. As this rally has pushed on far beyond normal time cycles, I would be expecting that perhaps we might see a top put into place come Friday. It doesn't matter though, I refuse to get sucked into the market except for an occasional option play here or there.

Market commentators where mentioning today how money managers who had been short or not yet in the market are now scurrying to get in. It reminds me of when I returned to finish up grad school in 1988. Having seen the great crash coming, I liquidated my accounts and spent October through December of 1987 in the Dominican Republic. When I returned, I took a course in Mutual Fund Management which included a number of fund managers coming to class to discuss their profession. To a man, each one of them related how they also saw the crash coming, everything was overvalued. But getting out of the market early caused them to fear for their job as the weekly performance ratings of their competitors soared past their own record. Too bad for them, they again got in - AT THE TOP. Remember, these people are playing with BILLIONS OF DOLLARS of your money. It's tough to be right even when the market is moving against you. ESPECIALLY IF YOU ARE A FUND MANAGER!

REALITY CHECK

I like to look at the above chart which shows the S&P 500 against the 10-year bond rate over time. When rates go up, stocks should also. When rates go down, stocks should also.

I can't get over how after diveging so greatly, stocks crashed but did they really? The chart shows that the S&P only came down to meet the 10 year rate. It was right back where it should be (in theory). I've never read any studies on this so this is only my own idea so take it for what it's worth. But notice how in the beginning of the chart, the two instruments tracked very well. Notice where we are now? The spread is widening indicating that you want to be long both stocks and bonds.

If you are like most diversified investors, you will be so pleased when your montly or quarterly statement comes showing that all of your positions are up. But in reality, this should scare you. Diversification should smooth out volatility but we are getting set up for another across the board asset collapse.

WHERE CAN YOU RUN FOR COVER????

An interesting thought. When the markets turn, both stocks and bonds will collapse. And what about gold? Everyone seems to be flocking to gold these days and for good reason. The dollar continues to be weak. But higher interest rates, resulting in falling bond prices will bring in buyers for the dollar. And should the markets drop a lot, and should this be a world-wide epidemic, again, the world will flock to the dollar and gold will also collapse.

LIVING IN VEGAS

Well, not really, but if you are in the markets these days, you might as well be in Vegas. This is a really risky market even though the standard barometer for volatility, the VIX, is at low levels. We all know what happens when you start making money in Vegas (or the market), you start believing that you know what you are doing but do you really?

MORE LIKE "Johnny On the Corner"

Could be that the market is like the crack dealer found in some parts of the city. They may give you the drug for free because they know that once you get the high, you can't resist and will be back for more. Winning in the market is no different. Everyone knows that the market is controlled by fear and greed. Few of us can control ourselves when we are winning and we can't admit we are wrong when we are losing. In the end, many of us wind up busted.

Don't let this happen to you. You need to work with a real adviser, not a money manager who profits from your assets under management. He or she is NEVER going to tell you to get out of the market. It is their job to sell sell sell. Just like Johnny on the Corner.

Don't lose sight of where we are in the market, why we are there and the true state of our economy, especially the banks and housing industry. The market going up non-stop is not the same as the economy is recovering. There will soon be a "last one in" UNLESS the government floods the economy with trillions more dollars. Then of course, this money must find a home. But at some point, they are going to have to pull the plug and bring in these trillions that they put out there. There will be an end to all this and it's not likely to be pretty.

TAKE SOME PROFITS

If you have been doing well in the market, by all means take out a nice hunk and go on a wonderful vacation. Paper profits are fleeting. Pay off your debts, buy a guaranteed annuity, do something that will be meaningful if and when the market does collapse.

Don't Panic Yet...

2009-10-01T12:50:00.005-05:00

Markets are beginning to fall, just as I thought they might. October can often be a fun month for Bears in the stock market and it never hurts to have some PUT positions established to take advantage of any significant downdrafts that might occur.

The market broke down yesterday but tried hard to get back to even. In the end, it couldn't hold positive territory. Today, the S&P is down 20 points to the 1037 level. A few weeks ago, we sold 1050 calls through the end of the year feeling that the 1050-1100 level is as high as we might go before running into a significant downtrend line. It's not surprising that the market should be weak. 10 year interest rates are down below 3.20% this morning and getting to 3%, also suggested a month ago, could be in the cards. Let's face it, only the bankers are making money these days, benefitting from the billions and trillions of tax payer dollars being funneled to them. Auto sales continue to be dismal, consumer confidence is dwindling, Nero whoops, I mean Obama, is fiddling in Copenhagen while the US economy burns. Is there any doubt that we could set new market lows?

But expect one last rally up next week. Remember the old, tried-and-true, three-period test. After a down week last week, and what looks like it could be a down week this week, watch for the markets to try to take out previous highs. If they can't, ummm, get ready for October to live up to its reputation.

Bonds Shine As Market Takes a Breather

2009-09-25T15:50:00.005-05:00

Bonds rose modestly while stocks backed down. As pointed out in last night's blog, the S&P weekly data was setting up for a rest at the 4 week trend line around 1044. The S&P closed right at that level, 1044.38. Holding such support generally means a continuation of the trend.

Most industry sector charts reflect pretty much what the S&P chart shows, a retracement to a rising trendline. The Basic Materials Sector has been one of the strongest sectors this year. It fell more than 4% this week but still has just backed down to a trendline. Sure does look as if markets will continue higher.

Dissention at the FED?

2009-09-25T10:01:00.003-05:00

Federal Reserve Board Governor, Kevin Warsh, indicated in a Wall Street journal Op-Ed piece that interest rates will have to be raised sooner than expected.

The Fed Governor's comments confirmed on-going thoughts that the Fed's stimulous policy will lead to massive inflation in the future. Dropping interest rates to low level for extended periods of time have resulted in the previous bubbles we have been living through, first the high tech bubble and most recently, the real estate bubble. Easy money is the cause for asset run ups of the past and today looks no different. Stocks, bonds and hard assets have been soaring despite questionable fundamentals.

The Fed is fearful that raising interest rates and taking cash out of the system too soon could lead to a double-dip recession. Despite all of the hype that the economy is recovering, there is still doubt about removing it from life support.

BAD DEBTS AT RECORD HIGHS

Record High Bad Bank Debt is still an issue. Despite soaring bank prices, there are big problems still on the horizon. Many expect another wave of mortgage defaults in 2010. China has already warned the US several times about reckless spending. Seems senseless to me to invest in US Treasuries at 4% or less when the dollar continues to devalue without end.

WHAT HAPPENS IF???

In fact, banks do experience the wave of mortgage defaults, large loans default, Ginny and Fannie Mae default, the FDIC defaults and China stops buying our debt? Am I paranoid? Is this totally out of the question? When are we going to face up to the fact that banks are still in lots of trouble and the US Government is ALL IN in guaranteeing that they don't fail. When the banks fail, well, the US Government will also fail. Who is going to bail us out?

YOUR COMMENTS ARE REQUESTED

If you have any thoughts on this issue, pro or con, please comment. I'd like to know what readers think. Thanks

Despite Down Days, Market Appears Strong!

2009-09-24T13:57:00.009-05:00

If you are preparing yourself for a big market drop, don't hold your breath. Unless something really drastic occurs on Friday and prices fall hard, the S&P weekly price appears to merely be falling to the four-week moving average around 1044.

What's even more interesting is the three-week setup. Always a formation I look at, this one seems to be a setup for a big pop next week. A move to 1100 appears to be in the cards.

Ultra Short Bond ETF

2009-09-24T13:57:00.004-05:00

The Julian Robertson interview on CNBC reminded me of how much I wanted to be short the bonds but with so much government intervention, I have been shying away except in the core portfolio. I'm not convinced that rates have hit a low point and a big move down in stocks is likely to push rates lower as the fear factor enters into the market. But the risk that China stops buying our bonds is a real fear. And, once the Federal Reserve stops propping up bond prices, who knows what might happen.

I have been out of TBT in my personal account until just now however in the core portfolio, established at the beginning of the year, our TBT position is up more than 21%!

TBT is the ultra short 20 year + bond position. For every 1% bonds move down, this instrument moves up 2%.

Fed Considers Laying Off Mortgage Risks to Money Market Funds

2009-09-24T06:31:00.003-05:00

The Fed is considering using all of the crap they bought in the mortgage market as collateral for loans from money market funds.

EXCUSE ME, don't you remember the RESERVE FUND??? Avoid money markets that take on the toxix debt that Fed purchased. How many times can we get screwed by the same problem???

Market Manipulation to Continue

2009-09-24T06:06:00.002-05:00

The Federal Reserve announced yesterday that their buy-back programs will be extended all the way out to March. I have been avoiding the markets, especially the Treasury markets, due to unusual activity based on Fed announcements, intentions, actions. It's still not a fair playing field. Both bonds and stocks continue to rise and this is not a realistic viewpoint. Either the economy is strong or the economy is weak. You can't have it both ways.

Many gauk in amazement over the market's run but fail to look at the decline in the dollar. Perhaps this is the best indicator of the overall success of the administration's efforts to restore faith in the US system. The dollar continues to fall.

SPAIN TRIP OFF

Don't tell my wife, but I've decided that a trip to Europe next year has little chance of happening. With the dollar getting trashed daily, by next year, it will cost us significantly more to enjoy the "other side of the pond."

PRETTY SCARY

I had a meeting downtown Chicago last week and was stunned to see the number of people, on the street begging. It's not the fact that there were those begging for money. I spend lots of time in Mexico City where this problem is endless. What stunned me was that the people begging for money looked like me! How long will it take before all of us middle-classers are out on the street, without a job, without food, without medical... It was pretty scary.

Can Dollar Find a Bottom?

2009-09-22T08:41:00.003-05:00

The US Dollar fell to new lows for the year as investors, spurred on by news of improving global economic conditions, continued to shift away from the greenback seeking higher returns offered in other currencies. As mentioned several times in the past month, US interest rates continue to remain low, held down either by government intervention or just a plain lack of confidence in the US economy. This is despite the fact that the stock market has risen dramatically, giving a totally different opinion of the economy.

Fed Says No to Geitner

2009-09-21T07:59:00.003-05:00

Fed Secrecy Continues

Citing that it would be a threat to the independence of the Federal Reserve, the bank rejected a request by the administration for a review of the bank's structure and governance. Who gets our money and what they do with it still remains shrouded in mystery.

With the Fed's ability to print money, buy US Debt and mortgage securities, it seems obvious that in time, those who run the Fed will own the country. Yet, despite this, the Obama adminstration wants to give the Fed more responsibility and be the lead regulator.

Regulators should be government entities, not private enterprises with no transparency.

Markets Continue to Dazzle Doubters

2009-09-20T08:56:00.007-05:00

Markets turned in another stunning performance this past week with REITs leading the way. Every industry sector gained with the exception of Healthcare, based on sample ETF data. Bonds and gold, traditional safe havens, also lagged.

Even the Dollar took a pause from it's massive drop this past week.

I WOULD JUMP IN EXCEPT FOR...

Yup, you guessed it. SIZE. Size continues to fall. Since this is a statistical indicator, I cannot doubt it. It is not some data point that might be interpretted this way or that. It is a clear sign that momentum, even though it appears to be so strong in the market movement, is really losing steam. Perhaps it will ramp up next week if we have some kind of huge move. But I'm not going to bite except for play positions. I've earned my target returns for the year in both stocks and futures. I've learned that the old axiom is true. Bulls make money, Bears make money but Pigs get slaughtered.

If the market movement is getting you excited and you are funneling in more money, it's quite possible that there is still some more upside left. But is it worth the risk?

On the other hand, I'm tempted to throw in a couple hundred thousand, take my probable 5% return next week, and quit my day job for the rest of the year.

(NOT!!!!)