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May 15, 2010

Issue 96  -  Investing is Easy

I like to think of investing like being on a diet.  The mechanics are VERY easy to establish.  Eat less.  Exercise.  What could be simpler?  Of course the execution of what seems like a childishly simple plan is where the trouble lies.  For some reason doing those two actions is nearly impossible, and I should know.  I'm not large by any stretch but I'd like to lose a few and it is very difficult.  Our brains know exactly what to do, and yet we usually don't.  The same is true for investing.

Investing all boils down to this.  Find the long term up trend.  Invest in it.  Wait until it's over.  Sell.  Repeat.  That seems incredibly easy.  Yet, most investors don't come anywhere near to beating the market.  They over think, overtrade and over analyze.  It is a proven fact that the more you trade, the lower your gains.  This is why females typically out gain males in their stock and retirement accounts, not because they are smarter or more savvy, (which they might be) but because they don't trade as much.  Females are more cautious.  Males more gunslingerish.  They can beat the pros, they think.  Usually they don't.

Now this isn't to say that you don't cut a trade short that's bad.  Better to cut and run if it is obvious you made a mistake, than to hope it turns out ok.  Chances are it won't.  Hope kills many a stock account.  Hope can take YEARS off of your returns.  Hope is the enemy of prudent investing.  If you are hoping, it's probably time to move on.

So where is the trend now.  There is only ONE asset that has been up for the last 9 years:  precious metals.  If you had bought back in 2001 and just did nothing, your gains would be outstanding.  How long does an uptrend last?  No way to know for sure but history can be a pretty good guide.  For precious metals it generally lasts 15-20 years.  That means we have 5 to 10 years more.  This is nearly a sure thing when you have nonsense like this going on:

E.U. offers nearly 1 Trillion Dollar rescue package

May 10, 2010 ⋅ 3:48 am ⋅ 

European leaders, pressured by sliding markets and doubts over their ability to act in unison, agreed on Sunday to provide a huge rescue package of nearly one trillion dollars in a sweeping effort to regain lost credibility with investors.

After more than 10 hours of talks, finance ministers from the European Union agreed on a deal that would provide $560 billion in new loans and $76 billion under an existing lending program. Elena Salgado, the Spanish finance minister, who announced the deal, also said the International Monetary Fund was prepared to give up to $321 billion separately.

Officials are hoping the size of the program – a total of $957 billion – will signal a “shock and awe” commitment that will be viewed in the same vein as the $700 billion package the United States government provided to help its own ailing financial institutions in 2008.

So let me see if I have this straight.  Printing up an imaginary trillion dollars will "save" the system?  If that were true, why don't we just print money for every problem?  Oh, that's right, we do.  It's "worked" up until now so the powers to be think it will keep working.  It won't.  People ask me how long it will work and say, "until it doesn't."  That seems like a smart ass answer, but it's the truth.  Just like answering the question about when will the water turn to ice.  It happens instantly.  One second it's water, the next it's ice.  Our system is the same.  One day everything will seem fine, and then it won't be.  That day you'll be thanking your lucky stars that you have the precious metals.

So what has been the reaction of gold to this announcement?  It's rising in all currencies.  Even though the dollar and the Euro are trading in the opposite directions, gold is going up in both.  This is bullish.  What do Europeans think of the "bailout"?  Let's see:

Demand for minted gold products up tenfold: Argor

* Argor reports surge in sales since start of euro crisis

* PAMP owner MKS Finance also sees higher demand from Europe

GENEVA, May 12 (Reuters) - Investor demand for small gold bars and minted products has jumped tenfold since the start of this year, the Swiss refinery Argor-Heraeus said on Wednesday.

"We are seeing very, very high demand for smaller products. I would say 10 times more than the first two months of this year," Bernhard Schnellmann, Argor's director of precious metals services, told Reuters by telephone.

Tenfold seems like a lot to me.  Any other indications of more buying?  Yes:

 

First Gold, Now Europe Running Out Of Silver | zero hedge

"Earlier we noted that the Austrian mint was on its way to depleting its gold reserves following "panicked buying" from Europeans, who now openly fear the demise of their currency. Now, courtesy of Slim Beleggen, we understand that the situation in the silver market is just as bad and has also spilled over to Germany: the contagion is no longer one of sovereign debt, but of precious metal physical inventory. The primarily silver focused (but holding gold as well) Kronwitter precious metal online retailer is not only not accepting any orders, but has entirely taken down its website.

The only message left for visitors is (translated from German) as follows:

Dear customers, due to the enormous number of orders we can take at the moment no new orders via the Internet, email or fax contrary. All previously purchased and paid for coins are shipped. In order not to delay the extradition unnecessary to ask is to refrain from requesting payment or tracking number. When shipped our you will automatically receive a shipping confirmation. We hope to do everything within two days and then re-open the shop to buy. Thank you for your understanding. Marie-Luise Kronwit

Now if only web sites were having trouble filling orders.....oh....check:  (from GATA)

German webshops closed down

Bill,

Most German gold webshops (www.proaurum.de) have closed down due to overwhelming demand. Producers can't match this demand and are in the proces of scaling up their production.

Demand for gold (and silver ) bullion has exploded over here in Europe, after the start of the Greek crisis. Our webshop sales have increased six-fold since.

But fortunately we can still accept new orders (delivery 3-4 weeks).

All the best,

Willem Middelkoop

CEO Amsterdamgold.com

It seems like the Europeans aren't buying the everything is fine talk.  Are you?  If you are, maybe you believe that it's possible, without insider knowledge or cheating, to do this:

 

Rigged-market theory scores a perfect quarter

By Jonathan Weil

Bloomberg News

Thursday, May 13, 2010

Score another triumph for the rigged-market theory.

In a feat that would seem to defy the odds, Goldman Sachs, JPMorgan Chase, and Bank of America this week each said its trading desk made money every day of the first quarter. Goldman said its daily net trading revenue topped $100 million 35 times last quarter out of 63 trading days. JPMorgan and Bank of America disclosed similar eye-popping stats. Citigroup too recorded a profit on each trading day, Bloomberg News reported, citing unnamed people who knew the results.

The intrigue is high. If a too-big-to-fail bank's traders were able to make money every day of a quarter, were they really trading in any normal sense of the word? Or would "vacuuming" be a more accurate term? What kinds of risks do such incredible profits entail, for the banks and the rest of us taxpayers? And are results such as these too good to be true?…

So what do you think, can you imagine an investor winning every day?  Of course not.  Can't happen.  Yet, these favored sons, the "too big to fails" just accomplished it.  All FOUR of them.  NOBODY can do this if the game isn't rigged.  What is this Vegas?  Is Goldman Sachs the Bellagio?  JPMorgan the Mirage?  Yet nobody investigates.  Nobody questions it.  They all got lucky I guess.  63 days in a row.   They want us to believe that 4 banks all won everyday.  That's like 252 days in a row.  Does anything go up that long.  How did they do this?  We can't tell you they'll say, proprietary trading models, trade secrets.  And we bailed this idiots out?  What is going ON!!!!!!  They are robbing us blind. 

Again the investing public is fleeced while the crooks enrich themselves.  Heads they win, tails you lose.  Oh, and if they lose, we get to bail them out.   These guys can create paper endlessly.  It takes more effort to produce 1 ounce of gold than it took the Euro Central Bank to create 1 trillion dollars of "support".  That's scary.  Jim Rickards says it like this:

"Look at what Soros did to the Bank of England in 1992 - he went after them, they had a finite amount of dollars, he was selling sterling and taking the dollars, and they were buying the sterling and selling the dollars to defend the peg. All he had to do was sell more than they had and he wins. But he needed real money to do that. Today you can break a country, you don't need money you just need synthetic euroshorts or CDS. A trillion dollar bailout: Goldman can create 10 trillion of euroshorts. So it just dominates whatever governments can do. So basically Goldman can create shorts faster than Europe can create money."

This is the problem.  It can't be stopped easily.  An implosion is the most likely outcome.  The signs are everywhere:

Illinois deep in debt, doesn’t pay bills

Crisis pushes businesses, organizations to edge of bankruptcy

By CHRISTOPHER WILLS

Associated Press Writer

SPRINGFIELD, Ill. - For 35 years, frail senior citizens in southern Illinois could turn to the Shawnee Development Council for help cleaning the house, buying groceries or any of the chores that make the difference between living at home or moving to an institution.

No more. The council shut down the program Thursday because of a budget crisis created by the state of Illinois' failure to pay its bills…

 
As I've said until I'm blue in the face, we are bankrupt...the whole country.  And the whole thing is because of one thing....the Federal Reserve Bank.  Yes, they are there to protect us and serve tirelessly.  Suuurrrrreee they are.  What would you say about a performance like this:
 

That's one ugly chart.  Notice where the real acceleration of the slope starts.  Right after Nixon closed the gold window.  That is no accident.  This meant that the money supply was unlimited.  Prices MUST rise in the scenario.  As you may know, Paul Volker was the guy who ended inflation in the early 1980s.  Wonder what he thinks of gold?  Oh, here's what:  (from Midas)

I have just attended a dinner at which Paul Volcker was speaking and I managed to get his attention to ask his views on gold. Having been very chatty he immediately clamed up and said "No comment". He then asked me whether I was long gold and when I said I was he said "Gold is the enemy" and turned away. It was a very defensive response and one which I thought was rather bullish.

Keep up the good work; we are slowly winning.

Best regards

TW

Gold is the enemy.  I wonder why.  I'm often asked how could the government control the prices of things.  Here's a one word clue...derivatives:  (from Midas)

 

More Evidence of Silver Market Manipulation

By Adrian Douglas

The US Treasury’s Office of the Comptroller of the Currency (OCC) has just released the Q4 2009 Bank Derivatives report which can be found here http://www.occ.treas.gov/ftp/release/2010-33a.pdf

This report contains shocking new evidence that can only be interpreted as blatant manipulation of the silver market. Before looking at that evidence specifically there are some other very important points to be noted in the report:

Executive Summary

The notional value of derivatives held by U.S. commercial banks increased $8.5 trillion in the fourth quarter, or 4.2%, to $212.8 trillion.

U.S. commercial banks reported trading revenues of $1.9 billion in the fourth quarter, down 66% from $5.7 billion in the third quarter. For the year, banks reported record trading revenues of $22.6 billion, compared to a loss of $836 million in 2008.

An increase of $8.5 trillion in notional value of derivatives in just 3 months! It sure looks like the banks are working hard to reduce risk and avoid a reoccurrence of the financial meltdown of 2008 that was caused by the failure of Lehman Bros. due to its monstrously oversized derivatives book!

And it also looks like the regulators are working hard to make sure that the risks are not concentrated in a few banks that are “too big to fail”. The comments in parentheses are mine not those of the OCC, although you could probably have worked that out for yourself:

QUOTE

A total of 1,030 insured U.S. commercial banks reported derivatives activities at the end of the fourth quarter, a decrease of 35 banks from the prior quarter. Derivatives activity in the U.S. banking system continues to be dominated by a small group of large financial institutions. Five large commercial banks represent 97% of the total banking industry notional amounts and 88% of industry net current credit exposure. While market or product concentrations are normally a concern for bank supervisors, there are three important mitigating factors with respect to derivatives activities. First, because this report focuses on U.S. commercial banking companies, there are a number of other providers of derivatives products whose activity is not reflected in the data in this report (do you seriously expect us to believe that these other providers significantly dilute a 97% monopoly?). Second, because the highly specialized business of structuring, trading, and managing derivatives transactions requires sophisticated tools and expertise, derivatives activity is concentrated in those banking companies that have the resources needed to be able to operate this business in a safe and sound manner (you have to be kidding me! Where have you guys at the Treasury been the last two years?) . Third, the OCC and other supervisors have examiners on-site at the largest banks to continuously evaluate the credit, market, operation, reputation, and compliance risks of derivatives activities (and how did that work out for you in 2008?). In addition to the OCC’s on-site supervisory activities, the OCC continues to work with other financial supervisors and major market participants to address infrastructure issues in OTC derivatives, including development of objectives and milestones for stronger trade processing and improved market transparency across all OTC derivatives categories (How much more “transparency” do you need to “see” that $206 trillion of derivatives in 5 banks with combined assets of a measly $5.4 trillion is a “daisy-cutter bomb” big enough to wipe out all things paper on the planet?).

END

You have to love those “mitigating factors” that the regulators offer as to why five banks owning 97% of $213 trillion of derivatives is not a problem! The increase in notional value of all derivatives in just three months is equal to 75% of the entire annual US GDP. Do the “sophisticated tools” that these bankers require to write derivative contracts include bongs and the strongest hallucinatory drugs on the planet?

The big banks control the derivative market.  Gee that probably has nothing to do with their "perfect" trading record in the first quarter, huh? 

As I mentioned last week, I think the stock market is in trouble.  I moved about 40% of my broad stock money out last week.  I will be looking to move more out on the next rally.  I hope there is one as there are signs of trouble.  From ZeroHedge:

This Could Be A Bad Sign For The Paper Markets

High yield funds see 3rd highest fund outflow since 1992. Bank of America sugar-coats this by saying: "The disconnect between the two indicates to us that it was mostly hot money shorting the market that were responsible for ETF withdrawals, as opposed to the mainstream long-term HY investor base. Otherwise, the distribution between the two segments should not differ much, just as it usually relates over most other intervals. This, in turn, gives us one more reason to believe that such outflows could be temporary"

sourced from Zerohedge.com.

But that's utter garbage. In the 9 years that I was trading junk bonds, when the hot money pulled out junk bond funds, it almost invariably pre-saged a big stock market sell-off. Given the action in gold/silver today, I'm wondering if market sensitive money is starting to move into gold as a flight to safety...

High yield bonds (aka junk bonds) pay much higher rates than regular safe bonds.  These lenders have to pay investors more to accept their higher risk of default.  This trader says that the recent large withdrawals from these bonds usually were a warning of a stock sell off.  We shall see, I'm not taking any chances.  The next 1000 point plunge could be larger and may not correct quickly or at all.  Imagine if the stock market fell 2000 points in 30 minutes....and didn't rebound but in fact went lower.  This isn't fantasy, this could happen.  To me, it is just too risky to be in the broad market.  Too much computerized trading.  You can't beat a computer.

Now it's coming into the light.  Something that I have been saying for a couple years.  Congress wants YOUR retirement account.  You know what?  Eventually they'll take it.  Put as little money into these scams as possible.  NEVER put more into a 401k than is being matched.  Otherwise it's not worth the risk.

Federal Mutual Fund

 Posted 05/11/2010 06:32 PM ET

Government Retirement: Democrats have obliquely admitted they covet Americans' pensions. Last week, congressional Republicans told them to stay away. The shame is that they had to do anything at all.

IBD Exclusive Series:

American Freedom And Prosperity Under Attack

The first rumblings were heard in the 1990s, when Democrats were said to be coming after our retirement accounts. Back then, the warnings were easy to pass off as hyperbole or a cranky conspiracy theory. Today, they pass as prescient.

In January, Bloomberg reported the "U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and individual retirement accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry."

 
This is just the beginning.  Eventually any account that is "protected" will be a source of funds for the government.  Bank on it. 
This week in honor of me riding the "Intimidator" at King's Dominion here is video of the best jumps ever. By the way the Intimidator causes you to at least have a grey out.  Some people actually black out.  The most intense ride I've ever ridden.  Nothing compared to these guys, but have a great week!