Curried Wealth Building
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November 9, 2008
Issue 19  -  Potential Stock Market Crash

There are a number of factors that are pointing to a potentially huge drop in the stock market starting on November 13-14 next week. There are no less than 4 separate and uncorrelated methods forecasting the same thing. All forecasts are showing that the market would bottom out around December 19th.

To have this many things showing the same outcome is highly unusual and I am contemplating taking a very speculative action. If the models are right we will see the market go up before the start of the drop. The plan would be to sell a slug of precious metal stocks on Tuesday/Wednesday and then buy put options on the whole market on Wednesday. I am NOT recommending that anyone attempt this as it is HIGHLY risky and you will probably lose all of the money put at risk. I am including it here just to let you know what I am doing so that those reading this can look for any biases I may show. Should you have some money you can afford to lose, give me a call and I can help you.

The second more important reason for including this is to point out that it may be prudent to step aside from the market for the rest of the year. Could the stock market go up? Sure, but with the recession clearly at hand a gigantic hedge fund redemption underway (one of the ancillary indicators of a market drop) that seems unlikely. I personally have been out of the index funds since the Summer. Some of the forecasts are showing an outside chance of the S&P 500, currently at 930, dropping over 50%! I just felt obligated to let you know that this is a possibility out there.

There is also growing evidence that the "bail out" has been a complete fraud:

"Effectiveness of AIG's $143 Billion Rescue Questioned

By Carol D. Leonnig
Washington Post Staff Writer
Monday

A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Groupmay not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.

The Treasury Departmentleapt to keep AIG from going bankrupt on Sept. 16, and in the past seven weeks, AIG has drawn down $90 billion in federal bail out loans. But some key AIG players argue that bankruptcy would have offered more structure and greater protections during a time of intense market volatility.

AIG declined to comment on the matter."

AIG declined comment? Aren't they owned by us now? This is just too bizarre. We are pouring money down a hole just to protect god knows who.

Now this from the "this was never about saving the U.S. population" bucket:

"NEW YORK -- Bloomberg News asked a U.S. court today to force the Federal Reserve to disclose securities the central bank is accepting on behalf of American taxpayers as collateral for $1.5 trillion of loans to banks.

The lawsuit is based on the U.S. Freedom of Information Act, which requires federal agencies to make government documents available to the press and the public, according to the complaint. The suit, filed in New York, doesn't seek money damages.

"The American taxpayer is entitled to know the risks, costs and methodology associated with the unprecedented government bail out of the U.S. financial industry," said Matthew Winkler, the editor-in-chief of Bloomberg News, a unit of New York-based Bloomberg LP, in an e-mail.

The Fed has lent $1.5 trillion to banks, including Citigroup Inc. and Goldman Sachs Group Inc., through programs such as its discount window, the Primary Dealer Credit Facility and the Term Securities Lending Facility. Collateral is an asset pledged to a lender in the event that a loan payment isn't made.

The Fed made the loans under 11 programs in response to the biggest financial crisis since the Great Depression. The total doesn't include an additional $700 billion approved by Congress in a bail out package.

... Fed's Position

Bloomberg News on May 21 asked the Fed to provide data on the collateral posted between April 4 and May 20. The central bank said on June 19 that it needed until July 3 to search out the documents and determine whether it would make them public. Bloomberg never received a formal response that would enable it to file an appeal. On Oct. 25, Bloomberg filed another request and has yet to receive a reply.

The Fed staff planned to recommend that Bloomberg's request be denied under an exemption protecting "confidential commercial information," according to Alison Thro, the Fed's FOIA Service Center senior counsel. The Fed in Washington has about 30 pages pertaining to the request, Thro said today before the filing of the suit. The bulk of the documents Bloomberg sought are at the Federal Reserve Bank of New York, which she said isn't subject to the freedom of information law.

"This type of information is considered highly sensitive, and it would remain so for some time in the future," Thro said.

The Fed didn't give Bloomberg a formal response because "it got caught in the vortex of the things going on here," said Michael O'Rourke, another member of the Fed's FOIA staff.

Thro declined to comment on the lawsuit.

The case is Bloomberg LP v. Federal Reserve, U.S. District Court, Southern District of New York (Manhattan).day, November 3, 2008; A18 "

So let me get this straight. We lend you over a TRILLION dollars and then you tell me that what you are doing with the money is "sensitive"? Yes, I am sensitive about what you are doing with OUR TRILLION dollars.

This is almost comical if it weren't so sleazy. These instruments being taken as collateral are obviously frauds and/or crap that the Wall Street banks want off their books. Disgusting. This is going to end so badly.

There are also continued reports of gold and silver being in VERY tight supply.

"The New Gold Rush: Supply of Coins Tight at Tucson Stores

By Dan Sorenson
Arizona Daily Star, Tucson
Sunday, November 2, 2008

The price of futures contracts for gold surged to more than $1,000 per ounce earlier this year, then dropped back before surging again as the financial crisis rocked stock markets in September. Then the price of gold futures started slipping again.

In October, Bloomberg News reported, the price dropped 18 percent, the most it has in a single month since 1980. Gold for December delivery closed at $718.20 an ounce Friday on the New York Mercantile Exchange.

Your college Econ 101 course may not help you understand the latest gold coin rush.

Banks have been on wobbly knees, the stock market has been plunging, and 401(k)s are as deflated and sad as four-day-old party balloons.

But, oddly, gold has been both falling in price and in short supply for those looking for a safe haven during the stock market storm. Some Tucson dealers say gold coins are scarce at best, even as gold -- and silver -- prices are falling.

There is even more complexity within that scenario, local dealers say.

Retail gold coins generally sell for the current price of the metal they contain, plus a "premium" -- the dealer's fee -- on each coin. Of late, the premiums have risen significantly to reflect the shortage of supply of some denominations, the dealers say.

"I get 10 to 20 calls a day, 'Do you have any gold or silver?' We don't have any, and we can't get any," said Peter Spooner, a coin expert at American Stamp & Coin, 7225 N. Oracle Road.

"There are people who are selling their stocks to get into gold and silver because they fear we are going into a tremendous depression," said Spooner. Yet, he noted, the "price of paper (futures contract) gold is dropping while the price of owning actual hold-in-my-hand gold is going up" when the seller's premium is added.

Historically, it would be cheaper to buy an ounce of gold in one coin than to buy an ounce as four quarter-ounce coins. But the price for an ounce of gold is actually cheaper if you buy it as four quarter-ounce coins than in a single 1-ounce coin -- if you could find one, said Brett Sadovnick, owner of Tucson Coin & Autograph, 6470 N. Oracle Road.

In this case, a classical supply-and-demand situation is at work: There's more demand for the 1-ounce coins than the quarter-ounce and other smaller coins, so it's driven up the price of the 1-ounce coins.

... Buyers Might Be Newcomers

Sadovnick isn't quite sure why buyers are fixated on the 1-ounce coins. Gold is gold, purity being equal.

It could be that the buyers driving the demand for the 1-ounce American Eagle coins are newcomers fleeing the wild uncertainty of the stock market for the relative calm of the world's longtime favorite precious metal. Maybe they feel better about owning the hefty full-ounce American Eagle, rather than a handful of smaller gold coins -- half-, quarter-, or tenth-ounce -- that weigh just as much. Sadovnick isn't sure.

"I've been a coin dealer in Tucson since 1998, a professional since 1974. I haven't seen a situation quite like this," said Sadovnick. Not even the crazy precious metals roller-coaster days of early 1980 -- when gold hit $850 an ounce for one day -- compares, Sadovnick said.
And it's not just gold, he said.

"I placed an order a month ago, 1,000 1-ounce silver bars. I paid him spot (the spot price), plus $2.50 an ounce premium," Sadovnick said. That order might not arrive until January.

"Three months ago I could have bought it from them for the price of silver, plus $1.50 an ounce, and I would have had delivery in a few days."

Even Jim Ganem, owner of the venerable Arizona Stamp & Coin, 4668 E. Speedway, is baffled.

The shop is the only Tucson dealer mentioned on the U.S. Mint's Web site as dealers of American Eagle coins, and Ganem says he can't get any Eagles, or anything regularly. He said the U.S. Mint sent out a notice saying it isn't making the coins because even they can't get the gold blanks to stamp.

... 40 Buyers to One Seller

Ganem said hedge funds are dumping billions of dollars worth of gold contracts they hold, driving down the price of gold. But to actually get gold, not just a contract, buyers are having to pay a premium -- a higher premium than he can recall in the past.

Some of those contract holders are asking for the gold they represent, instead of just trading in the paper. But that gold is disappearing in an instant on the spot market, said Ganem. He said he gets a few chances a day to buy gold that becomes available, but that it disappears in a matter of minutes.

"Typically," he said, "we're running 40 buyers to one seller right now coming into the store to purchase. People don't want to be in the stocks, real estate, and they don't trust the banks -- three typical havens for large amounts of money. The other one is metal."

One would think the skidding stock market and real estate decline would be driving up gold and silver prices. And while it did initially, in September, the price of precious-metal futures plunged in October.

An industry expert in Phoenix said the gold market isn't behaving in a traditional manner.

David Henry of Arizona Coin Exchange Inc. in Phoenix is a wholesaler who sells to coin and precious metals retailers. He said most people who buy paper gold, contracts, never physically possess the gold, choosing instead to resell the contracts, hopefully for more than it cost them.

"You can get it, physically, but it's complicated," Henry said.

Physically possessing gold is an entirely different mechanism, Henry said, something that is done for security -- a way to safely hold value, often for a very long time.

Unfortunately, he said, this is an occasion for a "Perfect Storm" scenario.

The price isn't high enough to bring sellers into the front door of coin and precious metal shops, and the main source of new gold, the federal government, can't deliver.
Spooner said the vagaries of the current gold market don't change his view of gold.

"I don't present gold as an investment," said Spooner. "Buying a half- to 1-ounce piece of gold every month is like insurance ... like portfolio insurance. In economic turmoil, it's a flight to safety."

... Decline in Gold Futures

The price of futures contracts for gold surged to more than $1,000 per ounce earlier this year, then dropped back before surging again as the financial crisis rocked stock markets in September. Then the price of gold futures started slipping again.

In October, Bloomberg News reported, the price dropped 18 percent, the most it has in a single month since 1980. Gold for December delivery closed at $718.20 an ounce Friday on the New York Mercantile Exchange."

Couple this with rumors of the world governments possibly revaluing the dollar lower and this is something that you HAVE to own. 40 buyers for every seller. Does that sound like something that should be coming DOWN in price? The day will come, and mark my words, where you won't be able to get gold, period, unless you know someone. Gold and silver are going to sky rocket in next year. Please protect yourself.

Read the following if you think everything will work out fine:

"Stunned Icelanders Struggle After Economy´s Fall

By SARAH LYALL

REYKJAVIK, Iceland - The collapse came so fast it seemed unreal, impossible. One woman here compared it to being hit by a train.

Another said she felt as if she were watching it through a window.  Another said, "It feels like you´ve been put in a prison, and you don´t

know what you did wrong."

This country, as modern and sophisticated as it is geographically isolated, still seems to be in shock. But if the events of last month -

the failure of Iceland´s banks; the plummeting of its currency; the first wave of layoffs; the loss of reputation abroad - felt like a bad dream,

Iceland has now awakened to find that it is all coming true.

It is not as if Reykjavik, where about two-thirds of the country´s 300,000 people live, is filled with bread lines or homeless shanties or

looters smashing store windows. But this city, until recently the center of one of the world´s fastest economic booms, is now the unhappy

site of one of its great crashes. It is impossible to meet anyone here who has not been profoundly affected by the financial crisis.

Overnight, people lost their savings. Prices are soaring. Once-crowded restaurants are almost empty. Banks are rationing foreign

currency, and companies are finding it dauntingly difficult to do business abroad. Inflation is at 16 percent and rising. People have

stopped traveling overseas. The local currency, the krona, was 65 to the dollar a year ago; now it is 130. Companies are slashing salaries,

reducing workers´ hours and, in some instances, embarking on mass layoffs.

"No country has ever crashed as quickly and as badly in peacetime,"

said Jon Danielsson, an economist with the London School of

Economics.

The loss goes beyond the personal, shattering a proud country´s sense of itself."

This is a first-world country that basically collapsed overnight. It CAN happen and if you don't have gold or silver you will be crushed like everyone else. Call Apmex.com or Tulving.com and get some metal before it is too late. Time is running short  Call me if you need help.