Thursday, December 31, 2009

Turning Point?

Turning point? I don't know. However, the risk favors the bears. I'm short. Let's see what happens next year. Have a safe night. Happy New Year!

S&P 500

Thursday, December 24, 2009

Christmas Eve Quote Of The Day

“It is amazing that people who think we cannot afford to pay for doctors, hospitals, and medication somehow think that we can afford to pay for doctors, hospitals, medication and a government bureaucracy to administer it.”

-Thomas Sowell

Monday, December 21, 2009

Merry Christmas from Harry Reid!!!

According to the latest news, Harry Reid has the 60 votes needed to pass Obamacare. While the legislation itself is not available for reading to my knowledge, the Congressional Budget Office did report on it December 19. I parse that CBO report here, so we know what is about to happen to us.

The CBO does not make the accounting all that easy, despite its many tables of numbers. The number Democrats like to cite is that this plan will reduce the deficit by $132 billion over the ten years from 2010 to 2019.

Imagine that: more people insured and the deficit reduced. How do they do that? The short answer is over $1 trillion in Medicare cuts and tax increases. For the longer story, read on.

First, the ten-year cost of insuring 27 million more people is $871 billion. But that money is not evenly spread over the ten years. The CBO does not make this part totally clear; that cost comes mostly after 2015. In those later years (mostly after Obama is no longer president, even if elected to a second term), the cost per year is easily $165 billion. Call it over $6,000 per person insured per year.

As a sanity check on that number, my current high-deductible plan costs $4,000 to cover my family of four, or $1,000 per person covered. A "Cadillac" comprehensive plan might be more like $16,000 for a family of four, or $4,000 per person per year. So the federal government will spend over six times as much as my high-deductible plan, and 50% more than even a generous comprehensive one. So much for efficiency.

That is the gain part of the bill. Now for the pain. Below is the tally of spending cuts and taxes, all over the ten years of 2010-2019.

  • "Spending changes" (e.g., Medicare cuts): $483 billion.
  • Excise tax on high-premium plans: $149 billion.
  • Savings from "other sources" (like penalties for being uninsured): $108 billion.
  • Other "revenues": $264 billion.

Add up those numbers and you get $1,004 billion. Subtract that from the $871 billion gross cost and you get $132 billion in "deficit reduction" (with a $1 billion round-off error).

Let me repeat. You get "deficit reduction" by cutting Medicare and raising taxes by more than $1 trillion: Medicare and other program cuts of $483 billion, and an extra $521 billion in new taxes and fees.

The cuts include cuts across Medicare, Medicaid, and the Children's Health Insurance Program: $186 billion from permanent reductions in payment rates for fee-for-service, $118 billion for payment rate reductions based on bids submitted, and $43 billion from reducing payments to hospitals that serve low-income patients. In all, it's a $483-billion cut from Medicare, Medicaid and CHIP.

Can you imagine what the Democrats would say if a Republican proposed such a thing? You don't have to imagine. Here is what Senator Max Baucus, one of Obamacare's architects, said when President Bush proposed smaller cuts.

This administration ought to know that five years' worth of Medicare and Medicaid cuts totaling $200 billion are dead on arrival with me and with most of the Congress.

The "other revenues" include extra taxes on drugs, medical devices, and health insurance providers ($101 billion), and also a hospital insurance tax ($87 billion).

As in all predictions of revenues from tax changes, the CBO assumes no real change in behavior. If, for example, people with high-premium plans choose to not have such plans any more rather than pay the extra taxes, the predicted revenue will not show up. Raise your hand if you really think the federal government is going to raise over $500 billion in revenue with these new taxes and fees.

The "deficit reduction" comes in the earlier years: $111 billion of the $132 billion reduction comes in the first five years (2010-2014). That is because the taxes start early, but insuring the uninsured comes later, mostly after President Obama is long gone from office. By 2019, the "deficit reduction" will be only $16 billion, per the CBO. The overall deficit will be over $1 trillion by then, and the federal debt held by the public will be over $17 trillion.

In short, this legislation, even if you believe the CBO's numbers, does nothing to solve the debt crisis, despite President Obama's hyperbolic claims.

This plan will strengthen Medicare and extend the life of that program. And because it gets rid of the waste and inefficiencies in our health care system, this will be the largest deficit reduction plan in over a decade.

The CBO's own numbers indicate that this "largest deficit reduction" is within the round-off error of its estimates: just over 1% of the projected deficit in 2019.

So much for federal government spending and taxing. What about the states and the private sector? Here is what the CBO says.

... the legislation contains several intergovernmental and private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA). The total cost of those mandates to state, local and tribal governments and the private sector would greatly exceed the thresholds established in UMRA ...

Like what?

... the legislation would require individuals to obtain acceptable health insurance coverage...

The legislation also would penalize medium-sized and large employers that did not offer health insurance...

The legislation would impose a number of mandates, including requirements on issuers of health insurance, standards governing health information, and nutrition labeling requirements.

But at least no "public option," right?

[This legislation would replace] a 'public plan' that would be run by the Department of Health and Human Services with ‘multi-state' plans that would be offered under contract with the Office of Personnel Management ...

Are we sure that means no "public option"? Do multiple "multi-state" plans under OPM sound that much better than one federal plan under HHS? The devil is in the details, and this legislation is about 2,000 pages of such details.

And no "death panels" either, right?

The legislation also would establish an Independent Payment Advisory Board, which would be required, under certain circumstances, to recommend changes to the Medicare program to limit the rate of growth in that program's spending. Those recommendations would go into effect automatically unless blocked by subsequent legislative action.

I hope you are comforted. When that "advisory" board says no expensive cancer drug for you -- cheap pain pills only -- you can still hope that "subsequent legislative action" is taken to reverse that decision. That is to say that the only thing that prevents the "advisory board" from being a "death panel" is the hope that Congress will override it.

Could we please find a death panel to pull the plug on health care legislation?

Randall Hoven can be contacted at or via his web site,


Model Portfolio Update - 12/21/2009

The market is STILL trading in a range. I can see two scenarios playing out at the moment.

  • 1) We drop hard in the next week and begin the next down leg of the bear market
  • 2) We bust out of the top of the trading range and set new highs going into the new year in a blow off top.
I feel like I am leaning toward scenario #2. The dollar has rallied over the last two weeks and the market has stood firm and hasn't given up an inch. Stock market bears are MIA and with the dollar likely to take a breather over the next few weeks I believe we could see a good rally into the end of the year.

Because we could fall from here I am lightly positioned short. If we do rally from here I will greatly expand my short allocation; if we fall from here I will short into any bounces along the way. Here is a look at the portfolio right now:

Here is a list of potential shorts I have complied from various locations:


So we wait. With only a small amount of my portfolio invested I can wait for awhile. I'll post another update when soemthing dramatically changes.

Tuesday, December 15, 2009

mmmm...I love government manipulation

2010 Master's Canceled! Winner Already Announced!

The bad thing about this joke is the fact that I wouldn't be surprised if it actually came true.

This leads me to a small observation I made yesterday. I was searching the comment section on one of my favorite websites, Slope of Hope, and thought one of the responses to a post was very well done. The creator of the website, Tim Knight, who I greatly admire, posted what he thought about government manipulation in the stock market:
"Doubting Manipulation's Efficacy - I was skeptical that the government could manipulate the markets, mainly because I figured if it was so easy, the collapse in 2008 wouldn't have happened in the first place. It seems that the government simply got caught with its pants down, but once they had the tools in place, they can make the market do whatever they want. Sad, but true, and important to recognize."
This statement seems perfectly logical, and it very well could be, but what caught my attention was a comment about this post made by tzzx that made a lot of sense.
"I disagree that the government got "caught with their pants down" in 2008. The 'crash' of 2008 went exactly as planned.

-Goldman and JPMorgan got rid of their rivals Bear Stearns and Lehman.
-Wall St, bankers effectively blackmailed the Congress into giving them Trillions of taxpayer dollars no strings attached with threats of systemic collapse if they didn't go along.
-The voter outrage delivered a landlslide for Obama and a fillibuster proof majority for the socialists (which is what the Billionaires like Soros and Buffet wanted).
-Oh, and the forced selling due to margin calls in 2008 allowed Goldman to buy stocks at fire sale prices from distressed hedgies right before this year's non-stop melt-up.
- Not to mention the Fed popped the Oil price bubble, which had been a major thorn in their side in 2007 and early 2008.

Just ask yourself who benefited immensely from the "crash" of 2008 and then ask yourself if you really think the powers that be got "caught with their pants down"?"
Think about it. Either way both Tim Knight and tzzx are admitting that they believe the government works to manipulate the stock market. I believe to disagree on that point would be foolish. I'll try to dig up some more information on these speculations sometime later in the week.

Monday, December 14, 2009

Quote of the day...

End of the fall semester is upon us and here is a few quotes that will cheer up anyone staying up all night memorizing formulas, doing 10 degree binomial options by hand, valuing currency swaps, and estimating volatility for the BSOPM all while drifting through the la-la land of modern financial academia. Where money is cheap and there's always an unlimited risk-free lender of last resort. Arbitrage opportunities are abundant and investors are risk averse utility-maximizing investors who have homogeneous expectations with no taxes or transactions costs. I imagine this place to be somehow a combination of these three images...

Anyways, here you go:

"The important thing is not to stop questioning. Curiosity has its own reason for existing."
- Albert Einstein

"Imagination is more important than knowledge. Knowledge is limited; imagination encircles the world."
- Albert Einstein

"Education is what remains after one has forgotten everything he learned in school."
- Albert Einstein

"It is not so very important for a person to learn facts. For that he does not really need a college. He can learn them from books. The value of an education in a liberal arts college is not the learning of many facts but the training of the mind to think something that cannot be learned from textbooks."
- Albert Einstein

"Never memorize something that you can look up."
- Albert Einstein

Sunday, December 13, 2009

Historical S&P PE Ratio vs. Historical Inflation Adjusted S&P 500

This chart might be hard to read but it is very interesting. On the top is the S&P 500 (inflation adjusted) On the bottom is the PE ratio during this time. The green squares are the time period when the PE is under 10 and the red squares are time periods where the PE is above 20. Looking at the past cycles you would expect PE to fall to the 5-10 range

Quote of the day...

"The refusal of King George III to allow the colonies to operate an honest money system, which freed the ordinary man from the clutches of the money manipulators was probably the prime cause of the REVOLUTION."
-Benjamin Franklin

unfortunately "taxation without representation" rhymes and the rest is history (misleading history)....

Saturday, December 12, 2009


This is huge, we're short on time to expand but we will later.....

if you want more now check out Washington's blog

(vote in our new poll on what could happen)

Friday, December 11, 2009

Just a funny thought....what does Bernie Madoff do in prison?

Sometimes I just wonder what it would like to be in prison. It would be horrible right? Men making moves toward you, either for a fight or homosexual activity or both. Just scary in my opinion.

So what happens to a billionaire when he goes to prison?

Can he buy a pass out of harms way?

Does he still eat the horrible meals, do the physical labor?

Does he work in the kitchen? Or does he work in the laundry department?

I imagine it looks something like this:

Has he been accepted by the penal community? What does Madoff REALLY do in prison?


Yes, apparently the hard life of incarceration isn't to bad for Bernie Madoff. He enjoys male companionship, delicious wraps, and his fair share of marijuana. Maybe we should all start a ponzi scheme right?'s true, Bernie still lives the "high" life.

So while Mr. Madoff waste away in prison what is the economy doing? I'll leave you with one chart to make your own interpretation.

The U.S. Dollar to Stocks Ratio Breaking Down?

I have believed for awhile now that when the dollar rallied stocks would crater. However, the negative correlation between the dollar and stocks has started to breakdown over the last few days. This is not to say that stocks can't fall. I am merely pointing out that my evaluation of the equity markets might need a second look.

What to do?

I love my short positions. I am just not sure if we don't have another, short lived rally brewing behind closed doors. I may pick up a few long positions today to hedge against the potential of another push higher.

U.S. Dollar Futures Daily Chart

The U.S. Dollar has been screaming higher over the past week.

S&P 500 Futures Daily Chart

The S&P 500 "should" have dropped. But, it has been trading in a tight range.

I will post another update if I do decide to hedge my short exposure. Until then we graciously wait for Mr. Market to pick a direction. He has been rather stubborn the past month. Seems as if he learned some of his flip-flopping skills from politicians. Wait? Could it be that the government is secretly manipulating the stock market? No, it couldn't be. Could it?

Have a good day!

The Federal Reserve Needs Audited.....peroid

Short-Term oil & gold rally?

A couple charts to ponder on, I'm just trying to figure out some wave counts...

Thursday, December 10, 2009

Greece a preview of what's to come shortly to the S&P 500?

I think maybe Greece can be used as a leading indicator of what is to we have a textbook 5 waves down in impulsive fashion...

Athens General Shares

Rick Santelli: "I give this one an F"

As I mentioned earlier today in this post:

Really, where do you think the spending is coming from to prop us this economy? It sure isn't coming from you and I. It is coming from the government. Have you noticed the explosion in Federal and State contracts? This is how the economy is staying alive. What happens when the government can't borrow anymore money to spend? China already doesn't want to loan us anymore. I don't really think the oil states do either. Check out this chart. Once our credit card is cut off and the federal spending stops we are in for a rude awakening.

Today's 30 year treasury auction, according to CNBC's Rick Santelli, was a failure. We tendered $31 billion in treasuries today and only $13 billion was accepted! Wow, isn't that great for a "risk free" investment. Check out this spike in 30 year yields during the auction. The government's cost of borrowing is starting to grow people. This kind of borrowing and spending ABSOLUTELY cannot last forever. When it out.

30 Year Treasury Yield

30 Year Treasury Auction Results

source: ZeroHedge

Model Portfolio Update - 12/10/2009

For some reason or another the website I use to manage my model portfolio has changed their policies. I will now have to use another site, through facebook (yeah I know), to manage the portfolio. I will have to reestablish my positions for the coming down move, so this could take awhile. Anyway, there is some good that has come out of this. I can continue to use a portfolio that I have been managing for awhile on facebook, so my track record is a little longer and easier for you to evaluate.

Here is the link to the new portfolio:

Market Update:

Nothing has really changed. The market seems to be grinding away in a distribution phase. We are either forming a rounded top or are setting ourselves up for one more push higher. If we do push higher I believe it will be with force, but it will be short lived. I will maintain my short positions, as I don't see any remaining upside being to dramatic. Hold on. I smell something big brewing in the coming weeks.

Potential Causes of Crisis:

-Sovereign default (Dubai, Greece, Spain, Latvia...etc..)
-Weak holiday sales figures
-Federal Reserve tightening monetary policy (reverse repurchase agreements)

Something is brewing. Investors are at complacency levels not seen since the top in October 2007 and nothing has changed to fix our economy. We slapped a band-aid on the bleeding last fall. However, that band-aid can only last for so long. The following chart shows exactly why it is ludicrous to think that we are out of this mess. Deleveraging is nasty, and it hasn't even started yet.

Really, where do you think the spending is coming from to prop us this economy? It sure isn't coming from you and I. It is coming from the government. Have you noticed the explosion in Federal and State contracts? This is how the economy is staying alive. What happens when the government can't borrow anymore money to spend? China already doesn't want to loan us anymore. I don't really think the oil states do either. Check out this chart. Once our credit card is cut off and the federal spending stops we are in for a rude awakening.

Total Federal Government Debt

Short term update:

I'm feeling this path as shown, but this short term market is hard as hell to trade in.... Still very bearish in the intermediate and long-term.

Wednesday, December 9, 2009

Is the risk trade still on?

I believe small cap stocks have seen their peak. Yes, there could be more upside; however, small caps are now lagging the broad market. This is a sign that market participants are starting to shy away from risk. Combine that with the 82:1 recent insider selling to buying ratio and you have the recipe for a market top. I would be weary of new long positions at this point.

Russell 2000 Small Cap Index

Dow Jones Industrial Average

Tuesday, December 8, 2009

These look familiar?

Do these two charts look familiar?

1999-2004 Nasdaq Bubble Collapse

1929-1934 (Dow Jones Industrials Crash)

These two charts have a striking resemblance. If we are indeed following the same market cycle that we followed during the Great Depression it is now 1938 and the market is getting ready to retrace 40% after a huge rally. Let's see what these charts look like after 1934 and 2004.

2004-2009 (Nasdaq Composite)

1934-1939 (Dow Jones Industrials)

The similarities are astounding. One cannot deny that their could be a connection between these two market environments. So, if these charts look the same what could be next? Let's take a look out to 1945.

1938-1945 (Dow Jones Industrials)

Looks like if history repeats itself we are looking at another nasty pullback in the market fairly soon. I believe this comparison is somewhat correct. Yes, history doesn't repeat itself, but it sure does rhyme. I look for a bottom in the stock market sometime around 2012. Any coincidence to when humans expect the world to end? That kind of pessimism is what it takes to form stock market bottoms. Kind of like when Hitler looked as if he would take over the world in 1942, right? Think about it.

The similarities are undeniable. However, always do your own due diligence. Good trading!

Why listen to the media? Be a contrarian!

I've had many people ask the question, "why not buy gold?". I have responded, "well we are going to have deflation." Most people will immediately conclude that I must be delirious or not know what I'm talking about because I am 21 years of age and that doesn't qualify me as an educated individual. They say, "well the news says we all need to be worried about inflation." This is ludicrous. Do you always believe what's reported on the news? Remember this article from CNN on September 4, 2002?:

Experts: Iraq has tons of chemical weapons
WASHINGTON (CNN) -- As some in the Bush administration press the case for a pre-emptive strike against Iraq, weapons experts say there is mounting evidence that Iraqi President Saddam Hussein has amassed large stocks of chemical and biological weapons he is hiding from a possible U.S. military attack.

As we all know that was a scam and a half. What about investing? How good are the mainstream investing services at say, predicting the price of gold. As of right now all of them are screaming, "BUY GOLD!!!" Let's take a look a their track record. The picture below is the cover of Barron's Commodities Corner from February 12th 2001.

As you can see Barron's wasn't very bullish on Gold in early 2001. They were telling people to sell gold, get out before the next big plunge. How did they do? Not very good. Let's check out a chart of gold prices.

As you can see gold bottomed exactly 4 days after the Barron's article came out. Anyone selling gold because of this article made a rather large mistake. Let's see how gold has performed since that day.

As you can see since February 16th 2001 gold has rallied 425%. Barron's really made a good call. Not! The point I'm trying to emphasize is just because people on TV tell you to do something doesn't mean you should do it. They are wrong more often than not. Why? Because they broadcast stories late. They jump onto trends after they have exhausted themselves. The media is not forward looking. They report what is happening now, not what is likely to happen in the future, and because of that they are of no value to me.

When the media tells me to buy gold I immediately want to sell gold. Investing 101, buy low and sell high. Gold is toying with all time highs as we speak. I want to be a seller right here.

Great Elliott Wave Video

Intermediate Term Update:

With as much Wall Street pull as our blog gets you can tell the reaction in the futures market of my short term update around 6:15 this morning; /es fell almost 1%.(Had to be the blog post right?) Here is my intermediate prediction for S&P futures.

Short term dollar chart.

Short term update:

Nice diamond top forming on S&P 500 futures.... Price target is around 1070 (highlighted circle) which I expect to see really soon. (today or tomorrow).

Monday, December 7, 2009

Portfolio Update - 12/7/2007

I don't see much happening this week. More than likely we will experience more sideways trading action as the market decides where it wants to go. Short term we could have another spike up. However, I believe we will turn lower for the intermediate term within the next 5-6 trading days.


Today I will buy a large chunk of SPY (S&P 500 ETF) to hedge against my short portfolio. If and when I believe the market has turned lower for good I will cut my hedge and go completely short. The best place to be at this point is neutral, waiting for the market to resolve lower.

Check out the portfolio here:

good trading

Saturday, December 5, 2009

Friday, December 4, 2009

Portfolio Update - 12/4/2009

Well, I've been managing a portfolio for a couple of weeks now. Sorry the updates haven't been posted like I had hoped, but now that I have a little more time I can start posting more consistently. Here is the link to see my portfolio:

There you can see my portfolio holdings and my performance against the S&P 500.

Currently we are still betting on a sudden change in the market's intermediate term trend. I still very strongly believe that the U.S. Dollar is going to see a massive rally and with that the stock market will take a tremendous hit, eventually seeing new lows.

I am positioned with a large portion of my portfolio long the U.S. dollar and long-term U.S. treasuries. I also am short a few financial and commodity related companies that I feel will be hurt in a deflationary environment.

I am, however, going to maintain a large portion of my portfolio in cash. If I sense a continuation of the current market rally I can use this cash to buy a position in the S&P 500 to hedge my short exposure and minimize losses.

Thursday, December 3, 2009

Quote of the day...

"A little government and a little luck are necessary in life, but only a fool trusts either of them."
--P. J. O’Rourke

Tuesday, December 1, 2009

Quote of the day...

Paying taxes is necessary to remain free; don’t confuse this with slavery where people have to purchase their freedom…