Sunday, January 31, 2010

Banking Failures Continue Unabated

On Friday another 6 banks were seized by the Federal Depository Insurance Corporation (FDIC).  This brings the 2010 total to 15, following the 140 banks seized last year.

The largest bank seized Friday was Los Angeles-based First Regional Bank, with nearly $2.2 billion in assets and $1.9 billion in deposits.  The expected loss to be incurred by the FDIC is $825 million.

The other banks seized included First National Bank of Georgia; Community Bank and Trust of Cornelia, Georgia; Florida Community Bank of Immokalee, Florida; Marshall Bank of Hallock, Minnesota; and American Marine Bank of Bainbridge Island, Washington.

In total, the combined assets of the six banks were $5.5 billion, while deposits totalled $4.9 billion.

The two Georgia banks bring that state's total to 27 since the beginning of 2008, placing it first among failed banks.

Each bank was taken over.  First Citizens Bank & Trust of Raleigh, North Carolina, will assume the balance sheet of First Regional Bank; Community & Southern Bank, also based in Carrollton, Georgia, agreed to assume the deposits and assets of First National Bank of Georgia; SCBT, a national bank based in Orangeburg, South Carolina, will take-over the balance sheet of Community Bank and Trust; United Valley Bank, based in Cavalier, North Dakota, will absorb Marshall Bank; Miami-based Premier American Bank will assume the balance sheet of Florida Community Bank; and Columbia State Bank of Tacoma, Washington, will take American Marine Bank.

The banking crisis will continue to deteriorate, especially as the next dip of the depression takes hold.  Marko's Take?  It will take AT LEAST one and maybe more BIG Banks with it.  Could you imagine the implication if, say, Bank of America or Citicorp failed?

In his State of the Union address, President Obama said he would initiate a $30 billion program to provide money to community banks at low rates, if they boost lending to small businesses.

Like what you see?  Hate it?  TAKE ME ON!

Marko's Take

Saturday, January 30, 2010

GDP Grows By 5.7%: Has The Recovery Finally Taken Hold?

On Friday, the Bureau of Economic Analysis (BEA) gave its initial guesstimate of 4th quarter Gross Domestic Product (GDP) of 5.7% - a number much higher than most analysts had expected.  At first, this number appears to be pretty solid and follows a downwardly revised 2.2% figure for the third quarter.

The first problem is that this preliminary estimate is nothing more than a guess and is subject to at least two more revisions before the figure becomes finalized.  Of the 5.7% number reported, a full 3.4% was the result of inventory shrinkage, as companies pulled more goods off their shelves.  In so doing, there was NO positive effect on employment, which continues to remain at unacceptably high levels.

While the fourth quarter figure is robust, GDP still remains nearly 2% BELOW the peak reached in early 2008.

The largest contributor to growth was consumer spending, which grew at 2% but was down from 2.8% in the prior quarter, when sales were boosted by the "cash for clunkers" program.

One sign from the GDP report of improved confidence at companies was an annualized 13.3% increase in spending on equipment and software—the biggest gain in nearly four years. In the past, rises in capital spending have tended to signal an increased willingness to hire.

Marko's Take?  The fourth quarter will mark the end of the "recovery" and a more severe contraction will begin to gain steam.  Without an increase in employment, no economic upturn of any duration can possibly be sustained.  Unfortunately, the oncoming "second dip" is likely to be far WORSE than the first one. 

Other ongoing economic problems include restrictions in credit availability and percolating inflation - which will undoubtedly begin to accelerate shortly.

Have a great weekend.  Disagree?  Agree?  TAKE ME ON!

Marko's Take

Friday, January 29, 2010

Markets Trading Strategy Update: What To Do Now

Nothing!  For the moment, the case I laid out is playing out very close to the scenario I've forseen with a couple of exceptions.

Gold is trading this morning at BELOW $1080.  My hunch is that it will visit the vicinity of $1000, so I continue to recommend that investors stay as light as possible in this sector.  I believe we are a few weeks away before a decent buying zone, so, for the moment, stay put.  In fact, once gold miners DO fully reflect a lower Gold price, there will come a time to back up the truck, load up on selected junior mining shares and watch the fireworks unfold.

The re-nomination of Ben Bernanke, in my opinion is all the evidence we need that 2010 will turn out to be one helluva great year for Gold investors.  Stay patient.

Another certainty with "Helicopter Ben's " re-appointment, is that interest rates will remain low, stupidly low.
Yesterday, Congress approved an increase in the National Debt ceiling to more than $14 TRILLION!  This means that a 1% increase in interest rates across the board will increase the budget deficit by $140 Billion per year!  Yup, more low rates and ANOTHER Bubble!

But, this can't go into effect until Mr. Obama recovers from his injury sustained during his "State Of the Union Address" in which he patted himself on the back so many times that the rumor is he dislocated his shoulder and is unable to sign new legislation (

As far as the overall market goes, I continue to maintain that it is in territory that is both rarified and subject to great risk.  It reminds me of Wile E. Coyote, after having stepped off the cliff, hovering in mid-air before he realizes that it's a long way down. 

What makes me so suspicious about the stock market is the fact that even decent earnings have been met with a yawn.  This tells me that the "good news" is fully factored in.  Currently, the market is merely digesting the sudden plunge of last week - a process I expect to be very short lived.  I, therefore, re-iterate, the trading postures I recommended last week (

Fortunately, as the result of this week's lull, it isn't too late to get prepared, and even take advantage of the misery set to befall stock market investors.

I'll make today's blog a short one.  Hope you have a great weekend!

Disagree?  TAKE ME ON!

Marko's Take

Thursday, January 28, 2010

Obama's State Of The Onion Address: The More You Peel It, The More It Makes You Cry

President Obama must have an awefully sore shoulder this morning.  He patted himself on the back so hard and so many times, it's a wonder he wasn't rushed to the hospital with a dislocated shoulder!

Here's a perfect example why "professional" politicians are so clueless.  They BELIEVE that government creates jobs!  Never actually having had jobs themselves, they don't really understand how the economy works. Yes, they write checks to someone who in turn employs someone.  But for every check they write, someone ELSE has to pay for that check and becomes LESS able to employ someone.  Hmm.  The math.  That stupid math that just keeps getting in the way.

It's amazing that a President can claim that he's "created" so many millions of jobs while at the same time ignoring the fact that real unemployment is at all time highs.  Again, that silly math just keeps getting in the way.  But DON'T pay attention to the man behind the curtain!

Fortunately, the President DID make a few decent suggestions such as encouraging nuclear power. He also recommended tax breaks for companies investing in capital equipment and raising payrolls.  That's good stuff. 

But is he serious about giving the already "Dead on Arrival" Obamacare another try?  I guess he must really want to work with Republicans, because if that bill is pushed more, he will cost many Democrats their beloved jobs.  And this from a man who claims to have created jobs! 

In listening to the address, it amazes me how so many words can contain so little meaning.  "We will do this".  "We will do that".  Ok, so why haven't you done this or that already?  Oh that's right, you had to blame everything on your predecessor.  As we know,  the ridiculous stimulous bills, TARP, bailout of General Motors and Chrysler were all Bush's fault.  So is the ongoing war in Afghanistan.  So is the out-of-control budget deficit.  All Bush's fault.  Well before we get too hard on the President, let's rememeber he just got into office - a YEAR ago!

While campaigning, President Obama promised to "unify".  HUH?  How many bills are being voted strictly along party lines like Obamacare?  In fact, President Obama is probably the most polarizing figure in history.  And that's saying something after Bill and Hillary Clinton, George Bush and Newt Gingrich.

Seriously, if you want to waste a perfectly good hour and a half and yet learn nothing other than the art of obfuscation, listen to last night's address.  Lot's of jobs created or saved, yet none destroyed.   Lot's of money spent with all kinds of real results, like the grocery store check-out clerk in Pittsburgh who would have lost her job without the bailout funds.  Never mind the real people who join the unemployment rolls week after week.  Lot's of applause by other politicians whose sole purpose is to get face time on camera and keep their jobs. 

Thankfully, the speech finally ended and we can go on to the "people's business" like spending more money we don't have - all while providing "8 million middle-class Americans with tax cuts"!  Don't pay attention to the main behind the curtain!

I hope everyone writes Mr. Obama a "get well" card this morning.  First, in sympathy to his dislocated shoulder and second to express sympathies for his delusions of grandeur.  As he told us, the state of America is not only JUST FINE but he has more hope than ever.  Didn't someone I know write a book about the AUDACITY of HOPE? 

Another State of the Union Adress and another hour of empty rhetoric.  While the President may not walk the walk, at least he talked the talk, and talked the talk, and talked the talk...

The truly sad aspect of the State of the Union address is that it gave the President an honest opportunity to acknowledge where things stand and propose SOLUTIONS -  not to take credit for accomplishments that haven't actually been made. 

Tomorrow, we'll go back to the markets and review our "Take" after a heavy news week.

Marko's Take

Wednesday, January 27, 2010

The State Of The Union

Ladies and Gentlemen:

It is with deep regret and sadness that I must report that the State Of The Union is ABYSMAL.

It is with great hope, audacious or not, and resolute determination that I lay out the agenda necessary to reverse our cascading prospects and return the United States to its rightful place in the world community.

It is with boldness that we face the future - which, while most dark now, is BRIGHTER than the past.

It is with perserverance that we will implement the changes needed, no matter how drastic, to assure that this nation DOES NOT pass the point of no return.

Towards that end, I am prepared to take the following steps:

1.  Eliminate the ability of the Federal Reserve to influence either monetary policy or any freely traded market  - either by actions it takes or through its proxies in the financial community.  I would prefer an outright abolishment, but the privately held nature of the FED makes this impossible without infringing on legal property rights.

2  Eliminate the Internal Revenue Service and ask Congress to dramatically simplify the personal tax structure to a form of flat tax.

3.  Eliminate the Department of Homeland Security and reverse the nation's plunge into "police state" status. All future intelligence should be carried out by the entities already in place such as the Federal Bureau of Investigation and the Central Intelligence Agency.

4.  Revoke the Patriot Acts and restore civil liberties to Americans that were ILLEGALLY subject to  barbaric acts under the misguided premise of our own protection.

5   Restore faith and confidence in the nation's currency by returning to the Gold Standard.  And, if necessary, order an immediate audit of Ft. Knox and all other significant depositaries of Gold.

6.  Order Congress to develop an emergency plan to achieve energy self reliance.  I expect Congress to immediately remove all roadblocks to the development of nuclear energy, natural gas and alternative fuels such as solar and wind power.  Furthermore, I will oppose any attempt to re-instate any form of windfall profits tax.

7.   Seek the elimination of both the House and Senate Ethics Committees.  Instead, ethics within the noble chambers of Congress, should be reviewed by a specially convened committee of promininet citizens with no current or past ties to Congress.

8.  Pass legislation giving existing and future member of Congress NO SPECIAL TREATMENT.  Beginning in 2010, all new members of either chamber will be automatically enrolled in the Social Security System and Medicare.  If they choose to opt out, and prefer their own plans, these will not be provided at tax-payer expense.  Furthermore, all members of Congress will be expected to make the very same payroll contributions that Americans are currently subject to.  All EXISTING members will accrue NO ADDITIONAL  benefits and will be expected to make the identical contributions to these programs that you, the American people have been forced to make your entire lives.

9.  Hold ALL members of Congress accountable to the same standards that they would be subject to as employees of IBM, Proctor and Gamble, or any other respected corporation.  Members of Congress are NOT ROYALTY.  They work for you, the American People.  Should any member of Congress commit an act or offense which would subject them to termination by a reputable firm, than they shall be as subject to termination, expulsion, or suspension as YOUR employees.

10.  Begin the reversal of America's role, unwanted by the majority of the world community, as global policeman.  I intend to address the U.N. shortly to further delineate the change of policy.  However, I've always been partial to Teddy Roosevelt's credo of "speaking softly and carrying a big stick".

11.  Finally, and perhaps most importantly, I will take whatever steps necessary to restore the rights granted to ALL Americans under the Constitution and its ammendments.  If necessary, I will "stack the courts".
The Constitution is the greatest document written by an American and single most important document in our history, yet years of judicial interference have destroyed this great document.  If necessary, I will call for a NEW Constitutional Convention, have the original document with its ammendments re-drawn and re-ratified.

If these steps are taken....and Ladies and Gentlemen, they WILL be taken, we will begin the healing process that this country so desperately needs.  I ask from you just one thing... Patience and grass roots support.  If your candidate for 2010 does not ascribe to the steps outlined above, I ask you to create a groundswell of support and make your voices heard at the ballot box.

We CAN return the country to a prosperous nation.  We CAN return America to the land of opportunity.

We WILL return the country to a prosperous nation.  We WILL return America to the land of opportunity.

Ladies and Gentlemen, I wish you goodnight and HOPE without AUDACITY.

Marko's Take

Tuesday, January 26, 2010

Helicopter Ben Survives: The Implications

Reports now show that "Helicopter" Ben Bernanke will indeed survive and be appointed to a second-term.
The derisive term "Helicopter" refers to a statement the FED chairman once made when asked about the options available for preventing a systemic financial collapse.  In the statement, Bernanke said that the FED could even go so far as to consider "throwing money out of Helicopters" to get cash into people's hands.

Clearly, the statement was somewhat tongue-in-cheek, as no one actually believes that The FED would resort to such an idiotic policy.  However, the fact that Mr, Bernanke implied that he would go to extremes to get funds into consumers' hands is quite telling as to his modus operandi.

Bernanke, an academic, fancies himself a student of the "Great Depression" and believes that the lessons learned from the monetary mismanagement THEN can be applied to the situation TODAY to minimize the effects of the ongoing finacial calamity.  Unfortunately, Mr. Bernanke is not a student of FED policy and efficacy from 1987 through the present.

His mentor, Alan Greenspan, employed a "low interest rate" policy which fed a series of asset bubbles only to followed by devastating crashes.  The first bubble, the dot com boom and bust, popped in 2000 and was followed by an 80% drop in the Nasdaq -  wiping out a class of investors, creating a slew of corporate bankrupties and setting the stage for a recession.

Mr. Bernanke should really take a look at his OWN role is this utterly absurd policy as he was highly responsible for bubble number two:  the real estate bubble, which along with the derivatives mess led to a virual financial system collapse in 2008.  Perhaps someone can buy him a book on recent Federal Reserve history!

In any event, it is HIGHLY unlikely that "Helicopter Ben" will make the connection between below-market interest rates and the subsequent mis-allocation of resources which leads to the bubbles in the first place.

Thank God Bernanke isn't a dentist.  If he was one, he'd fill one cavity, only to "accidentally" cause two new cavities.  "What, me worry?"

The FED and Mr. Bernanke are no more the solutions to what ails us, than a tanker full of gasoline would be in putting out a raging inferno!

Now, the stage is re-set for a continued and misguided policy of below-market interest rates which will lead to hyper-inflation and be followed by the inevitalbe second dip into Depression.

My trading recommendations made from last Sunday's blog remain unchanged.  While much of it was premised on the possible replacement of Benanke with a Paul Volcker disciple, not all of it was.  A good portion of my concern had to do with factors such as the conditions of the charts, historical precedent, 4th quarter earnings reports and many other factors too numerous to give each justice.

So, for now, stay with the program.  I'll be watching daily and will alert you as to whether a mid-course correction needs to be considered.

If you're a Bernanke fan and wish to take exception, TAKE ME ON!

Marko's Take

Monday, January 25, 2010

Is California Real Estate Recovering?

It appears to be.  A slew of statistics are showing signs that the poster child for real estate devastation, California, is finally showing signs of returning to life.

Some recently released statistics provide a compelling case that things in The Golden State are getting much better.  According to the California Association Of Realtors (CAR), inventories of unsold, previously owned homes shrank to a five-year low in December. 

The supply of unsold inventory shrank from 5.6 months a year ago to the current number of 3.8 months.  More importantly, December's number is substantially lower than the peak of 16.6 months in January 2008. The current number is equivalent to that last seen in 2005 - during the mania in real estate.  By comparison the trough was about 1.5 months recorded in 2004.

Note:  this does NOT mean I am calling for a renewed mania.

The median price of an existing single-family home has risen 8.4% from one year ago to $306,000, making December the 10th straight month-over-month increase.

As to Southern California, sales were up 16.4% from November and 12% from December of last year, according to MDA Data Quick, a San Diego-based firm which tracks real estate trends from public property records.

December sales figures were the highest for that month since 2006.  MDA Data Quick's methodology compares like month to like month as opposed to "seasonally adjusting" numbers.  Despite the increase in sales, they remain 11% BELOW the average for a December as compiled over the last 22 years.

Nationally, the picture is not nearly so rosy.  Today, the National Association of Realtors (NAR), reported that sales had FALLEN to a "seasonally adjusted" rate of 5.45 million in December from 6.54 million in November.  The median sales price was $178,300 -  up 1.5% from one year ago. This was the first yearly gain since August 2007.

My call for a bottom in RESIDENTIAL real estate has generated some heat in the past.  I'm ready for ya!

Marko's Take

P.S. According to the latest vote tallies, it appears that Ben Bernanke WILL be approved for a second term.
I'll cover the implications of a second Bernanke term in the near future as new developments unfold.

Sunday, January 24, 2010

Preparing For The Coming Waterfall

Now that we've laid out the background as to why investors need to re-assess tactics, we can finally move on to suggesting some options.  This is the hard part.  For one, every investor's risk tolerances and goals are unique.  Second,  factors such as age and exposure to other risks need to be taken into account.  Since we can't do this on an individual basis for Marko's Take, we'll take a "rules-of-thumb" approach using the general categories of risk:  "conservative", "moderate", "aggressive" and "very aggressive".

As a disclaimer, I'd like to say that I am NOT currently a registered investment advisor and am only offering an OPINION.  You should NOT rely solely on what I've written, but possibly use this in conjuction with YOUR registered advisor and/or other investment professional before adopting anything written here today.

For investors who might believe themselves to be conservative, the best approach, in my opinion would be to go to cash and wait the storm out, before making any further commitments.

Moderate investors have more options.  At at minimum, they should lighten on all long exposure.  My own rule-of-thumb would be to reduce investments by 50%, put the rest in cash and wait the storm out.

It starts to get tricky when we approach some sort of aggressive status.  I would still recommend a reduction of AT LEAST 50 % to all long positions, coupled with either a hedging strategy utilizing Exchange Traded Funds (ETFs) or Exchange Traded Notes (ETNs) to place some chips on the downside.  For Gold investors, the ETN which goes by the symbol DZZ would do quite nicely. It's a double-inverse play on the price of Gold with a leverage of 2.0. In other words, DZZ is designed to GAIN 2% for every 1% loss in the price of Gold on a daily basis.

Before I go further, it is extremely important to note that ETNs involve "counter-party" risk, and any use of them should be limited to the very short term and they should be scaled back if they indeed start to generate gains.  Unfortunately, if you begin to make decent money in an ETN, they get VERY volatile.  Therefore, I would view them entirely as a very short term play.  Diversify them, and take money "off the table" frequently.

For playing the downside in stocks, my personal view is the financial sector is in the greatest trouble AGAIN, and some very interesting ways of playing the waterfall exist. My personal favorites are FAZ, a triple-inverse ETN to the financial sector, or SKF, a double-inverse ETN. 

There also exist many ways to play the downside in various indicies like the Dow, Nasdaq, or Russell 2000 - an index of "small cap" stocks.  In waterfall situations, larger companies like those which make up the Dow or Nasdaq will normally perform better than the types of smaller companies which comprise the Russell. Therefore, I prefer to use TZA - another double-inverse play specifically designed to benefit from losses in the Russell 2000.

If you consider yourself very aggressive,  I would lighten up on all long exposure as much as possible and use some combination of the above mentioned ETNs to create a true downward playing portfolio.

Finally, we need to consider the "what if Marko is wrong again" scenario.  I believe that answer as to Gold is simple.  Use a material and sustained UPWARD breach of $1,100 as your guide.  I'd wait at least one day before taking action, and if such a breach does occur, I'll revisit Gold at that point.

As to stocks, I'd consider the 10,600 level of the Dow as my failsafe.  In other words, should the market suddenly reverse and rally upward through 10,600 then my cascading waterfall scenario would likely become null and void.  Again, should that occur or look like it might, I'll cover stocks.

Finally, it appears volatility is ready to jump and unless you have the stomache to deal with it, I'd sit this dance out.  The market may "bounce" on Monday, or it could "gap" lower, I have no idea.

I hope, after reading this, you're ready for Monday. 

Good luck!  If you have any questions, agree or disagree, you know what to do.  TAKE ME ON!

Marko's Take

Saturday, January 23, 2010

Obama's Big Swerve

Before we go into trading strategies, which I'll cover tomorrow, let's set the stage for the reasons as to why the sudden shift in tactics I urgently clammored for on Friday.

On Thursday, President Obama did something I would have thought previously unthinkable:  he took on the Wall Street Boys Club!  The President called for sweeping reforms by preventing "banks", such as Goldman Sachs, JPMorganChase, Bank of America and Citicorp from  running their own proprietary trading desks, sponsoring hedge funds and private equity funds.  This is big.  The "banks" won't be able to make any money unless they do what banks are supposed to do... LEND!

In addition, the President further surprised this pundit by distancing himself from Time's Man of the Year and current head of the Federal Reserve, Ben Bernanke.  Standing behind Obama was none other than the looming presence of Paul Volcker, who I maintain is THE BEST FED CHAIRMAN OF ALL TIME!

The significance of Volcker is NOT that he will replace Bernanke when his term expires.  Rather, it is Volcker"s presence ALONE which indicates that he will have significant input into the next FED chairman and the policies it employs now believed to be Vice Chairman Don Kohn.

Regardless of President Obama's motivations for these two moves, Marko's Take is KUDOS!

Now, let's go back a bit in history as to make it clear why Volcker's presence is such a critical piece of information.  Volcker was first appointed to the FED chair in 1979 by Jimmy Carter and continued for two terms into 1987, when he was replaced by Mr. Asset Bubble Sr., Alan Greenspan, aka the "Maestro".

Volcker gave the economy some tough medicine, which successors Greenspan and Bernanke were loathe to do. Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983.  The federal funds rate, which had averaged 11.2% in 1979, was raised by Volcker to a peak of 20% in June 1981. The prime rate rose to 21.5% in '81 as well!

Needless to say, the stock market did NOT react well then and I expect it won't now.  The Dow finally bottomed in 1982 before embarking on 20+ years of incredible wealth creation.  Even more revealing is that once Volcker's measures began to take root, the Gold market was in its final mania phase.  Gold topped in 1980 at $850 and went into a 20 year coma.

Therefore, as you may be gathering, we now have a game changer.  I learned the hard way, while managing my own series of hedge funds, that getting wedded to a particular outlook is DANGEROUS.  When one fails to acknowledge the significance of these sorts of events, one risks letting a cavity turn into a root canal.

The BEST loss is an early and QUICK loss.  That way one can re-group, digest the information and proceed accordingly.

It is now believed that Bernanke's tenure is so tenuous that he may not even last until the next planned FED meeting next week, to be replaced by Kohn on an interim basis.  Kohn's track record and views are not well known.  However, if they are intended to reflect Volcker's desires, then frankly they don't matter.

Democrats on Friday could not wait to distance themselves from Bernanke.  Defections included Barbara Boxer and Russ Feingold. 

I don't know about you, but right now I feel pretty audacious!  I have HOPE and you should, too, although the medicine will require a painful adjustment process.  But without it, there was no doubt that we were cascading down a path for which there might become a point of no return.

Tomorrow, we'll discuss how to play "Obama's Big Swerve" in both the Stock and Gold Markets. 

Disagree?  TAKE ME ON!

Marko's Take

Friday, January 22, 2010

Next Stage of Double-Dip Depression About To Emerge?

While signs of an economic recovery are indeed real (, what's important to us here at Marko's Take is the future.  Sure, we appear to be in a bona-fide recovery, but for how long?

Corporate earnings, which are streaming in for the Fourth Quarter, are hardly a blowout once the "improvement" in financial companies is stripped out.  Last year's period demonstrated record losses among the financial sector and this year the sector has returned to slight profitability... or so we're told.  The problem is that the accounting of financial companies is incomprehensible to virtually anyone - making it impossible to understand exactly what is going on.

Among financial companies reporting so far, Goldman Sachs turned in the best performance.  In part this was attributable to the firm's decision to greatly restrain bonuses - proving that even the world's most powerful firm can live without for at least a year.  Other companies were mixed:  JPMorganChase and Wells Fargo turned in solid performances, while Bank of America, Citigroup and Morgan Stanley lost a combined $5 billion.

But, the real problem which brings up the high probability of a short-lived recovery, is that the policymakers have continued the same low interest rate practices that got us into trouble in the first place.  And, given the country's $12 TRILLION National Debt, any rise in rates will do nothing but exascerbate the deficit, which is already at mind-numbing levels.  For every 1% increase in rates, the addition to the deficit will be $120 billion!  Imagine if rates were allowed to float to say 5%.  That would raise the deficit by $600 billion, or, as some of us would call it, "real money".

I've used a "drug dealer" to "drug addict" analogy in describing the situation in conversation, but here it is in print.  Imagine the Federal Reserve as the drug dealer, dispensing its 0% interest rate policy as the drug of choice. This policy has led to asset bubble after asset bubble, finally culminating in the near wipeout of the world financial system in late 2008. 

So, now that the economy is "hooked" on low rates, what do our friends at the FED do?  They give us more  of the same "drug" that caused us to crash in the first place!  However, as occurs with all "addicts", the economy has built up a tolerance to the drug - making its efficacy vastly reduced.

That's what appears to be happening now.  Yes, unprecented stimulus and low rates helped re-start the economy's heart like a couple of electrified paddles, but the "high" was even more temporary than before and the inevitable crash will be LARGER than the one preceding it!

Even the ever optimistic FED isn't exactly overjoyed with the spotty recovery so far.  According to the most recent "beige book", a release of anecdotal activity around the various FED districts, policymakers remain concerned about continued high unemployment, low factory utilization, weakness in credit activity and commercial real estate.

So, while the temporary "bounce" in the economy has slowed the rate of deterioration in the quality of many people's lives, the sad reality is that it won't be long before the downturn resumes with a greater vengeance.  The only question is - when?

The stock market may be providing an answer.  Yesterday, it broke 213 points lower and could be on the verge of a nasty correction, or perhaps a resumption of the bear market that began in late 2007. 

If the break was indeed the beginning of a serious move lower, that would suggest an economic downturn is no later than 6 months away.   However, it's WAY too early to draw conclusive evidence from the last few days of trading.

At this point, given all this evidence, I WOULD HIGHLY RECOMMEND INVESTORS CONSIDER GETTING MORE DEFENSIVE.  I realize that I have predicted that the stock market would rise in 2010, but for the moment, it is acting like it wants to go much lower and in a hurry.

The same may apply for Gold.  Yesterday, the break of $1,100 occurred and was sustained.  At the very least, assuming that TODAY does not show otherwise, I would  become more defensive there, too.

While my longer term prediction for Gold remains the same, we are on the verge of the point where I would be careful not to get crossed up by a sharper correction than need be.

As I've stated many times before, the market does what it wants and WHEN it wants to, whether or not it has read Marko's Take!

Today is a critical day.  I'll have more over the weekend on U.S. stocks and Gold so that by the time trading resumes on Monday, I'll have proposed a plan.

Agree?  Disagree?  TAKE ME ON!

Marko's Take

Thursday, January 21, 2010

H1N1 Virus: The Audacity Of Hype!

Rivalled only by "Global Warming", the "swine flu" has all the earmarks of a costly government debacle.

So far, according to the World Health Organization (WHO), the H1N1 virus has killed 10,000 Americans, while all forms of influenza kill approximately 36,000 Americans annually!

Given these numbers, whose authenticity I have no reason to doubt, what's the big deal?  Let's put our sleuth hats on and FOLLOW THE MONEY!

It seems to me, I've heard something of a highly recommended vaccine.   And, like you, I'm sure Big Pharma's motives are completely humanitarian - in this case, Swiss-based Novartis.  As of November 19, 2009, more than 65 million doses of vaccine had been administered in over 16 countries.  Given a world population of nearly 7 billion, this means that 0.1% of the world has been vaccinated, thus making it obvious that the death toll has NOT been affected positively by the vaccine.

However, regardless of the triviality of the risk of death resulting from H1N1 itself, the COST of the vaccine is NOT!  New York City is a perfect example.  According to the New York Daily Times, protecting worried city dwellers from the virus - which did not claim nearly as many victims as feared -  newly released numbers showed an average cost of  $155 a shot.

The H1N1 panic peaked at the end of summer, when doomsday estimates put the possible death toll at 90,000 Americans.  Mayor Bloomberg unveiled a massive plan to vaccinate and educate the city.  Braced for a pandemic, the city spent $31 million on its swine flu campaign.

In most cities, the recipient pays little to nothing for the vaccine.  However, if the NYC example is extrapolated to the 65 million doses, the total cost  comes out to a "trivial" $10 billion!

The approval in the U.S. and Europe for Novartis' swine flu vaccine will help boost performance, with 90 to 120 million doses expected to be produced by the end of the year.  That is projected to increase fourth quarter net sales by $400 to $700 million.  Merry Christmas, Novartis!

To make matters worse, the cash cost is not the ONLY cost of the vaccine.  As it turns out, the "cure" itself is believed to be risky and even DEADLY.  According to a medical newsletter called "Mercola", the vaccine  contains cancerous cells from animals (

In fact, the insert to the vaccine admits to a wide range of side effects (

Sadly, this isn't the first "swine flu" fiasco.  A similar boondoggle occured in 1976 (  In the earlier debacle, history shows the vaccine was more deadly than the flu itself!!!!

Still want the "guvment" running health care?

You know what to do if you have some comments.  TAKE ME ON!

Marko's Take

Wednesday, January 20, 2010

Why Does Gold Appear To Be Temporarily On Pause?

Someone has failed to read the Gold script and the yellow metal is acting a bit unexpectedly weaker than expected at this juncture.  Some pundit, who regularly provides his "Take", has been anticipating a virtually immediate launch higher. That very same pundit is starting to wonder whether Gold has some more backing and filling to do.

Now "Let Me Make Things Perfectly Clear", as President Nixon used to say.  I have NOT changed my longer term view of Gold and Silver one iota.  I still anticipate a huge parabolic rise into at least early 2011, taking Gold up to something like $5,000 and Silver to about $300 per ounce!  The question is the path.

I believe the recent stall in Gold is partly the result of a sudden strengthening in the dollar.  Here's where things get complicated.  The dollar is possibly being used as part of a "carry trade".  What the hell is a "carry trade" you ask?  Ok, I'll 'splain.

Since interest rates continue to be so low, it pays to be a borrower and not a saver.  Unfortunately, the reverse ought to be true in order to turn the economy around, but as I've pointed out before, for every 1% increase in interest rates across-the-board, the U.S. budget deficit RISES by $120 billion!

Now, if we view the dollar and the low interest rates it "carries",  lending or "selling short" dollar denominated Treasuries can be employed to buy higher yielding assets in other currencies. That's a "carry trade".  Use a country's low rates against them and use another country's higher rates to create a "spread".  If the bonds used are both short term, one can create a virtually "risk-free" position, acting like a bank.  Borrowing low and lending high!  Carry trades are commonly employed by hedge funds.

The risk to any "carry trade" is that it can be suddenly unwound without notice!  Once speculators have piled on too many "sold short" dollars, they must eventually "cover" or re-purchase those shorts, which can be wicked if the short position is large enough! 

The dollar appears to be in some sort of short term bottoming process, possibly the result of some unwinding of the "carry trade".  If this is indeed the reason for the dollar's sudden strength, it is also acting as a temporary headwind against Gold. There is also speculation that last night's election in Massachussettes is contributing to a stronger dollar by foreshadowing a change in Congress. Whatever the reason, the dollar strength is making the precious metals sector appear more sluggish than it would otherwise be.

I DO NOT expect Gold to break $1,100 for any sustained period of time and with any materiality.  A break below $1,100 by say 3-5% for a half a day or so would constitute a warning that something of a more serious correction is in the works. 

In fact, the backing and filling process is now nearly 7 weeks old after the last interim top at the end of November.  As pointed out many times before, the market is re-energizing and the upward launch may still be a few weeks away. 

Whatever the "cause" of the pause in Gold really doesn't matter.  The fact is that it will ultimately do its thing when it's good and ready.  As long as rates stay so far below inflation and money printing continues unabated, the seeds for a serious move higher remain in place. 

So stay patient.  And, use this opportunity to accumulate whatever your own risk tolerances allow you to handle.  A good rule of thumb:  if you can't sleep at night, then you have too much at risk! 

Marko's Take

Tuesday, January 19, 2010

The Haitian Situation

Last week, Haiti was rocked by a devastating earthquake registering 7.0 on the Richter scale.  The country was ill-prepared.  Already, 200 thousand Haitians are believed dead, while one-third of the island's population of 9 million has been affected.

The disarray resulting from the earthquake has been massive.  Looting, rioting and violence have broken out as food, medical and water supplies have been exhausted.  This has led to a comprehensive multi-country effort in order to both keep the peace, but also to allocate and distribute vital supplies.

France has accused the U.S. of playing a heavy-handed role.  So far, the U.S. has sent 10,000 troops and taken over air traffic control.  As a result, planes carrying medical supplies have been allegedly and needlessly delayed.

This accusation by France appears to be as erroneous as their claim to the international intellectual property rights of "French Fries" and "French Toast".  Not to mention, that by now they would have surrendered to someone!

Haiti has ONE landing strip in its capital:  Port-Au-Prince.  The airport, called the Touissant Louventure International Airport is hardly what it's name implies.  It wasn't designed to handle the barrage of inward coming traffic and was not designed to handle the large jets used by Russia. 

The United States has made modifications to the strip to permit the larger planes and taken heroic efforts to allow an unprecented amount of incoming traffic. 

On Sunday night alone, 50 planes with supplies were able to land.  By Monday morning that number had exceeded 800!

Every flight in is critical.  Yet each inbound flight believes that their flight is THE most important. Thus, there is a need to prioritize given the very limited facilities that exist.

Fortunately, the European Union (EU) has distanced itself from France's accusations.  In fact, the EU has expressed gratitude for the heroic efforts of the United States in not only modifying the sole landing strip, but in recognition of the skill required to accept the hundreds of planes attempting to take off and land.

As Ban Ki-moon, UN Secretary-General, headed for Haiti to see for himself the extent of the worst humanitarian disaster that the world body has had to cope with in decades, concern grew over delays in the airlift to the capital’s airport, which is under US control.

Alain Joyandet, French co-operation minister, told reporters at the airport he had protested to Washington. He complained to the US ambassador about the US military’s management of the airport where he said a French medical aid flight had been turned away.

Marko's Take?  The U.S. deserves kudos.  Marko's 2nd Take?   Mr. Joyandet might wish to recall why his country continues to be known as "France" rather than referred to as "Germany".

Of course, if you disagree, you know what to do.  TAKE ME ON!

Marko's Take

Monday, January 18, 2010

Who's To Blame For The Loss Of Our Manufacturing Base?

NO ONE!   Let me "splain", as Ricky Riccardo might say.

Long ago, the U.S. was an agricultural leader, with 1 of 2 people making their livelihoods on the farm.  Following that came the "assembly line", which ushered in a period during which agricultural workers were drawn off the farms and into the factories, especially the early auto industry.

While this process temporarily displaced those who only knew milking cows or plowing fields, it was very good for society as a whole, as FEWER people were needed to grow MORE food and an embryonic and powerful manufacturing sector was born.  Today, only about 3% of the population grows enough food to feed our country and much of the rest of the world!

 Post World War II, another transition occurred as fewer employees were needed for manufacturing and a "Services" based economy came into existence. 

By 2006, according to (, services produced by private industry accounted for 67.8 % of U.S. Gross Domestic Product (GDP), with real estate and financial services such as banking, insurance and investment on top.  Some other categories of services are wholesale and retail sales, transportation, health care, legal, scientific and management services, education, arts, entertainment, recreation, hotels and other accommodation, restaurants, bars and other food and beverage services.

Production of goods accounted for 19.8 % of GDP:  manufacturing - such as computers, autos, aircraft, machinery - 12.1 %; construction - 4.9 %; oil and gas drilling and other mining - 1.9 %; agriculture - less than 1 %.  Federal, state and local governments accounted for the rest - 12.4 % of GDP.

An article in "Suite 101" explains why it appears the U.S. is losing its manufacturing base (

"So, how is it that manufacturing production continues to grow, while employment declines? Listening to Washington policymakers, one might assume that all the manufacturing jobs have simply been moved to Mexico or China, but that's only a part of the story -- and not even the largest part. By far, the biggest factor impacting manufacturing jobs is technology and automation -- e.g. smart robots. Don't worry, it is not the Terminator or the Matrix Americans have to fear, but automation is capable of higher functioning tasks than ever before and the scope of work robots are able to manage grows every year.

Even as companies open new facilities in the United States, the expected job creation just is not at the scale people are used to seeing because so much of a factory's operation is automated. There are even dark factories being built that do not have lighting because no humans are working there."

Economist Joseph Schumpeter argued that capitalism exists in the state of ferment he dubbed "creative destruction," with spurts of innovation destroying established enterprises and yielding new ones. 

What is taking place now is nothing new.   

The process of transition from one state to another is painful.  Many of us have been forced out of our safety zones and turned to practices such as blogging in order to re-create new livings.  In the short run, the process is distressing.  In the long run, the process is GREAT!

You know what to do if this article promotes some thinking or disagreement.  TAKE ME ON!

Marko's Take

Sunday, January 17, 2010

Why There Will Be Strategic Shortages And Civil Disobedience

In yesterday's blog, the one prediction which generated the most public and private questioning of my already dubious sanity, was my belief that we will see civil disobedience and riots resulting from key shortages of certain necessities.  I didn't site a link, as I hadn't written on the topic before, so I will go into detail today.

I don't think that the notion of some sort of coming hyper-inflation is a stretch by any means.  The Consumer Price Index (CPI) is not "restrained", as claimed by the adminstration and the Federal Reserve.  According to the Bureau of Labor and Statistics (BLS), inflation troughed in mid-2009 at MINUS 2% and has since risen to nearly 3%!

 As I've mentioned many times before, an excellent website called "ShadowStats" (, adjusts currently reported numbers to the methodology used prior to revisions in the algorithms employed during the Clinton Administration.  According to Dr. Williams, who makes the adjustments, the rate of inflation bottomed at an annual rate of 1%, but has now jumped to 6% in only a few months!

In the 1970's, as inflation began to super-heat, then President Nixon imposed "wage and price" controls.  It was a disaster and led to higher unemployment, lower economic growth and shortages of certain items, such as gasoline.  It is possible that the experience of "Richard E. Nixon", as Archie Bunker would say, will be repeated by the Obama administration as the result of a clammoring for relief by hard hit Americans.

Shortages could occur for a variety of other reasons, such as a renewed economic slowdown, increasing trade barriers, war or a plethora of other possibilities! 

Should the Obama Administration succumb to the desperation of the populace and impose wage and price controls, the shortages will recur.  The U.S. is already experiencing some civil disobedience.  Riots have occured in Great Britain.  Therefore, could my prediction be so far-fetched?

I truly hope this prediction is wrong, but I'm afraid it won't be.  Assuming I am indeed correct, are you prepared?  If not, why not?  Especially now that you've read the blog!

Thanks for reading!

Still don't think my prediction has merit?  You know what to do!  TAKE ME ON!

Marko's Take

Saturday, January 16, 2010

10 For 10: 10 Predictions For 2010

Every pundit puts out an annual list of what to look for in the upcoming year.  Most do so in either late December or very early January.  It's now this pundit's turn to give his "Take".

In no particular order of importance, I expect to see the following:

1.  The economy, currently in "recovery" mode, will start to sputter by no later than the middle of the second quarter, and will cascade lower into the end of the year (

2.  Residential home prices wll RISE through 2010 (

3.  Commercial real estate collapses, led by closures of strip malls and the failure of small businesses (

4.  Stocks RISE in 2011 (

5.  Republicans take the House and the Senate.

6.  Interest rates will remain low throughout the year (

7.  Some version of a "Windfall Profits Tax" gets enacted on oil companies.

8.  Obamacare does NOT pass in anything close to its current form, unless via executive mandate (, (,

9.  Shortages of necessities such as food, water, gasoline and other staples will lead to unprecedented civil disobedience and riots.

10. Gold will reach something in the order of $5,000 and Silver $250 per ounce by the end of the year or early 2011.

11.  I will make an 11th prediction:  The U.S. Dollar will be virtually, if not entirely relegated to second-tier status.

As you can tell from the 11th prediction, at least one of my forecasts came true.  I did indeed make an 11th prediction! 

You didn't think I'd take a chance on going 0 for 10 did you?

Thanks for reading!  If you have some predictions of your own or think I missed mentioning one, you know what to do:  TAKE ME ON!

Marko's Take

Friday, January 15, 2010

Commodity ETFs As A Way To Play The Coming Hyper-Inflation

Before launching into this essay, we must first make a distinction between an ETF (Exchange Traded Fund) and an ETN (Exchange Traded Note).

An  ETN is a senior, unsecured, unsubordinated debt security issued by an underwriting bank.  Similar to other debt securities, ETNs have a maturity date and are backed only by the credit of the issuer!  Therefore, they carry "counter-party" risk, as do derivatives.

ETNs are designed to provide investors access to the returns of various market benchmarks. The returns of ETNs are usually linked to the performance of a market benchmark or strategy, less investor fees. When an investor buys an ETN, the underwriting bank promises to pay the amount reflected in the index, minus fees upon maturity. Thus, an ETN has additional risk compared to an ETF - upon any reduction of credit ratings or if the underwriting bank goes bankrupt, the value of the ETN will be eroded.

For those reasons, I think ETNs should be avoided while ETFs are much, much, safer.

The number of ETFs and ETNs for that matter, have exploded in issuance and continue to do so.

If you want to play various commodities or even currencies, a number of ETFs exist for that purpose.

In the Metals sector, ETFs exist for Platinum (PPLT), Palladium (PALL), Gold (GLD) Silver (SLV) and Gold and Silver Mining Stocks (GDX and GDXJ).

As to Agriculture, one can play overall agri-business with DBA.  A rather large variety of  currencies have ETFs.  One can invest in the Australian Dollar (FXA), Brazilian Real (BZP), Canadian Dollar (FXC), Chinese Yuan (CYB), Euro (FXY), Indian Rupee (ICN), Mexican Peso (FXM), Pound Sterling (FXB),
Russian Ruble (XRV), South American Rand (SZP), Swedish Krona (FXS) and Swiss Franc (SXF).

Other commodity-related ETFs include Oil (USO) and (USL), Gasoline (UGA), Heating Oil (UHN) and Natural Gas (UNG).

Before you dive-in, make sure that the ETF does indeed accurately track the underlying index!  One ETF that has done an abysmally poor job is USO, which has embarrasingly underperformed oil prices.  I've also expressed concerns about GLD in prior essays.

A couple of other interesting ETFs include meat products (MOO) and water resources (PHO).

Note:  I'm NOT recommending any of these.  The only ETF I have experience with is TIP, which mimics Treasury Inflation Protected Securities ( and GDXJ..

Tommorow, we'll cover some interesting ways of hedging against inflation without going through the ETF route.

Thanks for reading!

Marko's Take

Thursday, January 14, 2010

Venezuela Devaluates: What Does It Mean?

Late last Friday, Venenzuelan President Hugo Chavez, announced the implementation of a new exchange rate that includes two official prices for the dollar.  One of these, referred to as the "Oil Dollar", was devalued by 50%!

The other exchange rate, for the Bolivar (VEB), will be reset, from 2.15 to 2.6, and will be used for transactions in food, health, machinery and equipment, science and technology, as well as anything related to the public sector.

The devaluation of the VEB will adversely affect several large companies doing substantial business in Venezuela, such as Avon Products, Colgate Palmolive, General Cable, Goodyear and Kimberly Clark.

Venezuelans rushed to shops, fearful of further price hikes following the announcement of the develuation.
The move weakened President Chavez politically and opponents are gearing up for a fight in the upcoming Presidential election in 2010.

Finance Minister, Ali Rodriguez, said the devaluation will add 3% to 5% to the country's inflation rate, which is already the highest in the Americas:  currently at 25%!

However, the devaluation will add substantially to oil revenues and puts more Bolivars into public coffers, which will benefit holders of Venezuelan debt.

This move by Venezuela may mark the beginning of a trend as countries try to improve their various trade balances. 

Thanks for reading!

Marko's Take

Wednesday, January 13, 2010

Trade Deficit Continues To Widen

Which is surprising, for several reasons. 

Normally, a country trade deficit or surplus is largely the result of the relative strength of its currency.  In the U.S., the dollar has been cascading lower from its peak in March, 2009, to its trough in December, as the dollar fell by 18%.  It has bounced a bit since then, but remains a very short distance above its bottom.

When a country such as the U.S. runs a trade deficit, it must be offset by a surplus in finance.  In the past, our trade deficits were "balanced" by other countries buying Treasuries.  But, that's changed.  It seems that, as a result of our reckless spending, money creation and bailouts, large dollar holders such as China, Russia, Saudi Arabia and India want nothing to do with our crippled dollar.

The trade gap grew by nearly 10% to $36.4 billion from October's revised figure of $33.2 billion.   November's number was the highest since January, 2009, despite a drop in the dollar of approximately 15%.
A large portion of the trade gap resulted from higher oil prices.  As you may note, this "explanation" for the trade rise is a bit circular.  One reason, but NOT the main reason for the rise in oil prices, is the fall in the dollar!

"Now for Something Completely Different", as Monty Python would say.  In Great Britain, according to the Office For National Statistics Data,  the U.K.'s trade deficit SHRANK with non-European Union (EU)countries from 3.8 billion pounds to 400 million pounds.  The deficit with non-EU countries widened by 200 million pounds.  The pound is currently worth $1.62.

Canada's trade position reversed from surplus to deficit last month.  Imports leaped by 3.9% while exports slipped by 1.1%.  Canada has now posted deficits in 4 of the last 5 months.

Global trade cannot have either a surplus or deficit since the "books" of all trading partners must be in balance at all times.  However, overall Global trade can rise or fall, primarily as the result of weakness or strength in the world economy.  According to the World Trade Organization (WTO), global trade bottomed in March, 2009.  Regardless, on a year-over-year basis, world trade is down by approximately 10%.

Thanks for reading!

Marko's Take

Tuesday, January 12, 2010

Gold: The New Rocket Man

It won't be a long, long time! Gold is massing for a potential upward vault into record territory that should last at least a year. 

It may pause for a bit now and at further points in the future, but liftoff is being counted down at "Cape Carnival", as Archie Bunker might say!

The only sign that would nullify this prediction would be a sudden and sustained reversal to below $1,100.

So, let's assume for the moment that I am indeed correct.  The next stop ought to be somewhere in the vicinity of  $1,200.  After that I don't have any idea what kind of pullback will occur.

The liftoff has plenty of fuel, amongst which is the imminent War with Iran  (, the continued deterioration in the dollar and the growing difficulty in finding buyers for Treasuries.

If you haven't invested in Gold already, do so immediately, but don't do it in an IRA or 401-K.  I realize that I've been insisting that deferred income vehicles be used, but because of multiple sources of information I've just received, which I believe to be credible, that might not be a good idea.  Instead, you may try physical Gold, but don't place the gold in a safety deposit box (

If you buy physical gold make sure it isn't counterfeit (

Thanks for reading,

Marko's Take.

Monday, January 11, 2010

California's Crisis Deepens... Part 6

California's fiscal situation contiues to get more bleak.  The budget is projected to have a deficit of $20 billion, despite a total of $60 billion in program cuts, tax hikes and Federal bailout funds enacted last year!

Lawmakers are stuck in a stalemate:   Republicans, such as Governor Arnold Schwarzenegger read Bush 1's lips: NO NEW TAXES!   Democrats are being equally obstinate by refusing to sign any spending cuts.  This suggests that the budget will once again be forced to extend its legal due date and IOUs will need to be issued AGAIN!

Democrats control the Legislature and are dismissive of the proposed budget.  In additon, they view the proposal as nothing more than a re-tread of last year's budget, which was rejected.

Democrats do applaud the $6.9 billion owed to the State as a result of various mandates.

The Governor has been particularly sharp in his criticism of Democrats, declaring in his usually upbeat State-of-the-State address,  that the Federal Government is partly to blame.  He also appeared on NBCs "Meet The Press"  and said that the Democratic legislature was also at fault.

Schwarzenegger particularly irritated Democrats by taking umbrage with the possible Federal medical overhaul known as "Obamacare", which would pile billions in spending onto the state.  Yet the Governor pushed his own version of healthcare reform only 3 years ago!

Schwarzenegger DOES have some valid points.  The Federal Government has failed to protect the state's borders, which cost California nearly $1 billion.

If the $6.9 billion does not materialize,  The Governor will aim to eliminate the State's welfare program called CalWorks.  He will also terminate the healthy families healthcare program for poor kids.  He'd also remove the program called In-House-Services, which provides care for the elderly and disabled.  Furthermore, the plan would include an additional 5% reduction in wages on top of the 10% cut enacted already! 

California's budget negotiations will prove quite messy.  But the election of 2010 will undoubtedly shake things up and hopefully end the stalemate.

Thanks for reading!  Tomorrow, we re-visit Gold.

Marko's Take

Sunday, January 10, 2010

Looking For A Great Gold Newsletter?

Marko's Take shouldn't be confused with Consumer Reports!  In this piece, we'll do a comparison of several newsletters in various factors, such as Frequency of Publication (FOP), Price, Recommendations and Timing of Stocks (RTS) and Accuracy (ACC).  Finally, we'll assess each newsletter on an Overall basis.

With that in mind, the newsletters to be reviewed are:   Bill Murphy's LemetropoleCafe, Clive Maund's Clive Maund, David Nichols' Fractal Gold, Adam Hamilton's Zeal Speculation and Investment, Jay Taylor's Gold, Energy And Tech Stocks, Przemyslaw Radomski's Sunshine Profits and Chris Vermuelen's The Oil And Gas Guy.

Dimensions :                       FOP      PRICE     RTS     ACC    OVERALL
LeMetropole Cafe                    A             A            B          B+            A-
Clive Maund                             A             D            A          A-            A-
Fractal Gold                              A             F           D           A              D+
Zeal Spec And Inv.                   F             A           C           D              D       
Gold, Energy and Tcch            A            D          A           A              B
Sunshine Profits                       A            C            A          A              A-              Oil and Gas Guy                       A             C         A               A           A-

Consumer Reports watch out!  Marko's Take is onto ya!

Thanks for reading!  Most of these have free trials, so if you're in the market for a great newsletter, take a test drive!

Tomorrow we'll do part six of the California Crisis series.

Marko's Take

Saturday, January 9, 2010

Economic Signs Are Pointing Up!

The economic recovery is very well under way according to a slew of recently released data.

Economist Chris Varvardes of Macromedia Advisors, LLC, estimates the U.S fourth quarter Gross Domestic Product grew at 5.4% annually!

Overall Chistmas sales grew by 3.8%, a vast improvement over last year's numbers which FELL by 3.4%!
Various retailers reported their own stats.  TJMaxx led the pack with same store sales rising a whopping 14%, while giants Ross, Nordstrom and Saks came in at 12%, 11% and 9.9% respectively!  Only JCPenney and Abercrombie & Fitch both FELL by 3.8% and 19% respectively!

Even John Williams ( reports that some economic facts are improving, albeit from his accurately adjusted factors.  He estimates the Payrolls FELL by 500,000 rather than as reported 85,000, but is a vast improvement over prior numbers he has computed. 

Marko's Take?  Things are looking up!

Thanks for reading.

Marko's Take

Friday, January 8, 2010

"What Exactly Is Peak Oil?... Part 2

There are more reasons for concern regarding the concept of "Peak Oil", which were outlined yesterday. 

First and foremost are the rapid quantity and quality of oil reserves.  Saudi Arabia hasn't had its reserves verified in decades.  It's certain that something is amiss.  Most of the exports from Saudi Arabia have deteriorated to a vastly lower quality oil.  Crude is actually a blend of many hydrocarbons.  The most valuable portion of a barrel is Jet Fuel, which is also known as kerosene.  Next is gasoline which is followed by Diesel Fuel.

Crude Oil also is referred to as either "sweet" or "sour".  The level of sweetness is dependent on the amount of sulphur found in the oil.  The less sulphur, the better.  Oil is also classified as "light" or "heavy".  Light refers to the proportion of the higher valued liquids, such as kerosene, gasoline and diesel.  Sour oil is filled with large amounts of Residual Fuel Oil and Tar.  "Resid", as it's known in the trade, is used on marine vessels, as it is known to be highly pollutive.  Tar is known for its use in paving roads.

Saudi Arabia exported light-sweet crude, but now exports heavy-sour crude.  So clearly, the good stuff is going.  Venezuela, another very large oil exporter, also delivers heavy-sour crude.

Even the worst quality crudes can be converted into more valuable products through refineries which have "crackers".  No, I don't mean graham crackers!  Crackers actually split the molecules, thereby allowing the transformation from heavy to light.  The longer the molecule, the heavier the product.  But cracking is expensive and the number of refineries with the requisite technology is falling behind the deterioration in crude.

Only a few countries, such as Russia, are producing increasing quantities of light-sweet crude, while most countries are on the decline in quantity and quality.

Marko's Take?  Peak oil is coming faster and becoming more dangerous at a rapidly accelerating rate!

Tomorrow, we'll re-examine the latest economic data as new information continues to appear.

Marko's Take

Thursday, January 7, 2010

What Exactly Is Peak Oil?... Part 1

Peak oil refers to a hypothesis originated by M. King Hubbert in 1956.   He accurately predicted that U.S. production would crest between 1965 and 1970.  U.S. production topped at 9.4 MM barrels in 1970.  His model, known as "Hubbert's Peak" suggests that a non-renewable resource will follow a roughly symmetrical bell-curve shape based on the limits of exploitability and market pressures.

Hubbert also predicted that world production would peak shortly after 2000.  He was right.  World oil production peaked in 2005 at approximately 85 MM barrels per day.   However, given the unprecedented rise in oil prices in 2008, output slightly exceeded the prior peak as various countries like Saudi Arabia took unprecedented measures to boost production in order to keep prices from skyrocketing further.  We know that the subsequent crash in oil prices caused production to be curtailed, so 2008 will prove to be the year of maximum oil production.

But, how do we know that production won't rise again as a result of the discovery of some major oil field?
Elementary, my dear Watson!  There are no new fields large enough and close to production that could possibly offset the inevitable decline in the production of existing fields.  In order for any field to begin production, it must first be found, drilled and delineated BEFORE any meaningful production occurs.  That process takes many, many years.  So, by the time a GIANT oil field comes into production, the existing fields will be well into decline and the new field will only slightly offset the decline.

What about synthetic crude such as Tar Sands or Oil Shale?   At this time, neither are significant except to a few countries.  Shale oil, touted as the next big thing has been known since the 1950's, yet no significant production from that source is in existence!  It isn't a matter of price.  Oil shale is "energy intensive", meaning that it requires a lot of energy to produce energy under current technology.  Therefore price is meaningless!

Tar Sands are produced, especially in Alberta, Canada.  However, current production is only 1.2 MM barrels per day.

The ONLY reason Peak Oil might be incorrect would be the belief that oil is renewable as some have argued.  This argument is ridiculous!  Air and water are renewable as they are both composed of gasses.  In the case of water, Hydrogen and Oxygen, while air is composed primarily of Nitrogen and Oxygen.  Crude Oil is composed of Hydrogen and Carbon, so it doesn't share similar properties.

Finally, the U.S. has known about Peak Oil for years, as Hubbert's predictions have turned out to be uncannily correct.  We invaded Iraq in 2003.  Wonder if there was a connection?

Tomorrow we'll continue our "Take" on Peak Oil.

Thanks for reading!

Marko's Take

Wednesday, January 6, 2010

Have Any Interest In The Future Direction of Rates?

I do.  And, I'll bet you do, too.  Interest rates affect so many factors in our financial lives.  They determine our compensation for saving, affect our willingness to take risk, cause or deter us from borrowing or lending and many, many other decisions.

Currently, interest rates are embarassingly low.  For example, the 4-week Treasury Bill rate is a whopping .025%.  But don't worry.  If you only extend the maturity to 6 months, you'll receive a very generous 0.18%.  See?  No problem.

Now if you really have a strong stomach and can wait two years until your Treasury Note matures you can actually earn 1.09%.   Still not satisfied?   You can buy notes maturing in five years and get 2.65%.  If that doesn't float your boat, you can buy 10-year notes and receive 3.85%.  If that doesn't do it, you must be one major ingrate!

If you have the willingness to invest in Corporate Bonds, rated BAA by Moody's, you could receive 6.39%.
BAA is the lowest rating above "junk bonds", the type that default often.  Great risk/return profile, eh?

It would seem that the only direction interest rates can go is up, but before you conclude that, read further.

The National Debt exceeds $12 trillion!!  For every 1% across-the-board increase in rates, an additional $120 billion would be added to the budget deficit annually!  I contend, therefore, that rates will continue ridiculously low for a long, long, time, despite Fed Chairman Bernanke's suggestions that rate hikes are "on the table".   The very same man, who along with his predecessor Alan Greenspan, have succeeded in one thing only:  creating asset bubble upon asset bubble only to attempt to cure the very bubbles they created with the identical medicine which CAUSED the bubbles... low interest rates.  Ben Bernanke as "Time 's "Man of the Year"   Great choice!

Tomorrow, we'll take a peek at "Peak Oil".  If you don't know about "Peak Oil", I hope I have your interest piqued.  See ya then.

Marko's Take

Tuesday, January 5, 2010

Gold's Time To Sparkle Has Just Begun!

The fireworks, which I believe will prove to be life-changing, have just started.  Gold, Silver, Platinum, Palladium and virtually every commodity appears poised to launch into their final maniacal phase.

If you haven't yet invested in one of these areas, I highly recommend you do so IMMEDIATELY.

Let's review a few key indicators. 

One is the Dow/Gold Ratio (DGR), which currently stands at 9.45 (10,583/1,120).  In prior manias, the DGR has approached between 1 and 2.5.  If this mania follows the script, an ultimate peak for Gold would be between $4,233 and $10,583!  This, of course, requires that the Dow remain unchanged.

Next, we can "inflation-adjust" Gold relative to its prior peak of $850 reached in 1980.  If we use the excellently revised inflation statistics computed by ShadowStats (, we arrive at a projection for Gold of approximately $7,500!

We can also revisit the HUI/Gold ratio (HGR).  This ratio closed yesterday at 0.4 (447.81/1,120).  The HGR typically varies between 0.4 and 0.6.  Applied today, this would suggest a Gold price of about $1,850 immediately!

We can also apply the Silver/Gold Ratio (SGR).  Yesterday, the SGR closed at 63.76, while as recently as November, 2008, it reached about 85.  It has been as low as 17 during the last mania in Gold and Silver in 1980 ($850/$50).  Applied today, that ratio would suggest a price of Silver at $65 IMMEDIATELY.  And given my guesstimate of Gold's ultimate target of $5,000, Silver might reach $300!

Neither Gold nor Silver has reached anything approaching these targets ...  yet.   But, the case that both Gold and Silver are heading much, much higher is COMPELLING!

Tomorrow, we'll "yield" some clues as to what might become of interest rates.

Thanks for reading!

Marko's Take

Monday, January 4, 2010

What Exactly Is A Hedge Fund?

A pretty damn good way to either make or lose a lot of money!  Hedge funds are a form of pooled capital, such as a mutual fund.  However, compensation structures are vastly different!

Mutual funds typically charge a fixed management fee - usually in the range of .50% to 1% of assets annually.  They also carry administrative fees which are normally very near .25% per year.  Some have fees for their sales, called "loads".  These fees can be quite expensive - as much as 5% up front!  But, loaded funds are relatively few.  I advise that you NEVER buy a loaded fund!

Hedge funds are all about compensation!  I should know.  I ran a series of hedge funds for years.  Typically, the management fee runs 2% per year in addition to some sort of reimbursement for expenses, which is highly variable, but not usually less than 1% annually.   The way that hedge funds produce exorbitant riches for their sponsors is through a "performance fee" assessed by scooping a portion of the fund's profits.  Performance fees are typically 20% of the fund's profit minus a benchmark such as the T-Bill rate.

One problem with hedge funds is, that while they charge you for winning, they don't "eat it" for losing!  Unless they contain a provision known as a "highwater mark".   That feature allows investors to recapture losses, but only after profits have been made.  For example, if a fund's performance fee is $1 million, it will discontinue earning addition performance fees until the highwater mark of $1 million has been exceeded.  In NO circumstances, that I'm aware of, do hedge funds ever return MORE than the highwater mark.  Said differently, performance fees can NEVER drop below zero on a cumulative basis.

Because of the nature of performance fees, hedge funds are highly incentivized to take excessive risk.  "Heads I win... Tails I win!

I've never heard of a mutual fund going belly up, yet, hedge funds are famous for a variety of scandals, sometimes resulting in a complete and total loss to investors.  The most recent and notorious example is the Bernie Madoff caper.  But, there have been many, many others!

Finally, the term "hedge fund" is a misnomer as many, if not most funds, do no hedging at all!  A "hedge" involves taking some sort of position designed to partially offset another position.  For example, a hedge might consist of buying certain stocks, while simultaneously offsetting the risk via the short sale of other stocks, but not the same stocks.

Tomorrow, we'll put a "shine" on the Gold and Silver Market.

Marko's Take

Sunday, January 3, 2010

"A Bottom In Real Estate?"

While I'm not sure by any means, I DO think so.

Most folks that I know in the real estate biz think that we are headed for a lower leg downward.  I, and the very extensive staff at Marko's Take, unanimously and respectfully, disagree.

For one thing, any opinion to be so unanimously accepted is very rarely correct.  Secondly, the very nature of the panic selling is another tipoff that the bottom just MIGHT be in.

There also exists historical precedent.   In the 1970's, a period of "stagflation", Califonian real estate went bonkers!  And, despite the sky high interest rates prevailing!

There is also this factor called inflation.  It's now creeping higher and will undoubtedly affect housing prices upward also.

According to the Wall St. Journal, in an article titled "Redefault Rate Decreases For Restructured Mortgages" (, the rate of redefault has dropped significantly.  The report referenced covers the top 13 mortgage service providers and represents 64% of all outstanding mortgages!  I find this little nugget OUTSTANDING!

The National Association of Realtors has also weighed in.  Its reports indicate that sales rose 7.4% from October to November to a seasonally adjusted rate of 6.54 million - the highest rate since February, 2007! 
Furthermore, sales were 44% above their trough from the November 2008 low!

The California Association Of Realtors just released ITS statistics.   Single-family home sales inreased by 4.7% to a seasonally-adjusted rate of more than 500,000 units.  The state-wide median price rose 2.4% to $304,000.  Unsold inventory fell to 4.5 months, down from 7.1 months in November, 2008.

So, while a bottom in real estate is too early to be verified, all the "signs" indicate that something good is taking place.

Tomorrow we'll unravel the mysterious world of Hedge Funds. 

Marko's Take

Saturday, January 2, 2010

Why Does The Stock Market Act Like The Energizer Bunny?

It keeps going and going and going.  And, not to the men's room!

Being serious, the stock market rally has me a tad puzzled for a variety of reasons which I'll outline. 

A rally off the March lows was very expectable to something like 9,500, which would roughly be the midpoint of its all-time high of approximately 14,000 and recent low of 6,600.  Yet, it has been recently flirting with 11,000, closed the year at 10,428 and change and seems poised to shoot higher still!

This has various market timers, especially those empolying an idiotic system known as the "Elliot Wave" in a complete snit and ready for the loonie bin, if they're not there already!  I realize that most readers will not be familiar with the Elliott Wave, but it can be "googled" in Wikipedia.  If you DO read about it, you'll realize how utterly complicated, ridiculous and unreliable it is!

According to the Wall St. Journal, the reason for the rise is the unprecedented stimulus and money creation by the Federal Reserve, Treasury and Obama Administration.  According to Marko's Take, it is not.  According to others, the stock market is anticipating a powerful economic recovery, especially by the talking heads at CNBC!  Again, according to Marko's Take, it is not.

As you've gathered, my "thesis" is entirely different!  I believe the ongoing rally is a combination of two factors:  the severely needed bounce off the March lows and market manipulation by the troika consisting of the Federal Reserve, Treasury and Goldman Sachs.  As to where it goes from here, I ain't got the vaguest!

Hope you had a most joyous New Year.  Your's truly definitely did.

Tomorrow, we'll review the situation in real estate.

Marko's Take

Friday, January 1, 2010

A Worsening Score For Professional Sports?

No Major League sports team has ever collapsed... yet.  If a team has gotten into financial difficulties, it has either been sold, re-located or merged into another team.  So have leagues.  For example, the American Basketball Association was merged into the National Basketball Association.  Ditto for the American Football League, which was folded into the National Football League.

But there is no doubt times are changing for the worse.  In Los Angeles, ticket holders of the VERY popular Lakers, have been forced to part with some seats at BELOW face value.  Until very recently, this has been unthinkable!

It's very easy to figure out the problem:  most teams are stuck with very costly long-term contracts, while costs of attendance, for the most part, remain sky high!   In this economy just how many folks can dish out a few hundred smackers to bring a family of four?  By the time you add up the ticket, parking, food and beverages, things can get quite pricey.

Bringing down salaries may prove problematic, at least in Baseball.  Players are well known for their lack of flexibility, having gone on strike numerous times and even once forcing the cancellation of the World Series!
Now don't get me wrong.  I'm not necessarily blaming the players - the owners were every bit as stubborn!

Reports are that Major League Baseball has lent money to Texas Ranger owner Tom Hicks and will continue to do so until the team can be sold.  Hicks made the mistake of signing player Alex Rodriguez to a ten year deal worth $252 million, the highest in baseball history!  Yet despite the addition of Rodriguez, the team finished LAST in each of the following three seasons!

The Yankees cut their most expensive seats in half.  But, before you whip out the hankie and begin to boo-hoo, those tickets originally went for more than $2,500!  So now they're a mere $1,250 and change.  Those generous guys!  I would think of this as something of a Christmas gesture, but the decision took effect last May.

But the generosity just keeps on a comin'.  Hockey's Ottawa Senators just announced free parking!  But before you jump for joy, there is a significant catch.  Beneficiaries will be limited to those fans having season tickets for at least 5 years!  The Senators will also reduce ticket prices next season.  But some of those reductions are a whopping 2%!  Others will reach 33%, so we can't entirely condemn their gestures.

Of course, these mighty acts of generosity are the result of falling attendance.  So far, however, the drop in visitors has been held in check.  Baseball attendance last year fell by a minor 5%.  Football attendance has also fallen, but less than the 5% experienced in Baseball.  Basketball attendance, thus far, is actually UP as is Hockey's!

It would seem inevitable that attendance will fall next year for nearly every league.  But, that remains to seen.

I hope you had a Happy New Year and aren't too hung-over to read today's blog.

Tomorrow we'll revisit the Stock Market.

Marko's Take