Tuesday, October 26, 2010

And Now For Something Completely Different: Negative Bond Yields

Treasury Inflation Protected Securities, or "TIPs", as they are popularly called, are U.S. Treasury Bonds that have a built-in mechanism to adjust returns for increases in the Consumer Price Index (CPI).  For a more detailed explanation on how they work, click here: http://markostake.blogspot.com/2009/12/tips-on-grabbing-higher-yields.html.

Yesterday, the U.S. Treasury sold $10 billion worth of TIPs which had a NEGATIVE cash yield of 55 basis points, or -.55%, with a 50 year maturity.  Huh?  How can yields be negative?  Does that mean that investors are so stupid that they would pay to lend money?  No, the adjustment feature as described in the piece linked above, adds to total return.  But, if the CPI were to come in at zero, then yes, investors would actually pay Uncle Sam for the privilege of lending him money.

Historically, cash yields on TIPs have tended to be in the positive 1-2% range.  Not today! 

So, what does this mean?  Investors are so worried about inflation eating away at their cash yields, that they will pay handsomely for inflation protection. 

What inflation?  Latest figures for the CPI have come in at a scant 1.1%.  That means that the total expected return for a TIP would be a positve .55% (the 1.1% inflation rate less the .55% negative cash yield).  Before you howl, keep in mind that the adjustment feature means that TIPs have the risk of  6 month Treasury Bills, which yield something on the order of .25%.  By comparison, a decent deal.

So, other than the fat half-percent yield, why should anyone buy these?  Simple, hyper-inflation is not only likely, it is inevitable.  Proof?  A falling dollar, an accelerating commodities market and most significant of all, the now snorting bull market in precious metals.  Oh, and let's not forget that none other than "Helicopter" Ben Bernanke's belief that inflation is TOO LOW! 

The only reason we have NOT yet seen the explosion in inflation is something called monetary velocity.  For a fuller explanation of this aspect of money supply, click here:  http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.

For investors, all roads lead to Gold, Silver and precious metals stocks.  While it appears that we are in the midst of a sharp correction, this will only be a minor bump on the road to MUCH higher prices.  For a review on where we are in the "Mother Of All Bull Markets", click here:  http://markostake.blogspot.com/2010/10/correct-me-if-im-wrong.html

The Federal Reserve, entrusted with controlling inflation, is actually the engine of inflation.  For a more thorough explanation of the Fed, as it is known to its friends, check out this video as to how it is supposed to work, versus how it has actually fared:  http://www.youtube.com/markostaketv#p/u/5/JiGA8XeZbUo.

With friends like these.....

Marko's Take

Friday, October 22, 2010

Reid His Lips: No Global Depression

You gotta LOVE them Democrats!  Al Gore, for example, not only invented the internet but also concocted the fraud popularly known as "Global Warming".  Of course, he has slightly forgotten the facts and chosen to conveniently appeal to voter's emotions http://markostake.blogspot.com/2010/08/very-inconvenient-truth.html.  Sorry, Al, but your nose is growing!

Now Harry Reid, soon-to-be outgoing Senator of Nevada is taking credit for single-handedly preventing a Global Depression.  Ridiculous?  Here is Mr. Reid telling us that:  http://www.breitbart.tv/reid-but-for-me-wed-be-in-world-wide-depression/.

Mr. Gore and Mr. Reid brilliantly never allow the facts to get in the way.  Mr. Reid's constituents, however, may politely disagree.  New data on Las Vegas' economy would tend to cast a wee bit of doubt on his preposterous assertion.

Joblessness in Las Vegas reached a record 15%  in September, even as unemployment in Nevada stayed unchanged in the month, according to new numbers from the state Department of Employment, Training & Rehabilitation.

Despite worsening local conditions, the state's jobless rate failed to rise for the first time since January. Unemployment in the Silver State stayed unchanged in September at 14.4% . On top of being the first stabilized state number in 2010, it's only the second time the jobless rate remained steady since the recession's beginning in December 2007.

Las Vegas also happens to be the home of the one of the absolutely worst real estate markets in the nation.  Enquiring minds, especially the sagacious readers of "Marko's Take", wonder how Mr. Reid could possibly have had any positive effect on the entire planet, when the rather small town of Las Vegas could be suffering so.  Would someone out there in reality-land please send him this blog?

Last I checked, unemployment in Las Vegas and in the entire country for that matter, was well in excess of 20%, especially when the phony stats are adjusted for incidental factors such as folks that have given up looking for a job, because it's practically impossible.  All you have to do is subscribe to the wonderful publication known as "ShadowShats" (http://shadowstats.com/) to understand the ongoing fraud known as government economic statistics.  Talk about an oxymoron!

Or, if Mr. Reid would consult one of the Democratic Party's best known benefactors, Mr. Warren Buffett, he might come up with a different conclusion  http://markostake.blogspot.com/2010/09/open-letter-to-warren-buffett.html.  Ironically, I have yet to hear back from Warren on this open letter.  Could he be in Margaritaville with his nephew, Jimmy?

Mr. Reid, as the Soup Nazi would say "NO SOUP FOR YOU!"

Marko's Take

Thursday, October 21, 2010

Correct Me If I'm Wrong

The long-awaited, overly-predicted correction in Gold, Silver and mining stocks has now begun.  After the smash on Tuesday for 30 bucks in Gold we have what appears to be a continuation pattern with today's further drop of additional drop of another $20.  What's a "continuation pattern" you ask?  A highly technical term?  Nah, it means a top below a top followed by a new low beneath a low.  That is the initial condition for establishing a new downtrend. 

The correction ought to be sharp but not very deep.  Gold's 200 Day Moving Average (DMA), which ought to contain the decline, is now at $1,200, suggesting additional downside of about 10%.

The Gold Bugs Index (HUI) has now dropped back below 500, after reaching a false breakout high of 535.  In just a few short days, miners have dropped by nearly 10%.  The HUI's 200DMA is above 450, which ought to cap further reactions to another 10%.  Therefore, the correction is half over already.  Get ready for a terrific entry point! 

In recent news, as predicted in this column, China has suspended exports of rare earth metals.  For a great play in rare earth metals, we have discussed the merits of Avalon Rare Earth (AVARF) http://markostake.blogspot.com/2010/06/avalon-rare-metals-inc-rare-opportunity.html.

As far as the stock market goes, the surprisingly violent bear market rally that has taken place all summer continues, but ultimately all markets must obey "The Law of Gravity".  http://markostake.blogspot.com/2010/10/markets-to-obey-law-of-gravity.html.

The downside leadership in the coming stock market crash will undoubtedly be the financial sector.  The Philadelphia Banking Index (BKX) has continually under-performed every market sector and with economic conditions deteriorating, an inevitable banking crisis looms directly ahead.  Despite all the efforts of our friends at the Federal Reserve to pump out money, it appears that this privately held group has now been relegated to "toothless tiger" status http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.

But what about those great earnings reports?  What about the coming Republican take-over of Congress?  Won't these matter?  No!  These are old news and already factored in and discounted.  The markets are looking 6 months ahead and, believe me, they DON'T like what they see.  Markets anticipate.  Once news is understood by the masses, it's WAY too late to matter!

So while that dirigible known as Hindenburg continues to levitate on a cushion of hot air from politicians, it has sprung a whoppin' leak  http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.   Of course, the Omen isn't always right, but why take a chance on getting wiped out?

What's an investor to do here?  Easy.  Hold cash and wait for the correction in commodities, metals and mining stocks.  Then, get ready to get rich as the mother of all bull markets shifts into turbo-charged high gear.

Marko's Take

Tuesday, October 19, 2010

Holding Out For A Hero

"Where have all the good men gone, and where are all the Gods?  Where's the street-wise Hercules to fight the rising odds? Isn't there a white knight upon the finest steed?  Every night I toss and I turn and I dream of what I need.  I need a Hero..."  To listen to this incredible song by Bonnie Tyler, click here: http://s0.ilike.com/play#Bonnie+Tyler:Holding+Out+For+A+Hero:18383:s1032810.8814188.14035666.0.2.130%2Cstd_1eca1f92c1b344c3980b8347d0d8c8f3.

Where have the heroes gone?  Why are we saddled with the Barack Obama's, the George Bush's, the Christopher Dodds's, the Nancy Pelosi's, the Al Gore's and the rest of the lying, hypocritical politicians as described in this piece?  http://markostake.blogspot.com/2010/08/clowns-to-left-of-me-jokers-to-right.html.

But electing politicians costs money!  And, God knows, thanks to some of the wonderful folks mentioned above no one has any.

I've been Holding Out For A Hero, and just in time, we have one!  This hero, Gary Earl Johnson is described here: http://markostake.blogspot.com/2010/10/who-is-gary-johnson-part-1.html, and http://markostake.blogspot.com/2010/10/who-is-gary-johnson-part-2.html

Do you CARE about the world your kids will inherit?  Do you CARE about the brave men and women watching their brothers and sisters getting their heads blown off in Afghanistan or other idiotic adventures in the Middle East?  Do you CARE about having a planet in which you can walk outside and not get emphezema?  Do you have a business and want to see it prosper? Do you want to keep your job?  If you're a Hollywood liberal making films don't you care about freedom of speech????

If you're a Hollywood type, you automatically HATE Republicans.  Isn't worth taking a moment, to see if there's a real alternative?  Read about Gary Johnson, and see if this help open your eyes a little.  Your left wing demagogues are doing you NO FAVORS!

Do you want to change the world, but think you can't afford to help?  Oh, but you CAN!  You are far more powerful than you know!

Can you afford a happy meal at McDonald's?  Can you afford a pack of cigarettes?  Even if you can't, here's how you can make a huge difference for your kid's future:

My address book contains 2,000 people.  Let's say each one of those people knows an average of 500 people.  With one degree of separation, that's (2,000 X 500) 1 million people!  If each of those people forgoes a happy meal or a pack of cigarettes, that would produce $5million!!!!

Let's make a statement!  Let's tell lying, self-serving incompetent politicians to get take a flying LEAP!  If you lost your job because of their economical mismanagement, let's turn the table and FIRE THEM!  As Colonel Klink would say, DISMISSED!  No pension, no health care, no benefits!  And,as the Soup Nazi would say, "No Soup For You!"  Go out a get real job folks and see what life is like in the greatest country in world!  The country you almost ruined!

Please visit Gary's site and do what you can for future generations who don't deserve the mess they will inherit:  http://ouramericainitiative.com/. Your grandkids will be most grateful.

Marko's Take

Friday, October 15, 2010

Markets To Obey The Law Of Gravity

The Universe has been theorized about by many incredibly brilliant cosmologists, such as Carl Sagan, Albert Einstein and Steven Hawking.  While certain concepts remain hypothesized and theoretical, one constant is omni-present:  The Law of Gravity.

The Law of Gravity determines so many things we observe in the universe such as Newton's Laws of Motion.  In fact, planetary alignment also is a little understood factor in determining certain events in the financial markets.  For more on how planets affect markets, click here:  http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.

For the record, despite the fact that we've been calling for a crash for months, I still have NOT abandoned that position.  Some of the reasons are articulated here:  http://markostake.blogspot.com/2010/10/die-hard-markets.html

But today, some new very relevant information came to bear.  The Philadelphia Banking Index (BKX) has broken down and is asserting downside leadership.  Earnings reports from General Electric (GE) today were very disappointing.  Bank of America (BA) is under pressure as a result of the under-reserving for loan losses.  In fact, of the top 6 volume leaders this morning, 5 are financials and all are getting slammed.  Without a vibrant financial sector, the market can NOT advance!

In addition, the stock market appear to have completed a 50% correction of the bloodbath it took in 2008-9.  From a high of about 14,000, the Dow Jones Industrial Average (INDU) has now bumped its head at 11,000, a retracement of roughly half of the waterfall it endured all the way down to its low of about 8,000.

If the Dow should have a roughly equivalent slam it could lose another 6,000 points which would take it to a next stop of 5,000.  (It dropped from 14K to 8K, now may decline from 11K to 5K).

For the very short-term, we remain cautious on Gold and the precious metals mining sector, although this industry group, and commodities in general, are poised for the long-awaited upside explosion  http://markostake.blogspot.com/2010/10/gold-and-precious-metals-miners-set-to.html

Maximum downside is very limited to probably no more than 10%.  Upside potential remains massive and, despite some risk, it's worth keeping positions.  We continue to expect an ultimate high for Gold of $5,000 per ounce at the very least.  The rules of thumb we can use to project this level, are articulated here:  http://markostake.blogspot.com/2009/12/gold-1200-is-it-too-late-to-buy.html.

Happy Investing!

Marko's Take

Tuesday, October 12, 2010

Who Is Gary Johnson? (Part 2)

Ok, so his track record as Governor of New Mexico is distinguished. That's all in the past.  But, where does he stand on various positions?  Do they comport with those already expressed in this column?

From his website http://ouramericainitiative.com/issues/economy.html.:

On The Economy: Among other things, Johnson wants to slash government spending, cut taxes, end the costly adventures in Afghanistan and Iraq, vastly reduce and reform entitlement programs, curb the excesses of the Federal Reserve's involvement in the financial system, end government subsidies, curtail goverment interference and vastly simplify the tax code.  (I'd prefer he completely abolish the Federal Reserve.  Maybe Gary ought to watch this: http://www.youtube.com/markostaketv#p/u/5/JiGA8XeZbUo.)

On Civil Liberties:   "The government should not intervene in the private lives of individual citizens unnecessarily. Personal liberty and freedom from unwarranted governmental control or regulation should allow law abiding individuals to pursue their own desires as long as they are not causing harm to other people."  (This extends to anti-marijuana laws, which Johnson adamantly opposes.  Johnson does NOT advocate legalizing other drugs.  On that particular sub-issue, "Marko's Take" respectfully disagrees.)

On Defense: "The United States should only be involved in just causes and should not engage in or risk military action except when needed to protect it’s specific interests. All defense budgets should be reviewed and balanced the same as any other governmental budget."  (Sounds like Teddy Roosevelt to me.  Speak softly and carry a big stick.)

On The Constitution:  "We believe that the Constitution should be interpreted according to its original meaning. After great deliberation, the Founders clearly based the blueprint for our government on the fundamental idea that there must be strict constraints on Federal power — an idea from which we have strayed much too far. We believe that the proper balance needs to be restored between the different branches of government. This includes the rights of states." (I assume that, in order for this to come to pass, there will have to be a major reform of the megalomaniacal Supreme Court).

On Education:  While not specifically addressed on the website, Johnson's actions as Governor indicate that he is a strong proponent of school vouchers in place of our public funding of education. "With regard to school reform, I believe that New Mexico, along with most states in the country, is year after year after year showing just a little bit less when it comes to the results from its schools. I know of no other area in our lives where this phenomenon occurs except in public education. On the other hand, higher education in this country is unquestionably the best in the world, and we should make public education a little bit more like higher education."

"I think you accomplish that through the issuance of vouchers to every single student in the state, bringing competition to public education and allowing children to choose schools much as they choose in higher education today."

Johnson is not a Libertarian idealogue.  Many traditional Libertarians believe in virtually no army, and other "ultra" small govenment concepts that place them not too far from anarachists.  Johnson is an economic pragmatist.  He views every political decision as boiling down to cost/benefit analysis.  That's wise.

Marko's Take?  Government is NOT inherently bad.  But, a Government that creates the wrong incentives, uses its power for self-preservation and restricts the freedoms that the Founding Fathers intended us to have IS a bad Government.  However, established properly, a smaller Government will be a MUCH BETTER Government and one that will be a partner, rather than an adversary of the citizenry.

Marko's Take

Who Is Gary Johnson? (Part 1)

Gary Earl Johnson (born January 1, 1953) is the former Governor of New Mexico, having served 2 terms from 1995 to 2003.  He is well-known for his low-tax libertarian views and as the founder of one of New Mexico's largest construction companies.

Johnson first entrance into politics was his bid for Governor of New Mexico in 1994.  He defeated incumbent governor Bruce King by a substantial margin.  He sought re-election in 1998, winning by a  10 point margin.  In his second term, he focused on educational spending reform, in particular the use of school vouchers.  He is also the first high-profile political figure to support decriminalization of marijuana.

As the result of New Mexico's 2 term limit, Johnson retired from politics at the end of his second term.  In 2009, he founded the Our America Initiative (http://ouramericainitiative.com/), a 501(c)(4) political advocacy organization.  Johnson has also been the subject of media speculation as a possible candidate for President of the United States in the 2012 election.

For his 8 years in office, Johnson was the nation's most frugal governor, by vetoing over 1,000 spending items and cut taxes 14 times.  The number of vetoes exceeded the amount in the other 49 states, COMBINED!  As a result, when Johnson left office in 2002, New Mexico was only one of 4 states with a balanced budget.

So how is Johnson's track record as Governor?

According to http://www.usgovernmentspending.com/:

In the 8 years during Johnson's tenure, Real New Mexican Gross Domestic Product (GDP) grew from approximately $41.7 billion to nearly $53.7 billion, an increase of 28%.  By comparison, in the 8 subsequent years under Bill Richardson, GDP has grown by only 17%.

New Mexican Gross Public Debt rose from $12 billion to $14 billion (16% increase) during Johnson's reign, but has since exploded to $21 billion today (50% more!)
Government spending, as a percentage of GDP, rose from 20% to 23% during the Johnson years. It is currently, at 25%.

According to unemployment statistics as provided by (http://www.deptofnumbers.com/unemployment/new-mexico/), Johnson inherited an unemployment rate of approximately 6.5% which fell to about 5.0% at the end of his second term.  The jobless rate is 8.5% today.  The increase is greater than the national average.

There are certainly ways that one could pick apart the economic statistics by claiming that he presided over the prosperous Clinton years, or through other ways of parsing the data.  Needless to say, this could be debated to death and reasonable people could disagree.  Marko's Take?  The objectives facts are  unequivocally supportive of his expertise as a Chief Executive. 

Oh, and one more eensie weensie thing.  Johnson has a reputation for being exceedingly honest.  Critic Roger Ebert, no friend of the Republican party by any means, said "I can quite honestly say that at this point there is not a single other Republican candidate I can imagine voting for in 2012. And I may not vote for Johnson either if he runs – but I do think he’s one of those rarest of creatures: an honest politician. And that counts for quite a lot."

Tomorrow, I will give my "Take" on his positions. 

Marko's Take

Sunday, October 10, 2010

World War III Continues...

A treatise on military strategy, called "The Art Of War" was written by Sun Tzu in the 6th century B.C. and is still studied today.  The book was so timeless that General Douglas McArthur was believed to have taken inspiration from it.  That classic playbook needs to be updated to cover means of waging war that never possibly could have been contemplated.

In "World War III Has Begun", we posited a matrix of varieties of war and how they might be employed in whole, or in part, by any country against any other country.  Traditional military war is only a small and shrinking component of warfare in the 21st Century.  The video of that piece can be accessed by clicking here:  http://www.youtube.com/markostaketv#p/u/1/0fPfJNERJSQ.

But that was just the beginning of what we, as a world, have in store for us.  Using some imagination, and a reasonable knowledge of science, physics, economics and finance, one can concoct a variety of ways in which one country can damage another without ever firing a shot.

How about climatological war?  By that, I'm not referring to the absurd notion that our globe is warming from cow flatulence and SUVs.  To refresh yourself on how preposterous that entire thought process is, click here: http://markostake.blogspot.com/2010/08/very-inconvenient-truth.html.

Rather, imagine what one country could do if it could affect weather in a relatively small area of an enemy.  Like what, you ask?  Maybe seeding an oncoming storm system with something toxic.  Clouds are sometimes seeded by farmers to produce rain in areas of drought.  While the efficacy of this practice in affecting local rain patterns is questionable, if clouds were seeded with poison, it could destroy vast areas of crops, and thus disrupt a country's food supply.  Because weather systems follow the jet stream, the poisoning could be done in international airspace without triggering a preventative response.

Another high tech plan could be to create what could oxy-moronically be called a "man-made natural disaster". Underground nuclear detonations register as earthquakes.  What if an atomic power could set up a nuke near a major fault zone that was overdue for a major earthquake?  Afraid you'd be detected?  Well, then one could be set off below the surface of the ocean floor to create a tsumani.  Indonesia, 2004 anyone?

Ecological war is waged when one country sabotages another's eco-system.  One means of accomplishing this might be to, say blow up a deep-sea drilling rig which might create a massive oil spill.  And, of course, have the extra benefit of disrupting oil supply.  BP, anyone?

What if a country is not an atomic power?  For those, there's the "Flash Crash" attack.   According to a 5 month Securities and Exchange Commission (SEC) and Commodities Futures Trading Commission (CFTC) investigation,  the May 6th Flash Crash was set in motion by a huge sale of S&P 500 futures contracts by a single firm’s computer trading program, which dumped $4.1 billion of the contracts on the market in just 20 minutes, according to “Lone $4.1 Billion Sale Leads to ‘Flash Crash’ in May,” by Graham Bowley of The New York Times; and “How a Trading Algorithm Went Awry,” by Tom Lauricella, Kara Scannel, and Jenny Strassburg of The Wall Street Journal.

This particular computer mistake, however, was unintentional.  What if a large financial power, with trading resources in excess of the $4.1 Billion, were to sell futures in all the global stock and bond markets in a giant, systematic securities dump?  Even if the damage, as was the case on May 6th, was temporarily limited to a financial "bungee jump", such an occurrence would completely undermine confidence in the integrity of the entire financial system.  Another occurrence would only demonstrate the weak link in the inter-connected fabric of the markets. Thus ,the damage would NOT be temporary.  Even cash wouldn't be safe.  The same approach could be done to various currencies.

If none of the above suffice, a country could create a laboratory-grade pandemic, release it in a country and then quarantine the nation to insulate itself from having it spread back domestically.  Concurrently with the creation of the toxin, it could also have a anti-dote prepared to innoculate its own population.  H1N1 virus or the Severe Accute Respiratory Syndrome (SARS), anyone?.

Still not enough?   How about using massive orbiting military lasers to blind a country's population?

Or, the use of sound to affect emotions?  A March 23, 1991 news brief titled "High-Tech Psychological Warfare Arrives in the Middle East", describes a PsyOps tactic directed against Iraqi troops in Kuwait during Desert Storm. The maneuver consisted of a system in which subliminal mind-altering technology was carried on standard radiofrequency broadcasts.

Subliminally, a much more powerful technology was at work: a sophisticated electronic system to ‘speak’ directly to the mind of the listener, to alter and entrain his brainwaves, to manipulate his brain’s electroencephalograph i.e. (EEG) patterns and artificially implant negative emotional states-feelings of fear, anxiety, despair and hopelessness.

The possibilities are endless and MUCH harder to defend against.  In fact, they return "first strike" capability to a variety of warring nations.

The reality of this is so frightening, that even I wouldn't dare them to "Take Me On".

Marko's Take

Come meet Gary E. Johnson, former governor of New Mexico in a private, intimate setting.  For details on the reception, click here: http://www.facebook.com/#!/event.php?eid=167442413269476.

Wednesday, October 6, 2010

Reforming Gerrymandering (Part 2)

Unless you're one of the several thousand incumbent politicians who support job retention without actually having to accomplish anything, you realize that the system is broken.  If you don't yet understand the patently unethical political practice known as gerrymandering, click here: http://markostake.blogspot.com/2010/10/what-is-gerrymandering-part-1.html.

So, for the rest of us, the system is in desperate need of change.  But how best to accomplish that?

In California, 2 ballot measures up for vote in less than a month, deal with this directly, Propositions 20 and 27.

Propostion 20 does 2 important things: (1) Adds the mandate of re-drawing congressional district boundaries to the commission created by Proposition 11 in 2008 and (2) would define a "community of interest" as "a contiguous population which shares common social and economic interests that should be included within a single district for purposes of its effective and fair representation." These shared interests could be such things as urban areas, industrial areas or agricultural areas.

Proposition 27, if approved, would repeal California Proposition 11, which authorized the creation of the California Citizens Redistricting Commission.  It would also modify the provision in California law that says that proposed congressional districts can't be subjected to a veto referendum. 

Thus, supporters of reform would be advised to vote YES on 20 and NO on 27.  If you're one of the 5000 or so incumbents, well then vote the opposite way.

The most commonly advocated electoral reform proposal targeted at gerrymandering is to change the redistricting process.  Under these proposals, an independent and presumably objective commission is created specifically for redistricting, rather than having the legislature do it. This is the system used in the United Kingdom, where the independent Boundary Commissions determine the boundaries for constituencies in the House of Commons and regional legislatures, subject to ratification by the body in question (almost always granted without debate). A similar situation exists in Australia where the independant Australian Electoral Commission, and its state based counterparts, determines electoral boundaries for federal, state and local durisdictions.

The problem with a commission is that it is dependent on the individuals selected.  Many "independent" commission are about as objective as the O.J. Simpson jury.  The appointments are politically based to engineer a certain outcome.  Thus, unless the selection process is achieved without bias, an independent commission can lead to the exact same result.

Another approach, and one that appeals to a numbers junkie like me, would be to employ some sort of mathematical formula or other pre-determined methodology.  An approach advocated by a group called RangeVoting.org uses a mathematical algorithm.  It is described here:  http://rangevoting.org/GerryExamples.html.  The site also contains maps of current districts to demostrate the incredible shapes that the current system creates.  Check out the one that looks like a Halloween mask for a real horror show.

There are a myriad of other objective and unbiased means to drawing districts.  In all likelihood, they all have certain benefits and drawbacks, but the differences are, in the grand scale of things, immaterial.  The most important thing is consistency.  Any approach that is unbiased and consistency applied, will, by definition, end the impact of gerrymandering.

The definitive documentary on Gerrymandering, produced by Bill Mundell, is newly released for theatrical showing.  The website for this film can be accessed by clicking here:  http://www.gerrymanderingmovie.com/.  The commercial can be accessed by clicking here: http://www.youtube.com/watch?v=kX50l9G_QZU.

If you want any of your votes to EVER count, perhaps the most important vote will be the ones you cast on Propositions 20 and 27.  If you want to see the bums get thrown out, here's the way to do it.

Marko's Take

Gold And Precious Metals Miners Set To Explode

There are at least a dozen reasons why both Gold and the precious metals mining companies ought to correct, as outlined in this recent blog:  http://markostake.blogspot.com/2010/10/die-hard-markets.html.  But, at the end of the day, only market action itself matters, not "Marko's Take". (Gulp!)

In this morning's trading, the Gold Bugs Index (HUI) appears to have decisively broken the 525 zone that we outlined as the trigger point to begin its long awaited parabolic rise.  The situation reminds me of late 1999 when the Nasdaq was severely overbought and overvalued and yet doubled in a period of just a couple of months.  The difference, in this case, is that the mining sector is NOT OVERVALUED!

The kind of technical indicators discussed only handicap the race.  None of them is flawless.  It's important, therefore, to issue a mea culpa, accept reality as it is, not as we think it should be.

Given the increasing likelihood of an imminent upside explosion, what should investors do?  Fortunately, a whole slew of junior miners are still at incredibly attractive levels.  Among them are some favorites that we've written about in the past, such as ECU Silver Mining (ECUXF), Explor Resources (EXS.V), Seabridge Gold (SA), Hecla Mining Company (HL) and Avalon Rare Earth Metals (AVARF).  We will update research on these firms, however, their merits can be reviewed by clicking the links, below:


If you wish to do your own research, you may wish to review this piece, which outlines some of the key risk factors to consider in selecting any mining company:  http://markostake.blogspot.com/2010/06/some-considerations-for-selecting.html.

In terms of resources, you may wish to review this piece, which outlines all the places that are available to access http://markostake.blogspot.com/2010/09/information-is-more-than-power-its-gold.html.

Honestly, there are times when one prefers to be wrong, and this is one of them.

Time to make a ton of money!

Marko's Take

Tuesday, October 5, 2010

What Is Gerrymandering? (Part 1)

Politicians are good at very little that is of use to the American people, but they excel at providing themselves with job security.  It's quite amazing if you think about it for a moment.  They routinely have approval ratings below Hitler and Mussolini, yet somehow they get themselves re-elected by wide margins.

Where do I sign up for that?  Do a job so poor that any employer in the private sector would fire you without severance, yet, not only do you manage to keep your job, vote yourself a pay raise and even provide lavish benefits that no one in the private sector enjoys.

I'll tell you how they get that treatment.  They CREATE it!  It's an unethical practice known as "gerrymandering", which is the re-drawing of congressional districts in such a fashion as to virtually ensure you'll get re-elected.  With advanced polling and census data, they can literally pinpoint friendly voters block by block and even house by house.  The demographic data they have includes key factors such as gender, age, race, party and socio-economic status.  Each of these groups have tendencies to lean either heavily or slightly to certain parties or candidates.

Knowing that information, politicians can literally go house by house to include as high a proportion of voters likely to side with them.  As a result, a gerrymandered district can look like modern art, a chain saw, a hammer, a wrench or even a bowl of chocolate souffle!

What they virtually NEVER look like are grids, or any other symmetrical and logical shape for dividing an area into parts.  Imagine if city streets were gerrymandered, instead of being rectangular.  And, if the city planners who designed them kept their jobs!  Of course, with a gerrymandered street grids, no one could ever find a polling place, but that's another story.

What if you're in a district with lots of alien voters, and your adjacent representatives need to encroach on your territory?  Easy!  Gerrymandering is effective because of the "wasted vote" effect. The strategy here is to stuff opposition voters into 1 district and give the other party 1 seat and 1 big win.  Let's say you have 10 districts in which the voting is all close.  Put as many of your other party's voters into 1 district, thereby tipping the odds more in your favor for the other 9!

As a result of this weighting, voter turnout is lowered because of the perceived certainty of incumbent re-election, thereby disenfranchising everyone!

The effect of gerrymandering for incumbents is particularly advantageous, as incumbents are far more likely to be re-elected under conditions of gerrymandering. For example, in 2002, according to political scientists Norman Ornstein and Thomas Mann, only 4 challengers were able to defeat incumbent members of the US Congress, the lowest number in modern American history. Incumbents are likely to be of the majority party orchestrating a gerrymander, and incumbents are usually easily renominated in subsequent elections, including incumbents among the minority.

Gerrymandering also has significant effects on the quality of constituent representation.  Because gerrymandering is designed to increase the number of wasted votes among the electorate, the relative representation of particular groups, especially minorities, can be drastically altered from their actual share of the voting population. This effect can significantly prevent a gerrymandered system from achieving proportional and descriptive representation, as the winners of elections are increasingly determined by who is drawing the districts rather than the preferences of the voters.

On the other side of the coin, gerrymandering may be advocated to improve representation within the legislature among groups which make up a relatively small portion of the voter base.  By promoting the representation of groups which support the party in power, the incumbent party is able to gain an even stronger death grip on the rule-making bodies. 

Reaching for your "barf bag", yet?  Gerrymandering has even come to prisons!  This occurs when inmates are counted as residents of a particular district.  This can be particulary effective in rural areas with a large prison population.

California has two propositions that deal with Gerrymandering, Props 20 and 27.  These are key ballots measures for restoring our democracy.

In tomorrow's blog, we will attack the Gerrymandering issue by examing why one should care and the types of reforms being proposed to end this very un-democratic practice.

If you're interested in learning more about this issue, a definitive documentary called "Gerrymandering", produced by Bill Mundell is preparing for theatrical release.  The website for the film can be accessed by clicking here:  http://www.gerrymanderingmovie.com/.  A new trailer for the movie can be accessed by clicking here: http://www.youtube.com/watch?v=kurAB5ridko.

Marko's Take

Monday, October 4, 2010

Die Hard: The Markets

Like Officer John McClane, they continue to expend all of their nine lives.  Is this life number 9?

Without a doubt, my assessment of the state of the markets has got to be called into question.  Two relevant issues to address are:  (1) Has the Hindeburg Omen, become, as Dee Dee Myers used to say, non-operational?; and, (2) Is the Precious Metals arena about to explode?  For more on the Hindenburg Omen, click here http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.

If we do not begin to see a forceful decline commence by the end of this week, it is unlikely to build the kind of downside momentum that would be required to precipitate a crash.  That said, as of this writing, I have not budged from the crash prediction one bit.  The technical reasons were recently outlined in this piece http://markostake.blogspot.com/2010/09/lets-get-technical-part-2.html.

As far as the Gold and mining stocks sector go, I have some further technical thoughts.  For the record, my position is that Gold is forming an intermediate top, before returning to the proximity of its 200 Day Moving Average (DMA), which currently stands at $1175.  That makes downside exposure in the vicinity of 10%.

One thing that troubles me about Gold is that it has underperformed the weakness of the U.S. Dollar over the past several months.  Since June, the Dollar Index is down 11%, while Gold has risen about 9%.  Ideally, we'd like to see the reverse.

More troubling is just how extremely overbought Gold has become.  It now has a Relative Strength Index of 83.46.  The piece referred to above explains the use of the RSI and how it's derived.

An examination of the relative strength of precious metals mining companies, as represented by the Gold Bugs Index (HUI) to Gold itself is quite revealing.  Ideally, we would desire the stocks to substantially outperform the metal.   Since May, the companies have underperformed, although not substantially.  The HUI continues to be unable to materially break out above the 500-525 zone despite daily new highs in Gold.  Should the HUI return to its 200 DMA at 446, it would get smacked for 11%.  Downside risk is very limited.

Ideally, the HUI ought to also do better than the broad stock market. We can measure this by comparing the performance of the HUI to the Standard & Poors 500 (SPX).  The HUI has gained no ground since November, 2009.  This isn't cause to worry long term, but it does tend to suggest that a modest correction is imminent.

Investors should remain cautious but ready to jump in!

Marko's Take

Let's Get Frank About Barney

And, no, I don't mean the purple dinosaur.  I mean Barney Frank (D-MA), the political dinosaur.

According to Wikipedia:  "Barney Frank (born March 31, 1940) is the United States House Representative for Massachusetts's 4th congressional district since 1981. He is a member of the Democratic Party. In 1982, he won his first full term, and he has been re-elected ever since by wide margins. In 1987, he became the second openly gay member of the House of Representatives (the first being Gerry Studds) and is one of the most prominent gay politicians in the United States".

But more important is Frank's central involvement with the unraveling of our financial system.  Frank became the chairman of the House Financial Services Committee in 2007 after the Democratic Party won a majority in the House. The committee oversees the entire financial services industry, which includes the securities, insurance, banking, and housing industries.

In 2003, the Bush administration  recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis in response to growing concerns about Fannie Mae's role in the real estate bubble. 

Under the plan, a new agency was to be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The plan was an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac, which together had issued more than $1.5 trillion in outstanding debt, was broken.  A report by outside investigators  concluded that Freddie Mac manipulated its accounting to mislead investors, and critics said Fannie Mae did not adequately hedge against rising interest rates.

At the time of the proposal, Barney the dinosaur said:  “These two entities  – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”  Don't you just HATE it when people exaggerate?

Frank, and accomplice Christopher Dodd (D-CT), used their influence over these two financial giants for their own purposes.

In 2008, Freddie gave $20,000 to a Parents and Friends of Lesbians and Gays (PFLAG) event; Fannie Mae gave nearly $19,000 to the same event. Freddie has donated $125,000 and Fannie donated $80,000 to homosexual groups since 2005.)  Dodd, welcomed himself to the trough as well, getting preferential treatment from Countrywide on two mortgages totally $7 million.  Countrywide was one of the biggest subprime providers.

Barney Frank and Christopher Dodd also received thousands of dollars in contributions from Fannie Mae and Freddie Mac over the years.  Dodd has received $133,900 since 1989; Frank received $40,100. (While in the Senate, Barack Obama received $105,849).  Here, piggy piggy!  Soooeeee!

ACORN, the socialist group that routinely engages in voter fraud, was involved in pushing for risky loans to people with bad credit histories, no jobs and no money for down payments.  ACORN pressured banks in Chicago and elsewhere to give risky loans.  Obama actually trained ACORN workers when he was a community organizer in Chicago.  

After winning overwhelming victories in the last 3 decades, Frank is facing his toughest challenge ever.  Some polls show him to be leading by less than 10%. Frank's own polls reveal no threat.  Let's hope his ability to forecast the future of the housing and mortgage sector is as finely tuned as his own internal polling data.

Marko's Take