Wednesday, December 29, 2010

Eleven Predictions For 2011 (Part 2)

After turning in a decent, but not spectacular, C+ performance in 2010, "Marko's Take" shoots for the blog honor roll in 2011.

2011 is shaping us as the year in which we may experience things that we never could have imagined before.  And, in the United States, of all places.  In no particular order, here are just a few of the events the world is going to have to deal with:

1.  A Global Stock Market Beating.   While our bearish posture was very premature, we continue to believe that the stock markets are making MAJOR historic tops.  The Dow Jones Industrial Average ought to drop below 8,000 sometime during the calendar year.  For a more thorough recent stock market analysis, click here:

2. Increased Global Militarism.  What better way to deal with a crummy global economy than to jump-start spending with a good ole fashioned war?  It's that simple.  Oh yeah, and let's not forget the ongoing tensions in the Middle East with Iran and nukes and terrorists.  North Korea, anyone?  For some of the latest thinking on how War is defined and conducted, click here:

3. Rapid Global Economic Downturn.  The tepid worldwide recovery is now running out of gas as the stimulative benefits of all the bailout programs have pretty much been absorbed by the system.  The Federal Reserve is out of power and out of bullets.  Wanna know why?  Here's your answer:

4. Short-term Interest Rates Remain Low While Long-term Rates Move Steadily Higher Throughout The Year.   The reason?  Increasing signs of simmering inflation leading to hyperinflation throughout the year.  More on this topic come.

5. The Precious Metals Markets Will Continue Strong Though The Year.  The question is how strong?  We continue to maintain our long-held belief that Gold will reach or exceed $5,000 per ounce with Silver heigh-ho-ing its way to at least $250.  Any target for year-end would be nothing but a sheer guess.  Some recent thoughts and ideas on how to play this bull market can be accessed here:

6. Martial Law.  Yes, you read that correctly.  My reasoning for this is contained in this piece:  While the dark scenario portrayed in that essay has veered a bit, I still stand behind it and hope to death I'm wrong.

7. Civil Disobedience.  It didn't happen in the United States this year as I had forecast, but it happened all over Europe in response to budget cutbacks.  So, why would someone think it can't happen here?

8. European Sovereign Debt Implodes.  The troubled European issuers of sovereign debt will only have bought time through the ill-conceived bailouts and budget austerity programs.  By this time next year, everyone will wonder how on Earth anyone with a brain could have possibly bought these bonds yielding anything under 10%. 

9. Global Financial Crisis.  Whether it starts with a Sovereign Debt Crisis or a currency crisis or the discovery of an entire new layer of bad, overmarket assets in bank balance sheets, the global financial system can hardly withstand an accident, let alone a Chernobyl.  If some number of trillions of dollars thrown at our financial system didn't really get us out of the last mess, what weapons do we have left?

10. Dollar's Slide To Second-Tier Status Continues.  Just last month, China and Russia decided simultaneously to abandon the USD  In its favor, the Dollar has only a few better alternatives, like this barbaric relic called Gold.  At this time no paper alternative possesses the liquidity and stability to repace the Dollar as a bona-fide reserve currency.  Unfortunately, China and Russia's actions means one thing's for certain.  A probably Gold-back new reserve currency will be created.

11. Big Bonuses At Government Sachs.  So what if you played a key role in wrecking the global economy and financial system?  So what if your clients lost all their money?  The reason these guys can get away with anything, you ask?  Well, here's your answer:  But if you really need some additional background, this video explains the nitty gritty:

2011 kinda feels like a bunjee jump, doesn't it?   Here's to hoping that our elastic straps hold!

Marko's Take

Eleven Predictions For 2011 (Part 1)

While it's fun to speculate on the future course of very unpredictable world events, it's much less fun to review how one's past forecasts have turned out. 

About a year ago, we did a special outlook on 2010 putting forth what we expected to see:

How'd we do?  Well, it depends on how one grades oneself, but let's be brutal, shall we?  After all, we've "Taken On" Goverment Sachs, Al Gore, Barney Frank, Barrack Obama, Warren Buffett and many, many more.  We've also lit fuses under the collective behinds of virtually every major financial and political figure.  Virtually no one came out unscathed.

So, what happens when "Marko's Take" takes on "Marko's Take"?

Predictions that were basically good include the ones about Republicans seizing control of both House and Senate.  While they did NOT get the Senate, the prediction of the landslide was made on January 16th, 2010, well before the dissatisfaction with everything Obama took the Democrats for a political car-jacking. 

We were skeptical that this country would see Obamacare.  That, too was a good call.  That god-awful piece of socialist legislation was not and NEVER will be enacted, although it did pass Congress.

Interest rates remained at very low levels all year.  Dead on!

The Dollar is beginning a process of being relegated to second-tier status as China and Russia are now transacting in Gold and alternative currencies.  Touchdown!

The stock market did indeed rise and sharply in 2010, but we can't do "chest bumps" about that one.  Many times during the year, citing everything from astronomical phenomena to arcane and rare technical indicators, we became extremely bearish WAY too early.  That crow soup we've been eating is starting to get old.  Mea Culpa! 

"Marko's Take" has maintained an ultimate target of $5000 per ounce for Gold and several hundred dollars per ounce for Silver.  Our bullish stance was overall correct, even though I would have thought that $2000 for Gold would be the existing price level today.  Nonetheless, this one goes to us.

Things that didn't happen:  Civil disobedience from shortages of staples like food and water, a collapse in Commercial Real Estate led by strip malls, no "Windfall Profits Tax" on oil, the economic recovery did NOT sputter by the 2nd quarter and residential real-estate prices did NOT rise.

Overall grade?  How does C+ sound?  Not Summa Cum Laude performance, but certainly enough to be at the top of the Delta Tau Chi fraternity in Animal House.  No need to be put on "Double-Secret Probation", yet!

Part 2 will present our new 2011 forecast, will 11 new surprising, shocking, scintillating predictions.  Same Bat Time, Same Bat Channel.

Marko's Take

Saturday, December 25, 2010

High Economics (Part 2)

If the first economic argument for legalization of marijuana ( didn't pursuade you, there are many more. 

Incarceration for marijuana offenses is fairly small, accounting for less than 1% of the prison population, but it does still keep about 60,000 inmates supported at taxpayer expense.  It is believed that the annual cost is on the order of $1.2 billion.  That does not include scarce court time, legal resources or police time which is allocated to enforcing an unpopular and needless code of law.

Then there is the medical aspect.  Marijuana is now used to treat nausea from chemotherapy, anxiety, pain, glaucoma and insomnia.  But is it safe?  Remarkably so.  Of all the causes of death monitored by the Food and Drug Administration, marijuana comes in DEAD LAST, with NO fatalities (
Even aspirin, which many doctor recommend be taken daily, accounts for thousands of deaths per year.

But, despite overwhelming societal and economic benefits, Proposition 19 did NOT pass in California.  What are the arguments against?  The main objections to legalization are focused on the belief that marijuana use is addictive, a "gateway" to more serious drugs and a factor in greater crime.  There also exists the fear that once legalized, we'd become a nation of Cheech and Chongs.

The U.S. Drug Enforcement Agency (DEA) has issued this position piece outling the arguments against:

The addiction argument is absurd in light of legal alcohol, cigarettes, soft drinks and prescription drugs, all of which are far more injurious to the user and most importantly, can be FATAL to abusers and second-parties.  Caffeine is addictive.  And, to some, so is shopping, sex and gambling.  So is reading "Marko's Take"!

The crime argument is equally absurd.  Marijuana is a sedative.  How many stoners pull off a bank heist or hold up a 7-11?  And, should marijuana become legal, the price would certainly drop.  So, the notion that one has to go rob a gas station for a few joints becomes preposterous. 

According to federal statistics, nearly 100 million Americans, or 1/3 or the population, have, at least at one point in their lives, imbibed.  Cigarette smokers make up about 25% of the adult population, while drinkers make up more than half.  Experience with both prohibition and other countries experimenting with legalization have shown that very few NEW people will  become  users.  And, so what if they do?

Merry Christmas!

Marko's Take

Thursday, December 23, 2010

High Economics (Part 1)

Few national political issues are as clear-cut as the growing movement toward legalization of Marijuana.  The reasons for supporting this NOW are numerous and quite financially substantial.  With a few more votes and the stroke of a pen, we can take a major step toward trivial matters such as balancing the budget.

According to recent article in Time Magazine, more than 500 prominent economists agree that the legalization case is a no-brainer (
Odd, that "Marko's Take" was not consulted.

Public sentiment is growing tired of the vestiges of persecution for those involved in minor possession.  Recently, a jury in the conservative state of Montana could not be assembled because of the virtually unanimous sense that it was an utter waste of private and public resources  (

Marijuana is a massive industry even when compared to other substantial agricultural industries.  The largest countries growing, apart from the United States, are clustered in Central and South America  ( 

In the United States, California is dominant, with nearly 50% of national production totalling a paltry $12 billion per year (  Think citrus is big?  According to recent data, the total annual production of Florida's ENTIRE citrus crop is a mere $9 billion  (  California is number 2 in citrus meaning that marijuana is twice as big as this state's citrus industry.

So, let me get this straight.  We have a $12 billion industry which is NOT paying taxes, hiring people who are NOT paying taxes and selling a product which has NO sales taxes.  And, we have a state budget problem which is forcing cutbacks everywhere.  And, one recalls a ballot proposition to legalize that LOST?

So, if I you ever hear someone affected by the state cutbacks complain to you, ask them how they voted on the California referendum to legalize marijuana.  If they answer that they voted no, please send them this blog so they'll shut the hell up!

But legalization doesn't just stop with selling the plants for medical or recreation use.  The fibre of the cannabis plant, known as hemp, has an amazing variety of uses from clothing, to paper, to biomass, to medical to even jewelry (  The estimated size of the domestic market for hemp-based products is on the order of $500 million.

But, the benefits hardly stop there.  In the next part, we'll discuss more fully the medical and criminal aspects, either of which, alone, would be enough to warrant its legalization.

Marko's Take

Tuesday, December 21, 2010

The Educators Are The Ones Needing Education (Part 3)

You didn't think the multi-part series on financing education would end with an endorsement of school vouchers, did you?  There actually exists an even better "Marko's Take" solution.

To get up to speed on the issues of financing public and private education, the prior two blogs can be accessed here:

If we all agree that an educated society is in everyone's best interest, then the only issue is how to finance it.  Just a few of the key economic benefits of a better educated populace include higher employability, income,  productivity with a much lower crime rate and dependence on the public dole.

We can take this logic much further.  If I earn an additional $1 million lifetime dollars as the result of public generosity, than wouldn't it be much FAIRER if I SHARED some of that with the people who financed me as I actually earn it?   Of that extra cool mill I just made, why not pay as I go as long as I earn?  This can be done through a small income tax surcharge which is earmarked specifically for future students.

This plan would also accomplish eliminating all the dead-beats who borrow and NEVER pay the loans back.  According to recent data from the Department of Education, student loan default rates are soaring:

The stated default rate is actually believed to be much, much higher than the 7% official rate.  Many firms have been set up to keep a defaulting student from officially being characterized as such to protect credit scores and bank balance sheets. 

The really sad thing about student defaults is that the majority have the capacity to actually pay the loan back but rationalize non-payment because it's government-guaranteed and little enforcement mechanism exists. 

The IRS, I think we'd all agree, is far better at collecting debts than the Department of Education.  But, another solution would be to use the present value of loans to offset future Social Security liabilities.  The thought here would be to eliminate future public liabilities in exchange for funding some level of education.  A higher income earner would certainly have a greater capacity to actually SAVE for retirement!

Now how simple would this be?

For more on the Social Security system, we have two videos which explain the system itself, as well as a "Marko's Take" solution.  They can be viewed here: and here:

Marko's Take

Sunday, December 19, 2010

The Educators Are The Ones Needing Education (Part 2)

If the effectiveness of the Public Education system were given a grade, it would surely get an F.  The more we spend, the less we get.  The evidence?

The most basic question concerns whether the public coffers should be used to fund education at all?   If you think about it, an educated population, like a strong army, is in society's overall interest.  There is a direct and positive correlation between level of education and societally beneficial behavior such as higher employability, lower crime rate and out-of-wedlock births. 

Economist Milton Friedman first proposed a system of school "vouchers" to make collective spending produce better results.   Under the public school system, students receive a certain value through either cost-less tuition in K-12, or through subsidized tuition in the State University or junior college system. 

Friedman argued that a key factor in the poor performance of the education system was lack of competition as reinforced by the tenure system and teacher's unions.   The solution?  Let students opting out of public schools use the money allocated to them by the state at ANY school.  The result?  A flourishing private school industry competing with other private schools for student dollars.  Ergo, better performance by the education system.

While the voucher system contains a certain logic, there are numerous detractors.  One argument against vouchers maintains that a large number of private, religious schools would receive public funding and cross the "church vs. state" issue in the Constitution.  However, since it is the parents making the choice, it is hard to understand how the State could be imposing religion.  In addition, there is also the objection that vouchers take money away from public education.  Well, if you read Part 1 as linked above, one might conclude that taking money away public education might not be such a bad idea. 

Other reasons in favor of school vouchers include the elimination of the inherent unfairness in having parents  who pay for private schools pay twice:  once in taxes for public education they don't use and the other in private school tuition.  In addition, it would allow students of less wealthy parents access to private education, in particular specialty education in fields like music, sports or science.

Voucher systems are far from widespread, but are being employed in parts of 10 states and the District of Columbia.  However, the total number of students receiving them remains quite low.  Chile has the most advanced voucher system in the world actually employed covering 90% of its students. 

Lastly, and perhaps most importantly, public education has been a breeding ground for political correctness and liberal politics.  If you want to experience real censorship, just be either a Republican, Libertarian or Conservative in a University level Political Science class. 

Marko's Take

Thursday, December 16, 2010

Hindenburg Sightings Overtake Elvis Sightings

Just when we thought we had heard the last of the dreaded, but also much maligned, Hindenburg Omen, comes yet another sighting in Wednesday's trading according to expert Robert McHugh (  In a short email sent out to his mailing list:

"Stocks generated a new confirmed Hindenburg Omen Wednesday, December 15th, an official signal with the second H.O. observation in the past two days. This Omen has appeared before all of the stock market crashes, or panic events, of the past 25 years. All of them. No panic sell-off (greater than 15 percent) occurred over the past 25 years without the presence of a Hindenburg Omen. Another way of looking at it is, without a confirmed Hindenburg Omen, we are pretty safe. But we have an official Hindenburg Omen as of December 15th, 2010, so we are not safe."

A reasonably thorough discussion of the complexities and calculations of the omen were discussed  here:

The Nasdaq is now at a 3 year high while the Dow Jones Industrial Average, Standard & Poor's 500 and Russell 2000 are at clear 2 year highs.  Yet, over the past 3 trading days, NYSE new 52 week lows have been astounding high.  The exact number depends on whether you look at the Wall St. Journal or the Yahoo numbers, but new lows ran 2% to 3% of total issues traded each day.  It would be normal to have 1/10th of those levels!

While we're looking at our second favorite zepplin, why not check the solar calendar?  According to NASA, a partial solar eclipse occurs on January 4, 2011.  The last eclipse, occuring early in the summer was total.

Whether a partial eclipse counts in the scheme of astro-harmonics remains an open question.  The connection between solar eclipses, lunar cycles and stock market crashes was discussed more fully here:

So, add to that the horrible sentiment picture as described in these recent "Takes":,   and one could pretty reasonably conclude that a helluva bear market is dead ahead.

As to Gold and the Gold Bugs Index (HUI), it really appears that a retracement to the 200 Day Moving Average (DMA) is upon us.  That would be another 10% downside for the metal and about 15% for the precious metal stocks.  Silver, if it should correct to its 200 DMA, would have about 30% exposure.

The prospect of a more significant drop in the precious metals sector is extremely remote in light of rapidly building global inflation pressures.  This pullback, which ought to be quite violent but short to scare everyone, should be viewed as a terrific buying opportunity. 

For now, investors ought to stay as liquid as possible, even though safe places to park money offer no return.  Better no return than a sharply negative return.

Marko's Take

Sunday, December 12, 2010

The Psychology Of Investing (Part 2)

As described in Part 1, successful investing is far more than understanding finance and business.  If it were that easy, every MBA would be rich.  In fact, even experienced professional investors endure breath-taking losses.  Many, many hedge fund managers have lost every single penny under management in days because they made very basic mistakes.

Making money requires some degree of timing.  While investment legends such as Warren Buffett and Benjamin Graham completely avoid market timing, they would not disagree that there are far better times to enter a position and exit a position than others.

Entering a new position when there is panic is a far better bet than when shoe-shine boys and taxicab drivers are giving stock tips.  So, we turn again to different ways to measure investment sentiment.

Statistics from a mutual fund group called Rydex provides an interesting way to gauge how investors are thinking.  Rydex has been a pioneer in the creation of inverse funds, that is, funds which produce returns when markets go down.  Technicians have created "Rydex Ratios" which measure the employment of assets in long-biased funds versus those in the inverse or "short" funds.  In general, the more assets are playing the short side, the more bearish investors are, and the more likely that a bottom is at hand.

A practioner of the Rydex Ratio is Shaeffer's Investment Research  A recent graph of the Rydex Ratio using asset investment in long versus short Standard & Poor's 500 index funds can be accessed by clicking here:

Another set of indicators employs options buying and selling statistics.  Put options buyers bet on falling prices while call option buyers bet on rising prices.  Therefore the "put/call ratio" tracks bearish versus bullish bets and acts as a contrary indicator.  These ratios can also be found in Shaeffer's Investment Research by clicking here:

Probably the most comprehensive sentiment analyst is a guy named Jason Goepfert who has a newsletter known as Sentiment Trader  I have been a subscriber to this newsletter and it has been quite valuable as a resource.  A little more information on Jason can be accessed here:

Jason creates a very comprehensive measure of sentiment using a variety of indicators, of which some are the result of his proprietary research.  His short-term position, as of December 10th, 2010:  "We've been looking for a 2-3 day decline, but stocks aren't accommodating. We'll move back to Neutral if SPY trades above 124.16. If that happens in the first 1/2 hour of regular trading on Friday, then SPY drops back under 123.60, we'll move back to 25% Bearish."  Goepfert's intermediate-term position is neutral.

Jason constucts several models of investor emotion.  His composite index is constructed using the following indicators:  Sentiment surveys, proprietary versions of the positioning of Futures traders, puts/calls, volatility indices, breadth ratios, the "Trading Index" or TRIN, and several un-published indicators. 

He also measure the positioning of "smart" to "dumb" money, or those folks who have a tendency to be consistently right versus those consistently wrong.  One example of "smart money" would be corporate insiders who are in the best position of knowing how their companies are doing.  When corporate insiders buy their own stock, that is about a good of an endorsement of a company's prospects as you can get.  Dumb money is your typical retail investor and option speculator, who tend to be wrong far more often than right.  Currently, according to his research, smart money is 33% confident in a rally, while dumb money is 79% confident.  Fortunately, Marko's Take would agree wholeheartedly with the smart folks.

Taking everything together, virtually any reasonably calculated sentiment measure is suggesting that market confidence is at unsustainable levels.  Most measures are within striking distance or exceeding the type of euphoria which characterized the major tops in 2000 and 2007. 

As for the Gold market, analyst Mark Hulbert measures sentiment in the precious metals arena.  As of November 24, Hulbert's conclusion is that sentiment remains FAR from overheated.  His most recent publicly available views are described here:

We remain a bit cautious on Gold near-term, but expect any correction to be sharp and short-lived.  It would be preferable for the precious metals complex to get a bit of a shake-out, but these types of parabolic moves often leave investors waiting for corrections which never come.

Marko's Take

Wednesday, December 8, 2010

The Psychology Of Investing (Part 1)

Successful investing is about far more than understanding value, balance sheets and quality of management.  One also needs to be a pretty good amateur psychologist.  Virtually all market tops and bottoms occur at emotional extremes:  Bottoms coincide with widespread panic while Tops tend to be associated with some unjustified level of overconfidence or greed.

We continue our very bearish stance on virtually all of the capital markets.  We've given dozens of reasons that this so-called "recovery" is unsustainable and, with it, a major, major peak is being formed in the capital markets. 

In addition to all the reasons for concern previously discussed, another subset of technical analysis referred to as "sentiment" analysis is clear in its verdict:  SELL!

The theory behind sentiment analysis is quite simple, and so logical that Mr. Spock himself would not even raise an eyebrow.  Market peaks occur when buying power has become exhausted.  This happens because those buyers have become either complacent, overconfident or just plain greedy.  Once they've all bought in, who's left to buy?

This level of emotional extreme can be measured quantitatively, so one need not be an empath to get a good fix on things.  The most basic form of sentiment reading is the market poll.  There are several which have long track records, are consistently applied and easily accessible for historical analysis.  The two of note are Investor's Intelligence which polls newsletter writers and the American Association of Individual Investors (AAII) which polls retail investors.  Barron's reprints a number of these polls every week

The AAII poll currently shows 49.7% bulls versus 26.2% bears.  These numbers are at major, major top historical readings and suggest any further upside from here can not be ruled out, but must be viewed as quite limited.  Investor's Intelligence confirms similar results.  The most recent readings are consistent with levels virtually identical to the tops reached in 2007 and 2000, with 55.4% Bulls and 21.8% Bears.

Other sentiment indicators are less precise but, nonetheless meaningful.  Just two days ago, Goldman Sachs issued its 12 month projection of 1,450 on the Standard & Poors 500 (SPX) or a gain of 25% from here.  This forecast was not directly attributed to "Dear" Abby Joseph Cohen, but suffice it to say that Ms. Cohen is a notorious perma-bull who never met a reason not to recommend stocks even at extremes of overvaluation.  She was quite bullish at the upper end of the Nasdaq bubble, issuing bullish forecast after bullish forecast.  Somehow, she kept her job.

There is the "Magazine Cover" indicator.  Mainstream publications like Business Week, Time and Newsweek are famous for having cover stories about the "Death Of Equities" or the "New Age of Investing" almost exactly at market peaks and bottoms.  These publications act as investor polls in and of themselves, merely reflecting what their readers believe.

Another excellent sentiment reading, and probably the best one of all, is the level of market volatility.  This one may be best because it's determined through actual trading.  Volatility is a statistical measure of the expected degree of variability in stock prices over various subsets of time.  It is a key component in options pricing, but very, very useful in understanding exactly where investors sentiments lie.

There are several measure of volatility, but the best one is called the VIX, which is its symbol.  At market bottoms, the VIX will have readings of above 50.  Literally translated, this means that investors have priced in a range of up or down 50% over the coming year.  At the other end, VIX can print under 10%, indicating complete complacency or lack of fear.  A 3 year chart of VIX can be accessed by clicking here:

You will note that VIX is currently incredibly low and confirms the very ominous readings mentioned above in the investor sentiment polls.

Think this is all there is to sentiment?  Not even close!  In Part 2 we'll discuss other very interesting indicators of how investors deploy capital and how it gives us pundits a means of understanding what's in their heads.

All in all, this is still a time to remain very, very cautious and keep levels of cash high. 

Marko's Take