Keith Fitz-Gerald (Money Morning):
Millions of investors who bought gold in the last 12 months are undoubtedly very happy at the moment – considering that the yellow metal has risen 60% since last November to a recent close of $1,138.60 an ounce on Monday.

But chances are good that many won’t be smiling when they discover just what the taxman has planned for their gains.

Unbeknownst to most investors, gold is considered a collectible not a capital asset. In plain English, this means that despite the fact that many people believe they are investing in gold, the Internal Revenue Service (IRS) believes that they are collecting it.

This is no small distinction and hurts investors because it means that gold does not qualify for the 15% maximum tax bite that most of us employ as a matter of routine when we mentally calculate profits earned on investments held for more than a year. That 15% cut for Uncle Sam is the long-term capital gains tax rate that applies to most stock or mutual fund investments.

Precious metals are a completely different story. Profits from these “investments” can be subject to a 28% maximum tax rate if held for more than 12 months. And if they are sold in less than a year, the profits count as ordinary income.

The long and the short of it “is that as a result of gold’s spectacular run-up, many investors may have a tax problem they haven’t counted on when they go to sell,” said Gary E. Ham Jr., of the Oregon-based accounting firm of Jones & Ham PC

This may be especially true for investors who have piled into such asset-backed, exchange-traded funds (ETFs) as the SPDR Gold Trust (NYSE: GLD), the iShares Silver Trust (NYSE: SLV) and the iShares COMEX Gold Trust (NYSE: IAU), for example, because precious-metals ETFs are set up as something called a “grantor trust.” According to Barron’s, ETF investors are treated as owning undivided interests in the actual metal that’s owned by the fund. Therefore, when an investor sells shares in the ETF, the tax code treats that investor as having sold a share of the metal backing the fund.

Click here to continue reading this article on Money Morning.

Source: Http://www.ritzholtz.com

This is a historical chart of the S&P 500’s Price-to-earnings ratio (P/E). For those that don’t know, a P/E ratio tells you how many years of a company’s earnings it will take to buy it outright.

So – if you buy a company for $1,000, and it earns $100 a year, you’re said to have a P/E ratio of 10 ($1,000 / $100).

In other words, it would take you ten years to break even (As a buyer).

Today, the S&P has a P/E of 12.6. But in the early 20’s, 30’s and late 80’s, this ratio dropped to as far as 5.
This can only mean one thing: Stocks have just entered fair value… the market as a whole isn’t even cheap yet!

The reason why is because we’re in a market where both earnings and stock prices are dropping dramatically.

This also means that shorting the S&P 500 as a whole is still a generally safe bet. You can do that by issuing a short-sale on the SPDR S&P 500 ETF (NYSE: SPY).

Here she recommends to buy gold, invest in stocks with discrimination and keep your money liquid in treasuries.

This from Sandy:

The stock market did not react well to the government’s $787 billion economic stimulus plan.

On Feb. 23, 2009, the Dow tumbled to 7,114 – hitting an eleven-year low. The other major indices, including the S&P 500 and the Nasdaq, fell as well.

The latest economic numbers aren’t any better. The price of single-family homes plunged 18% and the Consumer Confidence Index, which was down slightly in January, plummeted more than 12 points in February to 25.

The combination of bad economic news and a tanking market means this recession will take longer to recover than most analysts expect.

Bombarded by bad news, average investors are on the verge of dumping all their shares entirely. But is that best thing to do with your money now?

The answer is no. Here are a few investing strategies that make sense given the current market conditions…

(1) Buy gold. The surge in gold prices means investors are anxious to protect their capital against inflation, currency depreciation and bank failures. The rise in gold (which is sitting near $1,000 an ounce) is consistent with other indications that the market is bracing for a delayed upturn in inflation between 2010 and 2012.

There would have to be “growing positive sentiment” towards the banking sector before gold prices fell. But that isn’t likely to happen anytime soon. Morgan Stanley came out with a report saying that gold would go up over the next three years. The reasons: a falling dollar, higher inflation and a flight to safety.

Morgan Stanley predicts gold will average $1,000 in 2010 … $1,050 in 2011 … and $1,075 in 2012, up as much as 34% from previous estimates.

Adam Lass, senior editor of WaveStrength Options Weekly, suggests buying shares of the SPDR Gold Trust. Adam writes, “I expect the dollar to resume its habitual relationship to the euro, yen and gold shortly, and recommend that investors continue to buy shares of the SPDR Gold Shares Trust (GLD:NYSE), which has gained some 25% over the past four months.”

(2) Buy stocks, but do so discriminately. This week the Dow fell to levels not seen since 1998. One year ago, the Dow was sitting at 12,694. As I write, it’s at 7,365. But you don’t need me to tell you this. You see the damage to your portfolio every time you look at your 401(k) statements.

As prices decline, this also means there are companies you can buy for less than the cash they have on hand. In fact, in an academic study done by Berardino Palazzo of New York University’s economic department, he found that companies with highcash-to-assets carry a positive premium for investors. Palazzo explains, “Firms that are sensitive to economic shocks tend to use cash holdings as a hedge against future cash flow shortfall, and this conservative management approach pays off.”

There are certainly plenty of companies with cash on hand to choose from. In a study done by Jason DeSena Trennert, managing partner and chief investment strategist at Strategas Research Partners in New York, he found corporate balance sheets showed that cash as a percentage of total assets is as high as it’s been since the 1960s.

Chris DeHaemer of BreakAway Investor offers these companies for consideration:

**AuthenTech (AUTH:NASDAQ) is a technology company that provides fingerprint authentication sensors. Its fingerprint sensors allow users to access and control multiple functions on an electronic device by touching or sliding their finger across the sensor. The sensors are used in various applications related to security, password replacement, financial transaction authentication and personalization applications.

Its sensor-related products are used in GPS navigation systems, cell phones, memory keys, laptops… even desktops.

The company has zero debt and roughly a cash equivalent of $2.21 per share. It currently trades around $1.37 per share.

**Exxon Mobil (XOM:NYSE). If you prefer a non-technology-related company, there’s always Exxon Mobil with $39 billion in cash, which is equal to $7.72 total cash per share. Exxon reported a profit of $45.2 billion for 2008. This amount breaks the record for an American company.

Zachary Scheidt of Taipan’s New Growth Investor suggest buying companies in sectors that will continue to thrive during this economic crisis.

One such sector is healthcare. There are basically four individual factors that combine to make this quite an exciting opportunity:

• Stability and growth: Healthcare stocks offer plenty of stability, but the growth is potentially astronomical;
• Demand has little do with economics: A person’s health sits right at the top of just about everyone’s priority list;
• Demographic trends point to more demand: The current population (domestically and internationally) is aging and in need of more care than ever seen in the past;
• Political agenda favors healthcare: One of Obama’s campaign promises was to re-work the healthcare system and to make sure affordable care was available to all.

(3) Another way to protect your money is to keep it liquid in treasuries or certificates of deposit.

Because of the scandal that broke loose with the SEC charging Allen Stanford in an $8 billion fraud case (using certificates of deposit), you’d think that all CDs are time bombs.

But that’s not the case. The dead give-away in the Stanford case is that his “certificate of deposit” promised double-digit returns. Stop right there. Certificates of deposit don’t yield high returns. They’re low risk, which means low yield.

A CD has a specific, fixed term – often three months, six months, or one to five years – and carries a fixed interest rate. They are also insured by the FDIC (up to $250,000). The longer you are willing to have your CD investment locked up, the higher the CD interest rate your bank will offer you.

CDs are best used for cash that you want to stay liquid. As the market continues to implode, you might want to consider putting a portion of your money into a CD. As the market begins to bottom out, you’ll have access to that cash to buy stocks at reduced prices.

While most major banks offer CDs, we recommend the Ultra Resource Index CD offered through EverBank. EverBank asked our group’s opinion on creating a CD that would allow investors to take advantage of global markets.

We suggested a CD made up of six countries with strong resources and strong cash reserves, including Australia, New Zealand, Singapore, Hong Kong, Canada and Norway. You can lock in terms for three to six months with no account fees.

EverBank is a healthy and stable company. It enjoyed strong growth during the first three quarters of 2008, posting a 129% increase in earnings compared to the first three quarters of 2007, or $50.1 million. The company also has assets worth $6.5 billion and serves 440,000 customers worldwide.

I do have to tell you that we have a business relationship with EverBank, and we receive a financial benefit from the sales of this product. But we firmly stand behind EverBank and their products and think they are a solid way to grow your wealth.

If you’d like to learn more about the Ultra Resource Index CD – to get in on an once-in-a-lifetime opportunity to profit from today’s currency boom before the masses – you should check out this Special Report we’ve put together for you. Download this FREE Report now.
Source: What to Do With Your Money Now

A recovery in equities indicates a pick-up in appetite for risk and may divert investment from gold, analysts said.

Spot gold slipped to $955.90/957.90 an ounce at 0941 GMT from $862.45 late in New York on Tuesday.

“The gold price is a fear indicator,” said Commerzbank analyst Eugen Weinberg. “As the chance of us seeing problems on the (equity) markets is lower than it was yesterday, some risk aversion has been taken out of the market.”

Holdings of the world’s largest gold exchange-traded fund, the SPDR Gold Trust, were also unchanged for a fourth consecutive session on Tuesday, fuelling fears burgeoning demand for gold to back ETFs may have stalled.

“There is no demand for gold other than investment demand into ETFs and into small bars and coins,” said Weinberg.

Bernanke said on Tuesday major banks should weather the recession without being nationalized. His comments that he believed the Fed could head off rising inflation was also seen as negative for gold

“If, as Chairman Bernanke believes, consumer price growth is likely to remain tepid for the next several years, then low prices are likely to present a major headwind to further gold advances,” said HSBC analyst James Steel.

Equities bounced overnight in Asia as Bernanke’s reassuring comments sparked a rebound in financial stocks. European shares tracked gains in Asia and the United States, snapping a three-day losing streak.

The dollar weakened against the euro on Wednesday, but firmed to a three-month high versus the yen. Gold typically trends in the opposite direction to the U.S. currency, to which it is often bought as an alternative asset.

However, they have moved in line in recent months as both have benefited from a flight to safety among investors.

The other main external driver of gold, oil, was steady, having shed much of the last session’s 4 percent gains.

PICK-UP

Gold buying in India has picked up as prices have retreated from the record highs they hit last week. A further dip below 15,000 rupees per 10 grams may rekindle buying interest, dealers said.

“We are getting calls for the first time after gold dipped below $1,000,” said a dealer with a state-run bank in Mumbai.

India’s buying of the precious metal tailed off as gold soared, leading some to speculate that a depression in jewellery demand could prove a major drag on prices, despite the strength of investment buying.

On the supply side, analysts say the recent increase in the gold price is likely only to slow the decline in mine production. Figures released on Tuesday showed output in South Africa fell 13.6 percent in 2008 to its lowest in 86 years.

“Long-term trends show that production in the United States, Canada, Australia and South Africa is in decline,” said Johannesburg-based Credit Suisse analyst David Davis.

“The expected increase in production from South America, Indonesia and China is unlikely to offset the decline in production from (these countries) in the long term.”

Traders will be eyeing January existing home sales data due out in the United States at 1500 GMT for clues as to the health of the economy, and further testimony from Bernanke later in the session before the House Financial Services Committee.

Among other precious metals, spot silver eased to $13.71/13.78 an ounce from $13.74. Holdings of the largest silver-backed ETF, the iShares Silver Trust, were also static on Tuesday, albeit at record levels.

Platinum was steady at $1,036/1,041 an ounce from $1,040.50. Ridge Mining PLC said its Blue Ridge Platinum unit has closed out all its hedging arrangements.

Palladium slid to $195.50/198.50 an ounce from $198.

LONDON, Feb 25 (Reuters)

As we rang in the 2009 New Year, gold at $850 an ounce (in U.S. dollars) was roughly 15% below its all-time record high, set in March 2008.

But everything in life is perspective.  In a year when oil lost 59%, the Standard & Poor’s 500 Index was down 38%, and the Dow Jones Industrial Average gave back 30%, things could certainly be worse for gold bullion investors.  Much worse, in fact.  Just ask the typical investor about his portfolio: He’s likely to grumble, and change the subject.

As it turns out, 2008 marks the eighth consecutive year that gold has clocked a positive annual return.  It’s now starting to look like the trade of the decade.

Truth be told, many are disappointed with gold’s behavior during the October-November stock-market panic, too.  But here again, it’s all relative.  When we compare the Standard & Poor 500 Index (a proxy for the market) with the SPDR GLD Trust (an ETF proxy for Gold) (GLD), we know where we’d rather have our money.

As this chart shows, from September to December, gold, despite its volatility, ended essentially flat in U.S. dollar terms, yet shows a marked recovery since the end of November.  The S&P, on the other hand, looks like an Alpine ski hill heading for Jackson Hole. The divergence between the two is remarkable.

During last fall’s violent stock market downdraft, the U.S. Dollar Index (USDX) put on a spectacular, unprecedented two month – 15% rally.  Spectacular, because to get even a 10% move over an entire year is a big deal for any major currency.

But gold is still (mistakenly) considered by many as the “anti-dollar.”  So its behavior during a U.S. dollar rally does not come as a complete shock in hindsight.

Yet the gold price we see is misleading in two significant ways.

First, try going out there and buying an ounce of physical gold.  In normal times, the average coin dealer will charge in the neighborhood of 3% above spot price. This past November, that premium shot up by 3-5 times, with many charging 10%-15% above spot, plus eight weeks or more for delivery.  So when buying an ounce of gold, how realistic is the spot price, especially during a panic?  In the midst of the mayhem, one larger Canadian precious metals dealer, Kitco, saw its list of products shrivel overnight from about 16 items to merely three, due to a lack of supply.

Second, gold is quoted in U.S. dollars around the world.  But India is the single-largest gold market, with the rest of Asia showing a strong affinity for the universally cherished yellow metal.  Throw in Europe and Latin America, and you can see how most of the world looks at gold through entirely different lenses – through their own currencies.

To be fair, let’s gain some distance from our own provincial viewpoint by taking a small trip around the globe.  This way, we can get a handle on how the price of gold has behaved elsewhere.

Euro Gold

During the anomalous spike in the U.S. dollar last fall, the European euro lost considerable ground against it.  So gold priced in euros shot up.  March saw the record of near € 650 gold bettered in September by € 670 gold.  Europeans were clearly happy with gold’s behavior, which currently sits around an all-time euro high of € 720.

UK Gold

Gold priced in British pounds sterling has performed astoundingly well.  Brits saw gold at £ 500 per ounce in March, then £ 530 in September, and £ 600 by year’s end.  Gold, now at £ 650, is still setting new record levels, dating back to 1717 when they began keeping records.

Canadian Gold

Canadian gold investors have few gripes. In March of last year, gold was trading at C$1,003; by late September, the price was up by nearly C$ 50. And right now, it hovers at a record C$ 1,160 level.  Despite the amazing strength the Canadian dollar has shown in recent years, gold has performed very well in this resource-based currency.

Brazilian Gold

Brazil is the most populous country in Latin America.  And gold’s performance in the Brazilian real did not disappoint either.  The record set in March at R$ 1,719 per ounce was easily surpassed in September with a sharp spike to R$ 2,069.  Today, it sits at R$ 2,115; which is R$ 415, or 24%, above its March levels.

Indian Gold

India’s currency is the rupee (INR).  And for traditional, cultural, and even practical reasons, Indians are the biggest gold investors on the planet. As in much of the rest of the world, gold set a record near INR 41,000 in March.  It then pulled back in July, but spiked to a new record near INR 43,000 in September.  At roughly INR 45,800 today, gold is priced way above its previous March and September 2008 record levels.

Chinese and Japanese Gold

If anyone should be disappointed with the performance of gold over the past year, it is investors in China and Japan. Gold’s record in March, at CNY (yuan) 7,050, has not been bettered yet.  September saw a spike back near the CNY 6,250 level, and gold currently rests at a price of roughly CNY 6,400 per ounce.

Japan’s gold price hasn’t fared much better.  The March record near ¥ 100,000 per ounce remains unchallenged.  Gold managed a rally to ¥ 95,000 in September, but has since fallen back to the ¥ 84,850 level.

So as the U.S. dollar rose late last year, the Chinese yuan and Japanese yen were the two major currencies that tagged along, making gold investors’ relative losers in those nations.  The Chinese and Japanese 2008 gold experience differs little from the American one. And yet, gold in U.S. dollars is currently just 8% shy of its all time record at $1,023.50.

Despite the recent American, Chinese and Japanese gold experience, most of the rest of the world’s gold investors are a happy lot. When converting the price back into their home currency, those investors are basking in its glow, while gold sits at or near all-time record highs.

For now, however, gold is still priced in dollars for many market participants.  The same is true for all other commodities.  I expect that will change over the next several years.  Scores of foreign central banks have indicated their intentions to lower levels of dollar-denominated reserves to reduce exposure.  Meanwhile, Kuwait has dropped its dollar peg, opting instead for a basket of currencies.  And Iran already trades some of its oil for non-U.S. dollar currencies.

As the U.S. dollar continues to lose value – and hence, its influence – on the world stage, commodities are increasingly likely to be priced either in local money, or to be quoted in a variety of currencies.

Heck, commodities may even be priced in quantities of gold before this is all over.  Gold investors can only hope.

For now, as new price records are regularly being established, most aren’t complaining about the value of their gold.

With their sights set on breathtaking new heights to come, American, Chinese, and Japanese gold investors are sure to see their patience rewarded, as have already so many of their fellow investors the world over.

Source: Gold Setting Records in Non-dollar Currencies

The financials got whacked again yesterday — taking the market down along with it — on news of further debt downgrades from Standard & Poor’s.

On the i-bank side, Lehman, Merrill and Morgan all saw their credit ratings take a hit. On the commercial bank side, Wachovia and Washington Mutual said sayonara to their current leaders. This implies more bad news in the pipeline.

About a month ago, your humble editor compared Western banks to an old radio filled with cockroaches. (See Banks a Lot archived on the TPG Web site.) Four weeks later, the roaches are still pouring out.

At various times in the past few months, Taipan Daily has pounded the table for shorts on the broader financials. Those shorts are working well now, with XLF (the financial SPDR) trending lower in stair-step fashion and the Philly Bank Index ($BKX) testing its lows.

But in terms of keeping a finger on the pulse, the new bellwether for financial stocks just might be Lehman Brothers (LEH:NYSE).

Lehman is the smallest bulge-bracket investment house on the Street now that Bear Stearns is no more. Many thought it would follow in Bear’s footsteps during the heat of the crisis. (That’s where that big downward spike came from in early Feb.)

So far, Lehman has defied its critics — thanks in part to the smart moves of CFO Erin Callan and CEO Dick Fuld. But the sharks are still circling, and some very smart people think Lehman is still teetering on the brink.

The sharks smelled blood in the water this morning, as news arose that Lehman may be forced to raise billions in fresh capital to shore up its balance sheet.

The big question is how much exposure the investment bank still has to toxic mortgage trades and so-called “level 3 assets” — opaque stuff holdings that are extremely hard to value.

Watch LEH and the $BKX. If one or the other cracks, there could be another big downward whoosh for the financials. (“Whoosh,” of course, being a highly technical trading term.)

Buy One, Get One Free

Meanwhile, the housing bust is still in full swing. The above chart was featured in a recent Chart of the Day, but is worth reposting for those of you who didn’t catch it.

Platinum had a similar late morning rebound, but it too went south after that, ending at its intraday low of $2115/oz., down $55. Overnight, platinum is sharply lower.

Silver tracked gold very closely, only more so, dropping some 4% and capping an exceedingly down day by closing at $17.42/oz., down 77 cents. Overnight, silver has fallen further.
(Click here for charts)

Despite that a firming dollar and declining oil lined up against the precious metals, the selloff was severe.

Traders also ignored the hard data that rolled out yesterday. As the Hightower Report noted: “The gold market started out soft and then came under more intense liquidation pressure as the session unfolded. While the Dollar didn’t exactly explode on the upside, the gold trade seemed to be disappointed in the Dollar’s capacity to bounce after another failed attempt to trade under 72.00. With oil prices under pressure and the US equity market at times showing impressive strength, it is possible that some flight to quality/safe Haven buyers of gold were simply pushed to the sidelines. With a host of scheduled US data showing weakness on Tuesday morning and the European numbers also soft, it would almost seem like the gold market was under pressure because of the fear of too much slowing.”

“It’s all about oil [yesterday],” said Frank McGhee, the head metals trader at Integrated Brokerage Services in Chicago. “The metals are susceptible to the ebb and flow of the oil market.”

The beginning of another correction? No, says Mark O’Byrne, of Gold and Silver Investments Ltd., who wrote that, “Gold was up 3% last week and silver surged nearly 8%, and thus profit-taking would be expected in the early part of this week.”

In fact, SPDR Gold Trust (GLD), the biggest exchange-traded fund backed by bullion, last week saw its inventory rise by 1.3%. Formerly known as StreetTracks Gold Trust, the company underwent the name change on May 21.

As well, hedge-fund managers and other large speculators increased their net-long position in gold futures in the week ended May 20. Commodity Futures Trading Commission data released on May 23 showed that net-long positions rose by 29,181 contracts, or 19%, from a week earlier.

Source: Precious Metals Slammed Down

Greetings from Delray Beach, Florida.I’m writing to you this morning from a beach house that sits about two blocks from the ocean.

The windows in my little red-tiled bungalow are filled with palm trees; all the furniture is made of wicker (or maybe bamboo).

It might sound like a vacation, but it isn’t. (Then again, it isn’t exactly tough being asked to stay in places like this.) On Friday, it’s back to Nevada, and then more traveling shortly after that.

When you’re used to going 110 miles an hour almost all the time, as I am, it sometimes takes a change in routine to make you realize you’re exhausted. That realization happened for me on Wednesday, after a day’s worth of plane travel.

Taking time out to walk along the beach, or do a little hiking in the mountains, or even something as simple as finding a quiet spot in the park and stretching out on a blanket is no small thing. Whenever I forget how important it is to step back and relax, it’s only a matter of time before I’m rudely reminded again.

Occupational Hazards

It’s vital to be able to “step back” from life once in a while. The same is true in business, and it’s true in markets, too. For traders and investors who watch the markets closely — who follow all the zigs and zags — it’s very easy to get overly caught up in the game.

I was reminded of this, too, by an excellent quote from the latest issue of Grant’s Interest Rate Observer. (Grant’s is one of my favorite reads; definitely an acquired taste, though.) Here it is:

Professionals in the change-anticipation field fare little better than the amateurs at divining the big turns, possibly because the experts overreact to the little turns. They labor under the occupational hazard of the itchy trigger finger.

That statement is so, so true. I think of the trouble as being “too clever by half.”

When it comes to exploiting the “big turns,” there’s an aspect of humility plus wisdom that’s hard to pin down. It takes humility to spot something big and obvious without getting too fancy about it, or getting too clever in the analysis. It also takes humility to take a shot and be wrong, maybe more than once. And it takes wisdom to put all the pieces together the right way.

The Importance of Sitting Tight

The other hard thing is that, most of the time, the biggest profits aren’t in catching the turn anyway. Real fortunes are made with traits like patience and grit and fortitude… sticking to one’s guns and not getting put off by setbacks.

Jesse Livermore put this so well in Reminiscences, he is worth quoting at length here. (Still planning to get you that report of selected quotes, by the way.)

After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at their very level which should show the greatest profit. And their experience invariably matched mine — that is, they made no real money out of it.

Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.

The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but the intelligent patience to sit tight.

The Weekly Perspective

One of the ways I try to “step back” on a regular basis — when I don’t have time to crash for 10 hours and skip the 24-hour news cycle in an ocean beach house, that is — is by looking at weekly charts.

There is just something great about a weekly chart. Because each bar represents five trading days, and because the full width of the chart covers months or even years, the day-to-day “noise” just gets filtered out.

Looking at nothing but short-term charts can make you feel like the white rabbit from Alice in Wonderland after a while. I’m late! I’m late, for a very important trade! Weekly charts are the cure for that malady. If you can remember that the biggest and strongest trends are more like slow-moving glaciers than zippy little sports cars, you’ll probably be better off.

The financials appear to be reversing.

Just over 10 days ago, in a TD episode titled “Wait for a Reversal as Fed Folly Spreads,” we advised waiting for the rally in the financials to peter out… thus setting up a chance to short them again.

Here’s a chart of the financial SPDR (XLF:NYSE) as of Thursday’s close.

Two things are noticeable here. First, XLF has failed to hold the breakout attempt above its previous ceiling. Second, XLF has failed — yet again — to sustain a move above the 20- and 50-day moving averages (the red and blue lines). The Philly Bank Index shows a quite similar pattern to XLF.

As Hillary Clinton now knows, failure to follow through on a rally attempt is bad mojo indeed. A quick plunge lower isn’t guaranteed, of course. But nonetheless, this is a nice short setup. There will be some bearish trigger-pulling here soon.

Why is the rally failing? Perhaps because — surprise, surprise — the worst of the crisis is still to come.

On news of insurance giant AIG’s record $7.8 billion loss, The Wall Street Journal noted, “While the credit crunch may be easing on Wall Street, it appears to be tightening elsewhere. In the past week, U.S. regional banks have reported big losses and announced plans to raise fresh capital.”

So apparently there are more shoes to drop (big ugly ones, too). Gee, no one was expecting that, huh? Oh wait, that’s right… we were.

Part II of the China discussion, coming your way next week.

Last Friday, we discussed “The Riddle that is China.” As it turns out, more than a few Taipan Daily readers have spent time in China, and your experiences run the gamut.

Some of those responses will be served up next week — the good, the bad and the ugly — and we’ll also take a closer look at “how China did it.”

Jesse Livermore quotes are coming your way, too.

In Monday’s piece, “Playing the Odds Game,” I made note of the best trading book ever written, Reminiscences of a Stock Operator. The book, first published in 1923 and still in print, tells the story of the great trader Jesse Livermore. The response to my offer of Livermore quotes was overwhelming, so we’re working on that. Look for those quotes to be available soon.

Behold the “New Dow Transportation Index.”

Are the major market averages in a bear market? By some measures, yes; by others, no. We’ve certainly seen plenty of sectors and industries go their separate ways. In this 21st-century environment, it no longer makes sense to think in terms of all stocks going up or all stocks going down.

Bryan Bottarelli, of Bottarelli Research, believes that the major averages are NOT in a bear market. (The use of capital letters is his.)

Is he right? Hard to say. His conclusions are based on Dow Theory — a market discipline that makes sense to some and leaves others cold. (As for me, I prefer to avoid rigid classifications as a matter of habit… As Albert Einstein noted, “Things should be made as simple as possible, but not simpler.”)

Regardless of your opinion on Dow Theory, though, chances are you’ll find Bryan’s take on the “New Dow Transportation Index” interesting… and you’ll want to hear about the two small-cap stocks he’s recommending, both sporting 10%-plus dividends.