London , England

We got back from South America on Friday… ready for a rest. So, we spent the weekend reading… and occasionally, thinking.

What we’ve been thinking is that the dollar is dead meat in the long run. But in the short run, it might have enough life in it to bite investors on the derrière.

The US stock market rose 73 points on Friday, to bring the Dow just 30 points south of the 10,300 mark. Why is this level important? It’s not really. But it reminds us that this is still just in “bounce range.” Big drops in stock prices are followed by bounces – always. A bounce of 50% of what was lost is not unusual. That’s what happened after the Crash of ’29, for example. So, there’s nothing exceptional about what we’re seeing on Wall Street.

But here at the Daily Reckoning we’re not smart enough or fast enough to play the countertrends. We want investment positions that we can ignore for years… We want to be able to go on a long trip… say, down the Inca Road or over the Hindu Kush. And when we come back, we want to find that we have at least as much money as when we left.

If stock market buyers – in the US – have more money a year from now than they have now, we’ll be surprised. The private sector is still more than 2/3rds of the economy. And the private sector has begun de-leveraging. Nothing that has happened in the last 8 months makes us think that that trend is going to reverse any time soon. There are 70 million baby boomers who need money for retirement. They’ve got to save. That means cutting back on spending. And that means less income for business. Are stock prices really going to go up when business income is going down? No.

We leave our “Crash Alert” flag flying, here at the worldwide headquarters. We don’t know when… or IF… stock prices will crash. But the downside risk is not worth the possible upside. Daily Reckoning readers should be out of all US stocks, except those they wouldn’t mind holding through a 50% correction.

The other thing we mistrust – aside from politicians, stock promoters and tap water – is the dollar. But here the story is more complicated. Because the next downswing in stocks could push the dollar up! Everyone is betting against the dollar. And most think it is a one-way gamble. But it’s not like Mr. Market to grant investors a one-way bet. He’s got something up his sleeve.

Last week, the Financial Times reported that a group of IMF economists had made a “Plea to reduce demand for dollar reserves.”

That is another way of saying: find something else to put in your vaults rather than dollars!

To read the complete article at The Daily Reckoning, click here.

I hear it a lot from inexperienced Wall Street analysts, bloggers, and money managers who spend little time living in the “real world”.

Here’s what they’re saying: “Gold is way too popular now… It’s near the end of its bull market.” The recommended “action to take” is to cash in your gold profits and move on to something different.

I can tell you that taking this advice is a big mistake. Anyone who believes gold is too popular with the mainstream public simply doesn’t know who the mainstream public is… and they don’t understand how bull markets end.

Sure… gold is up big since it broke out to a new high in September. In just over two months, it has climbed from $950 an ounce to $1,100 an ounce.

Click here to read the rest of Brian Hunt’s analysis of the state of gold, published online at Fleet Street Invest.

Judging by the sudden rise in fame of Levi Johnson or Balloon Boy’s antics, the human brain is far feebler than we give credit.

And so are the markets.

If you have taken a basic finance class anytime between 1965 and the present, you have likely studied Eugene Fama and his efficient market hypothesis.

Essentially, the University of Chicago professor created a cult-like following of investors and academicians that believe markets entirely reflect all known information and instantly react to new information.

For example:

When I told my ever-optimistic, ever-“hopeful” colleague, Laura Cadden, the news the majority of Obama’s infrastructure stimulus would finally be doled out sometime early next year was already priced into the market, I was showing my belief in efficient markets.

When she gave me a look that curled my toenails, I knew she didn’t believe in such “nonsense.”

The difference between efficient market “believers” and “non-believers” is as strong and divided as the difference between the Left and the Right. In many cases, in fact, the same arguments are involved.

It’s obvious these days that the Left does not believe in Fama’s theory. Why else would it build new regulations and reforms in an effort to limit market freedom?

The Right, on the other hand, with its unending determination to “let the markets handle it,” believe efficient markets will govern and regulate themselves as long as politicians keep their busy hands out of it.

Most of Wall Street tends to follow the Right’s path, realizing the more we know about an investment, the better the decisions we can make.

But it doesn’t matter what you and I think. We aren’t in charge.

Right now, the Left is in charge.

That means free market economics have got to yield to big governments and ever-increasing regulations.

That makes guys like Chris Dodd happy.

Just a few of hours ago, the Senate Banking Committee’s chairmen released an 1,100-page draft bill that takes the very notion of efficient markets and capitalism working hand in hand and tosses it out the window.

Instead of letting a Darwinian-style market separate the strong from the weak, Mr. Dodd wants the government to do the work.

His monstrous bill, which is still nearly 50% shorter than Pelosi’s anti-market healthcare package, finally calls for the “change” so many folks voted for last November.

The Feds power to regulate banks is eradicated. The FDIC role is limited. A new consumer protection agency is created. Executive compensation is in play. Credit-rating agencies will get new guidelines. And of course, the derivatives industry will be re-tooled.

Welcome to the new America, my comrades.

Washington is working to do everything it can to make the markets as inefficient as possible.

It is one more piece of information that proves that human mind is greatly overvalued.

*** Just to prove that efficient markets are still at work and new information can make or break a portfolio, the natural gas industry is reeling today as the International Energy Agency officially warned of a global glut of the vital energy source.

Gas prices are down to their lowest levels in weeks after the agency warned of a strong decline in demand this year and a massive spurt in new production.

As I write, natural gas is trading for $4.483 per MMBtu. Less than a month ago, that figure was just shy of the $6.00 mark.

It’s a downward trend with no end in sight.

Fortunately for TFN Strategic Trader, the news means just one thing, big gains.

I recommended four ways to play the situation recently. Earlier today, all four picks were worth double-digit gains, with one doozy up by 324%.

There’s still time to get in on the action. Read my exclusive report right here.

What a time to be part of such a popular, well-regarded newsletter. From what I’ve heard and read, Notes subscribers are some of the most-informed, thought-provoking readers anywhere. I sincerely look forward to opening a dialogue with all of you.

As you know, there has never been a more pivotal time in this country’s financial future than right now.

The dollar is weak.

The word “jobs” has become an atrocious four-letter symbol for economic despair.

The government owns Detroit, Wall Street and is desperately trying to get its hands on healthcare.

And, worst of all, China could eat our economy for breakfast.

Indeed, there will be no shortage of topics to discuss over the next few months.

But first, you are owed a proper introduction. I am hoping to get to know many of you through commentary and feedback, but before you can drop me a line, you have to know who you are writing to.

First and foremost, if you are looking for Wall Street flash, I’m not your guy. Far from it.

I’m not a Mercedes and gold watch kind of investor. In fact, I drive a pickup truck to the office and wear a digital watch that I bought on Amazon for $14 a few years ago.

When they were handing out made-for-TV personalities, well, I must have been out fishing that day.

That’s fine with me.

Too many folks talk too much and think too little. After all, what is talking? In most cases, it’s nothing but a bunch of hot air, especially in this game.

Like that bunch on CNBC. Don’t get me started. How a few headline reading clowns became the face of finance is beyond me. For most of them, it’s dissecting Wall Street in the morning and hocking OxyClean in the evening.

These guys won’t ever let facts get in the way of their opinion.

If you want facts, I will give you facts.

How about a market that is still 30% below its highs?

Or $80 oil in an economy that is screaming, “No mas!”

Or an American dollar that is weaker than Obama’s economic acumen?

Or a Fed Reserve with more power than any unelected board in global history?

I could go on and on about the subjects that keep today’s investors up at night, but what would we discuss in the coming days?

Like I said, there has never been a more pivotal time in the nation’s economic outlook. Even better, there has never been a time to be at the helm of a popular contrarian newsletter.

You are my kind of people. The thinkers. The realists. You don’t talk just to make noise. You think, then discuss. I am excited to see what we get into.

*** Now that you know a bit about me and the way I think, let me share some of my recent work with you.

As you know, the commodities market has been off the charts over the last eight months or so. Just about everything that can be pulled from the ground has soared in value as investors from across the globe have flocked to anything with a tangible value.

With a weakening dollar, the appreciation is understandable. With everything but natural gas, that is.

Natural gas is America’s fuel. The vast majority of what we produce is used within our borders, with very little demand contained in the export or import business.

Even though a nasty recession has significantly reduced natural gas orders, production is on the rise and prices have more than doubled in recent months. With natural gas reserves nearly full and the winter’s increased demand yet to show up, the markets are about to realize they made a horrific mistake.

Natural gas is unlike any other commodity. It has nothing to do with currency or global economic health, yet speculators treated it just like oil or even gold.

Bad move.

Traders are now paying for their mistakes.

Besides writing articles and commentary for TodaysFinancialNews.com, I am also tasked with running an options trading service called TFN Strategic Trader. It is a fast-moving easy-to-use options service that loves to take advantage of short-term market mistakes.

Less than two weeks ago, I lifted the curtain on my latest special report, an in-depth look at the nation’s natural gas industry. At the bottom of page 5, I listed three trades that offered triple-digit gain potential.

I admit, I made a mistake.

I said the gains would come by January 15. I was too conservative!

Already, two of the plays are up by 140% and 170%, with the third up by just 13%. Those two big gainers and one soon-to-be big gainer alone could easily make up for two years worth of market losses for investors still suffering.

But we are not cashing in yet. The best is yet to come. You can read the full report here.

*** The next few weeks and months are going to be quite interesting. I am not one to scream and shout, but let’s face it. Our nation and economy ain’t what she used to be.

Instead of protesting with a teabag or pleading with your congressman, I’d rather you protect your wealth, make you some more money and ensure that no matter what happens, the life you know is not going anywhere.

We’ll fight back, but not in any way they are used to seeing.

Our memory of the recent rally was on kicked-off by a bogus memo from Citigroup CEO Vikram Pandit about profitability, followed by a load of baloney from stress test regulators about banks’ health.

“People also are beginning to question whether the economic fundamentals are strong enough to justify continued gains,” continues the WSJ. This has got to be one of the most naïve sentences ever written. The 40% rise in stocks since early March never had anything to do with a 40% increase in economic fundamentals. The economy is collapsing (albeit at a slightly slower pace than before).

Stocks rose because the same “irrational exuberance” that got us into trouble in the first place caused investors to ignore economic fundamentals and pile into equities on the basis that the government wouldn’t let any more failed companies go bust. At no point during this rally did economic fundamentals improve. Economic news was simply less bad than before.

The following three indicators should make it patently clear to investors that stocks are in trouble.

1. There has been a consistent drop in trading volume going back to April. Average daily volume for all NYSE stocks hit a record of 7.21 billion shares in March (much of which was thanks to program trading by Goldman Sachs on the bank’s principle account). That fell to 6.42 billion in April… and 5.14 billion in May. This is below the average of 6.15 billion shares traded a day in 2009. In a true bull market, trading volumes tend to rise as more and more investors pour into stocks.

2. New stock issuance hit a record in May. This has dramatically increased supply at the same time that demand (as measured by trading volume) is falling off.

3. Senior corporate officers are net sellers, not buyers. This inside selling is inconsistent with a real bull run.

Here at Notes we have repeatedly stated that there has been money to be made in the recent upswing but that investors better be nimble to avoid the inevitable bull trap. We repeat this warning again today. If you are investing in equities, keep a close eye on events. Right now, you’re money is sitting in dangerous quicksand.

The beginning of the end for the stock market rally is finally here, says Payout Trader editor and technical analyst Charles Delvalle. Charles has been predicting a sell-off for quite some time. Here’s what he has to say on the subject:

After staying above the 20-day moving average since March 12, the Dow finally broke under it on June 16. Four days later, the Dow is trying desperately to stay above its 50-day moving average.

This signals an end to the shocking display of strength the market has shown in recent months.

Typically market bottoms are not V-shaped. They are usually W-shaped or form a reverse head-and-shoulders pattern. For example, after the last bear market the Dow formed a reverse head-and-shoulders pattern before signaling the start of the following multi-year bull run.

Let’s be clear. The “green shoots” hysteria in the mainstream media was designed to boost consumer and investor optimism and to send stocks higher. (Remember, the mainstream media needs large corporations – their advertisers – to succeed as much as Washington does.) The “green shoots” rarely indicated that the economy was improving. More often than not, they simply signaled that things were getting worse more slowly.

For readers taken in by the “green shoots” meme, it may surprise you that the Fed’s recent Flow of Funds report – which tracks the country’s financial flows – shows that credit conditions actually got worse in the first quarter of 2009.

As underground investor Dr Martin Weiss points out, “This directly contradicts Washington’s thesis that the government’s TARP program and the Fed’s massive rescue efforts began to have an impact early in the year.”

Weiss, of MoneyAndMarkets.com, says, “ The credit market shutdown actually gained tremendous momentum in the first quarter. And although it’s natural to expect some temporary stabilization from the government’s massive interventions, the first quarter was SO bad, it’s impossible for me to imagine any scenario in which the crisis could be declared ‘over.’”

Here are the facts Weiss has compiled about credit conditions in Q1 2009:

1. We witnessed one of the biggest collapses of all time in “open market paper” – mostly short-term credit provided to finance mortgages, auto loans, and other businesses. Instead of growing as it had in almost every prior quarter in history, it collapsed at the annual rate of $662.5 billion.

2. Bank lending went into the toilet. Even in the fourth quarter, when the meltdown struck, banks were still growing their loan portfolios at an annual pace of $839.7 billion. But in the first quarter, they did far more than just cut back on new lending. They actually took in loan repayments (or called in existing loans at a much faster pace than they extended new ones! They literally pulled out of the credit markets at the astonishing pace of $856.4 billion per year, their biggest cutback of all time.

3. Meanwhile, nonbank lenders pulled out at the annual rate of $468 billion, also the worst on record.

4. Mortgage lenders  pulled out for a third straight month. (Their worst on record was in the prior quarter.)

5. And consumers  were shoved out of the market for credit at the annual pace of $90.7 billion, the worst on record.

6. The ONLY major player still borrowing money in big amounts was the United States Treasury Department , sopping up $1,442.8 billion of the credit available – and leaving LESS than nothing for the private sector as a whole.

This is all very bad news indeed for the economy. And if it’s been reported in the mainstream media, we have yet to see it.

Either way (and even if you don’t plan on making either move anytime soon), having a sense of what got us here can keep you from repeating the same mistakes and even help you make smarter financial decisions – particularly when it comes to repairing your portfolio and even growing it in the years ahead.

When it comes to understanding exactly “what got us here,” I find it helpful to review some of the key bits of advice that Wall Street kept pitching to retail investors, a series of widely accepted investment adages that somehow became gospel and that I refer to as “Wall Street’s Biggest Whoppers.”

Let’s take a couple of minutes to look at the Big Five – the five worst offenders from a list that I assure you is actually quite a bit longer:

Wall Street Whopper No. 1: Buy and Hold – It was supposed be a simple proposition. Consistently put money to work in the markets, let it ride – and laugh all the way to the bank. The thinking was that you couldn’t go wrong because the markets would go up 10% to 12% a year – each and every year (It’s actually more like 4% to 6% – on average – but that’s another story for another time.

What’s important to understand is that “Buy and Hope” is the greatest myth foisted upon the American public in the last 200 years – the need for American International Group Inc.’s (AIG) retention bonuses, notwithstanding. As millions of investors have found out the hard way, the markets can – and do – frequently go through tremendous periods of readjustment.

This means that timing, as they say, really is everything. And “they” – the brokerage firms, hedge funds, ratings agencies and others that together make up “Wall Street” – don’t want you to know that. Wall Street wants you all the way into the game all the time. It doesn’t care whether you win or lose, just as long as you keep playing. So the collective “they” work together to pitch you whatever’s hot, and then move on when that investment has run its course.

And don’t even get me started about the conflicts of interest. The supposedly independent ratings agencies that rubber stamped everything from derivatives to high-grade debt have been in bed with the companies they’re supposed to be regulating for years. Consequently, millions of investors thought they had the “green light” to invest in supposedly safe institutions that have proven to be anything but during the past 24 months.

Where the rubber meets the road – especially during the down years like we’re living through now – is that the risks of outliving your money go up dramatically if you have to get out. In fact, if you achieve annualized returns of zero or less for the first five years after you retire, your odds of running out of money in the next 30 years more than double from 26% to 57%, a study from T. Rowe Price Group Inc. (TROW) reported recently.

And that’s proving to be a tough reality for millions of investors who thought they had this handled. Which is why I was not surprised to see data from the Employee Benefit Research Institute quoted in Money Magazine showing that more than 30% of near-retirees, or those in the early years of their retirement, had more than 80% of their money invested in stocks at the onset of this crisis.

Many of those investors have undoubtedly sold off assets to finance living expenses while waiting for the market to reverse. And that’s created a “double whammy” of sorts: Not only did they lose money on the way down; but those losses and the subsequent forced sales could well mean that their portfolios won’t be big enough to benefit from the next upturn when it does arrive.

What to Do Now: As I have long espoused, the notion of being able to take on more risk simply because you have more time isn’t what it’s cracked up to be. Instead, it is far more appropriate to make choices based on the certainty of returns, especially now.

And that should start with how you think about dividends and reinvestment. In short: Boring never looked so good. Data from Wharton’s Jeremy Siegel and Yale’s Robert J. Shiller – not to mention from my own research – shows that dividends and reinvestment can be far more stable contributors to overall wealth creation than capital appreciation.

Looking ahead in uncertain times, the best choices remain those businesses with solid management, plenty of free cash flow, and an increasing dividends that are backed up by unstoppable global trends. Not overpaid, arrogant Wall Street executives who engineer risk under the guise of safer returns.

There are still plenty of choices available if you do your homework. And it’s not too late to begin buying them selectively right now. In fact, as I wrote recently, history suggests we’re nearing a once in a lifetime buying opportunity so the odds of an upside move could arguably outweigh additional downside…even if you don’t quite get the bottom right.

Wall Street Whopper No. 2:  Some Debt is Good (aka: The Careful use of Debt is an Appropriate Wealth-Building Tool) – This is one of Wall Street’s biggest and most dangerous whoppers, and yet I almost hesitate to include it because of the e-mail I know it’s going to generate. But at the risk of sounding like a broken record, if you owe somebody money, you’ve still got to pay it off one day. That means any growth you attribute to debt until it’s paid off in full exists only in fantasyland. Ask General Motors Corp. (GM), Lehman Brothers Holdings Inc. (OTC: LEHMQ), or any one of the dozens of world banks that are now coping with the aftereffects of growth through the supposedly “intelligent” use of debt.

And this is just as true on a personal level as it is on a professional and governmental level. I wish our leaders understood this, although – in their defense – they finally seem to be getting the picture in recent weeks. Better late than never, although I would just as soon not have seen millions of investors taken on a white-knuckle ride to begin with.

Perhaps the saddest thing of all – and one of the most important lessons we can learn – is that the lessons we grew up with no longer seem to apply. We were taught that if we worked hard and acted responsibly, we would flourish. But now, even if we were responsible, we’re finding out that we’re now liable for the “other” guys’ debts, too.

What To Do Now: From an investing standpoint, confine your choices to those companies with little or no debt. Steer clear of the ones that are on the U.S. Federal Reserve’s IV drip. Yes, those companies probably have upside, but the real test will be what happens when they are forced to wean themselves off their Fed-administered drugs and operate without the crutch of government financing. History suggests that many will fail – despite the government’s unprecedented efforts to save them.

On a personal note, borrow conservatively and only if you have to. Pay off your credit cards each month or shift to a cash-only, “pay-as-you-go” spending plan if you can’t keep that spending under control. Refinance your house before interest rates begin rising dramatically to cope with the almost-certain after-effects of current stimulus spending. And by all means make sure that whatever debt you take on is debt you can afford to pay off.

Wall Street Whopper No. 3: It Pays to Diversify – The conventional wisdom used to be that if you spread your money around, you’d somehow be safer. This is no more effective than rearranging the deck chairs on the Titanic. It’s better to get off the boat.

In uncertain times, it’s how you concentrate your money that matters. This is an important adjunct to “investing with certainty in uncertain times,” and I’ve long advocated the benefits of stability and consistency as a means of getting ahead of the game – and staying there.

The proprietary 50/40/10 (Base Builders/Global Growth & Income/Rocket Riders) portfolio structure we utilize in our monthly newsletter, The Money Map Report, is a terrific example of what I mean. Not only does this portfolio strategy instill a discipline that forces investors to adhere to a “safety-first” philosophy, it has also proved itself to be far more stable than the broader markets since the credit crisis began. It kicks off higher-than-average income, demonstrates lower-than-average volatility – and still generates all the upside you can handle.

This safety-first discipline, with its dual emphasis on high current income and long-term appreciation, has generated some truly impressive returns.

And t his brings me to a key point: Far too many investors don’t understand how the game must be played right now. They think that investing in rocky times is an all-or-nothing equation.

It’s not.

Instead, it’s about the continual adjustment of positions to reflect changing assumptions related to risk – especially now that the risks of stock ownership have changed.

What To Do Now: In an era of simultaneous collapse, when then stock, bond, housing and credit markets have cratered at the same time, there’s simply no excuse for not hedging your portfolio at all times, not just when it’s popular to do so. Nor is there any reason why you shouldn’t be thinking safety first. That way you have the freedom to screw up on speculative bets instead of being dependent upon them to regain what you lost on foolish moves made during the downturn.

And by all means, learn how to use any of half a dozen specialized tools – like inverse funds, or options – to make low-risk, but-often-spectacularly-profitable choices, even under current market conditions. That way you can plan for the worst , yet still obtain the best of what’s out there.

Wall Street Whopper No. 4: Your Home is an Investment – No, it’s not. At best, it’s a roof over your head that keeps you from being priced out of the local rental markets. At worst, it’s a money pit that provides you with the illusion that you’re doing something sensible with your hard-earned money – despite the fact that an entire industry would have you believe otherwise.

Research from Shiller, the Yale economist, shows that, since 1900, home prices have run sideways or even declined for long periods of time. That means that – except for two steep run-ups – one after WWII and the other as part of the late 1990s lending binge – real estate hasn’t been the winning investment everyone claims it to be. And millions of people are learning the hard way that real estate can, and does, lose value. Seems they’ve conveniently forgotten the lessons Texans in the oil patch learned in the early 1980s or that Japan experienced in the 1990s.

Wall Street Whopper No. 5: Shop ’till You Drop and Save the Economy – The U.S. government wants you to spend money. And Wall Street, together with the credit card companies, want you to save their sorry hides by helping you do just that. That’s why so much of the stimulus planning – if you can call it that – revolves around tax cuts and handouts. It’s all window dressing.

Nothing – and I mean nothing – will matter until the banks start lending again.

Period.

What To Do Now: Keep your powder dry. History shows that the ebb and flow of money has never been smooth. Ever.

So to talk as if what’s happening now is an enigma is to ignore the past. We’ve been here before. There was the Panic of 1873 (sometimes called the “real” Great Depression), the Great Financial Crisis of 1914, and the Banking C risis of 1931, for example. The reason what we’re living through now feels different now is that those events are simply beyond the living memory all but a precious few people.

But take heart, for there are some bright spots to look to.

America’s safe-haven mantra – misguided though our policies may be – is an important indicator that savvy investors should plan for an eventual rebound – even if we’re destined to test new lows in the months ahead, and even if we have to look outside our own borders as a part of that process.

Source: Five Wall Street Whoppers And Why You Need To Know Them

Could the market actually be bottoming or near bottoming? Could the economy be showing signs of recovery?

Sorry. It’s going to take a lot more than consumer confidence edging up in March. I want to see…

• Manufacturing increasing. It went down by 18 percent last quarter. I guarantee you that it’ll keep going down next quarter.
• Non-defense capital orders increasing. They went down 5.7% in January.
• Productivity increasing. It went down in the fourth quarter. Too many workers standing around doing nothing as plants ratchet down production.
• Auto sales increasing. GM, Ford and Chrysler suffered through another month of sales falling 41 percent compared to this time last year.
• Retail sales increasing. They dropped “only” 0.1 percent in February – hailed as a sign of better things to come by several pundits in the mainstream financial media.

Give me a break…

Could it be that the financial media is reacting to complaints that it’s “talking the market down” by reporting on all these downward trends?

The popular media is not doing anyone any favors by reporting bad news as good news. So, what the heck is going on with the Wall Street Journal? Why is it getting into the “bad news as good news” act?

Listen to this dribble from Saturday’s edition (talking about last week’s market bounce)…

The rise in the stock market, even if it isn’t always a reliable predictor of the direction of the economy, could offer a sorely needed boost to confidence. ‘What you’re trying to do is reverse psychology,” said Robert Barbera, an economist at ITG, a research and trading firm. “‘You’re trying to get people to think of the glass as a third full instead of 97% empty. Once you do that, the enthusiasm about things improving can do a lot of the heavy lifting.”

Listen, I have nothing against Robert Barbera. I’ve never even heard of the guy. BUT WHAT HE’S SAYING DOESN’T MAKE ANY SENSE…

A “sucker’s rally” isn’t – and more to the point SHOULDN’T –make people feel confident.

Not when the economy is losing over 650,000 jobs a month…

Not when one out of every eight households is behind on their mortgage payments or in foreclosure. By the way, foreclosures surged in February…

Not when companies are cutting dividends and taking $41 billion away from shareholders last year and another $33 billion so far this year…

Not when people are seeing $11 trillion of net worth disappear over the course of a single year (in 2008).

And I haven’t even mentioned the 800-pound gorilla in the room yet…

NOT WHEN THE GIANT $27 TRILLION MORTGAGE DERIVATIVE MARKET HASN’T FINISHED UNWINDING.

Even if just $5-10 trillion of this giant market has to be paid off by the banks providing the insurance on these derivatives, that’s a big sum that the banks have no idea how to “handle”.

So, forgive me if a couple of banks cooing about revenues going up in the first two months of the year doesn’t get me excited.

And if you want to jump up and down in sheer joy from Ben Bernanke’s qualified statement that the recession could end by the end of the year “if the financial markets stabilize,” go right ahead.

But if that was the most bullish statement Ben could come up with, I’m thinking his heart just wasn’t in it.

Anyway, you know how I stand on this: There’s no way that the financial markets will stabilize.

Seeing the glass as a “third full” is dangerous if it leads you back to the stock market too quickly. As far as I’m concerned, even the “97% empty” take is too optimistic.

How about “99 percent empty”…

The market is taking a little break right now. Before long, it’ll be heading down – all the way down to near 5,000.

And this little interlude we’re having right now will be completely forgotten.

But there will still be some who blame the media … and others who blame a lack of confidence.

Give me a break.

Source: The Most Dangerous Con: Selling Hope

If your portfolio is filled with green today, you have just one person to thank. Vikram Pandit, the same Citigroup (NYSE:C) CEO that helped bring the Dow to 6,500, gave the equities market a boost today when he told his staff he is confident of his company’s capital strength.

In an open letter to his employees that was obviously designed to find its way to Wall Street, Pandit tells anybody that will listen he believes the company’s pummeled share price was due to “broad-based misperceptions about our company and its financial position.”

He went on to discuss the company’s financial success so far this year. Thanks to revenues of $19 billion in January and February, the company has recorded an operating profit of $8.3 billion so far this year.

Of course, Pandit warns, that figure is before taxes and any special charges or write-downs. He also says March’s volatility could take its toll on the figures.

In other words, those are merely accounting figures. The real numbers will be nowhere close when we close this quarter’s books.

Why should we believe them now?

Pandit may be shooting himself in the foot with this memo. He is setting the earnings bar pretty high and has proven the company’s business model still works. If his next quarterly earnings report does not live up to today’s expectations, Pandit will be in the hot seat with no excuses.

Read the full article here: Citi’s memo: Can you believe it?

Banks got us into this mess, so it’s banks that will have to get us out.

From the President on down, nobody is disputing such a self-evident premise.

And that includes Wall Street. Here’s a typical statement – from RDQ Economics LLC in NY, “They [the Obama administration] should be focused on stabilization” of financial firms “and stimulus — and that should not only be ‘Job 1,’ that should be the only job right now.”

Of course, the financial crisis has killed Wall Street. So the statement might seem a little self-serving, except for the fact – once again – that everybody agrees with it. I don’t buy it.

Maybe banks were the problem a lifetime ago – when Bear Stearns was taken over and Lehman went under.  When nobody knew which were the good banks and which were the bad banks and interest rates shot up as a result.

But it just takes one stupid question to realize we’re so past that now…

Who will the banks lend to?

To you and me? Wait a minute. We’re saving more. From a negative savings rate, we’re now saving about five percent of what we earn.

It’s about time. We couldn’t go on forever spending more than we make. It was bankrupting us.

Do you really want to buy a new car? Richard Wagoner, CEO of GM, wants you to. So does Ben Bernanke. And, let me go out on a limb and submit that President Obama also wants you to.

But what’s good for the economy isn’t necessarily good for you and me.

But surely companies need more loans from banks? If companies weren’t running so low on cash, why are so many of them cutting their dividends (37 so far this year)?

Aren’t the auto companies strapped for cash? Aren’t many banks scraping the bottom of the cash barrel? Couldn’t they use loans from other banks?

Yes, yes, and yes, BUT…

Fewer sales mean a smaller cash flow. When you’re earning less cash, the last thing you want to do is get a loan and go deeper into debt. Ask any responsible CEO: Higher interest payments and lower earnings aren’t a good combination.

Then there are the irresponsible CEOs, who have made a ton of bad decisions and are now forced to take out loans. Just ask Vikram Pandit of Citigroup (NYSE:C) and Bob Nardelli of Chrysler how it feels to put their companies into deeper debt?

No self-respecting bank would give these companies a loan. They’re getting them from the government.

Responsible companies – especially those in cyclical industries – are paring down debt right now, not increasing it.

In other words, we’re way past the point where banks are holding back the economy. In fact, there are very good reasons why the government shouldn’t spend hundreds of billions of dollars to a trillion dollars more to save banks…

• Throwing good money after bad. The so-called stress test isn’t nearly tough enough. Many of the banks getting government money won’t survive.
• The adrenaline shot is diluted. When banks were leveraged 30 and 40 to one, these banks might have been able to kick start a lagging economy. Not anymore.
• Inflated pay scale. A reality check is long overdue. Without the lucrative derivative market and with lower leverage, banks can’t afford to pay their 20-something employees millions of dollars anymore.
• Where’s the accountability? On a scale of 1 to 10, remorse gets 0 and a sense of entitlement gets 11. Dozens of banks were engaged in reckless behavior. They bullied Freddie and Fannie. They gave out billions of dumb loans. They infected other banks all over the world. Has any banker said, “I’m sorry?” Not that I know of.

We shouldn’t be asking our banks to go back to the bad ol’ days of dumb lending and dumber borrowing. It’s not fair to lenders or borrowers.

But even if banks wanted to return to their loosy-goosy lending ways (which they don’t), they wouldn’t find enough pent-up demand for credit to lift the economy out of its current doldrums.

Banks are a problem. But they aren’t the answer. Their festering issues are hurting the market because Wall Street thinks that banks are more important than they are.

It’s the ultimate lose-lose situation…

Save the banks and the economy still drops like a rock.

Don’t save the banks and the markets drop like a rock.

I’m bearish. And you should be too. There’s no easy way out of this dilemma.

Source: Saving Banks Accomplishes Nothing

Here he shows us covered call strategy investing and how it works.

This from Karim:

Just what is the best way to profit in a stock market like this?

Our mission here is not only to show you the sectors, industries, and stocks that are set up to fare well, and the trends you can play to your advantage, but to also show you how to profit from them in more advanced, sophisticated ways than ordinary investors.

And when I say “advanced” and “sophisticated,” I don’t mean “complex to understand” and “difficult to execute.” Far from it.

In recent columns, we’ve talked about investing in water, gold investments, the real estate market, and much more (check out our Smart Profits Report archives if you’ve missed anything).

The bottom line is that amid all the bailout and stimulus talk… the volatility… the fear… the constant doom and gloom… we continue to stress that there are ways to negotiate brutal bear markets – ways that can still bring in strong profits.

Covered call investing is one of them…

Covered Calls: The Perfect “Cover” For An Imperfect Market

We realize that times are tough. No doubt about that. But we’re not sitting around complaining about it. Our focus, as always, is purely on showing any investor how to take profits from any market.

And we’ve demonstrated that in recent weeks, due in no small part to our covered call strategy.

Now, before I go any further… I understand that options strategies can sometimes spook investors. They seem complicated, especially since most people are used to just buying and selling stocks.

But our job is to educate you… helping you become a smarter investor, able to take bigger profits…

2 Key Elements That Will Help You Beat Wall Street…

In some ways, Wall Street is like the world’s biggest casino.

The devious types who make their living there don’t want you to know about the tips and techniques that can help you win.

They’re perfectly happy for you to remain in the dark, unwilling to teach you about hedging your bets. They just want you to make them and grab your money.

Now, in some cases, I’ll be the first person to admit that hedging your bets is a flat-out bad idea. However, this is not one of those cases. And I’ll tell you why…

This type of market, complete with its daily volatility and blow-ups, requires that you expand your investing acumen. And this is where we come in, giving you the two key elements you need…

1. The necessary know-how.
2. The specific trades to take end-game profits.

Covered Call Buyers vs. Covered Call Sellers… Who Wins?

Using options does not mean gambling. If you’re relatively new to the options world, that’s the first fallacy you need to put aside. Options actually work very logically. With every buyer, there’s a seller.

The Buyers: 9 times out of 10 – especially with short-term options trading – buyers lose out. And with good reason: It’s like trying to predict where a stock will go in a couple of weeks or months – something that nobody is entirely capable of doing.

The Sellers: Options sellers, on the other hand, usually make money because they’re basically betting on this lack of supreme knowledge. Huh… how does that work? Simple…

While they acknowledge that they can’t predict where an index or stock will go with pinpoint accuracy, they at least want to try by making a well-informed, educated estimate. And they want to get paid for trying and waiting around. In particular, with deep-in-the-money covered call selling or put-selling, they want to own the underlying shares, but at a price that they specify.

I’ll give you an example…

Using Covered Calls To Invest In Gold

As we’ve written about here before, we liked gold investments when no one else did. So we put our money where our mouth was and bought shares in Goldcorp (NYSE: GG), a major gold producer.

But we were also aware that gold prices would likely remain volatile for a time, keeping shares from reaching our targets right away.

So what to do?

Easy. We bought the shares and sold call options against our position. This not only reduced our cost, but also gave us a quasi-dividend and increased our chances of a win.

In the end, our shares didn’t get called away from us at options expiration. But that was fine with us. We got another opportunity to lower our cost and increase our potential for a win by selling more calls.

We did the same with a recent trade in the Xcelerated Profits Report – and I’ll be doing it again very shortly. In this market, it’s how you play the game that counts. It’s all about risk management.

The Covered Call Investment Strategy – A Gateway To Safer Profits

In case you don’t know, we have the resources for you to learn about the covered call investment strategy (and several others, for that matter) in more detail on our Smart Profits Report website.

Scan our archives. It’s all free and essential reading if you’re serious about investing. We provide step-by-step instructions on how to execute various trades, as well as the rationale behind them.

And if you find something you really like, why not take your investing to the next level?

Source: Kiss Goodbye To “Ordinary” Investing: Why Smart Investors Use Covered Calls