How any government can issue silver as currency

There are basically two ways for a government to issue silver as currency.  One relies on force, or government decree, and is easier and more profitable for the government.  The other way is the honest free market way.

Let's start with the first way; through government decree.  This way, the government buys silver on the open market, mints it into coinage (or contracts that out), and spends that silver into circulation by adding a 50% to 500% fee called seniorage. 

Thus, a government would buy silver at roughly $13/oz., and stamp on it a nice round number, something like $20 to $50 on each 1 troy oz. coin, and force the market to value it at the new level, using that silver to pay government employees or contractors, or welfare recipients, etc.

The benefits and problems with this method are clear.

The benefits are that this "coin making business" is extremely profitable for the government, and it can issue ever more silver into circulation using this method, because it is always profitable to force other market participants to over value the silver being issued.

The problem is the flip side.  People don't like to receive silver when it is over valued, and so this kind of silver is not easily accepted by the people, because the people are basically being stolen from, through the excessive profits that go to the government.  Over valued silver is also quickly spent, or "dumped" by people, and so it cannot be successfully used as a store of savings for the people for long term wealth creation.

The second problem is that silver tends to rise in value, higher than what is stamped upon it.  So, if silver is stamped with $20, then when silver costs more than $20/oz., that silver is then hoarded, and it does not circulate as money, because it's more profitable to hold it, than to spend it, so the entire reason for issuing silver as money is then ended. 

So, what about the honest method?  How would any government honestly issue silver as honest money?  Basically, the government would buy silver on the open market at $13/oz., and not mark any currency value on it.  Instead, they would mark it only with what it is, such as the purity and weight, such as "1 troy ounce of .999 fine silver" and then offer it, as a payment option, to all who wanted it, at a relative value of no more than the cost of it, and to make it. 

Then, people who choose to take silver, can spend it, or hold it, as they wish.  Prices in society may slowly begin to be quoted in terms of government currency, or silver ounces, or both. 

The job of the central bank, under those conditions, would be to make silver available to anyone they pay, and even investors who wanted to convert currency to silver.  Also, the government would need to accept and take in silver and give out the old paper currency, as needed or desired by the people of the nation.  In such a way, silver would be able to circulate side by side with paper currency, as the market chooses, or not.

Such silver would always be able to be traded or hoarded, (and not just hoarded) because it is valued by a different measurement method, as an ounce, and its value would change according to market demand.

If the government were to try to encourage and support silver as money, to encourage the use of silver as money, the government could do two things, both of which tend to interfere with the free market, and thus, have slight drawbacks. 

First, a government could help narrow, or even eliminate, the spread on trading silver.  Thus, if the government noted that the "free market price" of silver is $15/oz. after minting fees and replacement prices, then that would be the government fixed price, whether a person was buying silver, or selling silver.

But that is a slight problem as people would tend to want to exchange worn out coins with less silver in them, for new coins.  And so, perhaps a slight fee should be charged, based on the weight, and a reasonable re-coinage fee.

Second, a government could help reduce silver's price volatility.  So if the silver price rose to $50/oz. very quickly, and then dropped, the government could hold silver's price steady for redemptions, so that people could still trade silver back to the government always at a floor price that never declined.  Hugo Salinas Price in Mexico is a champion of this idea.  This is similar to stamping a currency value on the coin itself.  When that is done, the value of that silver in trade is never lower than the price on the coin.  So, even in a "free market" changing price for silver, the new silver currency's price should never be allowed to go down in terms of the issuing nation's paper currency.  By reducing the price changes, by letting every price change only be upwards, and always be a new floor price, and never letting the price go down, a government would encourage people to trust and use silver as money.

That method also creates a slight problem, as the government might have to print up a lot of paper money in case silver's price dropped dramatically, and the government might end up with a lot of over valued silver that their own population does not want.  Thus, I consider that method to be like price fixing, which does not work, or, at least, has drawbacks.

But this would be a mix of the two methods, one part government decree, and one part the free market approach, which is why it has a slight problem.

The specifics on how to implement any of these methods require buying silver coins from a mint, or building your own mint and buying silver bars from a refiner.  The challenges there are basically trying to avoid default of your suppliers, as refiners and mints have gone bankrupt in the past, and currently, some refiners and mints are in trouble today, as they have long delivery times.  Fortunately, there are several silver minting experts to consult with to avoid such problems, such as:

Or, contact the owner of any successful coin shop which manages to maintain an ample inventory of product available for immediate delivery on a "cash and carry" basis.

Some of the main reasons why the U.S. Silver Eagle program have failed to cause silver to be circulated as currency in the U.S. are as follows.

1.  The U.S. Mint stamps the 1 troy oz. coins with $1, which is confusing.

2.  The U.S. Mint does not issue the silver coins as currency to anyone that they pay in the normal course of activity, meaning that they do not offer them as a means of payment to any government employees or contractors.

3.  The U.S. Government does not accept their own silver coins as a means of payment for taxes or fees.

Lately, the U.S. Mint has created another opportunity, by another failure.

4.  The U.S. Mint has been rationing silver coins, as their own suppliers, the mints they are contracting with to make blanks, cannot make enough blanks to meet demand.  This last problem has raised the cost of obtaining U.S. Minted silver coins, which means that anyone else who can issue silver coins can make a greater profit by doing so, even at market rates.

Which ever method any government decides to use to issue silver currency, their central bank has to essentially do two things.

1.  Mint silver into 1 oz. silver pieces and "spend" them into circulation.

2.  Redeem and buy back the silver pieces when people pay taxes or desire to engage in world trade with other nations that do not accept silver as money.

And finally, I believe it would be best to make silver coins that are the world standard weight, which is the 1 troy ounce weight, and to avoid marking them with any paper currency value. 

Later, as silver rises in value, it becomes more practical to start making fractional ounce coins, but today, that's just not really needed yet.

There are other bigger problems, of course.  The biggest problem is that such a nation would have to risk being branded as a member of the "axis of evil" by nations such as the U.S. government, who is currently being ruled by the paper money mob of world bankers, who hope to strip all nations of their sovereignty, and bring about a world government.

Then again, perhaps the ultimate goal of the paper money mob is to bring about a world government by bankrupting the nations, and by bringing back silver and gold as money, which would tend to unite the people of the world, until they could be enslaved by usury again, one last time. 

Sweden's Supercharged ETF

In a recession, boring is best...

We're in a world where soup isn't just food for sick people―Campbell's stock (NYSE:CPB) has soothed many aching portfolios as financial contagion spread.

And far from being mocked as chumps while the market roared forward, U.S. Treasury bond investors have had the last laugh as a decade of S&P gains deflated.

When it comes to international stocks, boring old Sweden has beaten emerging bulls ― like Brazil, most recently ― as this chart of the iShares Sweden ETF (NYSE:EWD) shows:



Even though some Swedish banks served as outposts of financial access to now-troubled eastern European economies like Latvia, EWD has withstood systemic shocks and beaten its Brazilian counterpart (NYSE:EWZ). With a combination of industrial strength and top international management, Swedish companies merit a spot in your recession-fighting portfolio.

Stocking up on Stockholm Stocks

Sweden's top stocks aren't necessarily household names outside of northern Europe, at least not the way they're listed in iShares filings...

For example, shoppers may not recognize Stockholm-traded Hennes & Mauritz shares, but retail customers in nearly 30 countries can be found carrying bags with H&M emblazoned on the side! H&M is one of EWD's top holdings, and the ETF is the easiest way for U.S.-based investors to grab that company's shares.

Same goes for Sandvik AB, the world's top producer of metalworking tools that will be essential to any industrial recovery.

Sandvik is part of a heavy industrial allocation in the Swedish ETF (over 26%). Automaker Volvo is in there too, rounding out EWD's top ten holdings.

Nevertheless, many of Scandinavia's star stocks come from tech-heavy sectors like telecommunications.

Telecom equipment maker Ericsson (NASDAQ:ERIC) has made its mark from frosty northern Europe all the way to balmy Charlotte, North Carolina―the city's football stadium was known as Ericsson Stadium from 1996-2006. TeliaSonera, another Swedish telecoms company in the EWD fund, is becoming a prominent player in wireless and broadband internet solutions, but it still has a much lower profile than Ericsson.

Ericsson claims customers in 175 countries. That's just 5 short of the 180 countries the World Bank recognizes... not a bad reach from a base near the Arctic Circle!

Since Ericsson makes up 17% of EWD's total allocation, the ETF can inflate and deflate with the fortunes of that one company. Fortunately, Ericsson has given EWD a big boost in 2009. ERIC shares are up 15% through mid-March, compared to a drop of almost the same amount in the S&P and 10% swoon among Ericsson's Nasdaq tech peers. Ericsson's newest move is a pending $2 billion network outsourcing deal with Kansas City's Sprint Nextel (NYSE:S), which has been hemorrhaging customers on complaints of shoddy service.

That should save Sprint money and bring Ericsson new opportunities in the U.S. market.

High Taxes... Lower Risk?

Now, you shouldn't think Sweden is totally immune to global financial market mayhem or high volatility when it hits. But what we look for as international stock investors are those country-to-country differences that can help our investments survive.

Perhaps ironically, the main capitalist qualm when it comes to Sweden―its taxation system in which the top marginal rate is 65%―may now be a buttress against fiscal chaos.

Interest-rate loosening and budget shuffling are making national leaders and central bankers all over the world look like Benny Hill these days. It would be comical if it weren't all so frighteningly serious and urgent.

In Sweden, they're walking the tightrope between having a robust state welfare system that also takes in one of the world's highest proportions of asylum-seekers and the need to maintain growth potential and a healthy trade surplus. Investors are attracted to that balance, but only as long as it's there.

Balance is key for EWD, too.

With 31% of its holdings split between just two companies―Ericsson and H&M―EWD investors should watch those firms carefully. However, country ETFs have become the best option for quick international diversification and a way to spread your bets around not only companies but also economies.

So far this year, the market likes what it sees in Sweden. Keep EWD on your radar throughout 2009.

Fear and Lust on Wall Street

I've had this ongoing project of reading as much as I can about the 1930s and the Great Depression. I favor the first-person accounts, stuff written by people who were there ― like Damon Runyon.

Some of his early stories written in the 1930s reflect on the mood of the era. And even if you don't care for reading about the 1930s, you've got to love Runyon's way of capturing the voices of the times. For instance, "I put the old convincer on him by letting him peek down the snozzle of my John Roscoe." That's a pretty colorful way of saying you stuck a gun in somebody's face.

In these stories, there is also that undercurrent of bad times. You never forget it. People view anybody who looks well with suspicion. Prosperity of any kind is seen as unreal in some way. As Runyon writes:

"You cannot tell by the way a party looks or how he lives in this town if he has any scratch, because many a party who is around in automobiles, and wearing good clothes, and chucking quite a swell is nothing but the phonus bolonus and does not have any real scratch whatever."

There is also a macabre sense of humor. In one story, Runyon writes of being at a track in Miami. He's having a run of bad luck. It goes on awhile and gets worse. "I wonder if I will not be better off if I buy myself a rope and end it all on a palm tree in the park on Biscayne Boulevard," he writes. "But the only trouble with the idea is I do not have the price of a rope, and anyway I hear most of the palm trees in the park are already spoken for by guys who have the same notion."

It was an era with an undercurrent of playful meanness, too. For example, look at the nicknames of some of the baseball players in the 1930s. Author Bill James wrote about this years ago. "In the '30s, nicknames turned nasty," he wrote. If you had a big nose, you were "Schnozz" ― a nickname earned by Hall of Fame catcher Ernie Lombardi. If you were overweight, your nickname was "Blimp," as in Frankie "Blimp" Hayes. Or just "Fats," the nickname pinned on poor Bob Fothergill.

Some other nicknames used by journalists and forever affixed to players' names in the registers: "Stinky" "Boob" "Boom Boom" (for a pitcher with a 38-69 career record) and "Suitcase" for anybody who had trouble sticking with a team. Joe Medwick walked with his toes pointed out and got stuck with "Ducky." An outfield named Cuyler stuttered and they called him "Kiki" Cuyler. It was a brutal era.

I guess with bread lines, shantytowns and so many people out of work, no one cared about playing nice. In 1930s, you had to have thick skin.

Floyd Odlum: Making the Best of Bad Times

And more than just reading about the 1930s out of my own personal fascination with the period, there are also some practical benefits. There were people who made a lot of money in the Great Depression doing legal things. There is Floyd Odlum, for instance. He is sometimes described as the only guy to make a fortune in the Great Depression. (He wasn't.)

I've written to you about him before. The reason to revisit him briefly is that James Grant also wrote a little about him in a recent Grant's Interest Rate Observer. Grant calls him a "salvage artist par excellence." "None of us can know the future," Grant writes. "But like Odlum, we can make the best of a sometimes unappetizing present."

Grant also managed to scrounge up a pretty good anecdote on Odlum. In the summer of 1933, when all the world seemed to be in pieces, Odlum strolled into his office, looked at his glum partners and said: "I believe there's a better chance to make money now than ever before."

Odlum liked poking around in the smoking wreckage of the 1930s. Bad times create wonderful pricing. I suspect if Odlum were still alive, he'd find himself very busy. There is a lot to look at now.

Scared? Read This

A friend of mine recently wrote to me about how he was looking at Potash (POT: NYSE) with "fear and lust." It was a Hunter Thompson moment, and I knew exactly what he meant. Everything feels a little scary right now. At the same time, your rational brain gets excited about the great prices you see dancing on your screen.

"Fear and lust" sums up what it feels like investing in stocks market these days…

Every investor will have to overcome fear to buy anything today. I hate to try to call a bottom. But remember that even in bad times, the stock market can put up stunning rallies. Jeremy Grantham at GMO makes the point about sitting on cash too long:

"In June 1933, long before all the banks had failed or unemployment had peaked, the S&P rallied 105% in six months. Similarly, in 1974, it rallied 148% in five months in the U.K.! How would you have felt then with your large and beloved cash reserves? Finally, be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before."

Backlash from the CVR Energy Sell

I'll end this week's note with a quick word on CVR Energy, which we parted with after a little more than a year with a terrible loss. I always get lots of e-mail after every sell, no matter whether it was up or down.

I'll reprint one of those e-mails…from my father:

"Your great analysis costs us $7,200 if we sell now. What happened to all that good stuff you wrote about it as far as the fertilizer plant and using its coke to run it? I thought (you thought) it was going to save it money, etc., on running the plant and make money on the fertilizer.

"Love, Dad"

Guess that will come out of my inheritance, assuming there is any. Well, a lot changed. Fertilizer prices tanked. Natural gas prices tanked, thereby making the company's use of pet coke less appealing with all this cheap gas around. And gasoline demand fell, as did prices, thereby hurting the refinery. On top of that, there is the seeming inability of the company to get it together and deliver a clean set of results.

I suppose CVR Energy will bounce back from these lows at some point. If you want to hold out for a better price, that seems reasonable. But I'd rather own other things in this environment. Sorry, Pop. We'll hit the next one!

 

Buy Project Better Place Stock

We may not be able to buy Project Better Place stock...

But a slew of publicly traded companies are playing an integral role in the world's most ambitious electric vehicle plan.

In fact, corporate campuses and employee homes at 19 of Israel's top companies will become testing grounds for advanced EV infrastructure.

And from these Middle Eastern hubs, multinational companies can spread and adapt their EV strategies around the world.

For instance, charging stations will be installed at the headquarters of Teva Pharmaceuticals (NASDAQ:TEVA), the world's top generic drug maker.

What's key here is that Teva also has offices in Mexico, Singapore, Brazil, Kenya, and dozens of other countries. And in all of those places, Teva's corporate strategy could mean spreading Better Place's EV infrastructure.

In 2009, Project Better Place is being propagated through the business world with the same sort of seeding strategy that Better Place CEO Shai Agassi first took to governments from Israel to Australia to Hawaii.

Among the other U.S.-listed partners for Better Place in Israel are Partner Communications (NASDAQ:PTNR), Orbotech Ltd. (NASDAQ:ORBK) and the local divisions of Nike and employment services giant Manpower (NYSE:MAN).

Car-Sharing and Electric Vehicles―Powerful Twin Trends

Corporate car sharing is an accelerating trend by itself, and EV plug-in stations make perfect sense as a twin technology. Pay-per-use services like Zipcar are becoming more and more ubiquitous, and traditional car rental companies like Hertz now moving into that market. Hertz spokeswoman Paula Rivera told the Boston Globe this week that car sharing is a "$1 billion market with potential to grow."

Shai Agassi put it this way:

"We are today seeing the certification that there is real market demand for electric cars that will use Better Place's grid. We expect demand to grow as Israeli companies join in the vision, as well as in other countries, which together represent a potential global market of 50 million cars. We see today the tip of the iceberg of global demand."

What Agassi didn't say is that we are at a time where demand is supercharged by policy around the world.

Israel wants to end its use of foreign oil by 2020. The Obama Administration wants 1 million plug-in cars on the road by 2015. The Danish government, one of Project Better Place's early partners, has brought in IBM, Siemens, and national energy company DONG to make 10% of Danish cars plug-ins within the next decade.

Bringing car-sharing and EV infrastructure together means cars with higher emissions will increasingly be taken off the road, increasing the proportion of electric vehicles as international research projects and corporate EV fleets advance.

We're bullish on Project Better Place, but until we can buy stock in that one, we'll keep an eye out for more companies like Teva that will benefit from growing EV fleets and Better Place's ever-growing resources and research.

There are also other companies around the world making high-efficiency vehicle batteries. Though they may be seen as competitors to Better Place once it goes public, a rising tide lifts all ships.

Green Chip International subscribers are already riding the wave.

A Stock Market Rebound?

Gird up your loins, dear reader. Put wax in your ears and lash yourself to the mast. You are about to be tempted.

"Lead us not into temptation," says the famous prayer. The old timers knew we were weak. They knew we couldn't resist. They didn't pray that we would "just say no" to temptation. They knew that wouldn't happen. Instead, they prayed to God to keep temptation away from us.

There's nothing like a little temptation to get the juices flowing. A roulette wheel that seems to stop just where you thought it would...a pretty woman who smiles at you on the cross-town bus...a pastry as big as a sombrero and as rich as El Dorado - oh...Heaven forefend!

But the hardest temptation to resist is the temptation of getting something for nothing.

"Investors begin dipping toes back into stocks," reports a Reuter's article.

"While economies keep contracting, stocks may have already started pricing in the end of recession and the beginning of a recovery."

Last week, the stock market showed a little leg. Yes, prices rose 12% over a 4-day period - teasing us with the prospect of a little fun. Finally - a rebound. Maybe.
The Dow rose again on Friday - up 53 points. The index is still down more than 15% for the year...and down more than 50% from its all time high. It is rare to see such big losses without a major rebound. Our guess is that we're finally ready for one.

On that basis, we have taken down our "Crash Alert" flag. If we're right, we're going to see stocks go up 20% to 50%. And we're going to hear more people talking about the end of the recession...and a new bull stock market.

GM said it really didn't need an extra $2 billion last week. Two of America's biggest banks said they were running in the black again. Even the retail sales figures were not as bad as people expected.

Houses in some communities - such as Riverside, California and Miami, Florida - are selling for only about half of what they brought three years ago. Surely this is the bottom of the housing slump, right? And sales of existing houses - at bargain prices - rose almost 50% in January, from a year before.

Our advice is to listen politely - but don't take it too seriously. This is a depression. If it follows the form of previous depressions, it will seem for a while that it is not a depression at all...but a recession, and one that is ending.

Many - probably most - people still believe that the crisis is merely a pause in an otherwise healthy economic model. They wait for the bailouts to take effect...and for the U.S. consumer to begin buying again. That is the fondest hope, by the way, of the Chinese government. The Chinese hold $1.4 trillion worth of U.S. dollar assets. They're worried that their stash of cash may lose value. But, so far, it is the only thing that is NOT losing value.

The poor Chinese began spreading their cash around just before Humpty Dumpty fell off the wall. A number of their high-profile deals went bad:

"China loses billions on equities bets ahead of markets' collapse," says an awkward headline in the Financial Times. By the end of June '08, the Chinese held more than $100 billion worth of U.S. equities. Bad timing. But the collapse of the U.S. stock market makes Beijing's other dollar holdings look good. The dollar has gone up. So, the lesson the Chinese have learned is this: the safest thing you can do is to continue lending to your biggest deadbeat customer.

It is a dangerous strategy. But the Chinese think that if they extend enough credit to the U.S. consumer, he'll come back in the shop. And Ben Bernanke, another dreamer, said last week that the recession could end this year.

Stocks will probably rise for a few months. The economic news will be better. The Dow could rise to above 10,000. Then, we will be tempted to think that all the king's horses and all the king's men are actually better at putting things back together than their reputation suggests. We'll be tempted to think that those bailouts and giveaways actually did the job...and that now, rather than turn our backs on temptation...we can safely give in to it.

Be careful, dear reader. Be careful. And keep in mind...no matter how tempting stocks may be looking in the near future, you can make major gains - without having to touch a single stock!

All it takes is 5 minutes a day, and you could be raking in triple- digit gains. And judging from this service's track record - no losing picks in over two years - triple-digit gains isn't much of a stretch. See for yourself here.

More news from today's issue of Agora Financial's 5 Min. Forecast...

"The flailing consumer economy in the United States has caused a nasty decline in the amount of money foreign workers ship back to their families at home," writes Addison Wiggin. Just take a look at this chart:



"Still," he writes, "according to the World Bank, 'remittances', as those payments are called, exceeded $300 billion in 2008. That money 'accounts for 45% of GDP in Tajikistan, 38% in Moldova and 24% in Lebanon and Guyana,' says the Economist.

Addison writes every day for The 5 Min Forecast, an executive series e- letter that provides a quick and dirty analysis of daily economic and financial developments-in five minutes or less. It's a free service available only to subscribers of Agora Financial's paid publications, such as the Hulbert #1 Performing Investment Letter, Outstanding Investments.

*** The sentiment-du-jour is outrage. AIG has gotten about $160 billion in bailouts from the feds. Much of this money has been paid out to various counterparties. We're not supposed to know who the counterparties are, but the word on the street is that billions have gone to Merrill Lynch, Goldman Sachs and two French banks, including Societe Generale. Why the taxpayer should be protecting Wall Street and foreign banks from their own errors is a subject for another day...

And now word has gotten to the press that AIG will pay out $165 million in bonuses. Top executives, for example, will get $6.5 million each. The company president defended the bonuses on two grounds.

First, he said, the execs were entitled to their bonuses by contracts made before the feds put in any money. The company couldn't unilaterally break its contracts.

Second, the firm needed to maintain the quality of its management. Especially, now that it is owned by the government, it needs good people to make sure the taxpayers get a good return on their stock investments.

The first argument seems to us watertight. He should have stopped there. The second leaks like a Baltimore water main. The easy retort is that given the quality of the top fellows at AIG bad management would be an improvement. But here at The Daily Reckoning we always forgo the cheap shots. Instead, we'll take a shot from the foul line:

What makes people think that they get better management by paying more money?

In the world at large, the difference in salary levels is shocking. At the top in Japan, the average executive earns only 3 times as much as the average salaryman. In Britain, top executives earn more than 10 times as much as their Japanese counterparts - or 39 times the average guy on the shop floor. And in America, the poor working stiff supports an executive who earns more than 300 times more than he does.

Is the American worth 10 times as much as his British confrere? Is he worth 100 times his Japanese competition? Is his business run better than either of theirs?

Don't make us laugh, dear reader. The only reason American executives earn so much is that they've conned the lumpeninvestoriat into believing that if they are paid more they will produce more. In fact, they're rarely the person actually responsible for output or innovation...and there is no evidence that we've ever seen to suggest that they do better at their jobs when they are paid more.

*** We spent the weekend working with the gardener again. We were joined by a neighbor, Paul, a round fellow, 75 years old - cutting firewood, splitting it, hauling it, stacking it.

Both Damien and Paul worked with cigarettes in their mouths. And both worked hard. Damien rarely says anything. But Paul never stopped talking.

"He's trying to kill us both," he said, pointing at Damien.

"Damien really knows how to work. He's been working hard all his life. Well, just try to find someone like Damien today. Young people don't want to work at all. And if they get a job, they expect a machine to do all the hard work. They don't know what a shovel is. You'd have a hard time getting a young person out to help us do this work...

"Everything has changed so much since I was young. You know, I was here in Normandy when the Americans landed. I remember seeing them go by. I was only 10 years old. But it made quite an impression on me. They had so many machines...tanks...trucks...jeeps. I had never seen so many vehicles.

"When I was ready to go to work, I went to work as a gardener. We worked by hand... We didn't have mechanical cultivators or garden tractors. We turned the ground with a spade. It was hard work...but I liked it.

"Then, I got into an argument with the boss. It was over nothing really. He told me to put up some cold frames...you know, for starting out the plants in the early spring. So they won't freeze. Then, he went off. He was a rascal. He didn't really do anything. He'd just tell us what to do and leave. And then he'd come back drunk later in the day and yell at us.

"So I put up the cold frames. And he came back and yelled at me:

"'What do you think you're doing... Don't you know how to put up cold frames correctly... My old crew could do this right. They were great workers. How come you don't know how to set up a cold frame?' He went on and on. So I just took of my apron and threw it at him.

"'Here...' I said, 'then let your old buzzards to it.' And I started to walk off. And he tried to stop me. What was I doing...who did I think I was, he said. Then, he even offered me more money to stay - another 50 centimes per hour.

"You laugh. But that was real money back then. And then, we got paid by the hour. We worked by the hour...as many hours as we wanted... and that was all there was to it.

"And I'll tell you something else. It wasn't like today. If you're starting out today, you have a hard time getting a job. You have to go to the right school and then get a trial period...and have the right training and get into the right program. And then, they interview you for days. Everybody is afraid to hire anyone because it so hard to fire them.

"It wasn't like that when I was starting out. You could just walk onto almost any jobsite and ask. If they needed help, you could start working the same day. I did a lot of things - I drove a truck, ran a café, worked for a food delivery service. If I didn't like the boss, I just quit. I always worked hard. Some bosses like that. Some don't. And I never minded saying what was on my mind. So when I saw something that didn't add up, I said so. And sometimes, I lost my job because of it. But it didn't matter, because there were plenty of jobs for someone who was willing to work.

"It's not like that now... That guy, what's his name, George...you know, the one who comes to help over here from time to time. He's on 'permanent disability' because he hurt his back. He can still walk. He can still talk. But he's considered permanently disabled because he was a mason...and now he can't carry heavy bags of cement. It's ridiculous. He could just go do something else. He's only about 40 years old. Instead, he does nothing - and we taxpayers support him.

"You know, they say that this financial crisis is going to be the end of capitalism. I don't think so. I think it's going to be the end of socialism...this kind of socialism we've had in France for the past 20 years. We can't afford it. There are too many people not working. Too many rules. Too much interference. A third of the country works. Another third tries to stop them from working. And the final third does nothing at all.

"I think the financial crisis is going to put an end to it... we can't afford it anymore."

Building a Better Bailout Plan

Nick Atkeson and Andrew Houghton of ChangeWave Options Trader have their own six-point plan to rescue the financial system and rebuild a 21st century economy.

We all want the economy to recover, as evidenced by the number of recovery plans we are seeing.

So far, all of the plans have two features in common.

First, they are all motivated by fear. "If we do not act," the plan sponsors plead, "we will all suffer dire consequences." But we have yet to see any serious attempt to analyze and quantify these "dire consequences."

Second, the plans assume we must fix the institutions that got us into this mess to stabilize our economy.

Common sense dictates that plans motivated by fear are generally not good ones. Since Bank of America (NYSE: BAC) and Citigroup (NYSE: C) received multibillion-dollar initial cash infusions from the federal government in October 2008, the stock values of both companies have declined by more than 70%. Many analysts firmly believe the equity value of these two banks is zero.

Watching the US government withdraw money for the next great plan from the giant "taxpayer ATM" in the Treasury is akin to watching Ruth Madoff withdraw $15 million from phantom investor accounts. At some point, we all say, "Enough already."

If we are going to mortgage our children's' futures, why don't we invest in their futures rather than our past?

Forget saving the failed institutions that sank our economy. Let's move on with new and better institutions.

Let's take our taxpayer dollars and focus it on parts of the economy that will pay dividends for years to come.

We recommend spending our bailout dollars on the following endeavors:

1. Make the United States the world leader in new energy technology and supply. Leading the world in reduced oil dependency will make us more secure, wealthy, and healthy.

2. Revamp our health care delivery system so all Americans have basic health care, while the cost of delivering care is substantially reduced. Energy and health care represent more than 20% of our national expenditures. They also represent huge areas for new growth and innovation that will immediately impact all of us.

3. Rebuild our public education system. Better educated, more competitive young workers will once again be a differentiating force for the US in the world marketplace.

4. Rebuild the electrical grid, not the highway system. In 1950, Americans needed highways to travel and generate commerce. In the 21st century, we travel electronically. Invest in the future of commercial infrastructure, not the past.

5. Terminate the Credit Default Swap (CDS) market. This action will de-leverage our economic system by trillions of dollars without costing a single penny of taxpayer money.

6. Allow the free markets to write off bad assets and default on excessive debt. In a relatively short time, the sins of overleverage will be washed away and new institutions will emerge to lead us forward. It should also do a fairly comprehensive job of removing those decision-makers who led us down the debt debauchery path.

 

Sticking With Two Buffett Banks

Jack Adamo, editor of Jack Adamo's Insiders Plus, says two big banks in which Warren Buffett has invested should outperform their peers by a wide margin over time.

Wells Fargo (NYSE: WFC) and US Bancorp (NYSE: USB) are undoubtedly the two most solid of the large US banks.

We bought both Wells and USB based on the long-term support of Warren Buffett, who owns tons of each, and has said repeatedly that the companies are managed by the best chief executive officers in the business. You can be sure that Buffett is very clear about their financial condition and any problems they face.

Given the performance of the two stocks recently, one may be tempted to ask if The Wiz has lost his touch. Just as Buffett has said it has never paid to bet against America, it has never paid to bet against Buffett. His mistakes have been few and far between. Furthermore, the financial sector is his area of highest expertise.

In the late 1990s, many an editor, trying to make a name for himself, questioned Buffett's wisdom and relevance in what they saw as the New Economy. He didn't "get it," they said. He didn't understand technology, which is "where the money is."

Yet somehow, through it all, the staid Dow Jones Utility Average soundly outperformed the Nasdaq Composite index and the Nasdaq 100 over their entire lives, and particularly so in the new millennium.

Moreover, although he doesn't understand high tech, The Wiz understands balance sheets and cash flows. He made some incredible deals in distressed bonds in the tech sector during the tech crash. He garnered high coupon payments and high capital gains when he eventually sold or redeemed them.

So, I would not be too quick to assume again that Buffett has lost touch. Undoubtedly he got in too early on deals like Goldman Sachs (NYSE: GS) and General Electric (NYSE: GE), but remember, he's getting 10% preferred dividends during a period when the market will be lucky to deliver a positive return at all.

The Oracle of Omaha has a longer time horizon than the average investor. He has said more than once that he wouldn't care if they closed the stock exchange for five years at a time. [So,] we shouldn't be surprised if these investments take longer to pan out than we'd like, but I'd be very surprised if they don't outperform the market substantially over the next few years, even from our original buy prices.

I like USB better than Wells because it looks to me like USB is recognizing its losses in a more timely manner. Big players in the market appear to agree with me: USB is seeing strong buying on these price drops, whereas Wells is not. (Wells and USB closed below $10 Friday―Editor.)

I will be disappointed if there's a dividend cut at either company, but I'm not worried about the safety of our money or the merit of the investment over a three- to five-year period. In this market, those are comforting thoughts.

 

How to Spot The Stock Market Bottom

Typically, a market can only bottom two ways. The first is a double bottom pattern. There are a few variations to this pattern:

1. A double bottom with a shake out low.
2. A First Thrust Up

In order to give you a clue as to what these look like and what to be on the lookout for, below are a few examples in multiple time frames and frequencies. First up are the market lows of last week in a four-to-six day, one-minute time frequency.

The chart above is super historical! It's the Great Depression lows. As you can see, the crash of 1929 was not the problem. It was the ensuing bear market that followed ― that was where the real wealth destruction took place. Sound familiar? What you'll really notice was that the market did not truly bottom until it formed a 1ST Thrust Up, then an eight-month Pullback Off Highs (POH)! Now let's fast forward to the bear market of 2000…

The chart above is also historical. It's a bear market we've all lived through ― the Tech Bubble Bear Market of 2000- 2003. Look familiar? Again, you did not get your true lows until you got the First Thrust Up, then the Pullback Off Highs (POH). As you can see, this particular POH lasted four months. (Note: The crash of 1987 also showed this pattern.)

Now that you've seen a few key historical market bottoms and what the technicals look like, you'll never have to listen to the talking heads on TV telling you what they think.

With this said, a retest of the lows by the market in the coming week will set up a boatload of issues on the longside and our final lows of the first leg down of this monster bear market. Then we get a reprieve of a decent time duration and a bear market rally.

Stocks Rally As Gold Falls

Mark Leibovit, chief market strategist for VRTrader.com, says Tuesday's rally may be the beginning of a short-term move up, while gold may be due for a little rest.

After the big decline Monday and last week, stocks had a strong rally Tuesday, which is being dubbed the "Bernanke Bounce" [as] Federal Reserve Chairman Ben Bernanke said the recession may end this year.

That's not saying much, since it leaves plenty of room for him to be wrong. The Dow Jones Industrial Average gained 236.16 to 7350.94, the Standard & Poor's 500 index rose 29.81 to 773.14, and the Nasdaq Composite index rallied 54.11 to 1441.83.

The market internals were very strong: Breadth was strong with 14-to-1 up volume over down volume on the New York Stock Exchange, and all nine market sectors are trading higher. Volume was up over Monday, but down from Friday.

The stock market had a true "Turnaround Tuesday." [But despite] the gaudy numbers, I remain skeptical [as] broad-based Positive Volume Reversals (tm) were not formed.

The action in bonds did not back up a normal, healthy flow of funds into equities. Normally equity rallies are sustained by bond players selling those positions to move up the risk ladder into equities. That didn't happen Tuesday.

Nevertheless, we're due for a significant rally at some point, and it might be a couple of thousand points in the Dow Industrials. It will only be a bounce in a bear market, but hopefully tradable and, hopefully, another opportunity to put on short positions (actually, inverse ETFs).

Precious metals were down sharply as traders converted their gold into cash to commit to equity positions. Additionally, gold tried and failed to break through the $1,000 area the last few days, resulting in some selling.

I warned that when Jim Cramer on CNBC became bullish on gold last Friday, we may have witnessed a significant contrary indicator at work. Just too many bulls, I suppose. If we fail to hold support first at $930 and then at $890, then we're in for some rough riding until the next up wave catches steam.

The US Dollar index is again testing and failed off the key 88 resistance level, hitting 88.129 on Friday before pulling back. Back in November, the index spent six weeks trying to break through the 88 price level, hitting a high of 88.463, but never being able to stay above that mark. I'm still inclined to give the upside the benefit of the doubt with potential well into the 90s.

Remember, the US Dollar Index has been acting as a pure flight-to-safety trade. If markets around the world continue to fall, expect to see the dollar rally. If stocks rally or even if they simply stay put, the dollar will likely drop as traders unwind their flight to safety trades.

 

Pretzels Were the Last Straw

You have to love it! The German government inadvertently created a ruckus with its new food labeling laws, raising concern among its populace that their beloved pretzel was going to be outlawed.

Outrage ensued, causing the bureaucrats to assure pretzel eaters that their big glop of salty bread snack remained intact. All I can say is―way to go, Germany! Tell the government that enough is enough!

We had out own taste of populist outrage here in the US in the brouhaha over President Obama's plans to stave off foreclosures and stabilize the housing market.

The President took to the airwaves Tuesday, trying to reassure citizens that we will find a way out of this economic distress. US markets rose before the speech, as the Dow Jones Industrial Average rallied 236 points Tuesday.

However, the talk adopted the "we will survive" mode, and most pundits felt the President didn't cover any new territory or specifics. Coupled with the news that existing home sales fell by 5.3% last month, that caused US stocks to sell off again Wednesday.

Global markets were mostly positive Wednesday after Federal Reserve Chairman Ben Bernanke downplayed the possibility of nationalizing US banks. The FTSE 100 index rose 0.9% and the Nikkei was up 2.7%, but the FTSE 300 index hit a six-year low.

Banking problems continue to put pressure on most global economies. Talks between Royal Bank of Scotland (NYSE: RBS), Lloyds Banking Group (NYSE: LYG), and Britain's chancellor of the exchequer, Alistair Darling, about how to handle the toxic assets on their books have temporarily gone astray, but both sides hope to reach agreement on an up to £500 billion plan soon.

The UK took some heart in its latest gross domestic product (GDP) figures, which―surprisingly to forecasters―remained unrevised at 1.5% for the fourth quarter of 2008. And because almost half of the £5.9 billion decline (over the same period in 2007) was due to inventory clearances (not falling demand), analysts were somewhat positive, especially since the previous nine consecutive quarters showed rising inventories. Whole-year GDP growth, however, came in at 0.7%, its lowest since 1992.

The UK doesn't have to suffer alone, however. In January, Russia's economy contracted at an 8.8% annual rate. Forecasts for that country for 2009 continue to be dismal, with credit frozen, for the most part.

Fourth-quarter GDP for Japan declined 3.3%, while Germany's fell 2.1%. And January's industrial output in Japan is estimated to have slid by 10%, on the heels of its 45.7% fall in exports that month.

The Times reported that European markets are considering a new European Systemic Risk Council (ESRC), chaired by the European Central Bank, and including banking, insurance, and securities supervisors. It could include (by 2011) two new bodies―centralized and national―to regulate banks.

Meanwhile, our contributors are busy looking for strategies and recommendations that will aid investors in their recovery.

This week, Cynthia Tusan, president of Strategic Global Advisors, explains her bottom-up investing strategy for global markets.

Pratik Sharma, principal at Atyant Capital Partners, shares his outlook for the Indian markets in 2009.

Moving on to Canada, Benj Gallander, editor of Contra the Heard, writes about a beaten-down factory automation stock, while Carlton Delfeld, editor of the Chartwell Global ETF Letter, likes a Hong Kong ETF over its Chinese counterparts.

Hold onto your seats, as I'm sure the volatile market ride is going to continue for a while. Have a good week!

 

Gold and Oil Go Their Separate Ways

John Bollinger, editor of Capital Growth Letter, notes divergences between gold and gold stocks and oil and other energy commodities, and discusses its implications.

Gold is up, challenging its July 2008 highs, after which the March 2008 high (above $1,000 an ounce―Editor) is the next reference. Gold stocks, [however,] are lagging dramatically.

The equal-weighted gold stock index has retraced less than half its decline while bullion has retraced more than three-quarters of its decline. We find this divergence very worrisome.

Confirming our concerns are silver, which has retraced 45% of its decline; platinum, which has retraced less the 25% of its decline, and palladium, which has retraced less than 15% of its decline. In short, this sector looks terrible and our plan is to sell into strength.

In chatting with my old friend Mike Epstein―retired trader and market maker, now working in the MIT Lab for Financial Engineering―the other day, I noted the gold/gold stock divergence and he suggested that one or the other needed to be sold, i.e., buy bullion and sell the stocks or sell bullion and buy the stocks.

When I posited that one might sell both and perhaps consider shorting, he pointed out that I sounded like a nervous long. Bull's eye! The truth is that I hate these sorts of divergences, and when sitting on a 10% gold allocation, two-thirds of which is in gold stocks, they do make me nervous.

Speaking of divergences, the energy stocks have stopped going down. They made a momentum low last October [and] a final price low last November and have been building a base ever since. Over that period, the crude oil price has slipped approximately 50%.

We have two different kinds [of divergences] here. In the first case, gold bullion is working its way higher without much confirmation from the gold stocks, even less confirmation from the related precious metals, and none from the industrial metals. In the energy market, crude oil has continued to work its way lower accompanied by heating oil and natural gas―despite a very cold winter, while gasoline has stopped falling and is performing roughly like the stocks.

The late Jim Alphier often talked about divergences. He said a divergence is a divergence is a divergence. His point was that it didn't matter what got out of gear or in which direction it was out of gear, [but] when divergences occur you ought to pay attention. In the current situation, the divergences suggest being alert for weakness in gold and strength in oil and the oil stocks.

 

Taxpayer Heroine

Nina Olson heads the Taxpayer Advocate Service, an independent division within the IRS that is supposed to help taxpayers resolve complaints with the agency when those problems can't be dealt with satisfactorily through normal channels. Each year the Advocate must report on problem areas within the IRS that are in need of improvement. This year's submission--unusually blunt for a government agency--is a taxpayer's delight: "The most serious problem facing taxpayers is the complexity of the Internal Revenue Code. The only meaningful way to reduce these burdens [of compliance] is to simplify the tax code enormously."

Olson didn't go so far as to advocate a flat tax, but anyone who looks at the report can only conclude that we must start over again. As the report states: "Taxpayers who honestly seek to comply with the law often make inadvertent errors, causing them either to overpay their tax or to become subject to IRS enforcement action for mistaken underpayment of tax. [However,] sophisticated taxpayers often find loopholes that enable them to reduce or eliminate their tax liabilities." The Advocate goes on, chronicling the grim realities:

--Individuals and businesses spend 7.6 billion hours a year filling out tax forms for the IRS. "And that figure does not even include the millions of additional hours that taxpayers must spend when they are required to respond to an IRS notice or an audit." Those 7.6 billion hours consume the equivalent of 3.8 million full-time workers.

--The cost of complying with the code comes to $193 billion. Other experts think that assessment is too low and have come up with estimates approaching $300 billion.

--The number of words in the code has grown by 2.3 million since 2001. In 2008 there were more than 500 changes to the tax code. Other surveys have found that the code has been amended some 14,000 times since the mid-1980s.

--No one can cope anymore: "Individual taxpayers find the return preparation process so overwhelming that more than 80% pay transaction fees to help them file their returns."

There are countless examples of the code's mind-numbing complexity. For instance, there are at least 11 incentives to encourage taxpayers to save for and spend on education, with each having different particulars on definitions, eligibility requirements, income-level thresholds, phase-out range and inflation adjustments.

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There are at least 16 incentives to encourage saving for retirement, again with different parameters.

The alternative minimum tax is an atrocity in a class all its own. It was enacted four decades ago to ensure that everyone pays income taxes, no matter what loopholes or deductions they might employ. In 1970 only 20,000 filers were affected. By 2010 the number will reach 33 million. Congress, knowing the outcry that would ensue if it whacked the middle class that harshly, regularly enacts a so-called patch, which results in the AMT hitting around 4 million filers. The biggest trip wires for AMT are family size and living in a high-tax state. In other words, if you have a lot of kids or you reside in California, New York or a similarly tax-greedy state, you will fall into AMT quicksand. Writes Olson: "Few people think of having children or living in a high-tax state as a tax avoidance maneuver, but under the unique logic of the AMT, that is how those actions are treated." Olson wants Congress to get rid of the AMT once and for all.

And God help us if Congress again tries to help beleaguered taxpayers. A little more than a year ago, for instance, Congress--with considerable fanfare--enacted the Mortgage Forgiveness Debt Relief Act. Previously, a distressed homeowner who renegotiated his mortgage with his bank had to pay income tax on the amount by which the loan was reduced. This new law was supposed to put a stop to that. But, as the Advocate's report notes, "A taxpayer must file Form 982, [which] is extremely complex, and very few taxpayers or preparers are familiar with it ??? and the form is not included in many tax software packages."

One sees a similar abomination with the Earned Income Tax Credit, which is supposed to give low-income taxpayers a rebate. Naturally, "The eligibility requirements and computations are complex, yet recipients are relatively less able to understand complex rules and less likely to speak English as their primary language, creating a recipe for confusion." The result: a large number of improper claims by taxpayers and improper denials by a confused IRS.

And on it goes.

Our frustrated National Taxpayer Advocate recommends: "The tax laws should be simple enough so that most taxpayers can prepare their own returns without professional help, simple enough so that taxpayers can compute their tax liabilities on a single form, and simple enough so that IRS telephone assistors can fully and accurately answer taxpayers' questions. ??? The tax system should incorporate a periodic review of the tax code--in short, a sanity check."

President Obama could steal the tax issue once and for all from the GOP if he took up the flat tax. Such a radical reform would rocket our economy out of recession and onto an awe-inspiring growth trajectory. But this is one rendezvous with destiny that our new Chief Executive will likely miss. Too bad for him and, more important, for us and for the world.

 

Apple, Qualcomm Skip Layoffs

Of the 10 largest U.S.-based technology firms, only Apple and Qualcomm haven't cut jobs over the past year.

It looks like Apple is doing something right. In an economy like this only the strong survive. Yet even the strongest names in the technology sector are turning to the business weapon of last resort: layoffs. The only exceptions: Apple and communications chip specialist Qualcomm.

Of the 10 U.S.-based software and hardware companies with the largest market valuations, only Apple (nasdaq: AAPL - news - people ) and Qualcomm (nasdaq: QCOM - news - people ) have been spared the widespread job losses that have been plaguing corporate America over the past year.

 

Cisco (nasdaq: CSCO - news - people ), Intel (nasdaq: INTC - news - people ), Oracle (nasdaq: ORCL - news - people ), IBM (nyse: IBM - news - people ). These are all companies with fortress-like balance sheets and steady profits. Yet all of them have let workers go recently. Even Steve Ballmer, chief executive of mighty Microsoft (nasdaq: MSFT - news - people ), has swung the ax, announcing in January that the software giant will lay off 5,000 workers, or 5% of its workforce.

While Qualcomm isn't laying off, it is clamping down. Chief Executive Paul Jacobs announced a wage freeze and a hiring cap, ending a hiring spree that saw the company adding thousands of jobs to its payroll over the past few years.

"We have not done what a lot of other companies have done, which is have massive layoffs across the company," Jacobs said at Qualcomm's annual shareholders meeting Tuesday. "We have had some targeted reductions, but for the most part we've managed to maintain our workforce."

BATS Real-Time Market Data by Xignite

Apple, meanwhile, continues to think different. While competitors are flooding the market with cheap netbook computers, Apple is sticking to its strategy: Sell pricey, yet powerful, computers and stylish music players, as well as smart phones. The result: Apple has maintained its gross margins of 34.7%, even as other companies struggle to make a buck.

To be sure, Apple employees haven't been immune to the kind of corporate reshuffling that goes along with a steady paycheck these days. Back in May, Apple eliminated 175 sales jobs at its Elk Grove, Calif., campus. Those employees, however, were offered the option of relocating to Austin, Texas.

 

Two Views On Stock Markets' Weakness

Dan Sullivan, editor of The Chartist, says stocks' weakness early this year may be a warning signal for the market.

The Standard & Poor's 500 index plunged 8.6% in January―its worst ever start to a new year in history. The previous mark was a 7.6% drop in January of 1970. Based on the old adage "as goes January so goes the year," the market's decline is a bad omen for 2009. (It's down another 6.8% so far in February, for a total drop of 14.7% for the year to date―Editor.)

According to the Stock Trader's Almanac, the month of January predicts the future direction with reliable accuracy. Since 1950, there have only been five periods when the market went the opposite direction of the trend set during the first month. That works out to a 91.4% success rate.

There is one caveat, however, with the January Barometer: If it is to be used as a predictive measure for the remainder of the year―February through December―then January should be omitted from the results. If you view it through this window, then its success rate is not nearly as impressive. In fact, if top stocks decline in January, there's just better than a 50/50 chance that the market will follow suit for the remainder of the year. When January shows a gain, the ensuing 11 months have also shown a gain about 67% of the time.

Our advice remains the same: Stay 100% in money market funds.

James Stack, president of InvesTech Research says we can't rely on the indicator's track record.

With January turning in an 8.6% loss and market averages retesting recent lows, many historian pundits on Wall Street are pointing to the ominous message of the proverbial January Barometer. "As goes January, so goes the rest of the year" has been a popular Wall Street truism for decades. And at least superficially, the accuracy seems convincing.

Over the past 81 years, the January Barometer has proven fairly accurate. If January was "up," then the rest of the year saw market gains… and if January was "down" then the rest of the year saw losses… 68% of the time. So, 32% of the signals were incorrect

One problem is that a 68% accuracy isn't all that great. Since the stock market rises in two-thirds (65%) of the years, one could simply say on January 1st, "I think the stock market will go up this year" and be correct almost as often as the January Barometer.

Another less obvious problem is that the accuracy drops significantly for the January Barometer if January was a "down" month―as it was this year. In fact, in that case (a losing January), the January Barometer turns out to be wrong more frequently than correct: 52% vs. 48%.

In addition, the five biggest January losses over the past 81 years have all seen the stock market rise between February 1st and the end of the year.

 

The Visible Handout vs. the Invisible Hand

(Originally Featured in The Claremont Review): In the current financial and political circus, with Fabian fantasists and climate cranks in control of economic policy, the mainstream media join Ivy League sages in condemning Adam Smith's invisible hand. Free market ideology has blinded conservatives, say many sophisticates, to a crime wave on Wall Street, as Adam Smith gives way to Bernie Madoff as the epitome of capitalism.

For perspective on what is going on, however, we should contemplate the view of Richard Armey, the crusty cowboy who long served as Republican majority leader and economic guru in the House, who pointed out to me more years ago than I want to recall, that economics has more hands and feet, visible and invisible, than the media imagines. Confounding the market's invisible hand during the past decade's financial follies were the government's very visible handouts. These outlays massively and conspicuously supported popular causes and constituents: low income mortgage seekers, affirmative action litigators, failed farmers, US automakers, ethanol junkies, sugar beet shysters, hustlers of solar power and windmills, socialist educators, climate cranks, and other altruistic but addled government dependents, plus all the interventionist CRAP (Community Reinvestment Act programs) that mandated the suspension of credit rules for politically favored home buyers. With much of this murky activity guaranteed by the government, it prompted orgies of overreach, with the "assets" of Fanny Mae and Freddy Mac rising from a few hundred million to five trillion in a decade or so. Democrats fervently celebrated all these visible handouts and wish to expand them hugely.

Meanwhile (in perhaps Armey's best trope), the invisible foot of government went to work. This millipedal regulatory force covertly kicks at the underpinnings of private economy activity by capriciously debauching the dollar; imposing onerously progressive tax rates on successful economic ventures but making investors eat the losses; fostering anti-business law suits and class action rackets; restricting access to energy resources; snarling international trade; and enacting ever more intricate mazes of contradictory laws and regulations with ever more acute moral hazard, which assures that the results of the intervention will be the opposite of its goals. The effect of these relatively inconspicuous activities is to unleash the visible foot of the market―all those bankruptcies and foreclosures―and increase demand for the visible hand of government largesse.

In general, to rectify the situation, the invisible foot of government must be removed―regulations retrenched, tax rates reduced, tariffs eliminated, the value of the dollar restored. But instead conservatives focus most of their energies attacking Leviathan at its strongest and most popular point: the visible handouts of government spending―earmarks, subsidies, and such―which matter relatively little if the invisible assaults are suppressed. Since the visible handouts cannot be reduced in a recession, the only spending cuts that actually happen as a result of the Republican complaints are in defense.

A few decades ago, supply side economists, such as Arthur Laffer and Robert Mundell and inspired journalists such as Jude Wanniski and Steve Forbes pointed out the politically feasible remedy. Lower tax rates and retrenched regulations result in more revenues for the government and less need for visible handouts. Because this footloose outcome allows the expansion of government and the defense of the country while the private sector grows even more rapidly, it was extremely popular for a few years. Its truth, demonstrated globally (look it up), is incontrovertible. Supply side policies enable the otherwise impossible combination of guns and butter: large defense efforts with low tax rates and rapid economic growth. Countries with low or declining tax rates can increase their government spending three times faster than countries with high or rising tax rates, because the low tax countries grow six times faster than the high taxers.

Why then is this truth controverted today by all reputable economists? Even the disreputable supply siders seem to concede to the Democrats that it is possible to increase revenues by increasing tax rates from current levels or to sustain social security and medicare without reducing the payroll tax. The reason is that all economists have been tied to the procrustean bed of existing national models which exclude all the factors―economic growth, tax shelters, entrepreneurial innovations, transnational and interstate investment flows and demographic migrations―that register the supply side effects.

Meanwhile, the profession upholds the phantasmagorical models of demand side economics. Because these models find no confirmation in reality―as Jean Baptiste Say proved centuries ago, demand is always and only a side effect of real supply―established economic theories are extremely difficult to learn and remember. You get Nobel prizes for minor and obvious insights in economic geography. Thus the exponents of the standard model are deeply threatened by any reality-based economics.

These experts are now completely in control of Washington, attempting to spend their way to political dominance, while taking well over half the voters off the federal tax rolls and giving actual taxpayers a greater incentive to hide and shuffle existing wealth than to earn or create new wealth. These measure will retard recovery from the recession and reduce revenues. But globalization means that entrepreneurial creativity―in which the United States is increasing it lead―can survive by adopting foreign locales and resources. Countries such as Israel (a global center of innovation) and Ireland (a low tax haven), China (a manufacturing dervish) and India (ascendant in software), are taking the lead and will help capitalism survive the Lilliputians currently trying to ruin it in the United States. What will matter, after all, is not whether President Obama approves of markets but whether markets approve of President Obama, who may think he has protected his future by buying off the middle class with tax rebates but will soon discover that his future will be decided by global markets for currencies and stocks market.

To any socialist revival, the invisible hand will still deliver the final finger.

STEVE FORBES, Forbes.com "Fact and Comment" (2/26/09): Nina Olson heads the Taxpayer Advocate Service, an independent division within the IRS that is supposed to help taxpayers resolve complaints with the agency when those problems can't be dealt with satisfactorily through normal channels. Each year the Advocate must report on problem areas within the IRS that are in need of improvement. This year's submission--unusually blunt for a government agency--is a taxpayer's delight: "The most serious problem facing taxpayers is the complexity of the Internal Revenue Code. The only meaningful way to reduce these burdens [of compliance] is to simplify the tax code enormously."

Olson didn't go so far as to advocate a flat tax, but anyone who looks at the report can only conclude that we must start over again. As the report states: "Taxpayers who honestly seek to comply with the law often make inadvertent errors, causing them either to overpay their tax or to become subject to IRS enforcement action for mistaken underpayment of tax. [However,] sophisticated taxpayers often find loopholes that enable them to reduce or eliminate their tax liabilities." The Advocate goes on, chronicling the grim realities:

--Individuals and businesses spend 7.6 billion hours a year filling out tax forms for the IRS. "And that figure does not even include the millions of additional hours that taxpayers must spend when they are required to respond to an IRS notice or an audit." Those 7.6 billion hours consume the equivalent of 3.8 million full-time workers.

--The cost of complying with the code comes to $193 billion. Other experts think that assessment is too low and have come up with estimates approaching $300 billion.

--The number of words in the code has grown by 2.3 million since 2001. In 2008 there were more than 500 changes to the tax code. Other surveys have found that the code has been amended some 14,000 times since the mid-1980s.

--No one can cope anymore: "Individual taxpayers find the return preparation process so overwhelming that more than 80% pay transaction fees to help them file their returns."

There are countless examples of the code's mind-numbing complexity. For instance, there are at least 11 incentives to encourage taxpayers to save for and spend on education, with each having different particulars on definitions, eligibility requirements, income-level thresholds, phase-out range and inflation adjustments.

There are at least 16 incentives to encourage saving for retirement, again with different parameters.

The alternative minimum tax is an atrocity in a class all its own. It was enacted four decades ago to ensure that everyone pays income taxes, no matter what loopholes or deductions they might employ. In 1970 only 20,000 filers were affected. By 2010 the number will reach 33 million.
Congress, knowing the outcry that would ensue if it whacked the middle class that harshly, regularly enacts a so-called patch, which results in the AMT hitting around 4 million filers. The biggest trip wires for AMT are family size and living in a high-tax state. In other words, if you have a lot of kids or you reside in California, New York or a similarly tax-greedy state, you will fall into AMT quicksand. Writes Olson: "Few people think of having children or living in a high-tax state as a tax avoidance maneuver, but under the unique logic of the AMT, that is how those actions are treated." Olson wants Congress to get rid of the AMT once and for all.

And God help us if Congress again tries to help beleaguered taxpayers….

DAN RAYBURN, Seeking Alpha (2/27/09): A few days ago, Qualcomm acquired privately held Digital Fountain. The deal went down almost a week ago and while I have yet to see a press release, Digital Fountain's website now has a brief announcement about the acquisition on its home page. While Digital Fountain does have a CDN offering, that's clearly not why Qualcomm wanted them.

Digital Fountain's CDN offering only recently got off the ground and its real value is the technology it provides to the defense department and other companies in the IPTV and mobile space. Much of its core technology has been adopted by standards bodies including 3GPP, DVB and others.

"Qualcomm has acquired a team of seven key engineers that will continue to support the technology and existing Digital Fountain customers. The Digital Fountain team will be located in Qualcomm's Santa Clara campus. Also, that team will be led by Mike Luby, Digital Fountain's founder and CTO, who will report to Qualcomm's Chief Technology Officer."

GEORGE GILDER, Gilder Telecosm Forum (3/01/09): That's what I told Qualcomm founder Klein Gilhousen on stage with Mike Luby of Digital Fountain at Telecosm--that the Raptor codes are far superior to Q's MediaFlo. I was one of the initial funders of Digital Fountain and brought Garage.com into the company. But my $100K has been diluted to literally pennies. It is not enough to be right.

There's Stocks Investment for 2009...

This could be your best chance.  U.S. stocks may never be this cheap again.

What you do in the next 24 hours...the decision I'm asking you to make...could put you on the path to stock market riches.

A little later in this letter, I'll invite you to join me for a unique video investment conference.  Don't worry, it's completely free to attend. But before we get to that, I want to tell you why I'm putting $100,000 of my own money at risk in this market...

And I want you to understand how I'll turn my $100,000 Recovery Portfolio into $250,000 in the next 4 years...

I'll SHOW you the Money -- 150% Net Gains

Like many of us, Ian Wyatt caught the investing bug at an early age.

Unlike most of us, Ian turned his passion into a multimillion-dollar investment publishing company at an early age, helping thousands of individual investors along the way.

Ian launched Business Financial Publishing to bring to individual investors the knowledge and skill he acquired from working in the markets.

Through the years Ian's brought many top stocks to readers of his newsletters, but now things are different.

The market has changed, investors have lost up to 40% of their savings in under a year, people aren't sure what to make of this market.

Even Ian has lost a share of his own money.

And that's why he's launched Ian Wyatt's Recovery Portfolio. And he's funding it with $100,000 of his own money.

Sign up here to attend the investment conference on March 10.

Click here to sign up for the free online video conference where I share all...The Fed has taken interest rates to practically zero.  There's only one way they can go from here.  And that's up. And when interest rates inevitably rise, you can make 54% OR MORE on your money...

You don't have to buy high-risk options. And I'm not suggesting some complicated hedging strategy. In fact, when you attend my Recovery Portfolio "Investment Outlook 2009" Internet video conference, I'll share the details on this investment, and have you perfectly positioned to make AT LEAST 54% on your money.

Use this link to get on the list.The Treasury Bond Bubble

United States Treasury bonds: it was one of the best investments in 2008. The financial meltdown sent a stampede of panicked investors into the safe-haven of bonds. Fear was so bad at one point that yields actually went negative. That meant investors were willing to lose a little of their money, just to know their money was safe. And when the Fed's record-setting cuts took interest rates to practically zero, bond prices soared to all-time highs. Interest rates at zero? Losing money for safety? That's just crazy, if you ask me. But crazy things happen when there's an asset bubble growing.

Take a look at this chart... 

5

Anatomy of the Treasury Bond Bubble As It's HappeningBond Bubble As It's Happening 

This is a 3-year chart of a Treasury bond fund that tracks 7-10 year maturities. From this chart, you can clearly see that bonds started moving in the summer of 2007.  But when Lehman Brothers failed and panic took over in October 2008, bond prices went straight up. But now, there's only one way for bond prices to go - straight down. And you can make 4% or more when they do. To me, this isn't even a question of "if" bond prices fall. Asset bubbles always pop.  The way I look at it, there's no risk at all to that chart. Bond prices are coming down.  It's as simple as that. Will it be next week? Next month? Next year? I don't know for certain. And I don't really care. Because I'm already holding the asset that will bring me a safe and easy 54% gain...

It doesn't matter when it happens, it just will. But it does matter when you get on the list.

Click this link now to make sure there's a spot for you. The EASIEST 54% You'll Ever Make

You see, I'm not guessing here.  And I'm not taking chances.  There's easy money to be made in this market.  And I'm going to make it.In fact, I've put up $100,000 of my own money to SHOW investors exactly how to pluck the low hanging fruit in the current market.I'm Ian Wyatt, founder and strategist for a group of investment advisory services.  15 years ago, I took a few shares of Exxon-Mobil and turned it into a personal fortune and a multi-million dollar publishing business.  My investment insights lead to $7 million in revenues for 2007...

Now, I'm stepping up to the challenge, again.  That's great news for individual investors like you who are serious about making money with their investments. Because now you can profit step by step, right along with a proven investment master...I'm opening up my personal investment portfolio and inviting investors - investors just like you - to join me on a wealth-building mission.  That's how confident I am that I can turn my $100,000 into $250,000 over the next 4 years. And one of my very first investments - one of my core positions - will make at least 54% as bond prices fall.  I'll give you the details on March during Recovery Portfolio "Investment Outlook 2009" Internet video conference.

This Special Video Conference Report is your blueprint for profits in 2009.  You'll learn exactly where to invest for consistent, reliable profits.  Recovery Portfolio "Investment Outlook 2009" is the perfect event for any investor who's ready to start recovering their wealth from this mess of a stock market..

Use this link to get on the list. (It's Free)

Ian Wyatt's $100,000 Recovery Portfolio

Investing changed in October 2008.  Wall Street essentially killed itself with greed and risk.  Financial planners and advisors were like deer in the headlights - they didn't know what to tell their clients.  So they simply repeated Wall Street's failed mantra, "Just buy and hold."

It was a disaster.  And it's left American investors with huge losses to their wealth.  Many now wonder if they'll have enough money to retire.  And retirees worry they may have to go back to work.                        

That's why I started my $100,000 Recovery Portfolio.  Investors need a new model for how to grow their wealth and secure their financial goals.  And on March 10, 2009 at 6:00 P.M.,  Recovery Portfolio "Investment Outlook 2009" you'll see firsthand how my $100,000 Recovery Portfolio is beating the market.

I've put up $100,000 of my own money because I'm convinced that NOW is the time to start the work of wealth-building.  I'm using my own money and proven profitable strategies.  I'm telling my readers what I'm buying before I buy it.  I tell them what to sell before I sell it.  And we'll share every penny of profit...

During the Recovery Portfolio "Investment Outlook 2009" video investment conference, we'll go in depth on the most important -- and potentially profitable -- stock market trends today, like: 

Stock market decline continues -- The Dow Industrials just hit 1997 lows -- what's next? The answer could make or break your portfolio.

Government bailouts -- How will the stimulus package and housing market bailout affect your investments?

Retirement on the horizon -- Portfolios are down 30 � 40%! How to invest if you're within 10 years of retirement.

Commodities boom -- There are tremendous opportunities with commodities -- if  you buy the right ones. 

Gold hit $1,000 an ounce -- Is it going higher? And how can you profit?

Selling Uncle Sam -- the safe and easy way to short U.S. Treasuries

China -- +7% GDP and stock market up 38% since Nov 2008 lows. Is it time to buy? The answer might surprise you.

Follow this link to sign up for "Investment Outlook 2009": a free web video conference with Ian Wyatt and his team at Recovery Portfolio.

I'll share all my investment insights with you. I'm not holding anything back. I know, this may sound unusual.  Most stock market "gurus" talk a good game. They'll tell you all day long where to put your money but they never tell you where their money is going.

And that's fine.  Not all investment gurus have the real-world experience it takes to consistently take profits in the stock market.

I want to be clear - my Recovery Portfolio subscribers are already on their way to growing our wealth by 150% over the next 4 years.  And since my money is in it, I'm on my way, too.  I'd like you to join us...

So if you're prepared to make REAL gains in the current market...if you're ready for strategies that will protect and grow your wealth during ALL of the stock market's movements...

Catching a Falling Knife?

Trying to pick a bottom on a falling stock or index can be a very difficult proposition and, in the trading business, has been likened to trying to catch a falling knife. Last Tuesday, when the Dow rocketed up almost 380 points, there was a lot of excitement and speculation about whether we had finally seen a bottom. Much of that particular move was evidently sparked by an announcement that Citigroup (C) had made a profit for the first two months of the year. The fact that a company has made a profit, particularly after major government intervention, is great, but one has to wonder whether it is earth shaking news. Often, the markets exhibit a tendency to overreact to a news event and though the news was certainly a positive in a market that has been filled with negatives one has to wonder whether the big spike was an overreaction or the start of a reversal.

In my individual coaching sessions, I always suggest that my students try to trade in the direction that gives them an edge. If the market, sector, and stock are all going down, for example, why take a long position? Who or what is to say that it is going to turn up and even if we say it is going to turn up, the question becomes when will it do that? Couldn't the stock just keep going down? Recent history has, once again, taught us that zero is truly a level to which some equities can descend.

While it may be very tempting to jump on board when prices are at such low levels as they have been lately (e.g. GM at $1.50, GE under $8), we need to remember that there is still room below. When stock markets, sectors and top stocks are bearish, my view is that it is best to make bearish plays or simply stand aside. Wait for the actual bullish turn rather than trying to predict. As I suggested in a recent article, no one can predict with certainty. If we think we can, we just need ask ourselves what will the news be tomorrow.

The Dow has been in a downtrend since the latter part of 2007 and it will remain in that downtrend unless and until it breaks up through the downtrend line. The same is true for the Nasdaq Composite and the S&P 500. That is not to say that there cannot be rallies in a bear market, but they are exactly that -- bear market rallies. They are to be expected, but it remains important that we understand the difference between a rally within a bear market and a break in the downtrend that actually can signal a return to the bull. Otherwise, we may find ourselves trying to catch that falling knife (or piano).

State of The Stock Markets - Is It Time To Buy?

About six or seven years ago, I was sitting in the stands watching my son play a junior varsity basketball game at the local high school when, out of the blue, a friend sitting next to me blurted out, "don't you think GE (GE) is a buy here for the long term?" At the time, the stock market was in the midst of the "Tech Bubble Bear" and GE was trading somewhere in the vicinity of $25. My friend had obviously been thinking about this for a while and went on to make an impassioned argument that this was a "great company" and that at $25 and change, it seemed like a "wonderful opportunity" if one had the proper long-term time frame.

Sure enough, after visiting the $22 range in late 2002 and again in 2003, General Electric embarked on a very nice run and closed at $42.12 on October 2, 2007. This means that had John (not his real name) made the purchase of GE he had passionately made the case for, he would have had a very nice trade on his hands as the stock had moved a tidy +68%. Not bad, not bad at all.

Time Not Timing?

John is an engineer and as such, is no dummy. He began investing in the late 1980's and at the time of our conversation; John was putting his first son through college and staring at a second tuition payment in a mere 18 months - so finances and the stock market were obviously on his mind. Like most people, John's frame of reference for the stock market had been the secular bull market which began in 1982. Thus, he was a firm believer in "time not timing" and that, as he told me, the "smart money buys good stocks at good prices for the long-term."

While I am vehemently opposed to this mentality, the reality is that this is the type of thinking that has been drilled into the minds of the investing public. The mutual fund industry has gone to great lengths to convince you that you shouldn't ever sell anything (especially their funds) because; being in good companies for the long-term is the answer. Remember, it's "time, not timing" that matters!

So, although you are no doubt aware of where I'm going with this, I almost made a phone call to my old friend two weeks ago to ask how he was feeling about that long-term investment in GE right about now? If he had purchased the GE we had talked about and held on for the "long term," he'd be looking at a loss of about -61.5%. Never mind the fact that the stock is down -77% in the last 17 months.

Just so we're clear, I'm not picking on John here. He simply succumbed to the fund industry's hype, which seemed to work for a long time. Heck, even today, most investors view Warren Buffett as a hero due to his long-term approach. Yet I'm guessing most people don't realize that Berkshire Hathaway (BRK.A) fell -32% in 2008, is down -24.2% so far in 2009, and has fallen -51% since the peak in December of 2007.

However, with the Lipper Large Cap Growth Fund Index (we use this as a proxy to indicate how the average growth fund has fared) now down -44.58% since 1/1/99 (that's 10 years, 2 months, and 1 week) and the Dow revisiting levels not seen since 1996, I wonder just how long-term one has to be in order for things to work out? (By the way, Barron's tells us that the market has never had a negative 20-year period.)

While I run the risk of talking my book here, doesn't it make sense to manage risk in your portfolio when times are bad (meaning sell a little something) and to stick with the market leaders? Remember, times change and your portfolio needs to be able to change with it - no matter how "great" a company might be.

(Please accept my apology for the brief commercial on the concept of actively managing one's money. We now return you to your regularly scheduled analysis.)

So, Is GE a Buy?

Getting back to the topic at hand, a friend and colleague who is actually in the business of managing client money recently posed the exact same question to me in a conversation just last week. And while I must confess that I am not a fundamental analyst, his point is worthy of consideration.

Curt (yes, that's his real name) presented me with the following facts and even provided the backup to prove his point.

General Electric currently has 10.57 billion shares outstanding.

As of 12/31/08, GE had $48.2 billion of cash and cash equivalents on hand

This means that GE had $4.56 per share of cold-hard cash on hand

Cash flow from operations in fiscal 2008 was $48.6 billion

CFO Keith Sherin said recently that just 2% of GE Capital's capital assets are exposed to a potential mark-to-market devaluation.

GE has funding through 2010 without government support

On Wednesday 3/4, the stock traded as low as $5.73 - and closed last Friday at $9.62

Curt's point is fairly simple and appears rather compelling (even to me). He suggests that as of last Friday's close, you can buy GE for $5.06 over the amount of cash the company has in the bank. Sure the finance arm(s) have issues. But Curt argues the rest of the company ought to be worth something more than $5.

The big point is that the recent stock price just might reflect a worst case scenario. And maybe, just maybe, this might be a decent entry point for those "long-term investors" still out there.

Is There a Message?

To be honest, I don't really care whether GE is a pound-the-table buy here or not because I don't buy stocks that way. If and when GE becomes a market leader, I'll be happy to pick up some shares. But until then, I'll stick with those companies that are tops in their sectors.

The message that should be taken away from this weekend's missive is that we are getting to the point in the market where values are beginning to crop up. This means that value investors will eventually start picking up shares here, which is a first step toward looking forward.

So, given the massive decline we've seen in stocks and all the pundits telling us why the Dow needs to go to 4000, we think it might be time to start looking for some bargains - because they just might be ringing a bell here.

Wishing you all the best for a profitable week ahead.

( AXP)
Date Sold Short: 03/13/09
Price Sold: $13.07
Buy Strategy: With stocks overbought on a short-term basis, we added a short position in AXP as it moved into resistance.
Active Trader Stop: $15.10

Current Strategy:
We made a total of four moves last week. Among the highlights was the quick profit we took in our China position (FXI) for a gain of +7.5% in three days. On Wednesday, we added a position in the Ultra Russell 2000 (UWM), which we turned around and sold on Thursday for a gain of +11.46%. And finally, on Friday we added a short position in American Express (AXP) in response to the big run in the market.

KMP (Kinder Morgan Energy Partners, L.P.)
Company Profile
Our Success Trading Group members scored 2 more wins this week. We sold a position in Kinder Morgan Energy Partners, LP (Ticker: KMP) for a relatively quick 7% gain. We also closed a position in RPM, Inc. (Ticker: RPM) this week for another quick winner. We currently have a position in McDonald's (Ticker: MCD) which we like for new positions at its current price.

Our Success Trading Group scored 52 Wins in 52 Weeks and has closed over 370 winning trades with 95% winners on our Main Trade Table.

RIMM (Research in Motion--$40.18; -1.28; optionable): PDA's
Company Profile
After Hours: $40.90
EARNINGS: 04/02/2009
STATUS: Double bottom w/handle. After surging in January and early February, RIMM tanked back to the December lows. Over the past three weeks it has put in something of a double bottom at the December low, rallying to start last week then taking a breather Friday. RIMM broke higher Wednesday and basically held the gain to end the week, moving laterally. Looking for RIMM to take another couple of days of lateral movement and then make the break higher to play catch up with the other large cap techs.
Volume: 17.364M Avg Volume: 22.534M
BUY POINT: $41.55 Volume=28M Target=$48.85 Stop=$38.88
POSITION: RUP FH - June $40c (59 delta) &/or Stock

GEL (Genesis Energy LP)
Company Profile
GEL provided a 4.7% gain before commission in a day this past week. This MLP, which has been paying very nice distributions is now dealing with a support/resistance in the $10 area and a break above that level might suggest an entry particularly when we consider that it has been paying distributions at an annual yield around 13%.

ISIL (Intersil Holdings)
Company Profile
Once again the semiconductor stocks are out in the early lead as they were in December off of the November lows. As a group they did not make the breakout due to the January fade and then the overall market tank in February. Even in that selling, and indeed whenever there is a selloff, we watch what stocks hold their own and continue setting up good bases. As we wrote at the time, these stocks will jump quickly when the market bounces back. Remember back to October 2002 as well: semiconductor stocks led the move off the lows, the first group to rally sharply at the end of that bear market. Even more reason to keep an eye out for these stocks.

There were many chips to choose from and we bought several last week. They were not, however, the household names that most are familiar with. We were watching ISIL once again as it continued its trend higher, yes higher, off of the December low. It rallied in early February off its up trendline and bumped into the top of its channel. It sold back as the market sold that month, but it simply faded to the bottom of its channel and then bumped along laterally over that level as the market sold off hard. A leader off the lows, great relative strength, holding its pattern during the market dive, tightening its range.

Naturally that caught our eye and we put the play in the report again on 3-5-09, waiting for ISIL to show a break higher and give us another run toward the top of the range, maybe farther. ISIL remained in its very tight lateral move for two more sessions, and then on Tuesday it jumped off the lower trendline. We jumped in with some stock positions at $10.48 and some April $10 strike call options at $1.20.

ISIL finished the day at $10.84 then added another 5.35% to $11.42 the next. Thursday ISIL blasted through the upper trendline of its channel, surging to $12.16 on the high and closing at $12.05, up another 5.52%. Three strong days higher, breaking through the top of its channel, a 14+% gain in hand. After a channel break a stock will often come back to test that move. So, we sold half our stock position at $11.99 for a 14.4% gain. We sold half our option position at $2.1 for a 75% gain.

Friday ISIL gapped a hair higher, edged a bit higher, but then started to sell, undercutting the Thursday close. That is a classic sign a leg higher is going to take a breather. If we had not sold some positions late Thursday we would have sold them on that signal. Now we are looking for ISIL to continue the test of this break out of its channel. If it cannot hold we will sell some more positions and bank the gain. If it does hold we will let our positions continue higher as ISIL will have new ground to plow as it makes more new highs off of this breakout as it has changed its pattern.