Investment Lessons You Can Learn From Bin Laden
September 29, 2006 -
Last week the Dow Jones MarketWatch reported that Bin Laden was seriously ill or even might be dead according to French intelligence reports. Time Magazine cited unnamed Saudi sources as stating that there were “multiple credible reports over the last several weeks” that as a result of a water-borne illness, Bin Laden, was severely ill and most probably dead. Since then, there has been a flurry of denials.
Whether these reports are later substantiated or prove to be false, there is a very important point to take away from this. Simple, clean water, or lack thereof, may have accomplished what USD $1 trillion could not. So far, estimates from well-respected economists regarding the cost of the United States war on terrorism hover at about $1 trillion. And so far, it has not proven enough to bring down the ever elusive Bin Laden. But access to clean water, something that over 1 billion people in this world lack, almost did (or may have).
By 2025, the United Nations predicts that 2 out of every 3 people in this world will suffer from shortages of clean water. Read more …
1 comment September 29th, 2006
Historically, August and September are very weak months in the stock market and rallies start in October into November and December. Then January has always been a very strong month performance wise as investors buy back shares they sold off in December for tax reasons. Right now, the U.S. markets are following some historic patterns and ignoring others. Trying to decipher them is a big web of entanglement.
The September 9th “Economist” magazine discussed the trials and tribulations of Jamie Olis, a former senior level tax planner at Dynergy, who was sentenced to 24 years in prison for, according to a Houston judge, contributing to the destruction of $100 million of Dynergy market capitalization. Olis caused this destruction, the judge stated, by releasing fraudulent information through Project Alpha, a gas trading and finance scheme that falsely pumped up Dynergy’s cash flow by USD $300 million. Furthermore, in rendering his decision, the judge relied on the testimony of a government witness, a statistics expert that claimed because markets are 100% efficient, Dynergy shares’ rise and downfall were directly attributable to Project Alpha’s lies and the deception of Jamie Olis. The only problem with this argument is that markets are nowhere near 100% efficient. 
Looking at the DJIA and S&P500 charts today, they merit serious caution. Check out the doubletop formations on both. On average doubletop formations are met with a 15% retracing of gains from the line that connects the doubletops. I should preface this blog by saying that I by no means am a technical analysis expert. However, I do perform different kinds of analysis here than the average Joe. I don’t rely too heavily on crunching numbers because CEOs and accountants have been repeatedly outed as liars. And I don’t realy too heavily on technical analysis either because (a) I’m no expert in this; and (b) technical analysis yields many false positives and false negatives.
However, the charts do look ugly. The major factor battling the technical charts from playing out sharp retractments here is the government manipulation of the economy in preparation for the Nov. 7th mid-term elections. So though the SPY has broken out of the double top formation, I by no means would consider this “bullish”. Again the battle between government manipulated lies and the real truth of the U.S. economic state has produced a very “sticky” situation. In the short term, the question is which will win? The mid-term elections is the wild card in the picture. Either way, investors beware!
As I looked at some of the daily trading volumes of some U.S. stocks this past week that have hit 52-week highs, I noticed an unusually large daily buying volume this week, some with volumes so exaggerrated that it is safe to assume that institutional buying is responsible for the lion’s share of these unusually high buying volume days. I thought, “Why in the world would people be dumping tons of money into these stocks at their 52-week highs? That’s just moronic.” And then I remembered why.
In order to support my point, I compiled the table above. All of these stocks have hit 52-week highs within the past week and look at the percentages over the 3mo average daily trading volume for the highest volume days for the past week: McDonalds (160%), Priceline (160%), Harley Davidson (57%), Verizon (136%, Unilever (39%). All of these spikes in daily trading volume were almost surely attributable to fund managers scrambling to add these positions to their portfolios before quarter end this week as they dumped their worst performers. This is a practice that happens close to every quarter end. Why do they do this? 
As I sit here this morning and watch the markets rise in the first two hours of trading, I must admit that although all this “feel-good” economic news, low inflation, high consumer confidence and low gas prices have been artificially manufactured by the U.S. Treasury, the Federal Reserve, and various Bush administration offices like the OMB, I am still astounded at how naive and gullible the average investor can be at times. When the mid-term election cooking of the books ceases, and someone finally has the sense to start peeling away the layers of the economy like an onion, I guarantee you, what they see will make them cry.
Today, I’m going to review a previous blog on September 14th that I titled “A Short Term Trade”, something “We Never Provide Information About”. In that blog, I wrote that I felt that the NYSE and the S&P 500 were due for sharp corrections and that the dollar looked as it would strengthen short-term even though long-term I think the U.S. markets are among the worst markets to be invested in and I think the dollar is one of the worst currencies to own. Since then, the dollar has weakened somewhat against the Euro and Yen and the U.S. stock markets have been shooting higher, perhaps providing evidence that short term trades are indeed something that we should “never provide information about” since that is not the strength of what we do here at SmartKnowledgeU. By short term trades, typically I mean six weeks or less, so even though we’re only two weeks into my prediction, if we don’t see this correction very soon (and I mean really soon), it’s probably unlikely to happen before the U.S. mid-term elections. Why is the date of the mid-term elections so important?
The world of global politics is like Alice in Wonderland, a great landscape of fabrication where it seems like more people are accepting of strange, wild fantasies rather than desiring to dig down the rabbit hole to discover the truth. Back in November, 2004, U.S. Senator Richard Lugar pointed to statistically significant divergences in the exit polls and the officially reported results in the Ukraine elections as evidence of “blatant fraud” in their elections. The margin of error in exit polls in global elections held all over the world is considered so slim (because unlike pre-election polls, exit polls merely ask leaving voters who they just cast a vote for), that generally, many statisticians vow that the exit polls are never wrong. 
Thailand has one of the cheapest stock markets in all of Asia, and it’s about to get even cheaper. Currently I’m in Bangkok and yesterday, after weeks of verbal grenades and strategic maneuvering that pitted the Thai Prime Minister against the Thai military, factions opposed to Prime Minister Thaksin Shinawatra staged a coup last night to oust him. Even before the coup, Thais have been largely split in their support and criticism of Prime Minister Shinawatra.
There is a coming revolution in science that will produce many millionaires among the early investors in this industry. There is no doubt in my mind of this. And this industry is being ignored due to everyone’s preocupation with commodities right now.
Sometimes, I’ll scan financial news on Reuters, Bloomberg, MSNBC and so on, not for information to make investment decisions, but just for ideas to write another blog entry. Occasionally I’ll find something to comment on. By now, most of you know that I find most financial news in major media to be junk. Case in point. A couple of weeks ago, Chevron, Devon and Statoil announced the discovery of massive oil reserves, perhaps as much as 15 billion barrels, in the Gulf of Mexico. Major news media commented that day that oil prices plunged in response to this discovery.
Everywhere in the media, you have pundits saying that the commodities Bull Run is over – including even chief global economists of major investment firms like Steven Roach of Morgan Stanley. They’re all wrong. This is a case of everyone panicking from sharp corrections that no doubt have caused millions of people world wide some mental anguish and hand wringing. But not me. I’ve dug deep enough down into the rabbit hole to know that gold will rise much much higher in the future. In fact if you go back and read my earlier blogs and ezines (for my ezine subscribers), you’ll see that when gold was at over $625 an ounce I said that gold was heading lower than $600 to test its June lows of $570 and possibly head lower. And I still think that we haven’t seen the end of the correction in gold. Yes, oil has slipped to below $60 a barrel but again, this doesn’t mean that oil is done either. 
