Archive for May, 2008
May 22, 2008
There’s a saying “Fool me once, shame on you. Fool me twice, shame on me.” Our motto at SmartKnowledgeU is to never be fooled. We are at a crossroads today where things are going to get a lot better or they are going to get a lot worse. As the permabull sales culture of the commercial investment industry dictates, the practical deluge from the commercial investment industry about the worst of the crisis being over has been almost non-stop for the past several weeks. Here is just a sample of numerous recent headlines that have crossed my desk in the past several months that proclaim or support that now as the best time to buy stocks in a long time.
“Are You Ready for Dow 20,000?”
“IMF Chief Says Worst of Financial Crisis is Over”
“Paulson Says Worst of Financial Crisis is Over”
“Citigroup Chief Says Worst of Credit Crunch Crisis is Over”
“Financial Crisis Mostly Over, [JP Morgan CEO] Dimon Says”
Astonishingly, the person that inspired the Dow 20,000 headline, James Finucane, was predicting this mark within a timeframe of just one year and called today’s markets, in his words, the “perfect” setup, implying that this is about as risk-free opportunity as you will ever receive in your lifetime to make a fortune by investing in the U.S. DJIA index. Numerous other journalists seem to agree as evidenced by the latest headline I read just four days ago in the New York Times that boldly announced:
” An Alarm is Blaring: TIME TO BUY” (emphasis mine).
Besides the fact that the commercial investment industry will always utilize any rally to inform their clients that a massive bull run is coming and to stick their clients with the “better invest now if you don’t want to miss out” sales approach, perhaps some of these extremely giddy predictions about the imminent future of stock markets are also based upon a look back at history. Read more …
May 22nd, 2008
May 14, 2008
In this article, I will debunk the many articles that attribute inflation to rising prices and rising oil prices to nefarious OPEC nations that squeeze production and gouge Western nations. With the use of four charts, I can explain most succinctly what is the predominant factor in contributing to rising oil prices. Just as inflation causes rising prices and not the other way around, the falling dollar is the greatest single determinant of soaring oil prices, not speculators and not a shortage of supply. Sure, these other factors contribute to rising oil prices and shortage of supplies will certainly drive oil prices even higher in the future, but they are not THE main contributor today despite all the articles to the contrary. That honor goes to the falling dollar. To understand, take a look at the four charts below.
I have plotted the USO (AMEX), the United States Oil Fund, LP against gold, silver, the euro and the U.S. dollar for the last 3 years. The United States Oil Fund, LP (USO) invests in futures contracts for light, sweet crude oil and other types of crude oil, heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the New York Mercantile Exchange (NYMEX), International Currency Exchange (ICE) Futures or other United States and foreign exchanges, so generally it acts as a very good proxy for the price of crude oil (and gas). Read more …
May 13th, 2008
May 11, 2008
There has been a lot of speculation for many years now that during extreme financial crises, the U.S. Federal Reserve and other entities intervene in free markets from behind the scenes and do not allow free market forces to operate. There are usually two schools of thought that dominate this hotly contested issue. One group of people asserts that free market interference is entirely acceptable because the alternative of allowing free market conditions to create a market crash is not an option. Another group of people asserts that interference in free markets is undemocratic and self-destructive as intervention in free markets do not solve problems but only cover-them up and delay them, thereby only allowing the elite money who truly understand such actions to exit stock markets at the heights of these artificially manufactured rallies while laying waste to the wealth of the common investor when things inevitably fall apart in the near future.
Those that argue that free markets are dead state that free markets ended when U.S. President Ronald Reagan signed Executive Order 12631 into law on March 18, 1988, establishing the Working Group on Financial Markets, known as the Plunge Protection Team (PPT) in more conspiratorial circles. The Working Group’s members consist of the most powerful men in global finance – the U.S. Secretary of the Treasury, the chairman of the Board of Governors of the Federal Reserve, the chairman of the SEC and the chairman of the Commodity Futures Trading Commission. Reagan’s decision to form the Working Group was inspired by Black Monday, a day when U.S. Dow Jones index shed an incredible 508 points, or 22.6% of the index’s value at the time, in a single day.
The Working Group was assigned the mission of ensuring that such an event would never happen again. Instead of addressing the root causes of Black Monday such as money supply growth that encourages the formation of speculative stock market and real estate market bubbles that lead to inevitable crashes, many have contended that the Working Group instead operates by intervening in the free markets Read more …
May 11th, 2008
May 11, 2008
In Part I of this two-part article, “Has Executive Order 12631 Effectively Ended the Era of Free Markets?” I discussed publicly made statements by various officials of the U.S. Federal Reserve that indicated they would resort to free market intervention and manipulation “if necessary”. Since many of those statements have been made, there have been fierce arguments about whether or not the U.S. Federal Reserve takes such actions during periods of crisis. Such behind-the-scene actions, were they to occur, would certainly bring into question numerous legal, moral, and ethical issues. Just because former Board Member of the U.S. Federal Reserve Robert Heller stated that it is quite easy to manipulate stock markets and reverse free-market behavior through the purchase of stock futures, does this mean it happens? Of course not.
But a quick glance at market behavior ever since the Working Group has been formed, especially in the past several months, seems to indicate that some form of behind-the-scenes free-market interference occurs at regular intervals during crises. In past articles on my blog theUndergroundInvestor.com, I have reviewed statements of finance ministers from the G7 nations in which they admitted they were undertaking secret actions out of the public eye for fear that public knowledge of their actions would destroy the very effectiveness of their actions. To me, this sounds like an incredible admission of propping up action. Recently, “the SEC said it aims to slash margin requirements for institutions and hedge funds on stocks, options, and futures to as low as 15%, down from a range of 25% to 50%.” At a time when overleveraged funds have collapsed and created great stress in the global financial markets, a decision to allow funds to increase their leveraged positions seems not only foolish but seems to have no purpose but to prop up stock markets. Read more …
May 11th, 2008
May 5, 2008
Just a couple of days ago, the financial media rejoiced over a prediction made by the Omaha oracle, Warren Buffet that “The worst of the crisis in Wall Street is over,” disseminating this declaration across the world in the hopes that it could continue to fuel what will go down as one of the most foolish stock market rallies in history. However, in all the articles I read that covered his declaration (and there were many), I couldn’t find one that actually discussed in detail any of the reasons why Mr. Buffet believes that recent actions taken by the U.S. Federal Reserve are sustainable. It seemed that most journalists were quite content with applying the logic of “if Mr. Buffet said it, it must be true.”
Those of you that are SmartKnowledgeU™ Platinum Members know that Mr. Buffet’s declarations of the fallout that likely would have ensued had the U.S. Federal Reserve not bailed out Bear Stearns could have been lifted almost verbatim from my bulletin I had sent to you over a month ago. Recently, Mr. Buffet reiterated exactly what I had told all of my Platinum Members in that month-old bulletin, that if Bear Stearns had gone bankrupt, other Wall Street firms and banks would have failed within a matter of days and the Dow would easily have shed another 1,000 points also in a matter of days. But here’s where I believe Mr. Buffet is wrong. At his annual meeting of his Berkshire Hathaway company, he stated, “ I think the Fed did the right thing in stepping in on Bear Stearns.” So why do I think he’s wrong if I think Bear’s collapse would have created much sharper pain in the U.S. stock markets and the collapse of other financial institutions? Read more …
May 5th, 2008
