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ContrarianProfits.com (http://www.contrarianprofits.com/) is a financial news and opinion website with a twist. As investment guru Rick Rule puts it, “You are either a contrarian or a victim.” In the financial world, most people are losers because they just don’t know what game they’re... More
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  • Why the Dumb Money is Piling Back into Stocks

    While the dumb money is chasing the rally in stocks; the smart money is keeping a close eye on the economy. Bill Bonner has been hammering home this point in the Daily Reckoning. We’ve been doing the same here at Notes. (Consider it a friendly warning.)

    There may be money to be made in stocks right now. However, before jumping in consider the following facts (which we’ve plundered from yesterday’s Daily Reckoning):

    1) Unemployment has risen to 9.4 million, according to heavily doctored “official” Bureau of Labor and Statistics figures. In reality, the number is much higher. People without jobs don’t spend money. They also rely on handouts from the government. One in every six dollars of personal income in America now comes in the form of federal aid.

    2) Housing prices have so far been knocked down 32% since the slump began. Housing expert and Yale economist Bob Shiller reckons we’re a long way off from a recovery. People with mortgages whose house prices are falling don’t have room for discretionary spending – the kind of spending that helped keep US GDP in positive territory for so long.

    3) Defaults and foreclosures aren’t confined to the subprime part of the mortgage market. Prime and Alt-A mortgages are now under severe pressure. The contagion is spreading. And it will continue to spread thanks to record job losses and the contraction of credit.

    4) The resulting fallout in consumer spending is impacting production. This is evident from the severe fall-off in the transport sector. Traffic in the trucking sector is down 13% year on year – the biggest drop in 13 years. Airlines are carrying 21% less cargo. Cargo rates are down a whopping 90% in shipping.

    We could go on… and on… But you get the point. As least we hope you do. The plunge in the economy may be slowing, but the data points are still heading in the wrong direction. Until this changes, we don’t fancy our chances in stocks.

    We’re conservative that way: we like to have a reason for investing other than “everybody else is doing it, so it must be right.” That attitude will get you killed. You may make some money on the way to the chopping block. But sooner or later your head will still end up in a basket.

    Of course, a bet on stocks right now is a bet on inflation (although not necessarily a good one). This is where the plot thickens, as a good plot always does.

    We suspect the reason traders and investors are ignoring economic fundamentals in their flight from relatively safe-harbor investments (think Treasurys) into stocks is because they’re counting on the Fed flooding the economy with liquidity.

    As we’ve discussed before, stocks tend to be particularly sensitive to fiscal and monetary stimulus. The problem is such overwhelming stimulus is likely to make the currencies stocks are valued in worthless.

    There are better ways to bet on inflation – ways that also allow you to benefit from currency dollar devaluation. At the risk of repeating ourselves, there are two easy ways to do this.

    You can go long the SPDR Gold ETF (NYSE:GLD), which has been on a tear since mid-April.

    Or you can go long the PowerShares DB Agriculture Fund (NYSE:DBA), which has also been a great performer since mid-April.

    Source: Why the Dumb Money is Piling Back into Stocks

    Jun 10 5:01 PM | Link | Comment!
  • 2 Ways To Profit on the Coming Airline Industry Collapse

    A way to play the global economy decline is by shorting the airline industry. Here we turn to underground investor Martin Denholm, writing in today’s Smart Profits Report. The problem with the airline industry is that in business terms, it can be “lose-lose,” no matter what the economy is doing…

    When the economy is solid, demand rises and more people fly. But a rising economy also pushes up oil prices and offsets the airlines’ bottom line. Add to that the large number of carriers within the industry all fiercely competing and battling to win passengers, and that eats into profitability, too.

    When the economy is struggling and the job market is poor, many people have less disposable income - and consequently fewer people want to fly. Here in Baltimore, for example, BWI Airport saw 7.5% fewer passengers in March, compared with March 2008. In addition to less demand, oil is a volatile resource, under threat from geopolitical shenanigans at any time.

    Right now, of course, we have the latter. And the numbers paint an ugly picture…

    Consider the following ugly bunch of data from the International Airline Transport Association (IATA).

    1) From an estimated $4.7 billion loss as recently as March, it now forecasts $9 billion worth of losses.

    2) Airline industry revenues are projected to hit $448 billion this year - a 15% drop over 2008.

    3) By region, the numbers show a $1 billion loss for North American airlines this year (much better than the $5.1 billion loss in 2008, but this is largely due to the oil price decline)… a $1.8 billion drop for European carriers… and a $3.3 billion tumble for airlines in the Asia-Pacific region.

    4) On Monday, Japan Airlines, which boasts the best revenues in Asia, said it will cut its international routes by 10% during the current business year. It was the latest in a string of route cutbacks from global airlines.

    5) The IATA says passenger demand will fall by 8% to just over two billion this year, with cargo demand suffering a 17% drop, as the global economy slumps.

    Martin says an easy way to profit from airlines woes is to short the Claymore/NYSE Acra Airline ETF (NYSE:FAA). This relatively new ETF tracks highly capitalized and liquid US and international passenger airlines. FAA is down 12.6% since its recent May 6 high. And there could be plenty more pain on the horizon.

    Martin recommends shorting two airline indexes: The

    Airline Index (AMEX: ^XAL) and the Claymore/NYSE Arca Airline (NYSE: FAA).  Good luck!

    Source: 2 Ways To Profit on the Coming Airline Industry Collapse

    Jun 10 4:49 PM | Link | Comment!
  • The 3 Simplest Ways to Trade Like Jim Rogers Today

    The big daddy of underground investors, Jim Rogers, says the best way to play this downturn is to focus on commodities and agriculture ETFs (hat tip The Daily Crux). The primary logic behind this play is simple to understand.

    The global population is peaking and is consuming more food than it’s producing. This will make food scarcer and cause it to rise in price.

    But there are more subtle reasons for investing in commodities right now. Rogers says that although stocks may touch crazy valuations in the near term, they may be in worthless currencies – a vista Notes readers will be familiar with. This from a recent interview with Rogers in the Economic Times:

    Central banks all over the world have printed huge amounts of money, and the real economy is not strong enough for all this money to be absorbed… so, it’s going into stocks and real assets such as commodities. It’s a mistake what they are doing. It’s giving short-term pleasure, but there’s long-term pain as we are going to have much higher inflation, much higher interest rates and a worse economy down the road.

    The American bond market is already beginning to go down dramatically as people realize that the American government has to sell huge amount of bonds, and secondly, there is going to be inflation, serious inflation, as it was always in the past when you had governments printing huge amounts of money.

    The fiscal deluge is lifting stocks. But they’re getting frothy. And Rogers reckons the current upward trend won’t last.

    It’s going to snap. Later this year, next year, we are going to have currency problems, maybe even a currency crisis. I don’t know with which currency — maybe with the pound sterling, maybe with the US dollar, who knows. It maybe with something none of us have at the moment. When you have a currency crisis, stocks will be affected, many things will be affected. It is not sound, what’s happening out there in the world.

    In the 1930s, we had a huge stock market bubble which popped. And then politicians started making many mistakes. They became protectionist. They made solvent banks take over insolvent banks and then both banks failed in the end.

    They are doing many of the same mistakes now. What’s different this time is that we are printing huge amounts of money which they did not print at that time. So, we are going to have inflation this time.

    There are a number of ways to play this scenario with hard assets. But to keep things simple, you may want to focus on the following three market-beating commodities ETFs (hat tip ETF Trends).

    1) The iShares S&P GSCI Commodity-Indexed ETF (NYSE:GSG), up 8.1% for the year

    2) Notes’ old favorite, the PowerShares DB Agricultural Fund (NYSE:DBA), up 7.5% for the year

    3) The Market Vectors-RVE Hard Asset Producers ETF (NYSE:HAP), up 25.9% for the year

    Source: The 3 Simplest Ways to Trade Like Jim Rogers Today

    Jun 10 4:22 PM | Link | Comment!
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