Marc Courtenay's  Instablog

When surveying the financial and economic landscape of November 2009 it isn't that hard to get "the big picture". It seems to me that the manipulations and the activities of the "Smart Money", a.k.a the Exchange Insiders, the Specialists and their array of big banking clientel makes it abundantly clear that they want the stock market and precious metals market to remain in "bubble mode" for awhile longer. There are many opinion and myths about it all floating around. This concerns me.

Alfred Goldman, the wise old sage of the former brokerage firm called A.G. Edwards and Sons had a saying that I always liked: "It's not the snake you see that bites you, it's the snake you don't see." He wanted to warn customers that we can easily become distracted by all the noise, all the "talking heads" and myriad opinions and miss what is really going on.

So I have a question for you. Do you still think the stock market and the precious metals markets are an orderly, auction-based market that responds to the forces of "modern portfolio theory" and the best interests of investors?

Another question might be: Since we made it through the scariest months of September and October with not much damage to the DJIA, the S&P 500, the Russell 1000 Financial Index (symbol:RIFIN) and the precious metals markets, is it "up-up-and-away" from here?

Our most followed Seeking Alpha contributor David Fry had an interesting comment in his Friday Roundup:  

"RBS economist Stephen Stanley wrote today’s employment report was “a mild disappointment”. It’s easy to say with his firm and others, plied with cheap money from a generous Fed. And, that’s really the issue. The liquidity bubble for Da Boyz is creating a stock bubble. Like all bubbles it will have an ugly end. But with cash and bond yields low, going for higher returns in equities is an easier; “make hay while the sun shines” choice. So, spin bad news and go for returns in stocks."

Once again we see the underlying reality that what we see and hear about the economy and the stock market doesn't necessarily correlate to why stock prices or the price of gold goes up and down. For now, keeping interest rates low and creating the myth that the stock market or the precious metals market can't suddenly and dramatically fall, is working it's magic.

I keep my eyes on companies like Alcoa, GE, Proctor& Gamble, Boeing, JPMorganChase, Goldman Sachs, Google, Apple, Texas Instruments, Chevron, Exxon, Chesapeake Energy,Dupont,NYSE Euronext, Barrick Gold and Freeport McMoRan Copper and Gold. I want to see the hourly and daily volume, and what appears to be driving each of these very popular stocks.

Listening to the Spin Doctors on CNBC or Bloomberg, as well as the interviews that are often available on Yahoo! Finance gives me some idea of the prevailing consensus and "schizophrenia" that drives the emotions of the investing public. No wonder so many people are confused and turn to actors like Jim Cramer (although he is a very well-connected Goldman Sachs alumnus) to try to make sense on current market conditions.

Having read the books of the late Richard Ney, I continue to benefit from the monthly reports that are posted by my friend and "Ney student" Richard Wendling at The Bear Facts Specialist Report (www.bearfactsspecialistreport.com).

Ney and Wendling have reminded realists and seekers of truth to keep their eye on "the ball" and to know what "the ball" actually is. These reports help us to see the market forces and the Smart Money from a unique, historical perspective.

Legendary Hedge Fund Manager Kenneth Gerbino of Beverly Hills weighed in on the current misunderstandings on the markets in an interview he gave to the Mineweb.com folks. You can read the entire interview at Mineweb or at my site. I just wanted to give you a sample of what he wrote. It reminds us that myths, misperceptions and conventionally unaware thinking can set any investor up for some nasty disappointments and unexpected outcomes.
 

PROBLEMS THAT COULD ARISE

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Many of us wonder if inflation is going to take off anytime soon. That, as well as the devaluation of the dollar has moved billions of dollars into precious metals ETFs like GLD and SLV.

Even the Central Fund of Canada (AMEX:CEF), which is selling for about a 10% premium above its net asset value (NAV), has a market cap of over $2.5 billion. It's a closed-end fund that actually buys, stores and insures the gold and silver it uses to establish the NAV for the shareholders.

ASA Ltd (NYSE:ASA), a relatively small closed-end fund which invests in many "things" related to precious metals as well as the metals themselves as seen their market cap rise to over one-half billion dollars, and since the lows of November 2008 its share price has more than doubled.

Folks usually buy precious metals for 3 reasons. First, as a hedge against inflation. Secondly, as a "substitute currency-buying power protector" when confidence in paper currencies are eroding. The third reason is as "insurance" against the unseen catastrophe, disaster or financial panic.

That brings us to the Mayan Calendar. There's a growing group of unique people who think that the Mayan Calendar, and a few other exotic symbols, predicts some enormous global changes in the year 2012. There are even some financial gurus who buy into that kind of thinking (remember Y2K).

Well, my crystal ball only predicts things slightly past the end of my nose, so that is why I tend to invest with 2 major criteria. First, I want to be buying or selling what the "Smart Money" and the "Exchange Specialists" are buying and selling. Secondly, I do like a hedge against uncertainty and those random "Black Swan events". With that second criterion in mind, I'd like that hedge to have historically intrinsic value and be very much in demand.

That's why I like to own precious metals and the proxies for precious metals. I even like the stocks and ETFs of the precious metals producers. That's why I own a small amount of GDX, Silver Wheaton (NYSE:SLW), Compania de Minas Buenaventura (NYSE:BVN), Freeport McMoRan Gold & Copper (NYSE:FCX) IAM Gold (NYSE:IAG) and I'm trying to buy a little Silver Standard Resources (Nasdaq:SSRI) below $20 a share.

Back to the subject of inflation, frankly I don't see much in the near-term. I see quite a bit of over-supply, whether we look at housing, natural gas or automobiles. There's a lot of oil stored out there too, and although the price of oil is high right now, it's hard to understand why it should stay this high. $70 a barrel ought to be the near-term average from the supply figures I'm reading.

Inflation is coming in the future and the monetary policies in the G-20 countries virtually assure it. Black Swan events and the rise and fall of the dollar will factor into the deflation versus inflation debate over the next few years as well. How soon inflation will be a major problem is a tough call.

My colleague Terry Coxon who is an editor for the Casey Report and who has a great deal of experience and insight on investing, put this whole topic into perspective today and I'll conclude this article with his words:

Investment Implications

The big plus about the Mayan calendar is that, right or wrong, it is very definite about things. Human civilization will come to an end, I'm told, on Dec. 21, 2012 – not on the 20th and not on the 22nd. There was no room for monetarists in those step-sided pyramids, but there still are few what-to-do implications from the monetarist findings.

1. When you hear would-be opinion leaders cite the current absence of rising prices at the supermarket as proof that all the new money isn't a source of inflation, don't believe them. It is much too early for the inflation bomb to be going off, even though the powder has been packed and the fuse has been lit.
2. If the large and growing federal deficits and the Federal Reserve's unprecedentedly easy policies tempt you to leverage up on inflation-sensitive assets, such as gold, give the idea a second thought. It likely will be a year or more until price inflation becomes obvious and undeniable (which is what it would take to bring the general public into the gold market). In the meantime, your inflation-sensitive assets could get paddled rudely as the deleveraging that began last year continues.
3. Read points 1 and 2 again to make sure they have sunk in.
   

For at least the next year, the simple, fire-and-forget strategy is 50-50 gold and cash – gold for what looks to be inevitable but on its own schedule, cash to be ready for the bargains that may show up while we're waiting for the inevitable to arrive.

DISCLOSURE: I own GLD, SLV, CEF, GDX,SLW,BVN, and IAG.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

"JPM’s profit soars 583% year over year" wrote my colleague Keith Fitz-Gerald. MS reported a net income of $757 million, compared with a $159 million net loss in the second quarter and the year-earlier profit of $7.7 billion. For common shareholders, the firm had net income of $498 million, a 38-cent-a-share profit that beat analysts' expectations by 11 cents and sent Morgan Stanley shares up earlier today.

Now here's an ETF idea a colleague mentioned to me today (not Keith) that one might want to consider very carefully. It involves the UltraShort Financial Proshares (NYSE:SKF) and Ultra Financials Proshares (NYSE:UYG).

SKF (on the short side) and UYG (on the long side) seeks daily investment results, before fees and expenses, which correspond to twice the daily performance of the Dow Jones U.S. Financials index.

The funds normally invest 80% of assets in financial instruments with economic characteristics that should be twice the return of the index (SKF short, UYG long). It may employ leveraged investment techniques in seeking its investment objective.

This is for very short-term traders who want to attempt to catch a short-term trend in the financial sector. Read and study about them carefully, know about their "holdings" (10 financial stocks make up over half the weighted value of the DJ U.S. Financials index) and realize they use derivatives like "total return swaps" to meet their objectives.

There is "counter-party risk", and like I said, these are meant for short-term, aggressive traders who think there will be volatility in the financial sector and want to capitalize on it. These kind of ETFs are not in any way like typical stock ETFs or investments.

Check out the chart of what SKF and UYG have done over the past 3 months and the second chart is the past 5 days. It is nothing short of educational.


Disclosure: I'm only long one financial stock right now, Citigroup (NYSE:C) and I haven't personally tried SKF and UYG yet, but I'm getting tempted, especially with SKF.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

"The market can stay irrational longer than you can stay solvent." – John Maynard Keynes

On Friday October 16th, while the stock markets in the US were in a mini-decline, I decided to buy more of two of my favorite "takeover target technolgy stocks", NetApp Inc. (Nasdaq:NTAP), and Brocade Communications (Nasdaq:BRCD).

Why? Mainly because that day they were "on sale" and because in all my reading and personal investigation I've concluded they would be a good fit with some bigger acquirers like IBM or Hewlitt-Packard Company (NYSE:HPQ).

I also bought a technology company that appears to have a great balance sheet and plenty of cash, EMC (NYSE:EMC). This in spite of the fact that all three of these stocks have had an impressive run-up this year off their March lows.

Whether it was a rational or irrational decision on my part, you can judge and time will tell, but if I decide to sell them today (the dreaded date of Monday, Oct. 19th), I will make a least a small profit.

You see, I've come to believe that the famous comment by John Maynard Keynes happens to be a reality, whether we can accept it or not.
 

That is why we all need investment disciplines, and what is said above proves it. Most of the times we can't even trust our senses or emotions when it comes to the markets and our own investing prowess. The warnings of Professor Keynes and Mr. Rogers (not the one who welcomes us to "his neighborhood").

 

"You can put the warning from Keynes and Rogers to real-world use by [deciding to using trailing stop losses]. Go ahead and take a contrarian position at the extremes. But always have an "uncle" point to limit losses in case the crowd keeps pushing prices in a crazy direction" Brian opined.
 

This is very relevant to what we are living and experiencing right here, right now.

This might be called the "$3 Billion Dollar Question". Bank of America (NYSE:BAC) lost more than $2.2 billion in the third quarter of this year and Citigroup (NYSE:C) lost a staggering $3.2 billion in the same quarter.

But as the chart below shows us all, JP MorganChase (NYSE:JPM) and Goldman Sachs (NYSE:GS) appears to have flourished while their cousins languished.

The Royal Bank of Scotland (NYSE:RBS) has released its latest Commodity Companion, covering base and precious metals, iron and the energy complex.  Among the major conclusions are the belief that copper will make new record highs by 2013, but that from current prices aluminium may well have the greatest longer term upside. 

RBS is looking for world GDP to rebound by 3.6% in 2010, but is looking for commodity prices to pause for an overdue breather after their recent strong rallies.  After that the picture brightens considerably.

To put this into perspective and based on the official LME close on October 6,2009,
the major base metals have rallied as follows:           

	Date of low	Recovery
Nickel	24 October 008	191%
Zinc	12 December 2008	176%
Lead	29 December 2008	145%
Copper	24 December 2008	109%
Aluminium	24 February 2009	39%

The study produces sets of ranked forecast price moves over two time frames; one year ahead compared with spot average for September 2009, and then through to the average of the second half of 2013. 

For the shorter term, natural gas is the top-ranked among the commodities covered followed by palladium,and oil. Then, among the industrial metals, aluminium comes top in terms of projected price gains (over both time horizons), with copper in second place on both counts.

This is why I like Alcoa (NYSE:AA) for the short-term, as well as Southern Copper (NYSE:PCU) and Freeport-McMoRan Copper & Gold (NYSE:FCX). Those who subscribe to the aluminum potential might also be considering Aluminum Corp. of China (NYSE:ACH)

The RBS report noted that the base metals have had an excellent 2009 so far. That's why it is important to remember that commodity markets have not yet reached equilibrium, with massive supply surpluses and "huge inventory mountains" to be eroded.  Discretion and being aware of a short-term potential correction needs to be observed at this point.

Disclosure: I currently own shares of AA, PCU, and FCX

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.