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IS THIS THE "BIG ONE"?

RE-BALANCING OUR PORTFOLIO: WHAT DOES THE NEW PORTFOLIO TELL US?

We have used this week as an opportunity to re-balance our portfolio. Central to this task is the understanding that years of central bank nursing of assets appears to be ending. Fed tapering, and associated discussions of near-term interest rate increases, is at the root of this.

Why would the Fed do this now, after years of 'not-printing' money to bestow upon the rich in an attempt to generate economic growth. QE was clearly anti-dollar in its original intent. The Yellen Fed is attempting to re-balance the Bernanke Fed extremism, which was designed to save the banks, and apparently also (if we believe the Fed) Western Civilization.

Now apparently Western Civilization will be served by a salvaged US Dollar. Is the East (that is, Russia, with China, through India, and through the Brics and with Saudi Arabia and Iran) attempting to crush the US monopoly on energy payments (the so-called Petro-Dollar), hoping to crush the Dollar as the world's universal currency? Some writers speculate that this is the cause of recent Fed efforts to strengthen the Dollar (beginning with tapering).

Clearly Russia can strike back when the West's sanctions paint them into a corner. Russian crushing of the Petro-Dollar would probably cause the US to go to war with Russia. We all like a fixed game. The Petro-Dollar is a fixed game, creating heavy demand for US Dollars, without which we would not be able to borrow as much as we do.

And the market has finally reacted to all of this -- and to the spectre of the eventual elimination of High Frequency Trading, which has been all abuzz this past week. The FBI, the Fed, the Congress all suddenly care about the markets not being rigged to favor the rich. Odd that it took so long to make everyone care.

Suddenly stocks are plummeting. Is this the BIG ONE. Is this the beginning of the end. I am reminded that the Nikkei Index, Japan's stock market, lost some 87% from 1989 (it's housing bubble popping) through 2010. We have been following Japan, step for step. Europe and England have been following us. Are we all going to hell?

High-flying momentum stocks have been hammered. Our new portfolio shows all this. Is this a rotation into...what? Into more established companies that actually earn money with their business? We do see this. We see a rotation into safer issues. SAFETY. Suddenly safety is a bonus. Oddly we also see a rotation, at least short-term, into non-US markets, including China, and developing nations: Asia, Brazil, even Turkey. Really? Why Turkey?

Of course, sophisticated money managers have learned to use a full palette in their cutting-edge investment technology. Shift your money from overbought markets into oversold markets. Is China oversold? This isn't clear. Clearly the developing world has seen its markets hammered recently.

Is that all this is, just another shuffling of money to oversold places? Maybe. There is, in truth, not a lot to cheer about in the global economy, or in global politics. In fact, we seem to be slipping closer to the abyss each day. Bernanke's plan to save us from the abyss was to stall, by printing money to give to American and World bankers and corporations in hopes of staving off massive bankruptcies and defaults. He hope organic growth would return to the marketplace and save him and us all. He did not understand that DEBT, itself, was the problem. He helped to fuel a second housing bubble and a stock market bubble; he did not understand that the housing bubble, itself, was fatal to the global economy. Housing costs too much. Housing costs too much on either an overpriced mortgage or on a monthly rent that consumes most of the working poor's salaries. There is no money left over for anything else. Americans chose housing first; then they lined up by the millions for government food stamps, so they could afford to eat.

Americans felt richer if they owned a house that tripled in value from 2004-2007, but this only allowed them to use that paper-wealth to borrow more at the bank. Clearly their children and their children's children would never be able to pay three times what their parents paid for their 'Las Vegas bonanza' house unless their salaries were three times higher than their parents' salaries - and their children were losing their jobs in record numbers, and their children's children were settling for jobs in McDonalds for minimum wage. What did Bernanke NOT understand about this picture.

We hear from the media that American MOMO (Momentum) Nasdaq stocks were getting torched this week because they were overpriced. I remember hearing volatile arguments over the last year-and-a-half from 'experts' claiming that American stocks were not overpriced. I don't want to engage in that argument/discussion now. According to ZeroHedge, LinkedIn was trading at 718 times current earnings, Amazon.com 557 times current earnings, and Netflix 140 times current earnings. To some that does not qualify as overpriced.

But it is not just the New Tech monsters (Nasdaq Bubble Two, remember 2000?) that were being sold off. Attached is a list of stocks we now are trading short in our re-balanced portfolio. We understand Tesla and Netflix and Pandora and Amazon and Facebook and Salesforce and Priceline being on this list, and all the overprice biotech companies as well. But Mastercard, Citicorp, Goldman Sachs, Scorpio Tankers, Royal Bank of Scotland, Boeing, Biogen, Ben Franklin and St. Jude Medical and MGM and Nike? That's a pretty wide swathe of injured birds. The Russell 2000 Index is on our short list; also so is DRG, the Amex Pharmaceutical Index.

SHORT

3D Systems

Adobe Daily

Affymetrics Inc.

Agnico-Eagle Mines

Akamai

Allscripts Health Solutions

Amazon

American Barricks Gold

Ameritrade Corp

Annie's Inc

Apollo Global Management

Apollo Group

Aruba Networks

AVEO Pharmaceuticals

Baidu

Ben Franklin

BioCryst Pharmaceuticals

Biogen Idec

Biotechnology ETF Daily

Blackberry (RIMM)

Blue Nile

Boeing

Boyd Gaming

Bristol Meyers

Cadence Design Systems

Caesar's Entertainment

Celgene Corp

Cell Therapeutics

Cepheid

CH Robinson Worlwide

China Sunergy Daily

China Tech-Faith Wireless

CITI Group

Community Healthcare

Computer Sciences

Corinthian Colleges

Cytori Therapeutics

Dangdang E-Commerce China

Direxion Daily Small Cap Bull

Dover Corp

DR Horton

Dry Ships Daily

E-Trade Financial

Earthlink Inc

Endo Pharmaceuticals

Euro/Brazilian Real

F5 Networks

Facebook

Fusion-IO

Global Solar Energy ETF

Gold Daily

Gold ETF leveraged

Gold Junior Minors ETF

Gold Stock Index Daily

Golden Star Resource Gold

Goldman Sachs

Google

Groupon Inc

Henry Schein

Herballife

Homebuilders ETF

Homestake Mining

Huron Consulting

Illumina Corp

Immersion Robotics

Infosys

Intl Educational Svc

Intl Gaming Tech

Ironwood Phama

Japan Index ETF

Kansas City Southernn

KBH Home

Liberty Global

Lockheed Martin

Mastercard

Mechel Open Joint Stock Company

MGM Mirage

Monster Worldwide

NA REIT Motgage Plus ETN

Nanometrics Inc

Nasdaq Index Daily

Netflix

Neurocrine Biosciences

New Oriental Educations and Technology

New Oriental Educations and Technology

Nike Daily

Northern Oil and Gas

Ocwen Financial

Orexigen Pharmaceuticals

Pandora

Pharmaceutical Index

Philadelphia Gold and Silver Index Daily

Plum Creek Timber

Priceline

Radian Group (Mortgage Insurance)

Raven Industries

Red Hat

Royal Bank of Scotland Daily

Russell SMall Cap Index

Russian Index ETF

Salesforce.com

Sarepta Therapeutics

Scorpio Tankers

Sears Holdings

SEI Investment Corp

Silver Standard Resources

Silver Wheaton

Sina Corp

Solar ETF

St. Jude Medical

Synaptics Inc

Tableau Software

Tesla Motors Daily

Twitter

Valeant Pharmaceuticals

Vivus Inc

Westport Innovations

Williams Companies

Xoma

Yahoo Inc.

Yandex NV

Yingli Green Energy China

YouKu China

Our long list is more muted and clearly more 'defensive'.

LONG

3-M

7-10 Year TBond Fund

Agribusiness ETF

Altria Group

Australian Dollar ETF

Coca Cola

Cocoa ETF

Direxion Daily Small Cap Bear -- this is a short, of course

GameStop

Genco Shipping Corp

Gold Miners Bear 3x ETF -- this is a short also

Grains ETF

Lululemon

Malaysia Index ETF

Mcdonalds

Microsoft

Nam Thai Electronics

Newfield Explorations

Oil Stock Index

PetroChina

PNC Financial Svc Daily

Proctor and Gamble Daily

Royal Bank of Canada

Sao Paolo Brazilian Index

Sassol Ltd S Africa

Schnitzer Steel Indust

Short (Double Short) Oil -- this is also a short

Short MSCI Japan ETF Daily -- short

Short Russell 2000 Index ETF -- short

Simon Property Group

Sony

Spider Oil Gas Exploration ETF

Taiwan Weighted Index

Toronto Dominion Bank

Total S.A.

Turkey Index ETF

United Healthcare Daily

Utility Index

Walmart

Wells Fargo

Westpac Bank Corp (Aus)

Xinyuan Real Estate China

It needs to be remembered that we are traders and we will be quick to close a position once it breaks our own trend rules.

We will provide follow-up charts and other discussions of this list.

Experts have lined up all week to ensure the investing public not to panic and to hold long-term, for 'this is not the beginning of a bear market'. I don't think we can even talk about bull markets and bear markets any longer, since manipulation of every market by central banks and by governments through central banks has never happened on this level before. If we subtract the $4 trillion from market gain since 2008, this changes the picture of a bull market quite decidedly.

Will someone get scared and jump up with trillions more to support stocks? Who? The Japanese tried it; and now they have a continuing disaster to deal with, and much greater debt levels. China? China is letting worthless companies go bankrupt finally, companies that were living off cheap loans that made it seem they were not failing. The trouble with low interest rates is that a company can live off low-interest loans. It is the bane of real capitalism.

There is pressure on Europe to follow in the QE path. But it is not flying in Europe. Europeans understand that QE is stealing money from national citizens to give to failing banks who did not do their job right. That is a hard sell in Europe. In America, it was an easy sell. In America, businessmen (entrepreneurs) can apparently do no wrong.

I won't even begin to talk about the coming war in the Ukraine.

Best hunting,

Michael J. Clark

CGTS, Hanoi