Thursday, September 27, 2012

US Bank Run Imminent as FDIC Expanded Deposit Insurance Ends Dec 31st

As of January 2013 the FDIC stops offering 100% coverage for all insured deposits.  That amounts to $1.6 trillion in deposits, 85-90% deposited with the TBTF mega banks.  Once the insurance ramps back to $250,000 the FDIC risk amelioration offered to large depositors will cause them to flee from the insecurity of the much reduced FDIC coverage.  This money will rotate immediately into short term Treasury securities.  The treasury, in order to handle this flood of money, will immediately offer negative interest rates.  This financing will resemble the .5% negative interest rate offered by the Swiss and Germans on the funds flooding to their banks from Spain, Greece and Italy. This will be a bank run much larger that the Euro banks flight to safety.

I have noticed two disturbing matters that will most certainly come as a result of the Fed MBS program.
1.  The funds from the Fed purchases will rotate to the Too Big To Fail Banks. This debt is already junk bond status due to the nature of the underwater mortgages and delinquencies, hence the reason for the new Fed goon Squad going after borrowers.
This debt will be as bad or worse than the debt of Greece, Spain and Italy, rated CCC-

2. The banks receiving these funds will rotate the money immediately into short term treasury securities that will be priced at NIRP. the reason for that follows:

3.  As of January 2013 the FDIC stops offering 100% coverage for all insured deposits.  That amounts to $1.6 trillion in deposits, 85-90% deposited with the TBTF mega banks.  Once the insurance ramps back to $250,000 the FDIC risk amelioration offered to large depositors will cause them to flee from the insecurity of the much reduced FDIC coverage.  This money will rotate immediately into short term Treasury securities.  The treasury, in order to handle this flood of money, will immediately offer negative interest rates.  This financing will resemble the .5% negative interest rate offered by the Swiss and Germans on the funds flooding to their banks from Spain, Greece and Italy. This will be a bank run much larger that the Euro banks flight to safety.

4. The Social Security Trust fund must make at least 5-6% return to maintain its balance and provide income to the SS recipients.  The TF is still guaranteed to go bankrupt by 2033, 21 years from now.  The TF is required by law to invest in Treasury bonds.  The actuarial problem now facing the TF is that they will be rolling old bonds yielding 5.6% into a yield pool averaging 1.4%, a 75% drop in income.  This dramatic yield drop coupled with a 60% increase in SS recipients from 50 million to 91 million in the next 10 years will assure the TF will go bankrupt in about 10 years.

This irreducible math is going to prove an insurmountable obstacle to those who are recently retired, have long live genes or plan to retire in the next 10 years.  If the SS TF goes bankrupt then benefits will be cut by 25% .  Inflation adjustments were never able to front run the lost in income.  The inflation rate of 8% today and 15% tomorrow will destroy the senior investment pool.
Another few unintended consequences of QE 3.  Thanks Ben.   May you rot in hell!

An In-Depth Analysis Of Trading Gold Relative To US Real Interest Rates

At the start of 2012 we publicly proposed two pair trades for 2012.

Nine months later and with huge changes in the market having occurred, we are revisiting our recommendation for the GLD/TIP compression pair trade, which has performed well over this period.

Our argument for this trade at the time was as follows:
“Historically US real interest rates have an inverse relationship with gold prices, a relationship which we have written about frequently. The basic premise is that when monetary policy becomes more accommodative, US real interest rates decline and gold prices rise due to the ease in monetary policy.”

Our explanation for the inverse relationship between gold and U.S. real rates is as follows:
When US monetary policy is looser, real rates fall and therefore investors buy gold for a number of reasons.

Firstly, lower real rates could imply higher inflationary expectations in the future therefore gold is bought as a hedge against this possible inflation.  (more)

Finding Value in Zero Rate World: Sprott Says QE3 Won’t Work, But GOLD & SILVER Will












This Beaten-Down Tech Stock Could Double Your Money


The recent decade-long-plus highs in technology stocks have left out some old standbys that need to tweak and reinvent their business plan. Hewlett-Packard (NYSE: HPQ) has dropped from highs near $50 in 2011 to trade at the lowest levels since 2004.
The three-month trading channel shown on the chart below between $17 and $20 looks attractive for a price breakout from the base action. A rally above the resistance top projects a $3 move, the width of the channel, to $23. Only a weekly close below $17 would negate the technical basing pattern.
HPQ Chart
The initial upside objective of $23 is 30% above the current stock price, but there is a way you could potentially double your money with a stock substitution strategy.
One major advantage of using long options rather than buying shares is putting up much less to control 100 shares -- that's the power of leverage. But with all of the potential strike and expiration combinations, choosing an option can be a daunting task.  (more)

MacAlvany Weekly Commentary

The Zero Cost Basis Portfolio


About This Week’s Show:
- Harnessing Time
- Extracting your original investment
- Anticipating change

Chart of the Day - Medidata Solutions (MDSO)

The "Chart of the Day" is Medidata Solutions (MDSO), which showed up on Tuesday's Barchart "All-Time High" list. Medidata on Tuesday posted a new all-time high of $40.72 and closed +2.11%. TrendSpotter has been long since July 31 at $35.41. In recent news on the stock, ThinkEquity on Sep 7 initiated coverage on Medidata with a Buy and a target of $42. Jefferies on Aug 1 kept a Buy rating on Medidata and raised its target to $41 from $34. Medidata Solutions, with a market cap of $1 billion, is a leading global provider of hosted clinical development solutions that enhance the efficiency of customers' clinical development processes and optimize their research and development investments.

mdso_700

The Death of the American Teenager

by Justin O’Connell, Dollar Vigilante:
When in 1994 Business Week exclaimed “They’re back!” about teenagers, the United States was a different place.  Their baby boomer parents could afford teenagers buying pizzas, going to concerts, purchasing clothes, cosmetics, CDs, cars and computer games like never before.  Today, the country is stricken by poverty, as 50% of the population sits at or below the poverty line.  Since the market collapse in 2008, while pundits and “authorities” pushed dope-like propaganda about “Greenshoots” and the “Recovery” incomes fell more than ever in American history.
The teenager in 1994 was an advertiser’s wet dream – a consumer group with loads of free time and the disposable income of their parents to pursue a life leisure. In 2012, it had fallen to the wayside, a battered corpse of diminishing returns as the teenager went from worrying about social norms to lamenting public education and work as a teenager..
Although the teenager declined in numbers from 1977-1992, starting in the mid nineties it began to ride a population crest that guaranteed young adults the spotlight in American consumer culture. After all, the teenagers’ most valuable purpose is to be a blank slate and a consumer or so popular mythology sways us to believe.
Read More @ DollarVigilante.com

Arctic Cat Inc. (NASDAQ: ACAT)

Arctic Cat, Inc. designs, engineers, manufactures, and markets snowmobiles and all-terrain vehicles under the Arctic Cat brand name. It also provides related parts, garments, and accessories. The company offers accessories consisting of bumpers, cabs, luggage racks, lights, snow plows, backrests, windshields, wheels, track systems, and winch kits; shocks, attachments, and float avalanche airbags; and maintenance supplies, such as oil and fuel additives. In addition, the company provides snowmobile garments for adults and children under the Arcticwear label; and garments for ATV and recreational off-highway vehicle riders under the Arcticwear ATV Gear label, as well as insulated outerwear under the Drift Racing brand name. Its garment portfolio includes jackets, coats, pants, hats, mittens, helmets, boots, sweatshirts, T-shirts, casual wear, suits, gloves, gear bags, and casual sportswear items.

To review Artic's stock, please take a look at the 1-year chart of ACAT (Artic Cat, Inc.) below with my added notations:

1-year chart of ACAT (Artic Cat, Inc.)


ACAT has been trading sideways since the end of July, but running into a $46 resistance (navy) since April. The $46 resistance meets my definition of a clear resistance level that would signify an important 52-week high breakout if ACAT could manage to break above it. IF that were to happen, the stock should probably be heading higher overall. For now, the stock seems to be pulling back to its key level of $40.