5 Money Moves 'Dr. Doom' (Marc Faber) Is Making Now

Mr. Market, the doctor will sell you now.

"Dr. Doom," that is — also known as Marc Faber, the Hong Kong-based investment manager, author, and publisher of "The Gloom Boom & Doom Report," his monthly musing about the state of global economics and geopolitics.

Faber is to financial-market optimists what the Grinch is to Christmas. He doesn't often like what he sees, and nowadays he finds even less to like about the world's economic situation than he did in 2008 — as if that wasn't bad enough.

"Financial conditions are today worse than they were prior to the crisis in 2008," he said in a telephone interview earlier this week from Thailand. "The fiscal deficits have exploded and the political system [in both the U.S. and Europe] has become completely dysfunctional."

Certainly, the unprecedented global stock market volatility in this hot August, including Thursday's rout, suggests that investors and traders alike are looking for someone, somewhere, to take the wheel.

Pin that against a backdrop of fragile economies, inflationary government policies, high unemployment, social and income disparity, military actions and geopolitical tensions in the Middle East and Asia, and you get a good picture of how Faber sees the investment map.

Faber (pictured left) doesn't take a contrarian stance in the strict sense; it's more of a constant vigilance — capital preservation over capital appreciation — so that one can live now to fight for investment gains another day.

"The way I look at it," Faber said, "I am ultra-bearish about everything geopolitically. In an environment of money printing, we have to ask ourselves, how do we protect our wealth? ... Where do we allocate the money?

Good question, but in fact a fairly straightforward one if, like Faber, you believe that Federal Reserve policy is stoking speculation over savings and debasing the U.S. dollar, hyperinflation is a real possibility, the stock market's recovery since 2009 has favored the rich and powerful, cash is trash, and gold and land in the countryside are the only true safe havens.

"The Federal Reserve is a very evil institution," Faber said with characteristic bluntness, "in the sense that they punish decent people who have saved all their lives.

"These are people who don't understand about stocks and investments," he added, "and suddenly they are forced to speculate."

Speculation is the opposite of investing — of which there is little of nowadays from the corporate sector, let alone government and retail stock buyers. Corporations are instead hoarding cash out of concern that slow global economic growth will slam profits.

Such a miserly attitude can become a self-fulfilling prophecy. Faber noted that corporate earnings will likely disappoint stockholders across the board, including commodity shares, with the exception of traditional defensive sectors such as health care, consumer staples and utilities. (more)

Two Easy Ways to Save Your Wealth From 1970s-Style Stagflation

The year was 1973.

I was just a toddler, so I couldn't fully appreciate the next-generation Camaro that had just come out or the release of the new Pontiac Firebird Formula.

But of course, very few remember 1973 as the year of the Firebird or Camaro. That's because something else was brewing that would push the U.S. economy off a cliff.

An organization that most Americans had not yet heard of called the Organization of Petroleum Exporting Countries (OPEC) was about to flex some muscle, and punish the U.S. economy.

OPEC Tries to Get Revenge on America

In 1973, the U.S. government re-supplied the Israeli military during the Yom Kippur war. The decision-makers at OPEC didn't like that one bit. So they decided to get even.

As payback, they significantly cut back the flow of oil to the United States.

This cutback in oil production from OPEC lasted until March of 1974. This, along with other factors, helped to slow down our economic growth while inflation soared. Up until that point, economists had said "high prices" and "sluggish growth" were nearly impossible.

But there it was: a new phenomenon known as stagflation.

With oil prices rising, corporations had to pay more to transport their goods. They had to raise prices to cover transportation costs. Suddenly everything Americans bought cost more − practically overnight.

The economy went south. Corporate profits slowed, and stocks went into a two-year bear market. Companies also had massive layoffs, and unemployment rose to 8.8%.

Meanwhile, the new fiat dollar slumped in value.

All this happened just because some oil bigwigs decided to decrease our oil supply. After all, prices only rise either because demand increases or the supply decreases (or both). In this case, it was the decreased oil supply.

These problems persisted for quite some time, too. You see, even though the oil embargo was over in March of 1974, gas prices continued to soar until March of 1981. In today's dollars, the peak price was equivalent to $3.41.

Back in the 1970s there wasn't much the average person could do to fend off the effects of stagflation on their personal finances. Americans either had to sit in cash or watch their stock portfolios bleed money. (more)

The Economist Canada - 20th August 2011

The Economist - 20th August-26th August 2011

English | 88 pages | HQ PDF | 76.50 Mb

If you want to know what the rest of the world is thinking, get the Economist, which is known for its insightful articles and analysis of politics, business, finance, science and culture. Edited out of London with local U.S. editions, every issue is filled with lively writing, thoughtful analysis and amusing captions. Most of all, The Economist is not afraid to state an opinion.

read it here

How to Avoid Big Losses and Execute Winning Trades Without Knowing What the Market Will Do

I know this headline just sounds too good to be true and nobody could blame you if you stopped reading right here.

Consider this though: It is said that a penny saved is a penny earned. It sounds clich but it's accurate. If your stock portfolio is down by $1,000, you have to earn an extra $1,000 to bring your net worth back to even. So a penny saved really is a penny earned.

Now ask yourself; How much money did I lose since the May highs or the beginning of the year? To make up for the loss, you'll have to work extra hours. But what if you didn't lose any money? You would have preserved your purchasing power and be able to buy at lower prices (if you so chose).

In other words, knowing when to sell a position is equally - if not more - important than knowing when to buy. Buying low and selling high (or the opposite if you are shorting the market) require serious insight about the market.

Here is one simple strategy that protects your profits and helps you identify winning trades without having a clue of what the market - whether Dow Jones (DJI: ^DJI), S&P (SNP: ^GSPC), Nasdaq (Nasdaq: ^IXIC) or Russell 2000 (Chicago Options: ^RUT) - is going to do next.

Below you will find some actual trade recommendations. The number in front of the trade recommendation in the article corresponds with the number in the chart. Red numbers were sell signals, green numbers were buy signals.

Blind as a Bat but On Target

Bats have poor vision but they always find their target simply because they work effectively with what they've got. Nobody has 'stock market radar vision,' so we too have to work with what we've got. We need to identify an edge and exploit it.

Every person may have a different 'edge.' My edge is knowing the S&Ps hot buttons - levels that tend to force the S&P to change trends or confirm a trend (the red and yellow lines drawn in the chart show some hot buttons).

Imagine a car driving on a long road with a few traffic lights. If the car is going to stop, accelerate, or make a U-turn anywhere on the road, it will most likely be at a traffic light. If the S&P is going to reverse, it will likely be at support/resistance.

I spend much of my work hours identifying support/resistance levels. Trend lines, Fibonacci, pivots, sentiment, prior highs/lows, etc. are important tools to identify such hot buttons. (more)

Soaring Price Of Gold Ignites Wave Of Robberies In Los Angeles

That stunning rise in the price of gold is having a ripple effect: A rash of jewelry store robberies, street muggings and home burglaries. Now, merchants are stepping up security and police are warning everyone against flaunting their bling.

When Capt. Mark Olvera, who runs the LAPD’s Newton Division, spotted a beefy man with a gold chain around his neck the other day, he worried the guy might become a victim. “He looked like he could take care of himself,” Olvera said. “But that’s a couple thousand dollars … on him.”

So far this year, gold chains have been snatched from the necks of at least 110 people during street robberies in Olvera’s South Los Angeles division. His officers are circulating fliers and showing up at churches and community centers to warn residents to stop wearing gold in public, or at least to tuck it under their clothes.

“It’s easy money. It’s easy to get, and it’s easy to get that gold fenced. You see all the ads, ‘We buy gold,’” Olvera said. “They sell it, melt it down and there’s no regulation.”

Gold jumped to a record $1,818.90 an ounce Thursday, nearly double its value two years ago. That’s made simple gold chains, watches and rings worth hundreds or thousands of dollars.

In downtown L.A.’s jewelry district, a series of brazen store robberies has created an air of tension. Stern-faced security guards stand outside some shops, arms crossed, pistols on their hips.

At 7th Street and Broadway, Bahram Zendedel was perched on a stool outside his store, Triplets Jewelry, watching every passing car with a gimlet eye.

Zendedel said he has been robbed twice in the last six months because of skyrocketing prices of gold, silver, platinum and other precious metals — traditionally safe-haven investments in uncertain economic times.

In one case, he said, a robber posed as a customer — trying on a gold chain, a gold watch and a gold bracelet. He then ran off with all three items, which Zendedel valued at $65,000. The merchant said he gave chase, but wasn’t fast enough.

Since then, Zendedel has closed one of the store’s two entrances and he’s opening two hours later each morning, hoping that busy streets will discourage theft. He also stays glued to his stool out front.

“That’s why I’m sitting outside,” Zendedel said. “I have to watch any cars that come by, looking for gang members.”

In some cases, the robbers are turning violent. On Tuesday night, three men robbed a Koreatown jewelry store and beat a security guard with a hammer. Last month, robbers stormed into 21st Century Jewelry in downtown L.A., doused the owner with pepper spray and made off with thousands of dollars’ worth of gold-plated jewelry.

Police are recommending that jewelers keep display cases inside their stores and hire extra security. The owner of 21st Century said he wishes he could hire guards, but he can’t afford it. He declined to give his name, saying he didn’t want to become a target.

“Some stores have been robbed two, three times,” he said. “I believe it’s possible to happen again.”

The LAPD has investigated 10 smash-and-grab robberies in the downtown jewelry district so far this year, said Lt. Paul Vernon, who oversees the LAPD’s Central Division detectives unit. They’ve made about a dozen arrests.

“It’s primarily based on the price of gold, because we didn’t see this as much before last year,” Vernon said.

Criminals are also targeting cash-rich gold buyers, setting up appointments to sell gold but then robbing buyers at gunpoint when they arrive, police said.

Erin Stevenson of Long Beach, who organizes gold-buying parties, takes a series of precautions to avoid becoming a victim.

Stevenson’s events are something like Tupperware parties in reverse. People come to sell their gold jewelry. Stevenson values the items, buys them and gives the party host a cut of the action.

Some nights, she walks away with thousands of dollars in gold. She takes care not to advertise that fact.

“We don’t do self promotion,” she said. “I don’t have on my car, ‘I buy gold.’ Why would you do that? You could be followed. The only people who know about it are the people I’m buying gold from. I always discourage the party hosts from putting it on Facebook. You don’t put fliers around town. You don’t want an unknown person showing up at your gold party.”

What makes the crimes even more profitable is that stolen gold can be quickly unloaded at gold-buying shops, the evidence melted into bars before police can track it down.

About $1.53 billion worth of jewelry and precious metals was stolen in the United States in 2009, the most recent year for which data is available, according to the FBI. That was a 25% increase from 2006.

Meanwhile, police departments around the country are reporting an increase in gold-related crime. Some local jurisdictions are trying to make it harder to fence stolen gold.

Officials in Cherokee County, Ga., passed an ordinance in May that requires gold buyers to fingerprint anyone selling gold and send their names and personal information to the sheriff’s office.

“Gold and jewelry don’t have serial numbers. It’s very easy to sell,” said Cherokee County Sheriff’s Lt. Thomas Pinyan. “This system will show us who the people most frequently selling gold and gems in Cherokee County are. And those could be people we are wanting to investigate.”

In L.A.’s jewelry district, Zendedel hopes his extra security measures will make his store less of a target. But he thinks gold-related crime will continue to grow as long as an uncertain economy keeps people out of work — and as long as the price of gold keeps soaring.

“People need money right now, and the price of gold is high,” he said. “There’s no business. There’s no jobs. Gas is expensive. Food is expensive. Clothing is expensive.”

Moody's Analyst Breaks Silence: Says Ratings Agency Rotten To Core With Conflicts, Corruption, And Greed

The analyst, William J. Harrington, was employed by Moody's for 11 years, from 1999 until his resignation in 2010.

From 2006 to 2010, Harrington was a Senior Vice President in the derivative products group, which was responsible for producing many of the disastrous ratings Moody's issued during the housing bubble.

Harrington has made his story public in the form of a 78-page "comment" to the SEC's proposed rules about rating agency reform, which he submitted to the agency on August 8th. The comment is a scathing indictment of Moody's processes, conflicts of interests, and management, and it will likely make Harrington a star witness at any future litigation or hearings on this topic.

The primary conflict of interest at Moody's is well known: The company is paid by the same "issuers" (banks and companies) whose securities it is supposed to objectively rate. This conflict pervades every aspect of Moody's operations, Harrington says. It incentivizes everyone at the company, including analysts, to give Moody's clients the ratings they want, lest the clients fire Moody's and take their business to other ratings agencies.

Moody's analysts whose conclusions prevent Moody's clients from getting what they want, Harrington says, are viewed as "impeding deals" and, thus, harming Moody's business. These analysts are often transferred, disciplined, "harassed," or fired.

In short, Harrington describes a culture of conflict that is so pervasive that it often renders Moody's ratings useless at best and harmful at worst.

Harrington believes the SEC's proposed rules will make the integrity of Moody's ratings worse, not better. He also believes that Moody's recent attempts to reform itself are nothing more than a pretty-looking PR campaign.

We've included highlights of Harrington's story below. Here are some key points:

• Moody's ratings often do not reflect its analysts' private conclusions. Instead, rating committees privately conclude that certain securities deserve certain ratings--and then vote with management to give the securities the higher ratings that issuer clients want.

• Moody's management and "compliance" officers do everything possible to make issuer clients happy--and they view analysts who do not do the same as "troublesome." Management employs a variety of tactics to transform these troublesome analysts into "pliant corporate citizens" who have Moody's best interests at heart.

• Moody's product managers participate in--and vote on--ratings decisions. These product managers are the same people who are directly responsible for keeping clients happy and growing Moody's business.

• At least one senior executive lied under oath at the hearings into rating agency conduct. Another executive, who Harrington says exemplified management's emphasis on giving issuers what they wanted, skipped the hearings altogether.

Harrington's story at times reads like score-settling: The constant conflicts and pressures at Moody's clearly grated on him, especially as it became ever clearer that his only incentive not to "cave" to an issuer's every demand was his own self-respect.

But Harrington's story also makes clear just how imperative it is that the ratings-agency problem be addressed and fixed. The current system, in which the government anoints organizations as deeply conflicted as Moody's with the power to determine sanctioned bond ratings is untenable. And the SEC's proposed rule changes won't fix a thing.

Harrington's story is startling, both in its allegations and specificity. (He names many Moody's executives and describes many instances that regulators and plaintiffs will probably want to take a closer look at.)

Given this, we expected Moody's to quickly denounce Harrington as a disgruntled ex-employee and reaffirm its confidence in its ratings processes and integrity. Instead, Moody's did not return multiple calls seeking comment. (more)

Is The Next Domino To Fall.... Canada?

While two short months ago, "nobody" had any idea that Italy's banks were on the verge of insolvency, despite that the information was staring them in the face (or was being explicitly cautioned at by Zero Hedge days before Italian CDS blew out and Intesa became the whipping boy of the evil shorts), by now this is common knowledge and is the direct reason for why the FTSE MIB has two choices on a daily basis: break... or halt constituent stocks indefinitely. That this weakness is now spreading to France and other European countries is also all too clear. After all, if one were to be told that a bank has a Tangible Common Equity ratio of under 2%, the logical response would be that said bank is a goner. Yet both Credit Agricole and Deutsche Bank are precisely there (1.41% and 1.92% respectively), and both happen to have total "assets" which amount to roughly the size of their host country GDPs, ergo why Europe can not allow its insolvent banks to face reality or the world would end (at least in the immortal stuttered words of one Hank Paulson). So yes, we know that both French and soon German CDS will be far, far wider as the idiotic market finally grasps what we have been saying for two years: that you can't have your cake and eat it, or said otherwise, that when you onboard corporate risk to the sovereign, someone has to pay the piper. Yet there is one place where that has not happened so far; there is one place that has been very much insulated from the whipping of the market, and one place where banks are potentially in just as bad a shape as anywhere else in Europe. That place is.... Canada.

As the chart below shows, which is a ranking of global banks by tangible common equity, lowest first, of the banks with a TCE ratio of under ~4% a whopping 30% are those situated in Canada, the same place where nobody thinks anything can go wrong, and which has been completely spared from the retribution of the bond vigilantes. Something tells us Canadian sovereign CDS, not to mention Canadian bank CDS, are both about to go quite a bit wider...