Gold: Are You a Buyer or Seller?

Gold (GLD) closed today at $98.36. Way too many investors like gold at these levels to suit my investor taste. I am inclined to wait and see if the 50-day EMA at $94 will hold.
Note: To enlarge the chart, double-click inside of it.

Silver: Are You a Buyer or Seller at These Price Levels

Given the following silver (SLV) chart, what would you do? Buy or Sell? SLV closed at $16.54.

Let's see 93% of silver investors are bullish on it, according to Trade-Futures.com. I really don't know anyone who is not bullish on this metal, or for that matter on Gold, which is why I am a contrarian on both metals at these price levels.
Note: To enlarge the chart, double-click inside of it.

Investment Account: 100% in SPY

SPY closed today, Monday, at $106.45. I am now 100% invested in my investment account with an average cost of $104.24. As long as the 15-week EMA is greater than the 40-week EMA, I will remain invested. See yesterday's post for the weekly EMAs on the S&P 500.

S&P 500 Weekly Update for September 18, 2009

S&P 500 closed at 1068.30 for the week end September 18, 2009. The bullish (long-term) trend remains in place (See following chart.) The fourth 25% will be allocated to the SPY position on today's market close.

Does GM Have a Deal for You

All you have to do is purchase a new GM car and be "dissatisfied" with it, which should not be too hard to do, between 31 and 59 days after the purchase. You can not trade in a vehicle, and you will have to pay the registration fees. However, when you return the car, GM will refund the sales tax on the vehicle.

Also, keep-in-mind that you can't wreck it (You can have no more than $200 damage on it.), and you can't put more than 4,000 miles on it. You must also provide proof of insurance on the vehicle.

The American taxpayer has out done itself again. This is one sweet deal. Everyone should take advantage of it. After all, driving a free new car for two months is a real "steal", right?

I will be seeing you over at your local GM dealer.

Thanks to Karl Denninger over at the Market Ticker for this insight car tip.

Bernanke: Recession Has Likely Ended

Federal Reserve Chairman Ben Bernanke made his most emphatic declaration yet that the recession has ended! But Mr. Bernanke reiterated that tight credit conditions and a soft labor market will prove to be a challenge. That's right, Bennie Boy. It all about jobs, and they are not expanding. If jobs are not expanding, where is personal income going to come from to sustain retail sales? If it wasn't for "cash for clunkers and first time home buyers tax credit," retail sales would dropping like a brick! All what has happen is that we have brought demand forward for cars and homes. What Ben, are you going to do for an encore?

And what is this about tight credit, Bennie Boy? Don't you look at your own charts of member bank reserves that provide the banking system with the ability to make loans? Just look at the following chart. Reserves on a year-over-year basis are growing at over 1,800%!!! It is not tight credit. It is that the consumer can not take on any more debt. As a matter of fact, the consumer is "Deleveraging" itself from its debt burden.
Note: To enlarge, double-click inside of it.

Ben Bernake is either going to go down in history as the smartest Fed Chairperson or the biggest Dunce of all time. I think you do which one I believe he will be.

Third 25% Allocated to SPY

SPY closed yesterday, Monday, at $105.28. I am now 75% invested in my investment account with an average cost of $103.56. Once again, I will wait until Friday's close, September 18, to determine how I will implement the final 25%.

S&P 500 Weekly Update for September 11, 2009

The third 25% will be deployed tomorrow on the market's close. I will update the purchase price after the close tomorrow.
Note: To enlarge the chart, double-click inside of it.

Second 25% Allocation in SPY

SPY closed Tuesday at $102.94. I am now 50% invested in my investment account with an average cost of $102.70. Once again, I will wait until Friday's close, September 11, to determine how I will implement the third 25%.

Plutocracy: Rule of America?

Over the weekend, I read an interesting post (The True Middle Class) by blogger Tim Knight over at the "Slope of Hope." In his post, he looked at classes within American from the perspective of "in-the-know." The entirety of his post is as follows:

"There are some who call the United States a classless society. I certainly do not. But my view of "class" this morning only partly has to do with assets owned by a given party. It also has to do with how "in-the-know" someone is.

Cornupecuniae - This is the ruling class. The top 1% of the U.S. owns 34% of the wealth. Since the mid-1950s, the "skewed-ness" of wealth distribution has becoming increasingly distorted. But the important thing here is the concentration of knowledge and power, because that upper echelons have, over the past few decades, turned the United States into a virtual plutocracy. Consider the ethics and well-being of Goldman Sachs, and you pretty much get the picture. We'll call this Group #1.

Ignoramus Felicitia - Here's where just about everyone else is. This is where people who really don't understand the world around them reside. They don't really read that much. They like their sports, their action movies, their sit-coms. They need distractions, lest they risk a chance of being exposed to something unsettling. As long as they can get their $1.99 hot dog/Coke-with-refills at Costco and have a roof over their heads, they're not going to cause any trouble. I'd say this is 95% of the country. Let's call this Group #2.

Illuminata Miserque - And here we have those who may or may not have money, but they have knowledge, and they find that knowledge distressing. They learn; they read; they converse; they dig deeper; but there's not much they can do about what they find. This, as you can imagine, is the realm of Slope. Every day there are superb articles shared here, and as a group we continue to learn more and understand better; however, the principal result of which is agitation. We'll dub this one Group #3."

S&P 500 Weekly Update for September 4, 2009

The bullish trend continues as the 15-Week EMA exceeds the 40-Week EMA. See the following chart. I will implement the second 25% purchase of SPY on Tuesday's close. After the purchase, I will have committed 50% to this investment strategy. I will update the price on Tuesday evening.

Note: To enlarge the chart, double-click inside of it.

SPY Transaction

SPY closed at $102.46 today. I will use this closing price for tracking purposes. I will wait until Friday's close, September 4, to determine how I will implement the second 25%.

Harbinger

Two of my posts, "FDIC-Insolvent" and "Stock Market Exuberance" were harbingers of articles in Monday's (August 31) Wall Street Journal. The WSJ's article, entitled "Bank Deals Put U.S. (FDIC) on Hooks for Billions," is what I discussed in the FDIC-Insolvent post of August 27, 2009. The other article in tomorrow's WSJ entitled, "Can Rally Run Without Revenues?" was my theme in my post, Stock Market Exuberance (Friday, July 24, 2009).

S&P 500 Weekly Update for August 28, 2009

The Exponential Moving Average strategy has spoken. The market trend has now reversed from "Bearish" to "Bullish." That is, the 15-Week EMA exceeded the 40-Week EMA as of the close of Friday, August 28. Until the 15-Week EMA declines below the 40-Week EMA, my focus will be on implementing a bullish investment strategy.

Even though I consider the market's rise suspect, I must follow the EMA investment strategy. I will start the implementation strategy on Monday, August 31, by making incremental investments of 25% to the market each Monday over the next four weeks. By the end of the forth week, I will be 100% invested in the market, unless a sell signal is rendered within that time frame. Ny ETF vehicle of choice is SPY (S&P 500). I am not using any of the double or triple bullish index ETFs. I am staying very conservative for the time being. Please go back and read my post entitled, "Equity Index Traded Funds (ETFs)," of Saturday, July 15, 2009 for the symbol listings of the market index funds. For those of you that are either in a 401k or 403b retirement plans, your might want to consider one of your plan's index funds.

Note: To enlarge, double-click inside.

Deflation: Enemy Number One

The major economic problem that we face right now is deflation. That is, deleveraging by the consumer has become the norm, too much excess capacity by businesses, rising unemployment, and falling personal incomes are all the ingredients for deflation. Yes, I know the other camp states that inflation and the possibility of hyperinflation is the real villain. Also, the Fed has been doing its best to re-inflate the economy. Member Bank Reserves have grown at over 100% since last year. Keep-in-mind, the Fed does not increase the money supply. It provides the reserves to foster credit expansion to the banking system, which in turn increases the money supply by making loans to individuals and businesses. The problem is that there must be willingness on the part of individuals to borrow money and for banks to lend money. In a deflationary environment, individuals don’t borrow, because they are deleveraging themselves from previous debt.

The following chart illustrates the parabolic growth of the "Adjusted Monetary Base, which member bank reserves are the main component. Did anyone say unsustainable? But, oh how the Fed has been trying to reinflate this economy.
Note: To enlarge, double-click inside.

The second chart illustrates the year-over-year growth rate of the "Adjusted Monetary Base. This chart tells the same story as the previous chart but in percentage terms.
Note: To enlarge, double-click inside.

The final chart illustrates the growth rate of total loans and investments at commercial banks.
Note: To enlarge, double-click inside.

Notice anything about this chart that differs from the previous chart? The growth rate for total loans and investments is declining (due to the deleverage factor by consumers and businesses), while the growth rate for the Adjusted Monetary Base is increasing at a parabolic rate. That is why the deflation factor is looming greater than the inflation factor.

Best Six-month Rally in Stocks Since 1933

The market continues to defy gravity. Saying that, the weekly-EMA strategy will render a buy signal after the close of the market today. Even though I consider the market's rise suspect, the market has spoken. Since the sell signal in January 2008 until yesterday, the S&P 500 has declined 26.97%. Therefore, the EMA strategy has definitely been successful and kept our investment dollars out of harm's way. I will sent forth my investment strategy going forth after the close of the market today.

FDIC: Insolvent!

The Wall Street Journal reports today that, "The Federal Deposit Insurance Corp.'s fund that protects more than $4,500,000,000,000 in U.S. bank deposits fell to just $10.4 billion at the end of June 2009, as the banking industry continues to struggle with souring loans and regulators brace for pain in trying to clean up the mess."

It further states, "The level of the FDIC's fund, the lowest since the savings and loan crisis, almost guarantees that the government will have to hit the banking industry with another special fee to recapitalize its reserves. The agency said it had 416 banks on its "problem" list at the end of the second quarter, up from 305 at the end of March."

Folks, that was back in June. On August 14, we had Colonial Bank, sixth-largest bank failure in U.S. history, was taken over by FDIC and then sold to BB&T Corporation with some extremely favorable terms. (Favorable terms simply means the FDIC took over all the toxic assets from Colonial Bank.)

Now, let me see if I understand this correctly. Last year, during the financial debacle surrounding our financial institutions (commercial and investment banks), most of these entities had Equity Multipliers (Leverage Factor) in excess of 30:1. That simply means that if a financial institution has to write-off just 3% of its loan portfolio, it is insolvent. Guess what? That is exactly what happen last year. Right now, the FDIC has an Equity Multiplier of 433:1. You guessed it, and it is not pretty! We are talking about just a .23% decline in its equity will make FDIC insolvent. Since this calculation was based on its June 2009 data, I would surmise, especially with the failure of Colonial Bank, that FDIC is insolvent and needs a tremendous infusion of equity capital from the Fed, Treasury, and Banks. What does that mean for you? Well, you will be paying more in bank fees that is for sure; and that pittance of interest income that you receive on your CD will be even smaller.

Medicare Advantage (MA): The New Whipping Boy

What is Medicare Advantage (MA)? MA was enacted in 2003 to allow seniors to use Medicare funds to buy private insurance plans that fit their health needs and their financial budgets. MA has some built-in incentives to encourage insurers to offer lower costs and better benefits. Also, it's a program that puts patients in charge of their health care, not the government, which is why seniors like it and probably why this administration wants to cut it drastically. How drastically? If President Obama gets his way, he will cut the program by close to 20%. (White House fact sheet entitled, "Paying for Health Care Reform," states the administration would cut $622 billion from Medicare and Medicaid, with a big chunk coming from Medicare Advantage, to pay for health care reform.)

Already, an approximately 10 million seniors have enrolled in Medicare Advantage. President Obama is proposing to cut the MA program by nearly 20%, which would reduce the amount of money each senior would have to buy the MA insurance. This, in effect, would force most of the seniors currently on MA into Medicare (Parts A and B), because they could not afford the higher cost of MA. Didn't President Obama promised in New Hampshire that, "if you like your health-care plan, you can keep your health-care plan." Yes, he did say that! You will still be able to keep that MA plan that your like, but it will cost you substantially more. I guess he just forgot to mention that simple fact.

For people who choose to enroll in a MA health plan, Medicare pays the private health plan a set amount, every month. MA members typically also pay a monthly premium in addition to the Medicare Part B premium to cover items not covered by traditional Medicare (Parts A & B), such as prescription drugs, dental care, vision care, and health club memberships. In exchange for these extra benefits, individuals may be limited on the providers they can receive services from without paying extra. Typically, the plans have a network of providers that you can use. Going outside that network may require permission or extra fees.

From my perspective, the main benefit of Medicare Advantage is that individuals are taking personal responsibility for their health care by buying private health insurance that meets their specific health needs. However, for some reason, personal responsibility is an anathema in Washington, D.C.

$4,500 Cash for Clunkers: Taxable

Yes, that $4,500 you received for that clunker is taxable income. This is where it gets interesting in that the "cash for clunkers" is not a trade-in. It is a $4,500 check from the government. Therefore, when you go to register that vehicle, your sales tax is calculated on the full vehicle price (effectively paying sales tax on the $4,500). Plus, if your state has an income tax, you will probably wind up paying tax again, because the state will count the $4,500 as income for state income tax purposes.

Where is all the transparency and full disclosure that was going to happen when we had a changing of the guard in Washington, DC? Since this is a "family" oriented blog, I will not say what I really want to say. But, I think you get my drift!

And, you thought there was such a thing as free cash! Just like that 1099 you are going to receive for selling your house short. (See yesterday's post.)

The "Real Estate" Short Sale

Most investors are familiar with the concept of selling a stock short. That is, when an investor believes a stock price is going lower. Let's say the stock in question is currently selling for $50 per share. The investor can instruct his or her broker to borrow the shares so they can be sold. The borrowed shares are then sold for $50, and the investor's account is credited for that dollar amount. If the investor is correct and the stock moves lower, say to $40, the investor instructs the broker to purchase these shares at $40 to replace the shares that were borrowed. The net results of this short sale is a profit of $10 per share.

A real estate short sale is nothing like the stock short sale. Let's use this example. Homeowner A has a home mortgage with Bank ABC for $400,000. Due to the real estate debacle, the home is only worth $200,000. To say the least, our homeowner is deeply underwater. Also, our homeowner can not afford this house and must sell it or have Bank ABC foreclose on the home. The homeowner does not want the bank to foreclose on the home, because that would have dire consequences to the homeowner's credit score. Therefore, enter potential Buyer XYZ who makes a $200,000 offer on the home. Homeowner A goes to Bank ABC, presents the offer and requests that the bank forgive the remainder of the outstanding loan amount ($200,000). The homeowner's rationale to the bank is that the amount is what the bank would be able to receive if it foreclosed and sold it themselves. The bank agrees and accepts the "short sale." Homeowner A is happy with the transaction, because the bank has forgiven the remaining balance of the loan. In addition, the homeowner's credit score does not suffer. Everyone is happy, especially Homeowner A. However, Homeowner A is going to be in for a shock when the 1099's come out. Why? Homeowner A will receive a 1099 for $200,000, which is a shock of all shocks! How come? In effect, the bank gave our homeowner $200,000 to pay off the balance of the loan. That is the reason for the 1099, which I would surmise not many homeowners realize.