Friday, January 29, 2010

Quickly Now, You've Got the Pick of the Litter!

If there is one major sector that will suffer like few others in the major decline it is going to be the banks.

Stories about banks recommending their employees get private carry permits and Fed Chairman nearly missing a renomination are going to be common fodder soon enough.  In fact, we estimate that banks are going to be even more hated this time around than they ever were during the Great Depression (Ever wonder why your grandparents always told you they hated bankers?  You'll have ample opportunity to replace that wonder with a fresh dose of loathing that's all yours)

Furthermore, the financial sector topped out before the broad markets, just as they did in 2007.  We are anticipating a crushing, near fatal blow to the financial sector in terms of stock prices over the coming year.  As such, you have ample opportunity to get in, and you pretty much have the pick of the litter!

I wouldn't recommend shorting some of the big names like Citigroup or BAC - while they may yet go to the alternate (bankruptcy) exchange, the downside potential is not as great in dollar terms as some of those bank whose stocks have staged a momentous comeback.

We've been short the financials via LEAPS since September - and we unfortunately can't post our most profitable positions on here because that is going to be a subscriber only feature.  Needless to say they are performing well and we expect some of our LEAPS to make upwards of 500% - 1000% as this decline continues.

But there are two big-boys who look ripe for the short - and the nice is that these are stocks you can verily short anytime in the next couple of days and they should produce an extraordinary profit in the coming months.

My favorites, and soon-to-be-most-hated-of-them-all, are of course Goldman Sachs and JPMorgan Chase.  Coming up so close to their 52-week highs (relative to their brethren of the money), the mood toward them is far more elevated than to firms like AIG and Citigroup, who topped out even before the broad financial sector.

So we are formally recommending you short these two into the dirt - and virtually any other financial institution that seems to follow the Financial Index fairly closely.

Goldman has just broken through a head-and-shoulders neckline, and will probably make a break-up attempt to the $160.00 mark where the neckline is.   I would recommend opening up a short position now, and doubling or tripling up on it at this point because if it does make it that high, there will be a serious roof there.  Officially, we are short Goldman.... Now - at $153.35.

JPMorgan Chase should be experiencing a major leg down within the next 1-2 weeks (possibly 1-2 days though.  It's at a pretty precarious point.), and as such we highly, and cheerfully, recommend shorting the beloved Mr. Dimon's bank along with his "vampire squid" counter part GS.

Officially, we are short JPM at 39.65.

Hold on to your seats.

Another though as well, which I'll do some more analysis on shortly, is a little (or not so little anymore) Chinese company which looks to be a ripe short.

This one is actually a top pick from one of the more popular economists of the Austrian School, has had an explosive runup, and seems to have made a topping formation.  Any guesses?

We'll follow up on this one early next week.

Best of luck!

Derek.

22 comments:

  1. Hi there
    Jon from the UK here. I have enjoyed reading your blog and am interested in participating in deflationary theories. I cannot see anything on your blog for signing up, is there a website or a subscription service planned?
    All the best,Jon
    Fell free to drop me a line on tricoteur_uk@hotmail.co.uk

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  2. Hi Derek,

    We have about $15,000 in our savings that could be better utilized. We do not currently have an account but wonder if you would care to offer advice as to what entity to use(Ameritrade, etc.?) and would we simply short say GS and JPM outright or use these LEAPS you speak of and which I know nothing about?

    I can provide an E-mail address if you prefer and will sign up for your newsletter when it becomes available.

    Regards,
    Carl

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  3. Derek,

    Please check out the 1986 to Present monthly chart of the DJIA at stockcharts.com. It is located in the historical charts section.

    I believe I see a long term head and shoulders top. Left shoulder occured in 2000 at 11149, head in 2007 at 13930, right shoulder January 2010 at 10767. Please let me know your thoughts.

    Thanks,

    Cindy S.

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  4. How about Wells Fargo?

    Thanks,

    Kiley Kuhl
    Wisconsin USA

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  5. As to GOLD
    What is being overlooked (deliberately) is that considerably more gold has been sold, virtual, and otherwise, than has been delivered (taken up).
    On the top of this is there is still a huge demand from 'professionals' in every sense of the word, waiting to buy when the price drops - they do not buy at the top pivotal point of an uptrend. That is why they are where they are. They also see the high inflation down the road, even sometimes a long, to some, road.
    They are far sighted.

    The next move up will contain a big one that will catch people sleeping. They will then wait for an expected correction which will not come back to where they expect, if, and when, it does come.

    If that should not happen, then it will continue its long upward slow haul. There is no 'fat lady', as yet, that waiting to burst into song.

    Only 'traders' are really in the buying game. The mass, are selllers (seen those expensive TV ads), that should tell one all he/she needs to know.

    But there are traders, and traders.

    'It takes imagination to see reality' (Ray Newton)

    Ray Newton London UK

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  6. Perhaps I should have made more clear that there is not enough 'available' to fulfill all those orders should they want delivery.

    It is the 'virtual' which aids distortion. It's a bit the the airline, or club, that sells more seats than they have available, they bank on some not turning up.

    But in the gold market today, and the politico/economic scene it has reached dangerous proportions.

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  7. Goldman's superpower status comes from something more than just access to the money spigots of the banking system. It actually has the ability to "http://www.webofdebt.com/articles/populist_retribution.php" manipulate markets. Formerly just an investment bank, in 2008 Goldman magically transformed into a bank holding company. That gave it access to the Federal Reserve's lending window; but at the same time it remained an investment bank, aggressively speculating in the markets. The upshot was that it can now borrow massive amounts of money at virtually 0% interest, and it can use this money not only to speculate for its own account but to bend markets to its will.

    if the bankers on Wall Street decide they don't want to be reformed in any way, they simply set the high frequency trading algorithm to sell, creating a huge negative bias for the direction of stocks. And they'll basically crash the market, and it will be a standoff. The market was down three days in a row, which it hasn't been since last summer. It's a game of chicken, till Obama says, 'Okay, maybe we need to rethink this.'"

    http://rense.com/general89/battle.htm

    According to this article Goldman Sachs is almost like "God" on earth so I'm wondering how badly can this company be damaged and therefore would shorting this titan not be dangerous?

    It seems like a good short and perhaps safer would be to short the stock market indexes like the entire financials, RE, DOW, S&P 500 etc.

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  8. Anonymous,

    The combination of fear and loathing of Goldman coupled with the "godlike" or "eternally powerful" status given them by those who criticize their practices has been going on for months now. This tells me there is perhaps not an emotional or psychological peak in terms of "hey, we really like this asset" or "you HAVE to own Goldman Stock", but that there is more of a prevalent mentality of "Goldmans is a safe bet because they ARE the market", and such.

    As it stands this tells me that people are buying for all the wrong reasons, that perception towards this "behemoth" is extremely distorted.

    It has taken them over 80 years to build up this reputation, and yet we will see it all come crashing down. There is no individual force on earth that I have ever heard of or witnessed that actually "makes" markets in the long term - social mood makes markets. Goldman will be on the very top of the "to-torch" list by the torch-and-pitchfork mentality as higher unemployment, tighter credit, and deflation all feed on negative social mood.

    I'm expecting that Goldman might not even exist in ten years as the public grows more and more angry with government policies and government finds scapegoats to throw out in the interim to fend of public ire. Goldman and its higher-ups will certainly be among the first to be "thrown to the wolves" because there is already so much negative underground press about them that will surely permeate to the top of public perception as time goes on.

    To the Wells Fargo Suggestion:

    They would be an ideal short as well, as they have recouped much of their lost price, indicating positive sentiment that is far diverged from reality. Again, the financial sector as a whole will most certainly be making a new lower-low in the coming decline and as such the financials with the highest level of optimism will have the farthest to fall - you can take advantage of this once-in-a-lifetime opportunity to not only conserve wealth but to increase it (think ending up with far more USD's than you started plus the factors of deflation).

    Thanks for the comments.

    Derek.

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  9. Right on Ray Newton. See you at the next rally in Gold starting on March 1st. Enjoy it at $1500.

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  10. I think TDAmeritrade is one of best online brokers. $15,000 hmm should invest in oil, potash, water, gold, and silver.

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  11. I have had many subscriptions and this by far is the best place for aggressive, outside the box recommendations!

    Thanks again!

    Kiley Kuhl

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  12. How can you short part of the federal government.
    Goldman and JP. You should short bonds.

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  13. David,

    Whether Goldman's still exists in ten years time, or blows out tomorrow, is not a key factor in the order of things.

    This world is moved according to an agenda. There is nothing sinister in this, unless one is a small thinker, and cannot see that what has been the dream of some men throughout the ages to rule the world only failed because they tried to do by military means.

    The ones who are achieving this (I could say have achieved) are doing it the only way it could be done - by economic means.

    Debt has been the weapon of mass destruction. You own a man's or a nation's debt, You own the man or nation.

    Every nation in the world is in debt - yes, even China. The Financial Elite of our world own the debt. They own the Financial Institutions which includes the Central Banks.(and Goldman Sachs)

    They own the Federal Reserve. The Queen of England must ask their permission to enter the one square mile that is the City of London, the home of the banks and financial institutions. It has its own police force.

    Only the other day Boris Johnson the Mayor of London, and who has gone to where
    these powerful men are meeting in Davos Switzerland, addressed them as
    'The Masters of the Universe'.

    He is pleading with them not to desert London because he knows that would be the end for the UK if they did.

    Reason, there has been an outcry to punish them for the 'Credit Crisis'.

    No financial institution, or nation in their control is sacrosanct. They are all merely tools to achieve a purpose.

    Only when all this is understood, does everything else fall into place.

    Their belief is that the end will jusify the means, and that our world will then be a better place with warring nations relegated to history. That is their belief. Only time will tell.

    The theme of the last Olympics held in China, I do not believe was thought up by the Chinese. If you remember it was 'One World, One Dream'

    Could go on, but must stop. It is too big, and complex to digest more than a little. It is also beyond most people's imagination to accept. And, perhaps there is something in that phrase - 'When ignorance is bliss. 'tis folly to be wise.'

    Have a nice day, or restful night .whatever time zone you are all in.

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  14. >"This world is moved according to an agenda. There is nothing sinister in this, unless one is a small thinker, and cannot see that what has been the dream of some men throughout the ages to rule the world only failed because they tried to do by military means."

    Indeed for as Mayer Amschel Rothschild, Founder of the Rothschild Dynasty said, "Let me issue and control a nation's money supply and I care not who makes it's laws."

    Of course the central bank once in control of a nation's money supply orders it's subordinates such as politicians including most presidents to deficit spend such as wars, bailouts, etc. because this forces the government to borrow additional money at interest from the "Federal" Reserve banks.

    The cycles of Man's history is like a spinning wheel. The clothing and buildings change but man remains predictable.

    "There is the moral of all human tales:
    'Tis but the same rehearsal of the past,
    First freedom, and then Glory - - when that fails, Wealth, Vice, Corruption - - Barbarism at last."

    Lord Byron

    In review of our cycles I would say that barbarism isn't far away.

    Carl

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  15. What issues/shorts, etc. would be good for a traditional IRA?

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  16. Issues/shorts

    ETFs in Bonds shorts

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  17. Thanks anonymous for your response. I do not know being a neophyte in these matters if bonds would be the same as stocks but according to Derek he said (referring to stocks) that it is better to short the ultra bullish issues (short FAS as opposed to going long SDS for instance) versus going long on an ultrashort because the price decay and the declining work are in your favor.

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  18. I share with anyone interested a quote
    taken from Kitco comentaries ny Jon Niedler, and my response to it.

    The basis has relevance to all aspects of the Financial Markets, and to life in general.

    You do not have to agree with it, it will make no difference to the final outcome, how many of you do not.

    Hopefully, it will make some of you THINK, and do further research with an open mind.

    "....As for real currency trouble, go see the euro for a moment. Bloomberg reports that Investors are pulling cash out of Europe at a record pace as central banks slow euro purchases, jeopardizing its status as a substitute to the dollar as the world’s reserve currency. Which, leaves what in the driver’s seat by default? You already know......."

    As I have told you many times in the past Jon, THERE IS a PLAN, a direction, for our world. And, unless you 'see' that plan, you will continue to mislead yourself, but what is worse - others, with your words of 'wisdom' ( lack of it)

    Included in the plan is a unification, or near enough, of key currencies as part of a total 'unification' package.

    At an early stage will come a near parity of Euro, GBP, and US dollar. This, we are seeing in process at the moment -slow but sure.

    (In the final analysis money will be digital for all)

    How do I know all this? Because, not only do they tell us by word, but more importantly, by deed.

    So, there is nothing sinister in all this. Far from it. It is the only way we can go, and should go, from now. 'The die has been cast', or, if you prefer, 'The Rubicon has been crossed'.

    We, the masses, by our ignorance, lack of imagination, and naivety have sanctioned it. So, for those who do not like it, you can hardly complein.

    As the last Oympics proclaimed with its banner - 'ONE WORLD, ONE DREAM' (Do you really think it was the Chinese themselves who dreamed that up?)

    And where to Gold? There is only one 'trend' at present, and for some time to come, and that is UP. (with the accepted 'corrections' on the way)

    Forget Chinese New Year, or Indian wedding season, or any other economic soothsaying gibberish used to fill newssheets, and website commentaries, that do the work of permitting the 'informed' to ascend the ladder by gaining from lower pivotal points (they determine) in their ascent.

    These people do not run prices up against themselves. But they are far sighted, and do not lack imagination that permits them to see what others do not.

    Only powerful people move the gold market, a power that comes from those 'behind the scenes'. They move it, because they control it and'fix' the price, daily.

    As Disraeli told us 170 years ago -

    “The world is governed by far different personages from what is imagined by those who are not behind the scenes.” (Coningsby published 1842)

    Or perhaps you think we should discount his words and act on.

    Ray Newton London UK

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  19. The above should have ended with the word - 'yours'.

    I wish there was a feature to edit one's post, at least for a short time AFTER posting.

    Sometimes the errors,especially the typing by my clumsy fingers and lack of 20/20 eyesight vision, I only notice after I have posted.

    Just a thought. I have seen this available on some sites.

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  20. A few pointers from my 'crystal ball'.

    The Iran syndrome may go quiet for a time, but it will not go away.

    There is absolutley no way that the element in our world that sees Iran as a threat (or any nation for that matter, as they have shown) will not rest until they have brought that nation to economic turmoil where all the dirty work is done by the unrest from within, or it is weakened to where it is ready to acquiesce to the demands required.

    Failing that, and today as a last resort (lessons have been learned)a military attack that would bring about the desired results.

    First,of course, would come some false flag provocation.

    This day of reckoning is drawing near.

    If and when this happens, the timing will be chosen well to kill many birds with one stone, if you will forgive the espression.

    One of these would be to shift the focus of home grown problems. Another would be to raise oil prices. This would aslo send markets in turmoil.

    The list is endless.

    I am not yet certain when it will happen, but it is drawing nearer by the day.

    Just take care because initially things can (and will) go opposite to what the mass expec, and where they have placed their bets.

    Why? Because that is the name of the game. It always has been, and it always will be.

    Gold This is now shaking out the weak. It is triggering a lot of 'stops'
    which will continue until it reaches the point where the buyers waiting with
    salivating lips for the easy pickings.

    When it assumes again its opward trend it will be stonger (growth always is after pruning.)

    Best wishes to all. Keep alert.

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  21. Once again, sorry for the little errors but there is no provision to edit after posting when, it is, I observe these.

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  22. This is the rubbish that some people who should know better from the position they hold will write.

    I took from Kitco I follw it with my response.

    You make your own decisions

    "People perceive gold to be a safe haven and a store of value and when investors are worried about the value of the dollar they pile into gold but no one can determine its proper price."

    The writer needs to learn something, even the basics, about what he writes.

    If he had said that the masses, or those not on the 'inside' can't determine its proper price, it could be accepted.

    Gold has among its unique advantages, such as it does not rust, or deteriorate over time, that of it being the most liquid of all assets when one needs to sell.

    Listen to your TV advertising that costs the advertisers millions of dollars. Even yesterday as gold was enjoying a huge one day drop - these companies were wanting to buy.

    It is all part of the game. Gold has not broken its uptrend, the economic fundamentals have not changed.

    The professional buyers will be back once the price comes down to its pivotal point within the uptrend.

    The gold price is the root of all other pricing either directly, as with oil, or indirectly to most, if not all other goods because somewhere energy costs are involved in the production.

    Gold, currently, and for precious metal traders, always, is an excellent
    'trading' commodity. It created the now uncountable wealth of the Rothschilds.

    Happy investing, trading, speculation, whatever

    Ray Newton London UK

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