Hate Mail, Crumbling Factories, and Sinking Stocks

By Tony Sagami 

The bulls are mad at me. I’ve been heavily beating the bear market drum in this column since the spring. The S&P 500, by the way, peaked on May 21, and this column has been generating a rising stream of hate mail from the bulls as the stock market has dropped. My hate mail falls into two general categories: (1) you are wrong, and/or (2) you are stupid.

Well, I may not be the sharpest tool in the Wall Street shed, but I haven’t been wrong about where the stock market was headed. This column, however, isn’t about me. It’s about protecting and growing your wealth—and that’s why I have been so forceful about the rising dangers the stock market is facing.

Make sure you watch this weeks new video...."500K, Profit and Proof"

One of the themes I’ve repeatedly covered in this column is the rapidly deteriorating health of the two most basic economic building blocks of the American economy: the “makers” (see August 25 column) and the “takers” (see July 14 and August 4 columns).

There are thousands of economic and business statistics you can look at to gauge the health of the US economy, but at the economic roots of any developed country is the prosperity of its factories (makers) and transportation companies (takers) delivering those goods to stores.

This week, let’s look at the latest evidence confirming the piss poor health of American factories.

Factory Fact #1: The Institute for Supply Management released its latest survey results, which showed a drop to 51.1 in August, a decline from 52.7 in July, below the 52.5 Wall Street forecast, and the weakest reading since April 2009.

NOTE: The ISM survey shows that raw-materials prices dropped for 10 months in a row. If you own commodity stocks—such as copper, oil, aluminum, or gold—you should consider how falling raw materials prices will affect the profits of those companies.

Factory Fact #2: Despite all the crowing from Washington DC about the improving economy, US manufacturing output is still worse today than it was before the 2008-2009 Financial Crisis, according to the Federal Reserve.

Factory Fact #3: Business inventories increased at the fastest back to back quarterly rate on record. Inventories increased 0.8% in Q2, following a 0.3% increase in Q1, and now sit at $586 billion. That’s a 5.4% year over year increase!

Remember, there are two reasons why businesses accumulate inventory:

• Business owners are so optimistic about the future that they intentionally accumulate inventory to accommodate an upcoming avalanche of orders.

OR

• Business is so bad that inventory is starting to involuntarily pile up from the lack of sales.

Factory Fact #4: The Manufacturers Alliance for Productivity and Innovation (MAPI), a trade association for US manufacturers, is none too optimistic about the state of American manufacturing.
The reason for the pessimism is simple: US manufacturers are struggling.

• U.S. manufactured exports decreased by 2% to $298 billion in the second quarter, as compared with 2014.

• The US deficit in manufacturing rose by $21 billion, or 15%, compared with the second quarter of 2014.

“The US $48 billion deficit increase in the first half of the year equates to a loss of 300,000 trade related American manufacturing jobs, and the deficit is on track for a loss of 500,000 or more jobs for the calendar year,” said Ernest Preeg of MAPI.

So what does all this mean?

When I connect those dots, it tells me that American manufacturers are struggling. Really struggling.
Take a look at the Dow Jones US Industrials Index, which peaked in February and started to drop well ahead of the August market meltdown.

You know what’s really nuts? The P/E ratio for this struggling sector is almost 19 times earnings and 3.3 times book value!

Is there a way to profit from this slowdown of American factories? You bet there is.

Take a look at the ProShares UltraShort Industrials ETF (SIJ). This ETF is designed to deliver two times the inverse (-2x) of the daily performance of the Dow Jones US Industrials Index. To be fair, I should disclose that my Rational Bear subscribers have owned this ETF since June 16, 2015, and are sitting on close to a 15% gain.

Critics could say that I am “talking up my book,” but I instead see it as “eating my own cooking.” My advice in this column isn’t theoretical—we put real money behind my convictions. That doesn’t mean you should rush out and buy this ETF tomorrow morning. As always, timing is everything, so I suggest you wait for my buy signal.

But make no mistake, American “makers” are doing very poorly, and that’s a reliable warning sign of bigger economic problems.

Tony Sagami

30 year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.

The article Connecting the Dots: Hate Mail, Crumbling Factories, and Sinking Stocks was originally published at mauldineconomics.com.

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The Birth of a New Bull Market

By Jeff Clark, Senior Precious Metals Analyst

If I asked you why you think I’m bullish on platinum and palladium, you’d probably point to the strikes in South Africa, the world’s largest producer of platinum. Or maybe the geopolitical conflicts with Russia, the largest supplier of palladium. Maybe you’d even mention that some technical analysts say the palladium price has “broken out” of its trading range.

These are all valid points—but they’re reasons why a trader might be bullish. When the strikes end, or Russia ends its aggression, or short-term price momentum eases, they’ll sell.
And that will be a mistake.

Because underneath the headlines lies an irreparable situation with the PGM (Platinum Group Metals) market, one that will last at least several years and probably more like a decade. This market is teetering on the edge of a supply crunch, one more perilous than many investors realize. As the issues outlined below play out, prices will be forced higher—which signals that we should diversify into the “other” precious metals now.
The basic problem is that platinum and palladium supply is in a structural deficit. It won’t be resolved when the strikes end or Russia simmers down. Here are six reasons why…...

#1. Producers Won’t Meet the Cost of Production

The central issue of the striking workers in South Africa is wages. In spite of company executives offering to double wages over the next five years, workers remain on the picket line.

Regardless of the final pay package, wages will clearly be higher. And worker pay is one of the biggest costs of production. And the two largest South African producers (Anglo American and Impala), which supply 69% of the world’s platinum, are already operating at a loss.

Once the strike settles, costs will rise further. Throw in ongoing problems with electric power supply, high regulations, and past labor agreements, and there is virtually no chance costs will come down. This dilemma means that platinum prices would need to move higher for production to be maintained anywhere near “normal” levels. Morgan Stanley predicts it will take at least four years for that to occur. And if the price of the metal doesn’t rise? Companies will have no choice but to curtail production, making the supply crunch worse.

#2. Inventories Are Near the Bottom of the Barrel 

 

One reason platinum price moves have been muted during the work stoppage is because there have been adequate stockpiles. But those are getting low. Impala, the world’s second-largest platinum producer, said the company is now supplying customers from its inventories. In March, Switzerland’s platinum imports from strike-hit South Africa plummeted to their lowest level in five and a half years, according to the Swiss customs bureau.

Since producers can’t currently meet demand, some customers are now obtaining metal from other sources, including buying it in the open market. As inventories decline, supply from producing companies will need to make up the shortfall—and they’ll have little ability to do that.

#3. The Strikes Will Make Recovery Difficult and Prolonged

Companies are already strategizing how to deal with the fallout from the worst work stoppage since the end of apartheid in 1994…

• Amplats said it might sell its struggling Rustenburg operations. Even if it finds a buyer, the new operator will inherit the same problems.

• Impala said that even if the strike ends soon, its operations will remain closed until at least the second half of the year.

• Some companies have announced they may shut down individual shafts. This causes a future problem because some of these mines are a couple of miles deep and would require a lot of money to bring back online—which they may balk at doing with costs already so high.

• It’s not being advertised, but a worker settlement will almost certainly result in layoffs since some form of restructuring will be required. This could trigger renewed strikes and set in motion a vicious cycle that further degrades production and makes labor issues insurmountable.

#4. Russian Palladium Is Already in a Supply Crunch

When it comes to palladium, Russia matters more than South Africa, since it provides 42% of global supply. Remember: palladium demand is expected to rise more than platinum, due to new auto emissions control regulations in Asia.

But Russia’s mines are also in trouble…

• Ore grades at Russia’s major mines, including the Norilsk mines, are reported to be in decline.

• New mines will take as long as 10 years to come online. It could take a decade for Russian production to rebound—if Russia even has the resources to do it. This stands in stark contrast to global demand for palladium, which has grown 35.8% since 2004.

• Russia’s aboveground stockpile of palladium appears to have dwindled to near extinction. The precise amount of the country’s reserves is a state secret, but analysts estimate stockpiles were 27-30 million ounces in 1990.

Take a look at reserve sales today:

Many analysts believe that since palladium reserve sales have shrunk, Russia has sold almost all its inventory. As unofficial confirmation, the government announced last week that it is now purchasing palladium from local producers. This paints a sobering picture for the world’s largest supplier of palladium—and is very bullish for the metal’s price.

#5. Demand for Auto Catalysts Cannot Be Met

The greatest use of PGMs is in auto catalysts, which help reduce pollution. Platinum has long been the primary metal used for this purpose and has no widely used substitute—except palladium.

But that market is already upside down.

Palladium is cheaper than platinum, but replacing platinum with palladium requires some retooling and, on a large scale, would worsen the supply deficit. As for platinum (which does work better than palladium in higher-temperature diesel engines), auto parts manufacturers are expected to use more of it than is mined this year, for the third straight year. Some investors may shy away from PGMs because they believe demand will decline if the economy enters a recession. That could happen, but tighter emissions controls and increasing car sales in Asia could negate the effects of declining sales in weakening Western economies.

For example, China is now the world’s top auto-producing country. According to IHS Global, auto sales in China are projected to grow 5% annually over the next three years. PricewaterhouseCoopers forecasts that sales of automobiles and light trucks in China will double by 2019. That will take a lot of catalytic converters. This trend largely applies to other Asian countries as well. It’s important to think globally when considering demand.

The key, however, is that supply is likely to fall much further than demand.

#6. Investment Demand Has Erupted

Investment demand for platinum rose 9.1% last year. The increase comes largely from the new South African ETF, NewPlat. At the end of April, all platinum ETFs held nearly 89,000 ounces—a huge amount when you consider it was zero as recently as 2007.

Palladium investment fell 84% last year—but demand is up sharply year-to-date due to the launch of two South African palladium ETFs, pushing global palladium holdings to record levels. And like platinum, there was no investment demand for palladium seven years ago.

Growing investment demand adds to the deficit of these metals.

The Birth of a 10 Year Bull Market

 

Add it all up and the message is clear: by any reasonable measure, the supply problems for the PGM market cannot be fixed in the foreseeable future. We have a rare opportunity to invest in metals that are at the beginning of a potential 10-year bull run. Platinum and palladium prices may drop when the strikes end, but if so, that will be a buying opportunity. This market is so tenuous, however, that an announcement of employees returning to work may be too little, too late. We thus wouldn’t wait to start building a position in PGMs.

GFMS, a reputable independent precious metals consultancy, predicts the palladium price will hit $930 by year-end and that platinum will go as high as $1,700. But that will just be the beginning; the forces outlined above could easily push prices to double over the next few years.

At that point, stranded supplies might start coming back online—but not until after major, sustained price increases make it possible.

The RIGHT Way to Invest

In my newsletter, BIG GOLD, we cover the best ways to invest in the metals themselves (funds and bullion), but for the added leverage of investing in a profitable platinum/palladium producer, I have to hand the baton over to Louis James, editor of Casey International Speculator.

You see, most PGM stocks are not worth holding, so you have to be very diligent in making the right picks. Remember, the dire problems of the PGM miners are one reason we’re so bullish on these metals. However, Louis has found one company in a very strong position to benefit from rising prices—and its assets are not located in either South Africa or Russia.

It’s the only platinum mining stock we recommend, and you can get its name, our full analysis, and our specific buy guidance with a risk free trial subscription to Casey International Speculator today.
If you give it a try today, you’ll get three investments for the price of one: Your Casey International Speculator subscription comes with a free subscription to BIG GOLD, where you’ll find two additional ideas on how to invest in the PGMs.

If you’re not 100% satisfied with our newsletters, simply cancel during the 3 month trial period for a full refund—but whatever you do, make sure you don’t miss out on the next 10 year bull market.  

Click here to get started right now.

The article The Birth of a New Bull Market was originally published at Casey Research

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New Video: Dollar Index Going Higher?

It has been a while since we looked at the dollar index, so today we decided to dissect this market and look at it step by step.

What is happening in this market is very interesting and we think you will see in this short video just what we have in mind.

Just click here to watch "Dollar Index Going Higher" and as always, our videos are free to watch and there are no registration requirements. Do you agree with our analysis of the dollar index? Please feel free to leave a comment and let us know what you think.


Also, take a few minutes to watch "Swoosh Goes Nike"


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Markets Attempt To Rally on Meredith Whitney Comments

The S&P 500 was lower overnight as it consolidates below the 25% retracement level of the March-June rally crossing at 882.35. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term.

Market futures are attempting to rally as Meredith Whitney makes positive comments about the banks on CNBC this morning. She did go on to call for 13% unemployment and another 15-50% downside in home prices.

If September extends this month's decline, the 38% retracement level of the March-June rally crossing at 845.09 is the next downside target. Multiple closes above the 20 day moving average crossing at 898.31 are needed to confirm that a short term low has been posted.

Day traders are watching a potential break of the 884.50 level to give us a gap fill into the 894-896 area. If the pivot point holds for the bears the next short target is 857.75

From a broader perspective, the September S&P index appears to be forming a broad head and shoulders top. Closes below 873.10 would confirm a downside breakout of neckline support thereby opening the door for a possible test of the 38% retracement level of the March-June rally crossing at 845.09.

Monday's pivot point, our line in the sand is 874.50

First resistance is the 10 day moving average crossing at 889.58.
Second resistance is the 20day moving average crossing at 898.31.

First support is last Wednesday's low crossing at 865.50.
Second support is the 38% retracement level at 845.09.

The September S&P 500 Index was down 1.30 points at 873.00 as of 5:56 AM CST. Overnight action sets the stage for a lower opening by the September S&P 500 index when the day session begins later this morning.

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New Video: S&P 500 Update

How are you trading the S&P 500 right now? In this new video you will get a chance to see how the Market Club technology works and see just exactly how we are trading this market. As always, the video is free with no registration.

Please feel free to leave a comment to let us know what you think of the video and how you are trading the SP 500 right now.

Just Click Here To Watch The Video

New Video: S&P 500 - A Correction or a Major Turn?

With the S&P 500 falling to a fresh two week low, the big question is....is this a correction, or the start of a major trend on the downside?

We have just finished a short video that details many of the key concerns that we have for this market. If you have not seen our videos before you may enjoy this one. This video does not require a plug-in.

The video is free to watch and there is no need to register. We would like to get your feedback about this video so please leave a comment here on our blog.

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How to Use Money Management Stops Effectively

Stops are enormously important part of a traders arsenal of trading tools. Some traders confirm that stops are the most important part of their trading armour.

So here are three ways to use stops to protect your capital and lock in profits from a trade. These three money management techniques can be used in stock, futures and forex trading.

Click Here For A Video Version of This Lesson

The important rule is that you do use a real stop in the marketplace. A friend of mine joked with me that that he had never seen a “mental stop” filled electronically or in the pits.

If the market is good your stop will not be hit. If the market is bad or changing direction then you’ll want to be out of it anyway. That is why stops are so crucial to trading success.

Here are the three most commonly used types of stops. Which one do you use?
(1) Dollar stop.
(2) Percentage stop.
(3) Chart stop.
If you chose (1) you’d be correct, but, you would also be correct if you had chosen 2 or 3. All three are money management stops and are used to either lock in profits or protect capital.
————————————————–
1) A dollar stop, is when you set a predetermined dollar amount to a trade. Let’s say you want to risk $500 on a grain trade or $750 on a stock trade. Once you get your fill back from your broker or electronically online you simply figure from your fill price where to put your stop.

Pros: Easy to implement and use.
Cons: Can place stops too close in a volatile market
————————————————–
2) Percentage stop, is a very simple way for you to place a stop on a position. Here’s how it works. Let’s say your trading account is 100,000 dollars and let’s say you only want to risk 1% of your total portfolio on any one trade. You simply take a $1,000 risk which represents 1% of your over all portfolio. This can help enormously in avoiding taking BIG LOSSES. A 1% loss is easy to absorb. A 30% or 40% loss in a trade is an account killer, and should be avoided at all costs.

Pros: Easy to implement and use.
Cons: Can place stops too close.
————————————————–
3) Chart stop, a chart stop is where you place a stop that is either above or below a crucial chart level. The good thing about a chart stop is that this level is often used by other traders. That can both be a good thing and a bad thing, here’s why. Using either one of our first two examples only you know where the stop is. With a chart stop, a great many traders/brokers know that is where the stops are. In an illiquid market this type of stop should not be used, as many times brokers gun for the stops. In a highly liquid and active market this is a good stop to use.

Pros: Very easy to implement and use.
Cons: Can’t be used in thinly traded markets.
————————————————–
So there you have it. Now you have all three ways to manage your money and protect your profits in the future.

Use stops.....let them work for you.

Click Here For A Video Version of This Lesson

A special thanks goes out to guest blogger Adam Hewison

New Video: Important Gold Update For June 15th

In our new short video I will show you some of the key elements and levels that I think should come in and support the gold market. The video is quite short, but it will lead you step by step into the detailed analysis of this not so precious metal.

The video is free to watch and there is no need to register. I would love to get your feedback about this video so please feel free to leave a comment.

Just Click Here to watch video

New Video: Crude Oil - The New World Currency

Check out our latest video on crude oil, black gold. Its got everything traders love to see in crude oil trading videos. Great analysis, the Fibonacci measurement tool and much, much more.

Today we’re taking a look into crude oil (NYMEX_CL) market. This market has rapidly become the world currency of choice for many countries. What do we mean by that? With the dollar going down in value, it automatically pushes the value of crude oil higher.

We analyze the July electronic contract for crude oil (NYMEX_CLN09.E) using some very simple tools that you can pull into your own trading. We’ve used our Fibonacci measurement tool as well as a classic chart pattern that has been around for over half a century.

So take a few minutes and see what the crude oil buzz is all about and if it’s really is going to go to a $100 a barrel.


Of course the video is free to watch and there is no need to register. Please feel free to leave a comment and let our readers know where you think crude oil is headed.

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My Favorite Indicator Of Inflation....And It's Not Gold

There is an indicator which has been around since 1957. It has accurately forecasted every inflationary and deflationary cycle since.

This is my number one indicator for large cyclic trends. You may want to watch this index carefully should you want to invest in certain stocks and commodity related markets.

Over the last half century, this index has seen some remarkable moves both on the upside and more recently on the downside. I believe that this is the indicator that everyone should watch. If you trade stocks or futures and are interested in world trade trends, this is the indicator to track.

Click here to watch video

The tenth revision of this index renamed it the Reuters-Jefferies CRB Index (NYBOT_CR) You can easily track this indicator everyday using MarketClub.

You can learn more about this index from our Trader’s Blog.
Here is a list of the 19 markets that are included in the RJ/CRB index as implemented in the 2005 revision:

Metals: aluminum, copper, gold, nickel, silver
Energies: crude oil, heating oil, natural gas, unleaded gas
Grains: corn, soybeans, wheat
Food & Fiber: cocoa, coffee, cotton, orange juice, sugar
Livestock: lean hogs, live cattle

Take a few minutes to watch this Your keywordshort video and see how you can benefit from this indicator. There is no fee and there is no registration required.

Enjoy the video and please feel free to leave a comment, letting our readers know what you think.

Click here to watch video

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Today’s Stock Market Club Trading Triangles

New Video: "The S & P 500, A Conundrum Wrapped in an Enigma"

Let's take a look at this conundrum wrapped in an enigma.....that’s the S&P 500 index.

We were just looking at the S&P 500 index as we came to the close for the week of June 6th. While the market appears to be higher for the week, it also appears that we’re losing momentum on the upside.

This can be seen in the second attempt to close over the 950 level. Also some of our momentum indicators are showing negative divergences. This means that while the S&P 500 is making new highs for the move, the momentum indicators are not showing the same configuration and making new highs. This can often be the first clue of a potential market correction.

In this short video on the S&P 500, you’ll will see exactly what we are looking at and why.

The video is free to watch and there is no need to register. We would love to get your feedback about this video and your own predictions about these markets. So please feel free to leave a comment and let our readers know what you think.

Just Click Here To Watch The Video

Markets Set To Soar, GM Officially Declares Bankruptcy

Markets are shrugging off the General Motors news, which was already baked in, and more interested in the higher income numbers reported this morning. Some how this market will be forced to digest the unemployment numbers that will come from the announcement of GM plant closures.

Day traders are playing nothing but bullish set ups this morning in the SP 500 as the bears are getting ripped, there just is not any sellers going into the open. With the 50% retracement broken over night at 933 the next target looks like 954. The trend is bullish for day traders until a long set up fails.

Stochastics and the RSI are bullish for the SP 500 signaling that sideways to higher prices are possible near term. From a broad perspective, June needs to close above 929.00 or below 875.40 to clear up near term direction in the market.

Monday's pivot point, our line in the sand is 916.25

1st resistance is 930
2nd resistance is 941.75

1st support is 904.50
2nd support is 891

Our weekly pivot point for the SP 500 is 896

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The June NASDAQ 100 was higher overnight and trading above the previous reaction high crossing at 1437.75 thereby renewing this week's rally. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term.

If June extends this spring's rally, weekly resistance crossing at 1496.25 is the next upside target. Closes below the 20 day moving average crossing at 1395.97 would confirm that a short term top has been posted.

First resistance is the overnight high crossing at 1458.25
Second resistance is weekly resistance crossing at 1496.25

First support is the 20 day moving average crossing at 1395.96
Second support is the reaction low crossing at 1342.75

The June NASDAQ 100 was up 14.25 points. at 1450.25 as of 6:02 AM CST. Overnight action sets the stage for a higher opening by June NASDAQ 100 when the day session begins later this morning.

New Trading Video: SP 500 17 Week Cycle?

I was just looking at the S&P 500 and noticed a very pronounced cycle in this market that I want to share with you.

In my new video I explain exactly what I’ve seen and what I expect will happen to this market if this cycle continues on track.

You can view this new video with my compliments. There are no registration requirements. Please enjoy and give your feedback by leaving a comment for us.

Today’s Stock Market Club Trading Triangles

My Sunday Morning Favorites

"Mass Event Layoffs and EPS Beats".......Tyler Durden @ Seeking Alpha

"Day Of Reckoning: Euro Joins The Party".......Charts and Coffee

"Here in my CAR".......Slope Of Hope With Tim Knight

"Video Update ~ Equities Set Up For Free-Fall".......Stocktock

"Seeing More Head and Shoulders Set Ups".......The Humble Speculator

Barack Obama: "We Are Out Of Money".......Zero Hedge

"Why We Should Listen to Peter Schiff's Bad News".......TIME Online

SPY : Shooting stars !!!.......The ETF Corner

Is The Dollar In Trouble?

According to the dollar index (DX), which is a basket of currencies that track the dollar, it would appear as though the dollar is indeed going to be coming under more pressure. The dollar index is much like an index for stocks except in this case it is for currencies.

The U.S. Dollar Index consists of six foreign currencies:

1. Euro (EUR)
2. Yen (JPY)
3. Cable (GBP)
4. Loonie (CAD)
5. Krona (SEK)
6. Franc (CHF)

In this new short video on the dollar index, we will show you some previous successes that MarketClub has had. I will also cover an important signal we have just received, that in my opinion, will lead to further downside weakness in this index.

As always, the videos are free to watch and there’s no need to register. We would love to get your feedback about this video and your own predictions about the dollar market so please leave a comment.



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Daily Telegraph story now "Mysteriously" Taken Down

I just had to re publish this article first released by The Daily Telegraph. I found it still being posted over at Zero Hedge and felt I just had to post it here.

Mark Patterson: "It's A Sham. The Banks Are Insolvent"

The chairman of $7 billion distressed Private Equity firm and TARP beneficiary MatlinPatterson calls a spade a spade and in the process exposes the entire Geithner plan for the complete sham that it is. His comments before the Qatar Global Investment Forum were captured by the Daily Telegraph's Evans-Pritchard earlier, and Zero Hedge republishes the piece in its entirety as it presents every nuance of our predicament with masterful simplicity.

The Daily Telegraph story now "mysteriously" taken down.
***

US 'sham' bank bail-outs enrich speculators, says buy-out chief Mark Patterson

The US Treasury’s effort to stabilise the banking system through the TARP programme is a hopelessly ill-conceived policy that enriches speculators at public expense, according to the buy-out firm supposed to be pioneering the joint public-private bank rescues.

“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside,” said Mark Patterson, chairman of MatlinPatterson Advisers.

The comments are likely to infuriate Tim Geithner, the US Treasury Secretary, because MatlinPatterson took advantage of the TARP’s matching funds to buy Flagstar Bancorp in Michigan. His confession appears to validate concerns that the bail-out strategy is geared towards Wall Street.
Under the convoluted deal agreed earlier this year, MatlinPatterson has come to own 80pc of the shares while the US government has ended up with under 10pc.

Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable.

“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society,” he said, speaking at the Qatar Global Investment Forum.

Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. “At least the British are not hiding the bail-out,” he said.

MatlinPatterson said private equity and hedge funds were deluding themselves in hoping to go back to business as usual after the trauma of the last 18 months.

“This is not a normal recession and there will be no V-shaped recovery. The crisis has destroyed leveraged companies. We’re going to see a catastrophic increase in the number of LBO’s (leveraged buyouts) going into default because they’re knee-deep in debt and no solution exists since they can’t refinance,” he said.

“Alfa hedge funds have been making their money by gambling with excessive leverage, so the knife that cuts off leverage is going to cut off their heads as well,” he said.

Like many bears, Mr Patterson expects the great crunch to end in deliberate inflation, deemed a lesser evil than outright depression.

“The US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fed’s balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road,” he said.

Matlin Patterson, however, has missed the Spring rebound, the most powerful rise in equities in over 70 years. “We shorted the equity rally because we thought it was lunatic. We’ve kept adding positions seven times, and we’re still holding,” he said. Ouch!

Bears Are Saying Come On Over To Our House

Is the spring rally over? Bears have been feeling "blue" to say the least, but it seems to be time for the bears to welcome the bulls over to their house. If the SP500 challenges the 895-898 area I think most traders will be excepting the invitation....."to come on over".




Today’s Stock Market Club Trading Triangles

What Is The Current Trend Of This Market?

Most of our readers seem to be focused on trading the SP 500 and the tickers they seem to trade most often is the SSO and the SDS. Here is a sample of our trend analysis for these two tickers. Sign up for our free trend analysis service and get these in your in box every morning.

SSO Strong Uptrend

Smart Scan Chart Analysis continues positive longer term. Look for this market to remain firm. Strong Uptrend with money management stops. A triangle indicates the presence of a very strong trend that is being driven by strong forces and insiders.

Based on a pre-defined weighted trend formula for chart analysis, SSO scored +90 on a scale from -100 (strong downtrend) to +100 (strong uptrend):

-10.....Last Hour Close Below 5 hour Moving Average
+15.....New 3 Day High on Thursday
+20.....Last Price Above 20 Day Moving Average
+25.....New 3 Week High, Week Ending May 9th
+30.....New 3 Month High in May
+90.....Total Score



SDS Strong Downtrend

Smart Scan Chart Analysis continues negative longer term. Look for this market to remain weak. Strong Downtrend with money management stops. A triangle indicates the presence of a very strong trend that is being driven by strong forces and insiders.

Based on a pre-defined weighted trend formula for chart analysis, SDS scored -90 on a scale from -100 (strong downtrend) to +100 (strong uptrend):

+10.....Last Hour Close Above 5 Hour Moving Average
-15.....New 3 Day Low on Friday
-20.....Last Price Below 20 Day Moving Average
-25.....New 3 Week Low, Week Ending May 9th
-30.....New 3 Month Low in May
-90.....Total Score




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Key Levels To Watch For In The Gold Market

Today we're going to take a look at the gold market. While many traders have been frustrated with this market for the past several month, it has in fact performed quite well given the generally negative feeling for most markets.

While the printing press is going at full tilt in the US and the fact that most people are not involved in the gold market at the present time, it occurs to us that this market could indeed be setting itself up for a nice rally.

In our new video, I explain in detail some key levels to watch for in the gold market. If these levels are broken then you definitely want to take a position in the direction of the major trend.

As always, this video is available with our compliments and there is no registration required.


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Amex, JPMorgan, Bank of New York Mellon Pass Tests

"Amex, JPMorgan, Bank of New York Mellon Pass Tests"
At least three of the nation's 19 largest banks have passed government stress tests of their financial strength. American Express Co., JPMorgan Chase & Co. and Bank of New York Mellon Corp. will not be asked to raise more capital when federal officials announce the test results Thursday afternoon, according to people briefed on the results.

The people requested anonymity because they were not authorized to discuss the results. The stress tests were designed to see how the large banks and finance companies would fare if the economy worsens. Analysts expect about half the companies will be asked to raise capital.....Complete Story


Today’s Stock Market Club Trading Triangles