Archive for 2009

Guest Post: Global Economics on Tilt – How To Protect Your Ass(ets)

Courtesy of Tyler at Zero Hedge

Guest Post: Global Economics on Tilt – How To Protect Your Ass(ets)

Submitted by Jeff Clark, Editor of BIG GOLD

Gold isn’t going to $2,000 an ounce.

Before you gag on your coffee or suffer chest pains, allow me to explain.

We’re about eight years into the bull market, and gold has breached the $1,000 level twice and has spent weeks trading above the old high of $850. Some observers are now saying that gold’s pretty much had its day and that once the recession is over, it will retreat for good.

However, the four-digit gold price we’ve seen so far is with no price inflation to speak of, no effects of the atrocious increase in the money supply, and despite a rising dollar. What happens to gold when each of those pictures gets turned upside down – high inflation, excess cash jolting the economy, and a falling dollar? After all, gold’s performance to date has been powered only by general anxiety, not by any visible erosion in the dollar’s value.

I decided to take a fresh look at calculations that could be used to appraise gold’s upside potential. No one of them, by itself, comes with compelling logic. But they all point in the same direction.

Gold’s Percentage Rise in the Last Bull Market. What if gold in this bull market repeats the percentage rise in the last bull market? In the 1970s gold rose from $35 to $850, a factor of 24.28. Our low in 2001 was $255.95. Multiply that by 24.28 and you get a gold price of $6,214 per ounce.

U.S. Gold Holdings to Money Supply: The M1 money supply consists of currency and checkable deposits. The U.S. government currently holds 286.9 million ounces of gold. If the government were to make each dollar redeemable by the amount of gold it possesses, we’d arrive at the following price for gold: $1.569 trillion ÷ 286.9 million oz. = $5,468.80 per ounce

Gold/Dow Ratio: The ratio was about “1” when gold peaked in 1980, meaning the Dow and gold were the same price. To restore that relationship at today’s stock prices would mean when the Dow is at 6,626, gold should be at $6,626/oz. Of course, we think it likely that the Dow will get a lot lower before gold peaks. But even if


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Weekend Reading

Tyler Durden’s Weekend Reading

  • The DTCC’s CNS naked short selling residue (Deep Capture) – must read for everyone curious about regulation SHO and the gimmickry going on in the equity shorting market.
  • How Lehman got its real estate fix (New York Times)
  • More glowering optimism from Templeton’s Mark Mobius, who sees an EM bull market, and a boost to Mexican EPS despite H1B1 (here and here)
  • "I can only hope this proves to be inflammatory nonsense" (Finem Respice)
  • Gold may be off to the races above $950 (Bloomberg)
  • Berkshire calls investment 4 replacement candidates’ 2008 performance subpar, to succeed internally (Bloomberg)
  • WHO prepares for a pandemic (WSJ)

And a personal note of gratitude for the amazing outpouring of support over the last two days – it has been unexpected, unprecedented and we are very thankful to have such generous readers. A personal thanks for donations by Andre, Barbara, Doss, Elaine, Hassan, John, Kevin, Kiran, Lexy, Mary, Matthew, Mugglenet.com, Scott, Sean and Sebastian.

Chartology:

The upcoming depletion of resources (New Scientist)

 





How Banks Become Condo Rental Agents

Courtesy of Mish

How Banks Become Condo Rental Agents

Last month in a Boston foreclosure sale, John Hancock Tower Lenders Took, a 65% Haircut In 3 Years . Boston is back in the news today with another foreclosure auction. This time it’s condo related, with Chorus Bank in the thick of things.

Please consider 441 Stuart Street: What Happened?

This week, the building at 441 Stuart Street was offered to the public through a foreclosure auction. The property was most recently purchased in 2004 for $37.5MM with the intent of converting the building to condominiums.

Recorded documents show that Corus Bank, a well-known condo conversion lender out of Chicago, placed $42MM in debt on the property in 2004.

The auctioner opened at $30MM and asked if there were any bids. There were not. Next he cut the bid in half and asked for $15MM, and the bids that followed were $15.1MM, $16MM, $16.1MM, and finally $17MM. There was only one 3rd party who bid the $15.1 and $16.1 against the bank. The lender bought the property back at $17MM.

Nevermind the fact that the highest 3rd party bid for the property was less than 40% of the known debt, consider the fact that the number represents only about $100/foot. Remember that this property is in Copley Square. If retail prices for completed condos are $600-900/SF and construction costs run $150-250 per foot then that’s a margin of 40% or better – isn’t it?

It’s interesting that no one wants this building at $100 a square foot with completed condos going for $600 to $900 a square foot.

Corus Bankshares Receives ‘Going Concern’ Qualification

In Bank Watch (Apr. 12-18): CoStar is reporting Corus Bankshares Receives ‘Going Concern’ Qualification.

Corus Bankshares Inc. in Chicago announced that its audited financial statements for the year ended 2008 contained a ‘going concern’ qualification from its independent registered accounting firm Ernst & Young LLP.

Corus, with a portfolio consisting primarily of condominium construction loans, many in the hard hit areas of Arizona, Nevada, south Florida and Southern California, has seen a rapid and precipitous decline in the value of the collateral securing its loan portfolio. Thus, it is experiencing significant loan quality issues.

The net loss of $456.5 million it recorded in 2008 was primarily the result of significant increases in the provision for credit


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Weekend Reading

Tyler Durden’s Weekend Reading

  • The DTCC’s CNS naked short selling residue (Deep Capture) – must read for everyone curious about regulation SHO and the gimmickry going on in the equity shorting market.
  • How Lehman got its real estate fix (New York Times)
  • More glowering optimism from Templeton’s Mark Mobius, who sees an EM bull market, and a boost to Mexican EPS despite H1B1 (here and here)
  • "I can only hope this proves to be inflammatory nonsense" (Finem Respice)
  • Gold may be off to the races above $950 (Bloomberg)
  • Berkshire calls investment 4 replacement candidates’ 2008 performance subpar, to succeed internally (Bloomberg)
  • WHO prepares for a pandemic (WSJ)

And a personal note of gratitude for the amazing outpouring of support over the last two days – it has been unexpected, unprecedented and we are very thankful to have such generous readers. A personal thanks for donations by Andre, Barbara, Doss, Elaine, Hassan, John, Kevin, Kiran, Lexy, Mary, Matthew, Mugglenet.com, Scott, Sean and Sebastian.

Chartology:

The upcoming depletion of resources (New Scientist)

 





White House “Directly Threatened” Perella Weinberg Over Chrysler

John Carney follows up on yesterday’s article by Tyler Durden at Zero Hedge discussing the Administration’s tactics in forcing senior creditors holding Chrysler’s debt to agree to terms in the bankruptcy plan. -Ilene

White House "Directly Threatened" Perella Weinberg Over Chrysler

Courtesy of John Carney at ClusterStock

obama-geithner-happy_tbi.jpgThe White House threatened to use the White House press corps to besmirch the reputation of one of the financial firms that holds Chrysler debt, according to a prominent New York bankruptcy lawyer. If true, the explosive charge shows that the White House was willing to go much further than is widely known to have its way in the attempt to restructure the Detriot automaker.

"One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight…That was Perella Weinberg," Tom Lauria, the head of the bankrutpcy department for top New York City lawfirm White & Case, told a WJR 760 radio host.

Perella Weinberg had been one of the firms that was resisting the Obama administration’s plans for restructuring, alongside Stairway Capital and Oppenheimer Funds. The group had argued that their position as senior creditors gave them legal rights to be paid in full before junior creditors were paid. They had put forth a counter-offer under which they would have received far less than the face-value of the debt they held, but more than the Obama adminstration had proposed. This compromise deal was rejected by the administration, and the holdouts were characterized by the president himself as unwilling to make sacrifices for the common good.

After intense political pressure, Perella Weinberg defected from the dissenters and agreed to the administrations plans. The majority of senior creditors, including several large banks such as JP Morgan Chase, had already agreed to the plan. Some critics charge that the administration used its leverage as the provider of TARP funds to force banks to comply. Lauria’s charges suggest that the administration had to get even rougher with financial firms that haven’t taken bailout money.

The suggestion that the adminsitration would direct the White House press corps, composed of newspaper reports and other journalists who cover the Whtie House, to ruin the reputation of holdouts is sure to raise the…
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Its source of funds comes from issuing cash

Courtesy of Tim Iacono at The Mess That Greenspan Made

Its source of funds comes from issuing cash

Sometimes it’s funny to read how economists describe what the Federal Reserve is doing in their ongoing quest to save the world from the effects of global deleveraging which they both enabled and condoned. This story by an anonymous economist at The Economist blazes a new trail in describing the massive increase in the Fed’s balance sheet – how it’s a good thing.

THE Federal Reserve does not set out to make bumper profits. But its 2008 annual accounts, released on April 23rd, would turn many a hedge-fund manager green with envy.

Like Wall Street’s finest, the Fed makes money on a spread. Its main source of funds comes from issuing cash, since currency in circulation is, in effect, an interest-free loan by the public to the central bank. The interest it earns on its loans and securities is almost pure profit, or “seigniorage,” most of which it remits to the Treasury. Last year the central bank reported a whopping $43 billion in operating income.

That should make you all feel better – the Fed’s turning a profit.

The fact that it buys Treasuries with money it borrows from the Treasury Department shouldn’t minimize the importance of the central bank’s bottom line, nor should the idea that a good portion of the central bank’s $1.4 trillion increase in assets has been purchased with money created "out of thin air".

*****

Here’s the story in the Economist, and here’s the press release from the Federal Reserve discussing their finances.  Do we have any economists/accounts that can resolve or explain the two views? – Ilene

 





Geithner’s New Bank Fix Is Bogus, Too

Courtesy of Henry Blodget at ClusterStock

Geithner’s New Bank Fix Is Bogus, Too

timgeithner-24march09-signs_tbi.jpgTim Geithner has a clever new way to recapitalize the banks that failed the stress test: Convert the taxpayer’s preferred stock to common stock. 

From Geithner’s perspective, this technique has several advantages:

  • The banks will suddenly seem healthy, because their assets-to-common equity ratios will rise.
     
  • Geithner doesn’t have to ask Congress for more baillout money yet.
  • Taxpayers won’t understand that they’re giving up a nice dividend and a safer security just to make the banks look better.
  • If Geithner is right that what’s wrong with the banks is just a temporary liquidity problem, the taxpayer should do well when the stocks rise. (We don’t think he’s right.)

Unfortunately, the plan also has two major flaws:  First, it’s smoke and mirrors. Second, the taxpayers are even more exposed than they are now.

Why?

Because the banks will still have the same amount of crap assets on their balance sheets, and they’ll have no more capital available to absorb these losses.  The only thing that will change is that the taxpayer will now get hit first as these losses flow through the balance sheet, instead of getting hit second, as is the case now.  The banks’ bondholders, meanwhile, will still be protected to the tune of 100 cents on the dollar (by administration policy).  Which means that if the common equity is wiped out by the losses, the government will have to dig into the taxpayer’s pockets to cover any shortfall.  (See Paul Kasriel’s detailed explanation below).

In other words, Geithner has hatched yet another plan to avoid dealing with the bank problem once and for all. 

How would he do that?

As we’ve argued, we think the best way would have been to seize the banks and restructure them.  Since Geithner has opted against the route, however, the next best way would be to convert unsecured bank debt to equity, not just the taxpayers’ preferred stock (the taxpayers’ preferred stock should have been senior to all the bondholders, but that’s spilt milk at this point).

Doing that would give the banks a much bigger equity cushion with which to absorb losses.  It would split the bank ownership up among current common shareholders, taxpayers, and current debtholders, which would help Geithner avoid having to take full control.  It would also, finally,


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Sell in May and go away: fact or fallacy?

Courtesy of Prieur du Plessis at Investment Postcards from Cape Town - Ilene

Sell in May and go away: fact or fallacy?

Where is the stock market heading? Has the rally that started in early March been exhausted? These are the key questions on all investors’ minds as financial markets remain caught between the frantic actions of central banks to get the cogs of the credit system and economy turning again on the one hand, and a still shaky economic and corporate outlook on the other.

It is therefore no wonder that even so-called “pop analysis”, including some legendary axioms, is resorted to in a quest for direction. And besides “buy low and sell high” few other axioms are more widely propagated than “sell in May and go away”. A Google search revealed an astounding 127,000 items featuring this phrase.

As equities have seen a particularly strong six-week rally, followed by what looks like the start of a consolidation/retracement of some of the recent gains, investors are justifiably questioning the market’s next move. And they nervously wonder whether this May will not only herald longer days in the Northern Hemisphere, but also live up to its reputation as the advent of a corrective phase in the markets.

The important issue, however, is whether this axiom actually has any scientific basis at all. Analyzing historical returns, the figures vary from market to market, but long-term statistics seem to show that the best time to be invested in equities is the six months from early November through to the end of April of the next year (”good” periods), while the “bad” periods normally occur over the six months from May to October.

A study of the MSCI World Index, a commonly used benchmark for global equity markets, reveals that since 1969 “good” periods returned +6.5% per annum while investors were actually in the red by -1.0% per annum during the “bad” periods.

“Sell in May and go away” also holds true for the US stock markets. An updated study by Plexus Asset Management of the S&P 500 Index shows that the returns of the “good” six-month periods from January 1950 to March 2009 were 7.9% per annum whereas those of the “bad” periods were 2.5% per annum.

A study of the pattern in monthly returns reveals
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The Cause of the Financial Crisis

Jesse’s Café Américain cites Jamie Galbraith’s article The Causes of the Crisis, adding some of their own comments.  - Ilene  

The Cause of the Financial Crisis

Jamie Galbraith leaves out a couple of key component of the ramp up to this crisis.

The corruption of the political process, increasingly dependent on large campaign contributions, by the large corporate interests set the stage for the erosion of public regulation of markets and the rule of the law.

And of course, Alan Greenspan, without whom this disaster would almost certainly have not been possible.

Dr. Greenspan, at the Federal Reserve, with a bully pulpit and a printing press.

Texas Observer
Causes of the Crisis
James K. Galbraith
May 01, 2009

…This is a panel on the crisis. Mr. Moderator, you ask what is the root cause? My reply is in three parts.

First, an idea.

The idea that capitalism, for all its considerable virtues, is inherently self-stabilizing, that government and private business are adversaries rather than partners…; the idea that regulation, in financial matters especially, can be dispensed with. We tried it, and we see the result.

Second, a person.

It would not be right to blame any single person for these events, but if I had to choose one to name it would be… former Senator Phil Gramm. I’d cite specifically the repeal of the Glass-Steagall Act—the Gramm-Leach-Bliley Act—in 1999, after which it took less than a decade to reproduce all the pathologies that Glass-Steagall had been enacted to deal with in 1933.

I’d also cite the Commodity Futures Modernization Act, slipped into an 11,000-page appropriations bill in December 2000 as Congress was adjourning following Bush v. Gore. This measure deregulated energy futures trading, enabling Enron and legitimating credit-default swaps, and creating a massive vector for the transmission of financial risk throughout the global system. …

Third, a policy.

This was the abandonment of state responsibility for financial regulation… This abandonment was not subtle: The first head of the Office of Thrift Supervision in the George W. Bush administration came to a press conference on one occasion with a stack of copies of the Federal Register and a chainsaw. A chainsaw. The message was clear. And it led to the explosion of liars’ loans, neutron loans (which destroy people but leave buildings intact), and toxic waste. That these were terms of art in finance


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US Equity Rally in Context From the Start of the Bear Market

Thoughts circulating at Jesse’s Café Américain on the current rally – bear market rally or something more promising? – Ilene

US Equity Rally in Context From the Start of the Bear Market Le Café Américain

Courtesy of Jesse’s Café Américain

So far the rally appears to be 9/10ths short covering and momentum speculation.

In order to proceed further and break through some formidable overhead resistance real buying by insitutions and individuals must appear and the volume adjusted cash flows must turn more positive.

In other words, so far a typically impressive bear market rally that may be getting overextended without a serious revaluation of the ecoomic outlook. Next week’s Jobs Report may help in that assessment.

The insiders and hedge funds still holding equities would greatly enjoy the stock piggies (institutions, 401k’s and private investors) coming back into the markets so they can continue to unload their increasingly worthless assets.

Here is the big picture. It is ‘possible’ that this is not a bear market which we are experiencing.

However, there is a dramatic spread between ‘possible’ and ‘probable’ that even our mighty Fed and Treasury cannot easily diminish with their printing presses.





 
 
 

Zero Hedge

Will Thursday's Final TLTRO Finally Spark Carry Trades?

Courtesy of ZeroHedge. View original post here.

By Nick Kounis of ABN Amro

Euro Rates Watch – Will the TLTRO spark carry trades?

  • The last of the ECB’s TLTRO-II operations is expected to have a big take up, with the market expecting EUR 125bn, and some forecasts as high as EUR 300bn
  • From a rates perspective, what matters is whether these funds will trigger flows into the bond or swap markets as banks set up carry trades
  • Carry trades have certainly looked attractive and currently there is a pos...


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ValueWalk

Onset of a Global Trade War for People

By Mauldin Economics. Originally published at ValueWalk.

After World War II, we split the planet into East and West—with an Iron Curtain in between. Lesser barriers subdivided each side.

WikiImages / Pixabay

Time passed. Borders loosened. People and goods started flowing more freely.

This was okay at first, but eventually, it became too much. People yelled, “Enough!”

As I’ve written about before, we are now in a great debate over which visitors, immigrants, and goods can cross national borders—and on what terms.

It’s a debate worth having, but we can’t forget that ...



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Phil's Favorites

Pepsi Pulls 12-Packs, 2 Liter Bottles From Philadelphia Stores In Protest Over Soda Tax

Courtesy of Zero Hedge

Two weeks ago we reported that the latest unintended casualty from Philadelphia's soda tax would be at least 20% of Pepsi's 423 employees in the city of brotherly love. According to the Philadelphia Inquirer, with sales slumping as much as 40% because of the new Philadelphia sweetened beverage tax, in the last week of February, Pepsi said it will lay off 80 to 100 workers at three distribution plants that serve the city. And since Pepsi employs 423 people in the city, it means that as much as 20% of its employees will be out of job due to a disastrous ordnance that was meant to provide additional municipal funding and instead will ...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Record Number of Fund Managers Say U.S. Equities Are Overvalued (Bloomberg)

Fund managers now say stocks are the most overvalued they have been in nearly 20 years, according to a survey done last week by Bank of America Merrill Lynch.

For China’s Central Bank, an Increasingly Difficult Balancing Act (The Wall Street Journal)

China’s central bank faces an increasingly tough balancing act, trying to contain asset bubbles and steady the yuan without triggering a cash crunch and stifling economic growth...



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Kimble Charting Solutions

Banks Stocks could under perform for years (Update)

Courtesy of Chris Kimble.

90-days ago Joe Friday shared that if history was a guide, banks could under perform the broad market going forward. The chart below was shared on 12/23/16 (See Post Here). It highlighted that since the highs in 2007, when the Bank/SPY ratio became very over bought, banks lagged the broad market for a good while.

CLICK ON CHART TO ENLARGE...



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Chart School

Seniconductor Shorts Gifted Their Positions

Courtesy of Declan.

For those who took advantage of the resistance test in the Semiconductor Index; there was a picture perfect test of the hashed blue line resistance and secondary break of former rising channel support.  The Semiconductor Index finished bang on the 20-day MA so there may be a little (big?) bounce tomorrow. If buyers can't defend the 20-day MA then the 50-day MA is next.


The S&P did not experience the biggest loss, but it did undercut the recent swing low. In fact, the relative performance of the index against ...

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Members' Corner

Natterings

Check out some new posts from our friend The Nattering Naybob. 

The Big Lebowski Sequel?

Taking a "resp-shit" or "potty break" from "in the Toilet Thursday" or "Thursday's in the Loo"... One of our favorite scenes from the 1998 cult classic The Big Lebowski, the ash can scene where Walter Subchak (John Goodman) eulogizes the departed Donnie (Steve Buscemi) with Jeffrey Lebowski (Jeff Bridges) looking on.

Keep reading: ...



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OpTrader

Swing trading portfolio - week of March 20th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Digital Currencies

Bitcoin Tumbles Below Gold As China Tightens Regulations

Courtesy of Zero Hedge

Having rebounded rapidly from the ETF-decision disappointment, Bitcoin suffered another major setback overnight as Chinese regulators are circulating new guidelines that, if enacted, would require exchanges to verify the identity of clients and adhere to banking regulations.

A New York startup called Chainalysis estimated that roughly $2 billion of bitcoin moved out of China in 2016.

As The Wall Street Journal reports, the move to regulate bitcoin exchanges brings assurance that Chinese authorities will tolerate some level of trading, after months of uncertainty. A draft of the guidelines also indicates th...



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Mapping The Market

Congress begins rolling back Obama's broadband privacy rules

Courtesy of Jean Luc

I am trying to remember who on this board said that people wanted to Trump because they want their freedom back. Well….

Congress begins rolling back Obama's broadband privacy rules

By Daniel Cooper, Endgadget

ISPs will soon be able to sell your most private data without your consent.

As expected, Republicans in Congress have begun the process of rolling back the FCC's broadband privacy rules which prevent excessive surveillance. Arizona Republican Jeff Flake introduced a resolution to scrub the rules, using Congress' powers to invalidate recently-approved federal regulations. Reuters reports that the move has broad support, with 34 other names throwing their weight behind the res...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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Biotech

The Medicines Company: Insider Buying

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.

I'm seeing huge insider buying in the biotech company The Medicines Company (MDCO). The price has already moved up around 7%, but these buys are significant, in the millions of dollars range. ~ Ilene

 

 

 

Insider transaction table and buying vs. selling graphic above from insidercow.com.

Chart below from Yahoo.com

...

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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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FeedTheBull - Top Stock market and Finance Sites



About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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