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,, Scott, Sean and Sebastian.


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,, Scott, Sean and Sebastian.


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.


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

American Apparel Preparing Second Bankruptcy Filing In A Year

Courtesy of ZeroHedge. View original post here.

Less than 9 months after emerging from Chapter 11 proceedings, American Apparel is allegedly preparing for another bankruptcy filing after turnaround efforts by the previous plan of reorganization sponsors, including Standard General, Monarch Alternative Capital, Goldman Sachs Asset Management and Pentwater Capital, have apparently failed.  While details are sparse given that the company is now privately held, a note from ...

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Phil's Favorites

Cybersecurity's weakest link: humans


Cybersecurity's weakest link: humans

By Arun Vishwanath, University at Buffalo, The State University of New York

There is a common thread that connects the hack into the sluicegate controllers of the Bowman Avenue dam in Rye, New York; the breach that compromised 20 million federal employee records at the Office of Personnel Management; and the recent spate of “ransomware” attacks that in three months this year ha...

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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

Investors are fleeing stock funds at the fastest pace in over 5 years (Business Insider)

Retail investors seem to have cooled on the stock market.

According to a note from Bespoke Investment Group, equity mutual funds have experienced their largest weekly outflows since August 2011.

Deutsche Bank's earnings call was the most brutally honest, angsty thing we've heard in a long time (Busines...

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Jury Nullification Frees Illegal Malheur Refuge Occupiers

By JOHN F. BANZHAF. Originally published at ValueWalk.

Malheur Refuge news stuns lay people and legal scholars

Jurors Exercise Fundamental Right They Cannot Even Be Told About
WASHINGTON, D.C. (October 27, 2016): In a stunning loss for federal prosecutors, the leaders of a 41-day armed standoff at the Malheur National Wildlife Refuge were acquitted of virtually all of the charges brought against them although the undisputed facts seemingly established their guilt.

The most reasonable – and perhaps the only – explanation for this shocking result is that the jurors exercised a right which, though fundamental, is one that lawyers cannot urge the jurors to exercise, says public interest law professor John Banzhaf.

Malheur Refuge

Photo by USFWS Pacific ...

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Digital Currencies

Needham Raises Bitcoin Price Target To $848: Here's Why

Courtesy of ZeroHedge. View original post here.

With bitcoin breaking out of its recent trading range as Chinese buyers once again flock to the currency as the Yuan slides (as we predicted over a year ago they would), even Wall Street analysts are starting to pay attention, and in a recent report by Needham's Spencer Bogart, the analyst has raised his price...

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Kimble Charting Solutions

London- 4th attempt to breakout in 16-years, results different this time?

Courtesy of Chris Kimble.

Four months ago the world seemed scared that the Brexit vote would be negative for Europe and potentially around the world. Four months later, almost the polar opposite deserves discussion.

Below updates the FTSE -100 Index on a monthly basis over the past few decades.


FTSE Index is now testing a resistance zone for the 4th time in the past 16-years at (1), as well as testing the underside of line (3) at the same time.

Monthly MACD has created a series of ...

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Members' Corner


Courtesy of Nattering Naybob.


Discussion of the potential impacts on equity, bond, commodity, capital and asset markets regarding the following:

  • Rising Libor and Bond Yields
  • Negative Swap Spreads, Eurodollar Curve, Repo Effects
  • Compliance, Expectations, Liquidity, Fed Action

Last Time Out

"25-54 yr old prime earners peaking at 101083 in Nov 2007; today at 97628, for a net decline of 3.5M prime earning jobs during this "recovery". No real jobs, just McJobs for McPay."

"Above note, 55yrs+ in Nov 2007 at 26376, now at 34353, for a net increase of 8 million employed. Not for sheer enjoyment and mostly out of economic necessity. The above attests to no real jobs, just McJobs for McPay and work till you die?" - 08...

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Chart School

Tech Hold Breakout,.but S&P Wedge Bound

Courtesy of Declan.

It was a mixed day for indices. Large Caps remain bound by wedge support/resistance, but Tech broke upside yesterday from similar wedges and held those breakout today.

There was little change for the S&P over the last couple of days. The one technical change was the MACD trigger 'buy' as other technicals stayed on the bearish side.

Meanwhile, the Nasdaq cleared wedge resistance yesterday, and was able to hang on to the breakout despite today's loss. It too enjoyed a MACD trigger 'buy', but had an On-Bal...

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Swing trading portfolio - week of October 24th,2016

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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Mapping The Market

The Most Overlooked Trait of Investing Success

Via Jean-Luc

Good article on investing success:

The Most Overlooked Trait of Investing Success

By Morgan Housel

There is a reason no Berkshire Hathaway investor chides Buffett when the company has a bad quarter. It’s because Buffett has so thoroughly convinced his investors that it’s pointless to try to navigate around 90-day intervals. He’s done that by writing incredibly lucid letters to investors for the last 50 years, communicating in easy-to-understand language at annual meetings, and speaking on TV in ways that someone with no investing experience can grasp.

Yes, Buffett runs an amazing investment company. But he also runs an amazing investor company. One of the most underappreciated part of his s...

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Epizyme - A Waiting Game

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

Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer.  One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."

Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.  

Genetic components are the DNA sequences that are 'inherited.'  Some of these genes are stronger than others in their expression (e.g., eye color).  Yet, some genes turn on or off due to external factors (environmental), and it is und...

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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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PSW is more than just stock talk!


We know you love coming here for our Stocks & Options education, strategy and trade ideas, and for Phil's daily commentary which you can't live without, but there's more! features the most important and most interesting news items from around the web, all day, every day!

News: If you missed it, you can probably find it in our Market News section. We sift through piles of news so you don't have to.   

If you are looking for non-mainstream, provocatively-narrated news and opinion pieces which promise to make you think -- we feature Zero Hedge, ...

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