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Archive for 2009

European Banks Face Devastating Exposure to Emerging Markets

Grateful Dead on the international financial ruin.

Driving that train, high on cocaine,
Casey Jones you better watch your speed.
Trouble ahead, trouble behind,
And you know that notion just crossed my mind.

Trouble with you is the trouble with me,
Got two good eyes but you still dont see.
Come round the bend, you know its the end,
The fireman screams and the engine just gleams…

European Banks Face Devastating Exposure to Emerging Markets

LondonCourtesy of Jesse’s Café Américain

This view from the City of London is interesting, given the devastation that permeates their own surrounding landscape. The Anglo-Americans seem to be throwing down the gauntlet. What now, Monsieur Trichet?

The European banking system is certainly a mess, and if there was a case to be made for pursuing the ‘Swedish option’ of nationalizing the banks in a crisis of their own making this is it.

One sentence in this was especially eye-catching.

"We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights."

Problem -> Reaction -> Solution.

There always seem to be some arcane powers ready to solve the unexpected crisis.

UK Telegraph
Failure to save East Europe will lead to worldwide meltdown
By Ambrose Evans-Pritchard

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.

Austria’s finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria’s GDP.

"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary


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America vs. the Oligarchs

Very interesting, an intriging expose questioning who’s in charge?  (The video‘s well worth watching too!)

America vs. the Oligarchs 

Courtesy of Jesse’s Café Américain

Bill Moyers has an interview with former IMF Chief Economist and MIT professor Simon Johnson that puts forth the notion that there is a small group of financial oligarchs essentially holding the country hostage.

Simon Johnson’s premise is that the big Wall Street banks represent an oligarchy that is exerting undue influence and control on our government and the economy. They are turning this crisis to their advantage, and circumventing the democratic process.

What we are seeing looks to Simon Johnson like a financial coup d’etat.

Now is the time to break up the big money center banks. Now is the time to reinstate Glass-Steagall. We must demand the reforms for which we elected the Obama Administration.

Watch this interview. Think about it. Let other people know. Write your congressmen.

And be prepared to act on a larger scale in a peaceful way to get the point across that we value our liberty and we will stand for justice. We are not optimistic that the government will do the right thing without more prodding and significant support from the public.

"I think I’m signaling something a little bit shocking to Americans, and to myself, actually. Which is the situation we find ourselves in at this moment, this week, is very strongly reminiscent of the situations we’ve seen many times in other places.

But they’re places we don’t like to think of ourselves as being similar to. They’re emerging markets. It’s Russia or Indonesia or a Thailand type situation, or Korea. That’s not comfortable. America is different. America is special. America is rich. And, yet, we’ve somehow find ourselves in the grip of the same sort of crisis and the same sort of oligarchs…

But, exactly what you said, it’s a small group with a lot of power. A lot of wealth. They don’t necessarily – they’re not necessarily always the names, the household names that spring to mind, in this kind of context. But they are the people who could pull the strings. Who have the influence. Who call the shots…

…the signs that I see this week, the body language, the


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Weak Weekly Wrap-Up

Another disappointing week!

Once again it was only what we expected so no big deal as we went into last weekend ready for the bear if the stimulus plan failed to give us a boost.  Even so, finishing back near the November lows is downright depressing.  On Friday, the 6th I said the energy sector could be a drag on the markets and the dollar bouncing back could exert additional downward pressure and you can see from these charts, we got our dollar bounce AND the energy sector was a serious underperformer and, unfortunately, acting like a weight around the neck of the broader indexes.  We’ve been discussing this for weeks – The XLE alone is now 14% of the S&P.  Coupled with the OIH group makes over 20% of the market then energy sector, which dropped a combined 7% last week, accounting for over 1.5% of the total market drop

The financials are still 10.23% of the S&P as of Friday but they started the week at 11.25% and knocked a full point off the markets in just 5 days as they fell 10% for the week.  Healthcare (XLV, 16%), which we’ve been playing for a few weeks now, actually outperformed the indexes last week as has technology (XLK, 21%), which we play through the Qs and has quietly crept up to become the new leaser of the S&P by a pretty good gap.  THIS, people, is the rotation we have been playing for.  I did not sugar-coat it – I said it would be painful but it is what we wanted – the end of the endless moving about of shiny bits of metal and worthless pieces of paper that siphoned money away from the many to the very, very few and left us with nothing but a bubble economy, sucking jobs and capital out of real industries that we are supposed to build an economy on.

This is not the end of capitalism – this IS capitalism.  Survival of the fittest, of the companies that actually provide goods and services people want, triumphing over the middlemen who seek to tack on commissions and fees to every possible step in the transactions which they add nothing to.  Of course a fee is deserved for going to the great effort of taking a company public, but should it really be 10% of the offering?  Commodities aren’t supposed…
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Cumulative Bank Failures Over Time

Amidst a growing number of bank failures, Mish predicts there will be hundreds more.

Cumulative Bank Failures Over Time

Courtesy of Mish 

The FDIC has a report called the Failed Bank List. Here is a partial listing that shows the most recent 20 bank failures.

click on chart for sharper image

"Fish Gone Bad" sent me the following chart showing cumulative bank failures over time.

While a logarithmic chart might be better, and perhaps will be necessary in a short period of time, the chart does depict what is happening.

Looking at the period of no bank failures in the above chart reminded me of something.

$VIX: The Calm Before The Storm

click on chart for sharper image

While not calling for the $VIX to do anything in particular other than not head back below 10 for years, it is a near certainty that bank failures are going to soar. There are easily hundreds banks that are insolvent right now. The only question is how long the FDIC continues to hide that fact.

Mike "Mish" Shedlock
 

 





Sunday Morning Coffee

What is the fair value of the market, and perhaps more importantly, does it matter? Random Roger shares his thoughts on Barry Ritholtz’s fair value argument.

Sunday Morning Coffee

Courtesy of Roger at Random Roger’s Big Picture

Barry Ritholtz has a post up spelling out a simple argument for fair value for the S&P 500 being at 440. There has been a little bit of chatter about this in one or two other places as well.

Fair value is not a simple concept. The math is simple; whatever number you want to use for earnings and then whatever multiple you think is correct.

Where it gets a little more complicated is that fair value doesn’t usually end coinciding with any sort of stopping point in either direction nor is their any sort of indication of how long stocks might stay above or below fair value.

If Barry is right there is nothing to say that stocks go anywhere near that low or conversely that a massive decline would somehow stop at 440. Maybe I have this wrong but I can’t recall a time where a fair value number has been a primary factor for the market. There is utility in knowing whether the market is relatively expensive or inexpensive. Generically speaking if the market is expensive the risk of a decline might be a little higher.

The current state of the market however is not generic. The market has had a massive decline and has been stumbling along the bottom for several months now. Based on the market action thus far the days of massive declines could be behind us until the next cycle. Now factor in the fundamentals and the never ending bad news and uncertainty and going down a lot more is certainly possible.

I continue to believe the low is in, give or take a few percent, that there will be more ups and downs but no violation to the downside and I also think we still have a massive bear market rally in here soon as well. I’ve been whistling this tune for a while as some may know. But since I first piped up on this idea the news has continued to get worse yet the market is churning around the same range as opposed to following the news lower. This


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Wall Street Can’t Count

And neither can I, sorry.  H/T to Barry Ritholtz for finding. – Ilene

Wall Street Can’t Count

By Robert X Cringely, at I, Cringely

This post first ran on January 29th on my mortgage blog.  It got some traction there and a few mentions in the press so, lazy bastard that I am, I’m reproducing it here in a slightly improved form that corrects my own math error.

Take a look at this chart that someone sent to me a couple days ago.  I’m making it big so you can see as much detail as possible.  Have a look and then come back, okay?

Pretty scary, eh?  It’s a chart showing the deterioration of major bank market caps since 2007.  Prepared by someone at JP Morgan based on data from Bloomberg, this chart flashed across Wall Street and the financial world a few days ago, filling thousands of e-mail in boxes.  Putting a face on the current banking crisis it really brought home to many people on Wall Street the critical position the financial industry finds itself in.

Too bad the chart is wrong.

It’s a simple error, really.  The bubbles are two-dimensional so they imply that the way to see change is by comparing AREAS of the bubbles.  But if you look at the numbers themselves you can see that’s not the case…

And who was that someone? Me!  A nobody.  Or at least someone unimportant enough not to be asking for a Federal bailout….

No wonder we’re in a global financial crisis.

Full article here.

*****

Here’s a more accurate chart (but no promises) posted by Rene Korda in Barry’s comments section.  Click on chart for a larger image. 

 

 





GM Go Boom?

Karl Denninger at The Market Ticker discusses the UAW halting negotiations with GM,.. what are they thinking? 

GM Go Boom?


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Big Numbers

Here’s a report from Michael Panzner at Financial Armageddon on our federal government’s obligations exceeding the world GDP. Jerome Corsi asks, paraphrasing, are you terrified yet? 

Big Numbers

Courtesy of Michael Panzner at Financial Armageddon

There’s no question that we’re talking big numbers — with plenty of zeros — when it comes to efforts to "rescue" the U.S. economy. But it didn’t take the latest wave of profligacy to prove that Washington has a serious spending problem. That fact was obvious to anyone who was familiar with the all-in cost of the government’s retirement safety net. In "Federal Obligations Exceed World GDP," WorldNetDaily’s Jerome R. Corsi covers the issue in frightening detail.

Does $65.5 trillion terrify anyone yet?

As the Obama administration pushes through Congress its $800 billion deficit-spending economic stimulus plan, the American public is largely unaware that the true deficit of the federal government already is measured in trillions of dollars, and in fact its $65.5 trillion in total obligations exceeds the gross domestic product of the world.

The total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, effectively have placed the U.S. government in bankruptcy, even before new continuing social welfare obligation embedded in the massive spending plan are taken into account.

The real 2008 federal budget deficit was $5.1 trillion, not the $455 billion previously reported by the Congressional Budget Office, according to the "2008 Financial Report of the United States Government" as released by the U.S. Department of Treasury.

The difference between the $455 billion "official" budget deficit numbers and the $5.1 trillion budget deficit cited by "2008 Financial Report of the United States Government" is that the official budget deficit is calculated on a cash basis, where all tax receipts, including Social Security tax receipts, are used to pay government liabilities as they occur.

But the numbers in the 2008 report are calculated on a GAAP basis ("Generally Accepted Accounting Practices") that include year-for-year changes in the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare.

Under cash accounting, the government makes no provision for future Social Security and Medicare benefits in the year in which those benefits


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Asia’s Export Economies In Free Fall

Mish to Obama and Geithner – be careful what you ask for.

Asia’s Export Economies In Free Fall; Protectionism On The Rise

Courtesy of Mish 

Inquiring minds are looking into details of Asia’s Export Economies.

Staggering falls in exports across Asia have shocked economic analysts and ended all claims that the global slump may be nearing its bottom. The IMF’s growth forecast for Asia this year is just 2.7 percent—less than a third of the 9 percent growth rate of 2007. The prediction is a full percentage point less than during the 1997-98 Asian financial crisis.

IMA Asia analyst Richard Martin commented in the Australian: "It’s a bit like watching a train wreck in slow motion. North Asia is suffering the biggest collapse in demand since World War II." Westpac bank’s Richard Franulovich said that the "speed of the decline embedded in the latest Asia data is on par with the collapse in the US during the 1930s Depression."

Asia Export Economy Details

  • Japanese exports fell 35 percent in December from a year earlier. Industrial production plunged a record 9.6 percent, month on month, in December. 
  • Chinese exports declined for the third consecutive month in January, falling 17.5 percent from a year earlier, after a 2.8 percent decline in December. Imports plunged even further—43.1 percent, twice as much as December’s 21.3 percent year-on-year drop.
  • More than 20 million Chinese migrant workers have lost their jobs so far, with some analysts warning of 50 million more job losses if the economy deteriorates further. 
  • India exports fell 24 percent in January. According to official data, one million Indian workers in the export sector have lost their jobs since September. Another half a million workers are expected to lose their jobs by March.
  • New Delhi’s public debt stands at 75 percent of its GDP, compared to just 18.5 percent in China, leaving less room for large stimulus packages. 
  • South Korea’s exports, the main driving force of the economy, plunged 32.8 percent in January. Finance minister Yoon Jeung-hyun warned on Tuesday that the fourth largest economy in Asia would shrink by about 2 percent this year. Credit Suisse has projected as much as a 7 percent contraction. 
  • Taiwan, the sixth largest Asian economy, saw its exports fall


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Why Fair Value For The S&P 500 Is Not 440

Chad Brand takes issue with Barry Ritholtz’s valuation of the S&P 500. Both viewpoints appear to incorporate assumptions about the future which influence their present case argument.

Why Fair Value For The S&P 500 Is Not 440 

Courtesy of Chad Brand at The Peridot Capitalist

Barry Ritholtz, market veteran and blogger over at The Big Picture postulated today that fair value for the S&P 500 might be 440. He got there by taking trailing 12 month GAAP earnings of $28.75 and applying a 15 P/E ratio to them.

Personally, I expect more from Barry given how strong much of his market and economic analysis has been over the years, but there are glaring flaws in this valuation methodology. First, I don’t know very many market strategists who believe fair value on the S&P 500 should be based on the earnings produced by the index’s components in the depths of a deep recession. Most people agree that fair value should be based on an estimate of normalized earnings, not trough (or near-trough) profit levels.

Imagine you owned a Burlington Coat Factory retail store. You are ready to retire and have a business person interested in buying your store. What would your reaction be if this person took your store’s profit for the month of June, multiplied it by 12, and based his offer price on that level of projected annual profits. Clearly that figure does not give an accurate representation of how much money your store earns in a year because June is probably one of your worst months of the year for selling coats!

The same flaw exists in valuing the stock market based on current earnings. Doing so implies that earnings today represent a typical economic climate, which is clearly not the case.

The second issue with Barry’s analysis is the use of “as-reported” GAAP earnings. The reason GAAP earnings have fallen so fast is that they include non-cash charges such as asset impairments. It is common these days for companies to report cash earnings of $1 billion but a GAAP loss of $5 billion due to a $6 billion asset impairment charge. In such a case GAAP earnings (which include the non-cash charge) are understated by a whopping $6 billion. Why should asset impairments be excluded? A stock’s value is based on the present value of future…
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Zero Hedge

This Factor Could Propel Gold Mining Stocks Much Higher In 2015

Courtesy of ZeroHedge. View original post here.

Submitted by Sprout Money.

Analysts seem to be falling over themselves to explain the causes and consequences of the low oil price which is still trading below $60 per barrel as of today. As we are predominantly focusing on the precious metals sector, we are obviously very interested to see what the effect of a lower oil price is on the price of gold and the financial performance of gold mining companies.

Source

If we look at the charts, the gold/oil ratio has increased incredibly fast to a ratio of around 22, coming from just 13 in early October. The Relative Strength index shows the ratio to be in a...



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Phil's Favorites

Really, Greece Again?

Courtesy of John Rubino.

The Greek financial/political crisis is becoming an annual event. For a sense of just how long this unfortunate little country has been struggling to survive under the relative sound money regime of the eurozone, here’s a Greek Crisis Timeline that CNN published in 2011. Even back then the pattern of near-collapse followed by temporary respite had been repeating for seven years.

The most recent lull seemed longer than usual, so long in fact that many people probably assumed that Greece had been “fixed” and was now a more-or-less fully-functioning member of the eurozone, ready to settle back into its enviable lifestyle of hosting tourists, drinking ouzo and avoiding taxes.

But no. Nothing has really changed. Youth unemployment remains around 50% —...



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Chart School

Can you make a living trading Springs and UpThrusts?

Courtesy of Read the Ticker.

We tell the truth about trading springs and upthrusts, no holding back!

More from RTT Tv

NOTE: readtheticker.com does allow users to load objects and text on charts, however some annotations are by a free third party image tool named Paint.net Investing Quote...

..“The market always tells you what to do. It tells you: Get in. Get out. Move your stop. Close out. Stay neutral. Wait for a better chance. All these things the market is continually impressing upon you, and you must get into the frame of mind where you are in reality taking your orders from the action of the market itself — from the tape.”…

Richard D. Wyckoff
.."Markets are constantly in a state of unce...



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All About Trends

Mid-Day Update

Reminder: David 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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Insider Scoop

#PreMarket Prep Guest List For The Week Of December 22, 2014

Courtesy of Benzinga.

Brian Kelly, Curtis Erickson and Jerremy Newsome will all be guests on this shortened week of Benzinga's #PreMarket Prep broadcast, sponsored by Nadex.

Be sure to tune in at 8:00 am EST Monday-Friday here to tune in to the exciting show.

Don’t miss our #FedForecast2015 event either!

You can learn more about that here.

Monday, December 22, 8:35 a.m.

Jonathan Corpina (...



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Digital Currencies

Chart o' the Day: Don't "Invest" in Stupid Sh*t

Joshua commented on the QZ article I posted a couple days ago and perfectly summarized the take-home message into an Investing Lesson. 

Chart o’ the Day: Don’t “Invest” in Stupid Sh*t

Courtesy of 

The chart above comes from Matt Phillips at Quartz and is a good reminder of why you shouldn’t invest in s...



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OpTrader

Swing trading portfolio - week of December 15th, 2014

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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Sabrient

Sector Detector: Energy sector rains on bulls' parade, but skies may clear soon

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

Courtesy of Scott Martindale of Sabrient Systems and Gradient Analytics

Stocks have needed a reason to take a breather and pull back in this long-standing ultra-bullish climate, with strong economic data and seasonality providing impressive tailwinds -- and plummeting oil prices certainly have given it to them. But this minor pullback was fully expected and indeed desirable for market health. The future remains bright for the U.S. economy and corporate profits despite the collapse in oil, and now the overbought technical condition has been relieved. While most sectors are gathering fundamental support and our sector rotation model remains bullish, the Energy sector looks fundamentally weak and continues to ran...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly.

Click here and sign in with your user name and password. 

 

...

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Option Review

SPX Call Spread Eyes Fresh Record Highs By Year End

Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...



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Market Shadows

Official Moves in the Market Shadows' Virtual Portfolio

By Ilene 

I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).

Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.

Notes

1. th...



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Pharmboy

Biotechs & Bubbles

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

Well PSW Subscribers....I am still here, barely.  From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.

First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices.  Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment.  Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer.  For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...



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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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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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About Ilene:

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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