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Here’s Why the Fed has been More Insane Than the PBoC, and the ECB Tries but Fails

Here’s Why The Fed Has Been More Insane Than the PBoC, and The ECB Tries But Fails?

Courtesy of Lee Adler of the Wall Street Examiner

I saw this chart on Twitter the other day. 

The point of it was that the PBoC makes the rest of the world’s central banks look like pikers in terms of how much they have expanded their balance sheets. Wolf Richter also wrote a post about this phenomenon.

Relative Growth of Central Bank Balance Sheets 2003-14 - Click to enlarge

Relative Growth of Central Bank Balance Sheets 2003-14 – Click to enlarge

The point of it was that the PBoC makes the rest of the world’s central banks look like pikers in terms of how much they have expanded their balance sheets. Wolf Richter also wrote a post about this phenomenon.

Relative Growth of Central Bank Balance Sheets 2003-14 - Click to enlarge

Relative Growth of Central Bank Balance Sheets 2003-14 – Click to enlarge

But is the PBoC really worse than the rest of the criminals who run the world’s money printing business?

Relative index charts are funny things. You can make them show different relationships based on the start date. This chart represents change rates from the base year of 2003, but if the base year is 2008, you would see a very different result.

Yes, the PBoC was running wild from 2003 to 2008 as it tried to maintain the Yuan peg against a falling dollar. But since 2008 the PBoC has grown its balance sheet by “only” 90%. Since 2008 the Fed has grown by around 700%.  Who’s the irresponsible central bank over the past six years?

After I tweeted my thought to him, the next day Zschaepitz agreed and illustrated it with another nice chart, this time beginning in 2008.


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Everyone Wants Dollars (Again)

Courtesy of Marc To Market

A new phase in the markets began this month. The Federal Reserve ended its QE3+ purchases. The Bank of Japan unexpectedly and dramatically stepped up its asset purchases under its QQE operations.  The government's largest pension fund announced aggressive portfolio diversification plan. 

Contrary to some press reports, the ECB remained unanimous in favor of additional measures to arrest the deflationary headwinds, if needed.  The staff was instructed to accelerate work on other assets that can be purchases to expand the ECB's balance sheet back toward the 2012 peak.  

The softening of the flash PMI, and expectations that next week's flash HICP inflation estimate shows softer prices, underscored the likelihood that more measures will be needed, and before the weekend, Draghi expressed some urgency.  This raises the prospects of more action at the ECB meeting in early December.  Previously, it appeared more likely that the ECB would wait until next year, to see the participation in the next month's TLTRO and the beginning of the ABS purchase plan. 

In the UK, official guidance, including the Quarterly Inflation Report validated the investors deferring the first hike from next spring until the end of the year.  An increasing number of economists are pushing it out until 2016.  Whereas the BOJ and ECB are providing more monetary support, the BOE indicates it will not make conditions less accommodative for longer.    

The People's Bank of China joined the party before the weekend.  It announced the first cut in the benchmark one-year deposit rate. The 25 bp cut took many by surprise, as the PBOC was seen continuing to target liquidity injections, in part, ostensibly to minimize stimulating shadow banking activities.

The divergence has driven the dollar higher.  There are two notable exceptions among the major currencies. The New Zealand dollar has been the strongest this month, gaining 1.6% against the US dollar.  This is most a function of favorable economic news, leaving aside the decline in milk prices, for the domestic economy.  The other exception is the Canadian dollar.  As we have noted, it is common for the Canadian dollar to do well on the crosses in a strong US dollar
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Why the Economy Isn’t Slowing and Why That’s Bearish

Why The Economy Isn’t Slowing and Why That’s Bearish (Video)

Courtesy of Lee Adler of the Wall Street Examiner

Housing may be slowing, but the broader economy isn’t. And that’s bearish in the big picture.

 

This video was originally published for Radio Free Wall Street subscribers on September 23, 2014. To see the latest videos in real time, subscribe here

Get regular updates on the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE's Professional Edition risk free for 30 days!

 





Bloomberg Sensationalism and Inaccuracies Regarding “Forced Nationalization of Crimea”

Courtesy of Mish.

A few days ago a friend emailed the Bloomberg article Russia Delivers a New Shock to Crimean Business: Forced Nationalization.

I replied something along the lines of "interesting, but I am going to bounce this of Jacob Dreizin", a US citizen who provides frequent updates to me regarding Ukraine.

I also bounced the article off Pater Tenebrarum at the Acting Man blog. Pater commented …

Russian oligarchs stealing stuff back from Ukrainian oligarchs would be my guess. I should add, the arbitrariness of this process is of course quite disturbing (regardless of the fact that Ukraine's oligarchs are a bunch of corrupt thieves). But this strikes me mainly as a case of politically motivated payback. The oligarchs all aligned themselves with Kiev as soon as it was clear that Yanukovich had lost power (many/most were aligned with Yanukovich as long as he ruled the roost). The separatists mainly lost Mariupol because Ukraine's richest oligarch ordered the 7,000 workers of his steel works to oust them. There have been horror stories from Mariupol about the treatment of ethnic Russians there, although it is difficult to know what is and what isn't true (independent information is spotty). But we know since Odessa that the right-wing goons in Kiev's employment are not to be trifled with (the videos of the event speak for themselves).

Reader Jacob Dreizin commented

Hello Mish

First off, that was some really sloppy reporting or editing by Bloomberg. "Crimean prime minister Kolomoyskiy" should actually be written as "Dnepropetrovsk governor Kolomoiskii."

But there's a lot more to it than that. You see, the Ukrainian economic model is a post-Soviet feudal model. Thus, most Crimean business (like most Ukrainian business) belongs either to one of about 8 or 10 leading oligarchs, or to various corrupt officials or former officials or their relatives or thugs or scam artists of various stripes, all of whom either bought it for pennies on the dollar from the state, or seized it from someone who bought it for pennies on the dollar from the state.

For example, the "Krymkhleb" bakery concern mentioned at the beginning of the article was ultimately controlled by a one-time politician from overthrown president Yanukovich's now-defunct party who went from being a young machinist in a


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Nick Colas: Ten Signs You’ve Been on Wall Street Too Long

Uh oh, I was just in the car the other day explaining the three points about why one of the only worthwhile country songs, The Gambler, actually applies to everything in life from 1) the stock market (obviously) to 2) relationships to 3) career moves. My favorite observations from Cola's 10 signs are in bold. 

Nick Colas: Ten Signs You’ve Been on Wall Street Too Long

Courtesy of 

Nicholas Colas pens an opus this morning, out of nowhere. He’s clearly feeling introspective today…

***

After 30 years in and around Wall Street, I feel like damaged goods.  That’s not necessarily a complaint, but rather a simple and factual observation.  An example to illustrate the problem: I have mental stop losses for just about everything in my life.  If I have a bad meal at a restaurant, I never go back.  If a personal relationship goes south, I “Take it off my screen”.  Very few things have a second chance with me.  If it doesn’t work out, well, one and done…

Consider this “Top 10” list of other examples

#1 – You start personal conversations with “I have three points to make today.”  Aside from business consultants, most people do not think in PowerPoint or outline form.  But after a decade or so in finance, you somehow decide that anything worth saying must have three supporting points.  For stock analysts it always comes back to “Industry dynamics, company strategy/financials, and valuation.”  For traders, it is “Market direction, sector moves, and company trading dynamics”.  Three things, always…  No one else thinks or talks this way, as my wife often quietly – but firmly – reminds me. 

#2 – Emotions are life’s “beta”.  The concept that a stock moves with either more or less volatility than the market seems a neat analog for life.  Sometimes you are the windshield, sometimes you’re the bug.  We’ve all had beta 3 days, both for good or for bad.  But no one except a finance person would try to quantify that with a number.  “How was your day, honey?”  Answer: “Oh, a gap up open when I got a new customer to trade with me, but


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Central Bankers, Fear and Other Bad Counselors

Courtesy of The Automatic Earth.


NPC US Navy photographers March 24, 1925

The original idea behind a central bank is that medium and longer term monetary policy should not be allowed to be held hostage by a short-term prevailing political wind, that an incumbent politician and his/her party should not be permitted and/or enabled to manipulate a nation’s currency for political gain. A central bank was (and still is officially) supposed to be independent of politics, to be a buffer between a society’s long term interests and a politician’s short-term ones.

In particular, no-one should issue huge amounts of money to make it look like they were just awesome leaders that make everyone rich, while sinking the future of a society in the process. I know, I know, there are tons of other ways to explain the drive to found central banks, just google Jekyll Island, but the issue of economic stability vs fleeting political flavors is certainly a big one.

So. Have we come a long way or what’s the story? Today’s central banks do nothing BUT engage in short term policies that keep incumbents as happy as they can be in bad economic circumstances. Central banks have become political instruments that pamper to the tastes of whoever may be in charge on any given day, which is the exact 180º opposite of why they exist in the first place.

And because they’ve gotten so far removed from what they’re supposed to be doing, central bankers start to realize they’ve ended up in completely unfamiliar and uncharted territory. And now they are, like anyone would be in that kind of position, scared. Sh*tless. And as we’ve all learned from kindergarten on is that fear is a bad counselor. They may have risen to positions of oracles and household names (also entirely contrary to their original job descriptions), and they may have fallen for the flattery that comes with all that, but deep down they know full well they’re way out of their leagues.

The best they can come up with is trying to bluff their way out of their conundrums. Because it’s not as if they don’t understand that doing exactly what they were intended not to do, i.e. flood markets with cheap money not…
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Reply From Pettis on Spain; Prisoner’s Dilemma in Reverse; EMU End Game

Courtesy of Mish.

In response to Spain Needs to Debate Leaving the Euro; Tooth Fairy Economics I received a nice email from Michael Pettis confirming my translation was correct. He also attached the original article in English.

Michael Writes …

Thank's Mish.

I am attaching the original, but the translations you got were basically right and covered the main points, which you understand anyway.

  1. Excessive debt impedes growth, and very few sovereign debt crises in history have been resolved by growth
  2. The only other way to "resolve" a debt crisis is to assign the losses to one group or another
  3. It is usually workers through unemployment and middle class savers through hidden or explicit taxes who end up paying
  4. It may or may not be worthwhile to save the banks at the expense of the middle and working classes, but at the very least we should discuss it openly and make sure that this is what we have really decided is in the best interests of the country.

Michael

Original Text in English

Spanish Government Debt is not Sustainable

Within four years of the 1837 crisis, before it was truly a united country under a central government, two-thirds of American states, including several of the richest, defaulted on their foreign debt. The US survived. If the European Union is to survive, European debt must be resolved. The longer we wait, the more likely a permanent breakup of the euro and the European Union.

Depending more on faith than on economics or history, Madrid assures us that with the right reforms Spain will eventually grow out of its debt. Every country facing a debt crisis has made the same promise, but has nearly always failed. Excess debt itself prevents growth, and even without the straightjacket of the euro Spain probably cannot grow out of its debt.

Even those who reject debt forgiveness admit that only Germany’s guarantee, hidden behind the ECB, prevented Spain from defaulting. Because the German banking system could not survive a default even in one country, they point out, Berlin has no choice but to guarantee Spanish debt forever.


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Hugh Hendry And The Deflationary Zeitgeist

Courtesy of The Automatic Earth.


Jack Delano Colored drivers entrance, U.S. 1, NY Avenue, Washington, DC Jun 1940

It’s funny how things roll at times. When I wrote yesterday’s Making Money While The World Burns, and quoted Hugh Hendry, one of my heroes – well, close, I love the man for his brain  I hesitated, but thought his words were a great way to start a discussion on what people do when faced with certain conundrums. I certainly never meant to attack Hugh, though words can always be construed to mean things they were not meant to mean.

David Stockman picked up the essay (Jim Kunstler told me to use that word) and retitled it Making Money While The World Burns – The Troubling Case Of Hugh Hendry. Bless David for all the great work he does, and I would never even suggest he shouldn’t add that bit, that’s entirely his prerogative, but I myself would never call Hugh Hendry a ‘troubling case’.

I merely wanted to get a discussion going, and maybe to get people thinking about what they choose and why. Not to judge anyone, who am I to do that, but to get people to ask why they act the way they do, and what it is that makes them tick.

If I would want to judge anyone, it would be the politicians and central bankers who pretend they serve the public and then turn on a dime and screw that same public. Hugh Hendry doesn’t pretend to be anything he’s not. However, I can still ask questions about why he chooses to do what he does, and use that as a mirror, for lack of a better term, to gauge where I stand, what I think, and put that out there for my readers.

But I’m not Hugh Hendry, I’m not a hedge-fund manager, and I don’t morally judge people or tell them what to do and what not. That would be like starting a religion, separating right from wrong for other people, and I have no design on that. I’ll admit I thought about that religion thing in the…
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Have Central Banks Entered An Undeclared War?

Courtesy of Charles Hugh-Smith of OfTwoMinds

The monetary tectonic plates are shifting, and predicting the next global financial earthquake is relatively easy.

I recently suggested that the devaluation of the yen was Japan's Monetary Pearl Harbor: a direct attack on the currencies of its major trading partners: the euro (European Union), the won (South Korea), the Australian dollar (AUD) and the U.S. dollar (USD), which affects both the U.S. and China since China's currency, the renminbi, is pegged to the USD.

Though there have been no overt (public) counter-attacks, this may not reflect monetary peace so much as an undeclared war. Correspondent Mark G. observed that the current geopolitical backdrop is considerably more unsettled than the relatively benign global chessboard in 2008:
 
"The Eurozone and the Pacific Rim now have a pair of regional wars being fought out primarily by financial and monetary means. We can infer that the major central banks won't be anywhere near as cooperative during a crisis as they were in 2008."
 
While the American-European financial sanctions against Russia and Russia's counter-moves are being waged in public, the public response of the Korean and Chinese central banks to Japan's massive devaluation has been limited to grumbling.
 
But it is unlikely that other central banks are limiting their response to Japan's aggressive devaluation to words.
 
Let's start by noting that central banks play two games: one is pure public relations: marionettes on strings beat deflation with sticks and declare they'll save financial parasites with "whatever it takes" monetary policies.
 
Meanwhile, their actions may be mere shadows of the bold policies being trumpeted, or they may be extremes nobody dares make public, for example the Federal Reserve's $16 trillion bailout of literally the entire Western banking sector in the last Global Financial Meltdown.
 
(The Levy Institute came up with $29 trillion after poring over all the data):
 
The U.S. Fed has remained mute, but the yen devaluation has destabilized the global monetary order, whether the Fed acknowledges it publicly or not.
 
Unsurprisingly, central bank public statements don't mention that competing devaluations share certain characteristics with circular firing squads. Beggar thy neighbor policies destabilize


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Deutsche Bank: “People Are Talking About Helicopter Money And Debt Cancellation Being The End Game”

Courtesy of ZeroHedge. View original post here.

If Deutsche Bank's Jim Reid is right, what just took place overnight from the PBOC is just a pleasant start and an enjoyable dress rehearsal of what is about to take place. Where it ends is precisely where we have said it would ever since QE1 was announced in March 2009.

I had a few meetings yesterday and one of the biggest surprises I had was that for the first time in a long time people were talking about helicopter money and debt cancellation being the end game. This was a major theme of our 2013 long-term study but one that we've struggled to get much traction with over the last year. Perhaps there's an increasing weariness that more QE globally whilst inevitable, is a blunt growth tool and that stopping it will be extremely difficult (let alone reversing it) without a positive growth shock. Maybe Japan's move this week in delaying the further sales tax increase and the economy's adverse reaction to the first increase reminds the market how difficult it might be to actually pay the bills with real money. As we said earlier this week it could be that the last few days marks the first steps towards monetization. Anyway, this is not something for today or tomorrow but the fact that different clients brought it up independently of each other makes me think that's its starting to get into people's thoughts.

Indeed it is, as we warned last September in "Bernanke's Helicopter Is Warming Up" and yet everyone will be shocked, shocked, when the playbook that was clearly revealed by Ben Bernanke himself in 2002 is finally implemented:

… A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.

      - Ben Bernanke, Deflation: Making Sure "It" Doesn't Happen Here, November 21, 2002

 





 
 
 

Zero Hedge

Energy & The Economy - Why Society Will Be Forced To Become Less Complex

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by Adam Taggart via Peak Prosperity,

In the past few chapters on Energy Economics, Peak Cheap Oil, and the false promise of Shale Oil, we've gone into great detail to show how our economic growth is deeply dependent on our energy systems.

Here’s ...



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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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Phil's Favorites

Here's Why the Fed has been More Insane Than the PBoC, and the ECB Tries but Fails

Here’s Why The Fed Has Been More Insane Than the PBoC, and The ECB Tries But Fails?

Courtesy of Lee Adler of the Wall Street Examiner

I saw this chart on Twitter the other day. 

#China is leading, others are bleeding: People’s Bank of China has expanded balance sheet more than any other nation. pic.twitter.com/rEUS9z01oE

— Holger Zschaepitz (@Schuldensuehner) November 18, 2014

The point of it was that the PBoC makes the rest of the world&...



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Chart School

The Big Four Economic Indicators: Real Retail Sales

Courtesy of Doug Short.

Note from dshort: With yesterday's release of the Consumer Price Index for October, I've updated Real Retail Sales for October.

Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method.

There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:

  • Industrial Production
  • Real Personal Income (excluding Transfer Payments)
  • Nonfarm Employment
  • Real Retail Sales
  • ...

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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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    OpTrader

    Swing trading portfolio - week of November 17th, 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: Investors make up new rules for their new market paradigm

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

    Courtesy of Sabrient Systems and Gradient Analytics

    By Scott Martindale

    Investors in U.S. equities seem to have embraced a new market paradigm in which upside spikes come more swiftly than the downside selloffs. Remember when it used to be the other way around? When fear was stronger than greed? The market is consolidating its gains off the early-October V-bottom reversal, and no one seems to be in any hurry to unload shares this time around, with the holidays rapidly approaching and all. After all, there are bright blue skies directly overhead giving hope and respite from the early freeze blanketing the country.

    In this weekly update, I give my view of the current market environment, offer...



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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.

    The newest Stock World Weekly is ready. Click here for the this weekend's reading and sign in with your PSW user name and password. 

    Picture credit: AnnaER at Pixabay. 

    ...

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    Digital Currencies

    Ukraine Central Bank Bans Bitcoin "To Protect Citizens" From Financing Terrorism

    If you would have supposed that Ukraine had enough problems to make banning bitcoins a backburner issue, you'd have been wrong. The rationale, "to protect consumers' rights" makes little to no sense... The other one, "to keep money in the country" makes more sense. 

    Ukraine Central Bank Bans Bitcoin "To Protect Citizens" From Financing Terrorism

    Courtesy of ZeroHedge. View original post here.

    The Hryvnia has collapsed to new record lows near 15/USD this morning. The Central Bank and bankers "agreed to keep UAH at 15-16/USD" but are &qu...



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    Option Review

    Yamana Gold call options sink

    Yamana Gold call options sink

    By Andrew Wilkinson at Interactive Brokers

    A four-year low for the spot price of gold has had a devastating impact on Yamana Gold (Ticker: AUY), with shares in the name down at the lowest price in six years. Some option traders were especially keen to sell premium and appear to see few signs of a lasting rebound within the next five months. The price of gold suffered again Wednesday as the dollar strengthened and stock prices advanced. The post price of gold fell to $1145 adding further pain to share prices of gold miners. Shares in Yamana Gold tumbled to $3.62 and the lowest price since 2008 as call option sellers used the April expiration contract to write premium at the $5.00 strike. That strike is now 38% above the price of the stock. Premium writers took in around 16-cents per contract o...



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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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    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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