Phil's Newsletter

America About to Turn 238 – Rally Turns 2.5

Happy Birthday America! 

The markets are closed tomorrow and today is a half day but the trend is certainly our friend on the S&P as we haven't been below the 200 day moving average since December of 2011 (except a couple of very brief dips).  Though the average volume is about 30% lower than it was back then – it's still an impressive feat.  

Of course, if 10% of the market was manipulated before and the manipulators haven't left (they certainly haven't) – even if the level of manipulation remained the same, 30% of the 90% that wasn't manipulated (retail investors) did leave (possibly BECAUSE of the manipulation) and that means now manipulators control 10% of the remaining 70%, a 42% increase in manipulation!  Of course we know it's much worse than that because now the Central Banksters perform their own brand of market manipulation.  As noted by Salient Partners in a great article about PBOC Manipulation:

The explicit purpose of recent monetary policy is: to paper over anemic real economic growth with financial asset inflation. It’s a brilliant political solution to the political problem of low growth in the West, because our political stability does not depend on robust real economic growth. So long as we avoid outright negative growth (and even that’s okay so long as it can be explained away by “the weather” or some such rationale) and prop up the financial asset values that in turn support a levered system, we can very slowly grow or inflate our way out of debt. Or not. The debt can hang out there … forever, essentially … so long as there’s no exogenous shock. A low-growth zombie financial system where credit is treated as a government utility is a perfectly stable outcome in the West. 

So China has indeed learned the most valuable lesson of Capitalism – that money is a meaningless contstruct that can be freely manipulated to fit whatever narrative the Government wishes to spin and that debt is not to be feared, but embraced, especially by our Corporate Masters – because our National Debt becomes their Private Profits!  

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Will We Hold It Wednesday – NYSE 11,000 Edition

Wheeeeeee – a new record! 

Actually, we shouldn't get too excited as it's a new record every day but it's still fun to celebrate while the all-time highs are lasting.  The Dow fell just 2 points shy of 17,000 but ended up 44 points short – that's one we'll watch closely today, along with NYSE 11,000 – a level I have long stated will force us to turn more bullish if it holds

Unfortunately, with the low-volume holiday trading, we won't be able to confirm these moves until next week but that doesn't bother TA people, who ignore everything but the squiggly lines on the charts and they say RALLY!!!  I imagaine this weekend we'll see "Dow 20,000" on a magazine or two but that's still a far cry short of the 36,000 we were promised on the cover of the Atlantic back in January of 2000.

The Dow topped out that month at just under 12,000 so 17,000 is, in fact, good progress but still over 50% short of the level we were supposed to hit 10 years ago and let's not forget that we visited 6,600 first!  So, maybe not the right time-frame and maybe not a smoothe ride – but we're heading in the right direction – now.

Not wanted to fight the mega-trends, we went wtih the flow and added Dow laggard IBM on Monday at noon in our Live Member Chat Room with the following trade idea:

IBM is on our Buy List but not in our Portfolio yet as I was hoping they'd have a weak Q2 and go down a bit but I'm nervous my theory on Watson will gain traction and send IBM back up so let's add 5 short 2016 $160 puts at $9.40 to the LTP and, if IBM goes lower, we'll be happy to sell 10 more and add a bull call spread.

As I noted in yesterday's Live Webinar and as you can see on the chart, our timing was perfect and IBM led the Dow higher in yesterday's rally and the short options we
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Tricky Tuesday – Fed Funds Fake EOQ

6-30-2014 6-10-45 PM Fixed RateThank you Fed may we have another?

And, by another, I mean another $340Bn that the Fed paid out to their Bankster buddies in "Reverse Repo" purchases at the end of the month.  That's right, the Fed essentially bought THE ENTIRE STOCK MARKET (in terms of transaction value) from the banks over the last few days of June and THAT injection of cash is how they kept the rally going into the end of the quarter.  

As you can see from the NY Fed's own chart (via Dave Fry and Zero Hedge), this kind of charity buying isn't unusual for the Fed – more like Standard Operating Procedure to inflate equity prices into the end of each quarter.  Does it work?  Sure, look at the results:

As you can see - as the market gets more and more expensive, it takes more and more money to push it higher.  Also note the Fed tweaked (hopefully not twerked – there's an image of Yellen I don't want burned in my mind!) their timing to move it close and closer to the very last day, to maximize their bang for the buck.  

SPX WEEKLYUNFORTUNATELY, as you can see from the S&P chart above, these effects are short-term and demand a correction in the not too distant future. 

What's very interesting is that our stimulus theory is still holding up.  We developed this back in 2012, through observation of the effect of Central Banksters market meddling on Global Equities and it turns out that $10Bn per quarter buys 1 S&P point.  Look how perfectly that aligns on the chart!  

Bill Dudley, New York Fed president, warned last month that if use of the repo facility were to grow too quickly it might “result in a large amount of disintermediation out of banks through money market funds and other financial intermediaries into the facility. This could encourage further enlargement of the shadow banking system.”

Hey, a little enlargement of the Shadow Banking system never hurt anyone, did it China?  China, in fact, also pitched in with more stimulus of their own by changing the…
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Wealth Levels, Wealth Inequality and the Great Recession

By Fabian T. Pfeffer, Sheldon Danziger and Robert F. Schoeni

Pfeffer Danziger Schoeni Wealth Levels


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Monday Misgivings – CASH!!! Is King as we Begin Q3

SPY 5 MINUTEI'm NOT going to depress you.

If you want to be depressed about the market, check out my Twitter Account, where I posted our Morning Alert to Philstockworld Members (and you can become one of those HERE) in which I aired my concerns with the Global Macros.  

As you can see from Dave Fry's SPY chart, the volume on Friday was very low – incredibly so as it was a Russell re-balancing day, when we can usually expect very HEAVY volume.  Today is, in fact, the very last day of Q2, so we expect "window-dressing" to hold us up for at least another day but then there's only 2 and 1/2 days until the 3-day weekend, so perhaps the charade can continue all week.  

Last week we discussed the various forms of market manipulation that are keeping us at record highs and, on Friday, I asked "How Many Countries are Faking Economic Data?"  

I didn't mention the US because we've already had extensive discussion of how the US changed the rules on GDP calculations last year to add 3% to our GDP but NOW I need to mention the US's contribution to data manipulation because it turns out that a revision to the way Pensions are being accounted for has goosed Corporate profits by 6%, adding another $500Bn (3%) to our GDP!  

Even worse, it's retroactive (see chart above) and improves HISTORICAL EARNINGS as well!  This smoothes out the GDP charts and doesn't make it look like we did something in 2014 to pump it up – isn't that clever?  Not only does it pretty up the GDP and boost Corporate Earnings (so the S&P's p/e looks like 18.5 when it's well over 20), but it also fools investors into thinking that pension obligations at blue-chip companies are not as bad as they really are.  

No wonder the volume in the market is approaching zero – who can play in a game where they change the rules every few months (and surreptitiously, at that!)?  Even with the record amount of buybacks by US Corporations in 2013, GAAP (Generally…
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Friday Fakery – How Many Countries are Faking Economic Data?

I forgot to talk about something important yesterday.

Turkey was caught FAKING their trade data, with Prime Minister Erdogan, working with Economic Minister Caglayan LAST YEAR to manipulate their $800Bn economy by sending gold overseas to boost their export numbers.  How a team that included Turkey’s economy minister sought to manage the current account deficit, as the gap is called, by juicing exports to Iran is laid out in a 300-page document prepared by Turkish investigators in 2013. Caglayan and his collaborators also came away with tens of millions of dollars in bribes, according to the document, which has been cited in parliament by opposition lawmakers

The covert efforts that Caglayan and his associates undertook eventually swelled to a multi-billion dollar enterprise that reached from Ghana to China, according to the investigation. Tons of gold flowed from Turkey to Iran, much of it via Dubai. That freed up Iranian money trapped in Turkish banks, in turn boosting Turkish exports.

When the gold trade was foiled by tightening American sanctions starting in July 2013, Sarraf and his collaborators kept exporting. They sent thousands of tons of overpriced — and sometimes fictitious — food onto ships steaming between Dubai and Iran, according to the document.

That's how things are being done in the World's 18th-largest economy and, notice CHINA (3rd) is one of the countries participating in this scam, as is Iran (21st) and Dubai in the UAE (30th).  We already know China is involved in all sorts of economic manipulation, including building entire empty cities just to boost their GDP numbers.  China, in fact, is in the midst of another set of scandals, with tens of Billions (GS estimates $160Bn) in bank loans backed by silver and copper collarteral that does not, in fact, exist (maybe they "got it" from Turkey?).  

So what is the REAL Global GDP?  Clearly they aren't manipulating the numbers LOWER, so
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Thursday Thrust – Painting those Windows for the EOQ

SPY 5 MINUTEWhat a fantastic market!  

We went UP yesterday despite a 3% drop in GDP.  Imagine what would happen if we had a positive GDP – watch out Dow 20,000!  Of course the volume was stupidly low (20% less than Tuesday's much bigger sell-off) and the rally was led by the broadcast media broadcasters, large-cap companies that jumped 5%ish on the Supreme Court decision against Aereo.  

But who cares?  A rally is a rally.  Our multi-national Corporate Masters don't care that the US economy is tanking – that just means more free money from the Fed and a cheaper labor force for them and we are investing in the stock of those companies, not the US economy!  

Are we perhaps getting a bit overbought?  Well, sure, if you want to compare us to markets in which the World's Central Banking Cartel wasn't pumping in an average of $5 TRILLION per year into the markets (via their Banskter buddies, of course).  $29Tn is right about 25% of the total value of global equities and it's no coincidence that the S&P (and other major indexes) are now 25% higher than they were at the last market top:

Investor Psychology Cycle 040814

Yes, it's true:  If you put 25% more water (liquidity) into a bathtub you will get 25% more water in the tub – AMAZING!!!  At some point, you tub will runneth over but getting back to about where we were before the crash (liquidity drained out of the tub) probably isn't going to do it.  As I pointed out way back in June of 2010 with "The Worst Case Scenario: Getting Real With Global GDP!", we didn't break the tub – which is why, at the time, we bullishly expected it to be refilled at some point.  

SP500 WallStreet Innovation 062414As noted by Business Insider, what we have now is a Liquidity Bubble, where money is forced into the system and flows through the path of least resistance which, with the Fed artificially depressing bond rates, leads only to equites.  

It doesn't matter if your GDP is going down 3% or…
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Wednesday Worries – Will GDP Be Revised Down Again?

Does this look healthy to you?

We did manage to pull out of a tailspin back in 2011 – the last time our GDP went negative but, funny story – in July of 2011, the S&P fell from 1,350 to 1,100 by August 9th and it gyrated between 1,100 and 1,200 until October when the Fed's "Operation Twist" (because "Operation Screw the Poor" got bad test scores) gave us a boost.

Notice how this post picks up right where yesterday's post left off – I'm clever that way!  Yesterday we had the chart that showed us that 10% of our GDP ($1.5Tn) is the result of Fed fiddling and, without it, the GDP would be right back at those 2009 lows.  Whether or not you THINK QE will ever end, you sure as hell better have a plan for what you will do in case it does!  

Russell Investments put out their Economic Indicators Dashboard yesterday and it's a nice snapshot of the where the economy is.   

The lines over the boxes are the 3-month trends and, thanks to the Fed, 10-year yeilds are just 2.48% and that's keeping home prices high (because you don't buy a home, you buy a mortgage).

Inflation is creeping up and expansion (today's topic) is negative and getting lower.  Meanwhile, consumers remain oblivious as the Corporate Media fills them with happy talk.  Meanwhile, this BLS chart (via Barry Ritholtz) says it all as manufacturing (good) jobs continue to leave our country at alarming rates:

Almost all of the growth spots are from fracking with a little auto production picking up as well.  Overall, 1.6M net manufacturing jobs have been lost since 2007 and, much more alarming, the median household income for those lucky enough to still have jobs is down almost 10% over the same period of time.  

In other words, if it wasn't for Fed Money, we'd have no money at all!  In yesterday's Webinar (replay available here) we talked about how the Fed is like a guy spraying a hose on kids in the…
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Tempting Tuesday – Looking for the New Normal

The new Big Chart is here:

Oooh, ahhh – look how high those levels have gotten.  We discussed the whys for these adjustments in our weekend post and how is, of course, The Fed – along with the other Central Banksters who have been pumping up the economy by giving so much money to the top 0.001% that they have nowhere left to put it but equities and, so, we rally!  

Top 0.001% (out of 7Bn people on Earth, that's 70,000 and, of course, that includes about 20,000 Corporate Citizens as well – even thought they are often owned by wealthy individuals – a double bonus for them!) corporations have so much money, they are running around buying each other and buying their own stock – anything they can think of to get rid of all the money the Central Banks are handing out.  Well, anything but hiring people or investing in R&D, Infrastructure, Cap Ex or anything that would actually GROW the businesses.  

What the World's wealthiest businesses and individuals DO spend their money on is teams of accountants and lawyers who help them to shuffle their money around through various overseas shell corporations in order to avoid paying taxes.  Here's how Google knocks their tax rate down to just 2.4% in 4 easy steps:

Now we have companies flat-out leaving the US to avoid taxes but it's not US taxes they are avoiding – it's ALL taxes.  Medtronic (MDT), for example is acquiring Covidien (COV) for $43Bn and the combined group will be domiciled in low-tax Ireland, the official home of its merger partner, COV.

Medtronic’s executives will stay in Minneapolis and Covidien’s will remain in Mansfield, Mass. Covidien, then part of Tyco, left America for Bermuda in 1997 before moving to Ireland in 2009. The deal thus involves an inversion with a “foreign” firm that has itself already inverted: a sort of “inversion squared.

All this juggling will save MDT about $750M a year in taxes, which every single US taxpayer will then pay $5 each to make up for.  Over the
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Monday Market Motion – New Lines Are Drawn

What a busy weekend! 

We finished part 3 of our Merry May Trade Review and it was merry indeed with 31 of 37 trade ideas coming up winners in week 3, giving us a total of 125 wins and 17 losses (88%) for the first 3 weeks of the month.  Needless to say, we were generally bullish but some of our bull misses, like ABX, CLF, FCX are exactly the kind of trades we should be looking at as new entries – if this rally is going to continue

We also updated Big Chart's Must Hold Levels this morning to a more aggressive zone in our latest installment of "Charts from the Future."  While we are still rally-skeptical, we're not going to fight the Fed from a TA perspective – we're simply moving up the lines which will tell us to get more bearish – just in case the market ever does head lower again (doesn't seem like it will happen with the VIX at 10.85, does it?). 

Meanwhile, the chart of the day is the Hang Seng, which fell off a cliff at 2pm (2am, EST) as China's Beige Book showed the economic slowdown deepening in Q2.  Capital spending showed weakness and fewer companies applied for credit with the slowdown hurt hiring and wages, and interest rates offered by shadow lenders fell below levels offered by banks.

“Since investment has been the engine of the economy for the past seven years, this weakness has sweeping effects on sectors, regions and gauges of firm performance.  Overinvestment has been an addiction and withdrawal symptoms will not be pretty.”

For the first time since the China Beige Book survey began in 2012, no sector showed an improvement compared with the previous quarter, according to today’s report. Transportation, mining and retail slowed andservices weakened more sharply.  The survey showed “dramatic differences” between parts of the real estate industry, with commercial and residential realty “pummeled while construction held up fairly well,” China Beige Book said. 

Services took the “biggest hit” in the quarter’s slowdown, the survey showed. The proportion of respondents reporting revenue growth…
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Zero Hedge

Stocks Near All Time High Despite 16 Straight Week Of US Mutual Fund Outflows, Historic "Redemption Day"

Courtesy of ZeroHedge. View original post here.

The new normal sure is strange: with the S&P flirting with all time highs, not to mention staging another dramatic V-shaped comeback from the post-Brexit crash which saw S&P futures trade limit down a week ago, investors keep on selling. According to Lipper data, U.S.-based stock mutual funds, which are held by retail mom-and-pop investors, posted cash withdrawals of $2.8 billion over the weekly period ended Wednesday; this was the 16th consecutive week of outflows.

All stock funds, including ETFs, posted an even wider $6.8...

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Kimble Charting Solutions

Silver attempting breakout above dual resistance, says Joe Friday

Courtesy of Chris Kimble.

In September of 2012, when Silver was trading at $28, the Power of the Pattern shared the chart below. The patterns suggested that even though Silver had already declined a great deal ($50 to $28), patterns called for it to fall nearly another 50%, to the $15 level.

Chart below was from 2012, see original post HERE.


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Phil's Favorites

Diving Into Deutsche Bank's "Passion to Perform" Balance Sheet

Courtesy of Mish.

Deutsche Bank shares have collapsed to lows deep under crisis lows and collapse of Lehman in the Great Financial Crisis. What’s going on?

An investigation of Deutsche Bank’s “Passion to Perform” balance sheet provides the clues.

The above clip from Deutsche Bank’s First Quarter 2016 Statement.

Details in red from page 61 (PDF page 63) of the 126 page report.

Key Liabilities

  • €559 billion deposits
  • €562 billion negative derivatives
  • €151 billion long term debt

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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

The world’s losers are revolting, and Brexit is only the beginning (Washington Post)

The world has enjoyed an unprecedented run of peace, prosperity and cooperation the last 25 years, but now that might be over. At least when it comes to those last two.

A Sober Economy Can Handle the Brexit Hit (Bloomberg View)

One of the main signs of the health of the global and U.S. economies is its ability to absorb a blow, and shake it off. At least tha...

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Chart School

Regression to Trend: The Latest Look at Long-Term Market Performance

Courtesy of Doug Short's Advisor Perspectives.

Quick take: At the end of June the inflation-adjusted S&P 500 index price was 82% above its long-term trend, up slightly from 81% the previous month.

About the only certainty in the stock market is that, over the long haul, over performance turns into under performance and vice versa. Is there a pattern to this movement? Let's apply some simple regression analysis (see footnote below) to the question.

Below is a chart of the S&P Composite stretching back to 1871 based on the real (inflation-adjusted) monthly average of daily closes. We're using a semi-log scale to equalize vertical distances for the same percentage change regardless of the index price range.

The regression trendline drawn through t...

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John DeVoy, Former Baupost Director Hired By Loomis Sayles

By Jacob Wolinsky. Originally published at ValueWalk.

John DeVoy, a long time analyst at Seth Klarman’s Baupost Group has left the hedge fund for a position at Loomis Sayles. Devoy formerly worked at Loomis before spending close to ten years at the Boston based hedge fund. The news was announced via a press release from Loomis.  The statement says that DeVoy will be returning to the company “as a dedicated credit strategist for the flagship full discretion team.”

Also see Will Baupost Follow Its Own “North Star”

Baupost Group’s Seth Klarman Sees ’50 Shades of Value’

Devoy was a managing dir...

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Swing trading portfolio - Week of June 27th, 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

Thoughts on Brexit

I have mixed feelings about Brexit today. Clearly the European institution need reforming. The addition of so many countries in the last 20 years has created a top heavy administration. The Euro adds more complexities to the equation as the ECB policies cannot fit every country's problem. On the other hand, a unified Europe has advantages as well – some countries have benefited from the integration.

For Britain, it's hard to say what the final price will be. My guess is that Scotland might now vote for independence as they supported staying in Europe overwhelmingly. Northern Ireland might be tempted to leave as well so possibly RIP UK in the long run. I was talking to some French people and they were saying that now there might be no incentive for France to stop immigrants from crossing over to the UK like they do now and simply allow for travel there and let the UK deal with them. The end game is not clear to anyone at the moment....

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Digital Currencies

Bitcoin Tumbles 10%

Courtesy of ZeroHedge. View original post here.

One week ago, when bitcoin first crossed above $700 on the seemingly insatiable Chinese buying which we forecast last September (when bitcoin was trading at $230) would take place as a result of China's capital controls (to much pushback by the "mainstream" financial media), we tried to predict what may happen next. We said that "it could go much higher. That said, anyone who bought last September when the digital currency was trading at $230 may be advised to take some profits, and at least make...

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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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This Is Why Biotech Stocks May Explode Again

Reminder: Pharmboy and Ilene are available to chat with Members.

Here's an interesting article from Investor's Business Daily arguing that biotech stocks are beginning to recover from their recent declines, notwithstanding current weakness.

This Is Why Biotech Stocks May Explode Again



After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.


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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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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 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.

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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