Archive for the ‘High Mailing Priority’ Category

The Three Types of Contrarians


The Three Types of Contrarians

Courtesy of 

It seems like everybody wants to be a contrarian these days. Predictably, there were a lot of “Bill Ackman is out of Valeant, that’s your buy signal” comments this week. I want to talk about the three different types of contrarians: those who are early, those who are late, and those that are right.

On the early side, for example, are those who have argued that U.S. stocks are too expensive, or people saying this bull market is long in the tooth. With the length of this current run (however you measure it), and more importantly, with rich valuations, it’s hard to go a few hours without seeing a headline that a “rug pull” is imminent. So it’s really difficult to tell where the line is these days, it almost feels like it’s consensus to be a contrarian.


By definition, a contrarian is going to be early, but in order to be successful, they can’t be too early. It’s in this small window that greatness exists.

Professional investors tend to be early while non-professionals tend to be late. Remember all the black swan funds that were launched in 2009? Or what about this pure contrarian fund, which launched in September 2009, when stocks had already bounced 57% off their lows. This was a brilliant marketing play; stocks had recovered, but investor’s psyche was still mangled.

I will give this fund credit because their returns, at least so far, have been completely divorced from the market. They crushed the S&P 500 last year, but how many investors stuck around for these gains after getting crushed in the previous year?


People want to be different from the market when it’s too late. They run away from risk when they ought to be running towards it.

In the third bucket of contrarians are those rare individuals that are often right and have made a career out of it, like Howard Marks. In his interview with Barry Ritholtz, he said:

“Oaktree invested extremely aggressively between September 15th of 2008- which was the day Lehman went under, and the end of the year. We invested over half a billion dollars

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Is Mr. Market Playing the Role of Pavlov’s Dog?


Is Mr. Market Playing the Role of Pavlov’s Dog?

Courtesy of John Mauldin

David Rosenberg is one of the most respected voices in the investing world. His Breakfast with Dave goes out to thousands of appreciative subscribers nearly every business morning. He has also been the leadoff hitter at my Strategic Investment Conference every year for several years running – and this year will be no exception. He is always one of our top-rated speakers, and his energy gets the conference up and rolling.

To everyone’s surprise, Rosie turned bullish in a big way at SIC six years ago. Now he’s cautious – in a big way – as you’re about to see. Rosie is the Data Meister, and in today’s Outside the Box he runs the numbers on today’s economy and markets and comes off as downright incredulous:

It is amazing, I have to say, to see Mr. Market respond to the same [“Trump rally”] language over and over and over. It is a present-day version of Pavlov’s Dog.

More discussion of tax cuts, deregulation and infrastructure, and again, the market soars on what really is old news by now. Or should be.

The fact that this is all still rhetoric, with no details or timetable provided, should be a bit worrisome.

I am in a very cold New Jersey surrounded by lots of snow, but the roads are clear. Dallas shuts down with a few inches of snow, but NJ is up and going the next day. Even the park across the street has shoveled all its sidewalks. Not that I will be taking a stroll in 20 degrees with 30-mph winds.

I am here doing three speaking events in two days to what I am told will be packed rooms. Lots of Q and A, which really gets me going as there is just so much to talk about.

And between sessions life is filled with meetings, research, and writing. Always writing. O, deadline, where is thy sting?

I note with sadness the recent passing of two of the older stalwarts and longtime friends in the investment writing world, Bill

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Munger: Buffett’s Wingman & the Art of Stock Picking


Munger: Buffett’s Wingman & the Art of Stock Picking

Courtesy of Wade of Investing Caffeine

Simon had Garfunkel, Batman had Robin, Hall had Oates, Dr. Evil had Mini Me, Sonny had Cher, and Malone had Stockton. In the investing world, Buffett has Munger. Charlie Munger is one of the most successful and famous wingmen of all-time –  evidenced by Berkshire Hathaway Corporation’s (BRKA/B) outperformance of the S&P 500 index by approximately +624% from 1977 – 2009, according to MarketWatch. Munger not only provides critical insights to his legendary billionaire boss, Warren Buffett, but he was also Chairman of Berkshire’s insurance subsidiary, Wesco Financial Corporation from 1984 until 2011. The magic of this dynamic duo began when they met at a dinner party 58 years ago (1959).

In an article he published in 2006, the magnificent Munger describes the “Art of Stock Picking” in a thorough review about the secrets of equity investing. We’ll now explore some of the 93-year-old’s sage advice and wisdom.

Model Building

Charlie Munger believes an individual needs a solid general education before becoming a successful investor, and in order to do that one needs to study and understand multiple “models.”

“You’ve got to have models in your head. And you’ve got to array your experience both vicarious and direct on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.”

Although Munger indicates there are 80 or 90 important models, the examples he provides include mathematics, accounting, biology, physiology, psychology, and microeconomics.

Advantages of Scale

Great businesses in many cases enjoy the benefits of scale, and Munger devotes a good amount of time to this subject. Scale advantages can be realized through advertising, information, psychological “social proofing,” and structural factors.

The newspaper industry is an example of a structural scale business in which a “winner takes all” phenomenon applies. Munger aptly points out, “There’s practically no city left in the U.S., aside from a few very big ones, where there’s more than one daily newspaper.”

General Electric Co. (GE) is another example of a company that…
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00:01:48 Checking on the Markets
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00:14:55 USD Charts
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The $40 Trillion President


The $40 Trillion President

Courtesy of 

From the first quarter of 2009 through the end of the year 2016 – roughly the span of President Barack Obama’s administration – the United States of America added about $40 trillion in household wealth.

Here you go:

via WSJ:

U.S. household net worth climbed to a record $92.8 trillion in the fourth quarter of 2016, as the end-of-year surge in stocks and a steady climb in home prices added more than $2 trillion of wealth to household balance sheets.

The biggest contributor to the increase was the stock market, which added $728 billion to household balance sheets in the fourth quarter, according to the Federal Reserve’s quarterly financial accounts report.

Since the first quarter of 2009, however, wealth has soared by $38 trillion, driven by an eight-year rally in stocks and eventually by a robust recovery in home prices.

I don’t attribute this fact to Obama or to his policies. I’m just pointing out how ludicrous the scorekeeping over this sort of thing has become.

There’s an element of right time, right place. There are other variables such as demographics, tax and interest rate regimes, the condition of financial markets before and after a president’s term, the global macro environment, the ebb and flow of armed conflicts and manufacturing needs pertaining to them, etc, etc, etc unto infinity.

BTW, it’s amazing how much the Democrats suck – on a national level – at tooting their own horn with this sort of data. The way they talked about the economy this last go-round has been as if they had something to apologize for.

Granted, overall levels of wealth do not describe the breakdown and distribution across income levels. Suffice it to say, Obama’s record – if it actually is his fault at all – has not been great. In the article below, you’ll see that the wealth-to-income level is now absurdly high – net worth is 6.5 times greater than disposable personal income vs 5 times before Obama’s inauguration.

In America today, you have to start with assets – real estate or stocks – in order to get anywhere. There’s not much about the new president’s policies so far that lead me to believe this might change.


U.S. Household Net Worth Reaches Record $92.8 Trillion (Wall Street Journal)

Steve Cohen Developing A.I. To Replace Expensive, Talentless Traders

Courtesy of Zero Hedge

Steve Cohen, the infamous billionaire hedgie who plead guilty to insider trading back in 2013 and paid a record $1.8 billion penalty, has never been shy about offering up his opinion on the lack of real trading 'talent' in New York.  Speaking at the Milken Institute Global Conference last May, Cohen said “Frankly, I’m blown away by the lack of talent…It’s not easy to find great people but we whittle down the funnel to maybe 2 to 4% of the candidates we’re interested in…talent is really thin.”

And while we would be the last to argue that there's a huge pool of people in New York truly worthy of Cohen's coveted 8-digit salaries, we might suggest that in his particular case the pool of applicants may be somewhat limited to the select few people willing to risk jail time for their employer….but that's just pure speculation. 

Nevertheless, one way to avoid those pesky insider trading charges going forward, or rather to solve the "thin talent pool" issue as Cohen would say, is to simply develop artificial intelligence to do all of your dirty work. As Bloomberg points out, Cohen's family office, Point72 Asset Management, is currently analyzing years of trading behavior of top traders in an effort to replicate the type of bets that allowed SAC to massively outperform the broader markets for years.

Cohen’s Point72 Asset Management, which oversees his $11 billion fortune, is parsing troves of data from its portfolio managers and testing models that mimic their trades, according to people familiar with the matter.

Using analyst recommendations as an input, the effort involves examining the DNA of trades: the size of positions; the level of risk and leverage; and whether an investment was hedged, said one of the people. It also entails looking at the timing of trades, assessing pricing and liquidity in the market, and the duration over which managers build positions.

The model will identify patterns and relationships based on those analytics and seek to replicate bets, the people said. Point72 is also experimenting with automating the work of its execution traders, who place buy and sell orders with brokers on behalf of money managers.


Of course, Cohen's A.I. strategy is

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Why higher interest rates should make you happy


Why higher interest rates should make you happy

Courtesy of Jay L. Zagorsky, The Ohio State University

The Federal Reserve just lifted short-term interest rates a quarter point and signaled that more hikes are to come over the course of the year. The Conversation

The Federal Open Market Committee raised its benchmark lending rate to a range of 0.75 percent to 1 percent, as expected, and projected two more increases would be likely in 2017.

Numerous commentators have focused on who is hurt by rising rates, particularly those with lots of floating rate debt, such as a credit card balance, or anyone in need of a loan.

Not everyone, however, is negatively affected by rising rates.

There are some individuals and businesses cheering the Fed on as it pushes up rates, including savers, people traveling abroad and foreign exporters and businesses with large cash balances.

Let’s look at why each group may be celebrating the Fed’s action with a champagne toast.

Savers are happy

Interest is the economic inducement – or bribe – that compensates savers for waiting to spend their money in the future instead of squandering it today.

For eight years, the Fed has been giving us virtually no inducement to save because its target interest rate has hovered around zero ever since the 2008 financial crisis. People have been essentially punished for saving money because inflation meant at times you’d be better off stuffing cash in your mattress than in a savings account.

Rising rates means people who save money in certificates of deposits, money market funds and bank accounts will see higher returns. Many elderly people and retirees live off their Social Security checks plus interest and dividends from their savings. Retirees and people with large amounts of cash savings will now earn more money, which enables them to spend more and makes them big fans of the Fed’s current policy.

Even if you don’t have a single penny in savings but live or work in an area with a large number of retirees like southern Florida, Arizona or parts of California, the higher rates should translate into more economic activity and
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Where Traders Sold Valeant

Wow – here's a flash-back on Valeant, in the good old days when it had only fallen down to around $90. 

Where Traders Sold Valeant

Courtesy of 

This is where I think traders sold Valeant:


Not at the high, mind you, but on the way down before it went, well, waaaay down. I can’t imagine anyone who’s trading their own money professionally or semi-professionally is actually still long this stock. They can’t possibly be.

Professional traders are not in the “I want to be right” business, they’re in the capital preservation business. Either that or they face involuntary retirement. When a stock is going up, traders are happy to ride along. When it stops going up, traders get out.

For portfolio managers, it’s different.

They learn everything there is to know about the company and read all the research. They conduct their own research. They get introduced to management by the institutional sales-traders who have been turned into matchmakers and concierges in the modern era. When a stock they’ve learned about goes down, they buy even more. They stick to their guns and make some phone calls. They get the “reason” why the stock is down and decide it’s overblown. They talk to their own investors about the “opportunity” the market has created.

Both can be right on different timeframes.

The difference is, the trader doesn’t let herself get associated with a certain position or be forced to explain why her original bullishness is still justified. She sells a stock as it breaks down and, in most cases, forgets all about it. A portfolio manager who’s come out publicly with a positive opinion on that stock doesn’t have the luxury of moving on without losing face in front of investors.

“Who cares what the investors think, cut your losses!” you might be saying.

OK, sure, but not as easy in practice. Because now there is doubt in the minds of the PM’s investors and the leash gets tightened a bit. There is less latitude for future risk-taking now and maybe a couple of dollars of redemptions. The magic man has lost his touch, they’ll whisper.

Optics and career risk are a factor, even though they…
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The perverse reality of the Republican health care bill


The perverse reality of the Republican health care bill

The more help you need, the less you get.

By Ezra Klein, Vox

The Congressional Budget Office’s analysis of the GOP’s American Health Care Act is one of the most singularly devastating documents I’ve seen in American politics. For a thorough explanation of the findings, read Sarah Kliff’s explainer. But here is the one-sentence summary: Under the GOP’s bill, the more help you need, the less you get.

The AHCA would increase the uninsured population by about 24 million people — which is more people than live in New York state. But the raw numbers obscure the cruelty of the choices. The policy is particularly bad for the old, the sick, and the poor. It is particularly good for the rich, the young, and the healthy.

Here, in short, is what the AHCA does. The bill guts Medicaid, halves the value of Obamacare’s insurance subsidies, and allows insurers to charge older Americans 500 percent more than they charge young Americans.

Then it takes the subsidies that are left and reworks them to be worth less to the poor and the old, takes the insurers that are left and lets them change their plans to cover fewer medical expenses for the sick, and rewrites the tax code to offer hundreds of billions of dollars in tax cuts to the rich. As Dylan Matthews writes, it is an act of class warfare by the rich against the poor.

The result isn’t just 24 million fewer people with insurance: Of those who remain insured, the pool is tilted toward younger, healthier people who need help less, because many of the older, poorer people who need the most help can no longer afford insurance. As German Lopez notes, a 64-year-old making $26,500 would see his premiums rise by 750 percent. 750 percent! And with that 64-year-old gone, premiums are a little bit lower, because the pool is a little bit younger.

It is within this context that it is worth reading Speaker Paul Ryan’s response to the report.

“CBO report confirms it,” he tweeted. “American Health Care Act will lower premiums & improve access to quality, affordable care.”

Let’s break that down. According to the…
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America’s broadband market needs more competition


America's broadband market needs more competition

Image 20170227 26326 15wvoq5

How many people are trying to connect America’s cities? Network workers via

Courtesy of Hernán Galperin, University of Southern California, Annenberg School for Communication and Journalism; Annette M. Kim, University of Southern California, and François Bar, University of Southern California, Annenberg School for Communication and Journalism

The United States is home to some of the most creative people and businesses on the planet. Our filmmakers, artists, software engineers and scientists entertain the world and expand the boundaries of human knowledge. Their creative process is often a mystery, but their tools are not. Among these tools, few are more critical than the internet, which fosters creativity and innovation by facilitating access to information and supporting collaborative work. It is the enzyme that accelerates the creative economy, much like waterways, railroads and roads fueled the industrial era. The Conversation

But there is a catch: Our world-class creators live in communities where internet access services are far from world-class. Take the example of Los Angeles, a major creativity hub: Using data from the California Public Utilities Commission, we mapped the availability of different home internet services across Los Angeles County. We then combined the results with demographic data, which allowed us to analyze the interplay between internet infrastructure and community demographics in close geographical detail.

Our results show that nearly two-thirds of Angelenos live in areas served by just one internet provider that offers speeds meeting the Federal Communications Commission’s current definition of “broadband” service – 25 Mbps download and 3 Mbps upload. Competition is slightly stronger in the wealthier areas of the county, along the coast and in the San Fernando Valley.

Only one-third of Los Angeles County residents have more than one option for internet service that meets the FCC’s broadband standard. Hernán Galperin, CC BY-ND

Weak competition yields high prices for consumers and little pressure for companies to upgrade their networks to offer better service. For example, in LA County, fiber-based services (capable of delivering speeds far faster than legacy technologies like cable or DSL) are available in less than…
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Zero Hedge

Did Erdogan Just Hand Rutte The Dutch Election?

Courtesy of ZeroHedge. View original post here.

By Chris at

It was a phenomenal rise. Geert Wilders, a complete nothing a decade ago, came out of the blue to make a challenge for the top spot in Dutch politics. In doing so he scared the willies out of the ruling elite across Europe.

In the dying minutes of the game, Wilders failed to clinch the required votes to ascend him to the throne.

What's fascinating was how this all went down. As Jan and Marijke were gearing up to head to the polls all hell broke loose.

Some Background First

The ...

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By Investing and the Classics. Originally published at ValueWalk.

PORTFOLIO MANAGEMENT quotes from Seth Klarman and other greats by Investment Master Class
“There is a personality difference between the people who are good at finding stocks and the people who call the shots on timing and manage the whole portfolio.  Security analysts dog down information and come up with an idea about what should be bought or sold, but they do not necessarily make good conductors for the whole orchestra.  If they are woodwind players to start, they tend to hear the whole orchestra as woodwinds, and it takes another type to keep the woodwinds and brasses and strings in line”  Adam Smith, The Money Game

“A fiduciary should think more about the safety of an ent...

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Phil's Favorites

Gibberish Is the White House's New Normal


Gibberish Is the White House’s New Normal

Courtesy of 

This post first appeared on

Once upon a time, there were presidents for whom English seemed their native language. Barack Obama most recently. He deliberated. At a press conference or in an interview — just about whenever he wasn’t speaking from a text — his pauses were as common as other people’s “uh’s.” He was not pausing because his vocabulary was impoverished. He was pausing to put words into sequence. He was putting phrases together with care, word by word, trying out words before uttering them, checking to feel out what they would sound like once uttered. It was important to him because he did not want to be mis...

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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

Treasury Bears on Reflation Train Face Peaking Price Pressures (Bloomberg)

Investors need to contend with the waning impact of energy base effects on inflation and a terminal rate that lacks momentum before they can aspire to push interest rates higher.

One of Wall Street's most steadfast bulls is worried about stocks (Business Insider)

In a note sent to clients on Friday, Lee said several factors that had supported his views on the market, including attractive valuations and central-bank support, had turned neutral or possibly ne...

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Members' Corner

More Natterings

Courtesy of The Nattering Naybob

[Click on the titles for the full articles.]

A Quick $20 Trick?


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

  • Last time out, Sinbad The Sailor, QuickLogic.
  • GlobalFoundries, Jha, Smartron and cricket.
  • Quick money, fungible, demographics, QUIK focus.

Last Time Out

Monetary policy is just one form of policy that effects capital,...

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Kimble Charting Solutions

Fund flows of this size could mark a top, says Joe Friday

Courtesy of Chris Kimble.

A year ago flows into ETFs were extremely low, actually the lowest in years, as many stock market indices were testing rising support off the 2009 lows. The crowd wasn’t adding money to ETFs as lows were taking place. In hindsight, this was a mistake by the majority. Below I look at ETF flows over the past few years with an inset chart of the S&P 500.


Nearly three months into this year, fund flows have surpassed mone...

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Chart School

Indecision Strikes

Courtesy of Declan.

It was no real surprise to see indices slow down in their recovery. Across the board doji mark a balance between buyers and sellers. The one index which bucked the trend a little was the Russell 2000. It staged a modest recovery which brought it back to former support turned resistance. However, technicals remain firmly bearish, and will stay this way even if there are additional gains.

The S&P closed on light volume with a doji below resistance. The narrow intraday trading range offers a low risk opportunity with a break and ...

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Swing trading portfolio - week of March 20th, 2017

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


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

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

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

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

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Digital Currencies

Bitcoin Tumbles Below Gold As China Tightens Regulations

Courtesy of Zero Hedge

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

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

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

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Mapping The Market

Congress begins rolling back Obama's broadband privacy rules

Courtesy of Jean Luc

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

Congress begins rolling back Obama's broadband privacy rules

By Daniel Cooper, Endgadget

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

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

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Free eBook - "My Top Strategies for 2017"



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

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

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

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

Some other great content in this free eBook includes:


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


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The Medicines Company: Insider Buying

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

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




Insider transaction table and buying vs. selling graphic above from

Chart below from


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All About Trends

Mid-Day Update

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

Click here for the full report.

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

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FeedTheBull - Top Stock market and Finance Sites

About Phil:

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

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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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