Archive for February, 2009

GDP Friday – Cramer Rips Me Off!

Boy am I mad!

It was brought to my attention last night that Jim Cramer has stolen my plan, which I called "The 3% Mortgage Solution" in my Feb 9th column, and simply added a point to it and claimed it as his own on national TV.  I’m not sure how to feel about that – I’ll be glad if the plan is used of course, but seeing Cramer take credit for my work is a little irritating.  In fact, "Cramer’s plan," as laid out, also lifts elements from my 2/16 article – the latest version of my year old plan for immediately ending the mortgage crisis by making the government an equity partner in the homes.  So congratulations to Cramer for sinking to yet another new low in broadcasting – I suppose only writers from TSCM, where Jim has overseen the loss of 87.5% of shareholder equity in the past 5 quarters, are worthy of being given credit by the great Cramer while the ideas of us independent bloggers are just his for the poaching

Other than being shocked last night by Cramer’s flagrant foul, yesterday was a pretty good day.  We executed our plan of buying out our short DIA puts into the morning run-up as we rolled up our long puts and we grabbed some XLF puts as our first trade of the day, which worked out well as a day trade.  We did a little bottom fishing with UNH and ISRG and caught the IBM rally for a quick momentum play all before lunch.  In fact, at 11:20, we were done being bullish as I said to members: "I do expect a big temper tantrum this week.  I know I threw one at Bush’s last budget (in fact it was BECAUSE it hid so many costs) and the GDP is going to back up the Doom and Gloom squad tomorrow so still balanced bearish off this level as we haven’t hit one of our goals yet:  Dow 7,400, S&P 780, Nasdaq 1,450, NYSE 4,850, Russell 415.  Keep that in mind."

We had added long QID puts as general virtual portfolio protection and those are working out so well we are becoming concerned with our April $64 covers – which seemed safely out of range at the time.   We had a bit of a false bottom after lunch but I said to members at 1:33: "Not good on XLF –
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Please. Remember the old saying, if you have nothing nice to say, say nothing at all.  Here’s one reason why.


Courtesy of Joe, at UpsideTrader

Under the stewardship of famous R.I.N.O (Republican in name only) George W., I would constantly suggest that he and his entire administration just shut up, zip it, shut your pie hole. I called it the "pundit podium effect", meaning every time they pontificated rhetoric from the podium, the market would collapse.

Bush and Paulson were good for thousands of lost points on the DOW and now the new guy is doing it too-except faster. Lets’s recap shall we? Two Monday’s ago we were supposed to have Geithner save the world with his boyish good looks and Ivy League charm. What happened? The schmuckweeds on the Hill needed the glory that day for the porkulus plan, so Timbo was pushed back a day until Tuesday.

Well Tuesday came and he layed a big fat egg, but let me be clear, we were blinded by fog. We were then promised more clarity-but nada. But on Wednesday the big guy grabbed the microphone to save the housing market-again nada, but a goodly amount of outrage. Yesterday, Ben Bernanke the newly anointed Tony Robbins of all things financial spoke, and the reviews were complimentary if not swooning. I was waiting for Variety magazine and TMZ to show up with their best paparazzi. Last night the big guy tried to close the deal with a happy recap of the last few abysmal weeks and bold fresh look forward. NADA again.Larry Summers

But wait—we have a stress test for the financials that we have to now wait a few weeks for. LOL. I’ll give them a f**king stress test. I probably missed a few high level media events in between, oh I forgot, Larry Summers fell asleep at Monday’s impromtu economic summit.

I believe we are down about 1300 points from that Monday. I was so looking forward to leadership I could count on.


From Rumor Bag…

Tyler at Zero Hedge explains the crazy market action lately – day trade or die?

From Rumor Bag: Average Equity Hedge Fund Is 70% In Cash At End Of Each Trading Day

Explains why the market performs like a schizophrenic day trader, as investors try to game the greater fool in unison, running the market up and down especially in market leading sectors such as financials. As long as a fund is not the last man in, the first 50% in any wave are set to make profits. While this has long been the modus operandi for SAC and some other notable algo trading outfits (who love throwing around unmerited lawsuits for libel so we will just keep our mouth shut), the fact that it is spreading to most hedgies is shocking, as Buffett’s mantra of buy and hold is officially now dead.

Crude Talk

Adam Warner, at Daily Options Report, discusses Contango which is causing strange behavior in the USO.

Crude Talk


Houston we have a Contango problem!

Pretty well documented that the USO is a mess as a tracking device for oil. The fund owns a mix of near month crude futures, and as such must roll them each month. Clearly Contango, when the next month trades at a premium to the nearer month, causes problems. If you have to keep taking the net dollar amount you get for the near month and using those proceeds to buy more expensive outer month, you will own fewer and fewer contracts.

USO has tried to solve the problem by first bumping up their roll date, and now apparently spreading it out over 4 days.

Of course they announce those dates.  I mean if you are a market participant, would it not behoove you to bid up the next month ahead of the very large buyer you know is coming?

It appears it happened last expiration, and is in progress this go around. Here are some numbers from via FT Alphavile from Stephen Schork of the Shork Report (hat tip Abnormal Returns).

As we outlined at the time, this volatility was largely attributable to “the roll” by long-only commodity index funds, particularly the United States Oil Fund ETF (USO). Open interest in the March contract was 363,757 on February 05th. Per the fund’s website, the USO rolled 85,057 contracts the next day. In other words, the USO held sway over the market, i.e. these funds (USO, S&P GSCI et al) are artificially skewing the front of the NYMEX curve; putting downward pressure as they sell a massive percentage of open interest in the spot over the course of a few sessions.

The USO has since announced it will roll over the course of four sessions instead of one; the April/May roll will take place in between March 06th and 09th. The fund is holding length of 61,940 NYMEX futures, 4,000 NYMEX WTI financials and 30,583 ICE futures, 96,523 contracts in total with a market capitalization (as of last night’s close) of $3.86 billion.

All this length will have to get rolled in a couple of weeks’ time. What’s to prevent front running the roll? Nothing, that’s what. Over the last three sessions

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‘There will be blood’

Predictions — interview with author and historian Niall Ferguson, in Globe and Mail.Niall Ferguson

‘There will be blood’

Harvard economic historian Niall Ferguson predicts prolonged financial hardship, even civil war, before the ‘Great Recession’ ends


Harvard author and financial crisis guru Niall Ferguson has landed with a thud in Ottawa, spreading messages that could make even the most confident policy makers squirm.

The global crisis is far from over, has only just begun, and Canada is no exception, Mr. Ferguson said in an interview before delivering a presentation to public-policy think tank, Canada 2020.

Policy makers and forecasters who see a recovery next year are probably lying to boost public confidence, he said. And the crisis will eventually provoke political conflict, albeit not on the scale of a world war, but violent all the same.iceberg

“There will be blood.”

The Buy America penchant pushed by the U.S. Congress in passing the recent stimulus bill was only the tip of the iceberg.

Abu Dhabi buying Nova Chemicals at bargain-basement prices on Monday is a sign of things to come, with financial power quickly being transferred over to the world’s creditors – namely sovereign wealth funds – and away from the world’s debtors.

And much of today’s mess is the fault of central bankers who targeted consumer-price inflation but purposefully turned a blind eye to asset inflation.

The Laurence A. Tisch professor of history at Harvard University, and author of The Ascent of Money, A Financial History of the World, sat down with The Globe and Mail’s economics reporter, Heather Scoffield.

Heather Scoffield: Canadian leaders frequently argue that Canada is in better financial shape than elsewhere in the world, and therefore should fare better during this crisis. Do you agree?

Niall Ferguson: Canada is [considered] a winner because its banks are less leveraged, bank regulation here has been tighter, because its housing market hasn’t been in a bubble quite the same way. It’s tempting to conclude from that … that Canada will be less hard hit in the crisis than the United States. But that is unfortunately wrong. Because

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Dave’s Daily


Dave Fry at ETF Digest, February 26, 2009


Another bullish start turns south. Bulls just can’t sell their “stocks are cheap” canard to investors who aren’t interested. This can be especially true when the news media puts out misleading data on price/earnings ratios as we pointed out yesterday and the day before. Further, as I mentioned in the current Investor’s Business Daily article stocks are hardly cheap and this bear market may continue for some time. The typical length of these markets runs roughly 30 months according to and we’re only 16 months into this one by their estimates.

Volume was heavy today especially in tech and breadth was negative.

That’s it for us blogging this week. Tomorrow it’s our podcast and there’s plenty for Greg Newton and I to chat about.

One thing that’s interesting is this populist and conspiratorial article from Paul Craig Roberts who suggests that governments are doing their best to squash gold by their leasing activities. Further, he posits a controversial view that how we’ve been taught to view free trade is all wrong.

Then there is this excellent and thoughtful article regarding Geithner posted in Bloomberg. It’s thorough and well worth reading.

We’re still in a bear market and it’s as simple as that. The proposals from the Obama Administration are not finding a lot of support in markets. Tax increases are outlined here and they’re stunning. It’s hard to get comfortable with increasing taxes during a recession. I wonder how they’ve calculated the increase in tax on those earning over $250K per year. How many people will still be making that kind of money? How many near that level will ask for an amount beneath that level to avoid the extra tax. People behave in a manner to always avoid taxes and this may not be baked in the numbers.

Let’s see how we close February tomorrow. It should be with a whimper I suspect.

Disclaimer: Among other issues the ETF Digest maintains positions in: IEF, TLT, TBT, and GLD.

NASDAQ Outperformance and Structure

Corey at Afraid to Trade notes that the Nasdaq is holding up better than the S&P and the Dow. 

NASDAQ Outperformance and Structure

Courtesy of Corey Rosenbloom at Afraid to Trade

I tend to focus mainly on the Dow Jones and S&P 500 Indexes, but what’s perhaps going unnoticed is that the NASDAQ Index has outperformed them both, having held above its November lows and is showing relative strength.

Let’s take a look at the Daily NASDAQ Chart:

Keep in mind, the S&P 500 tested its 741 November low and the Dow Jones broke it, hitting a 12-year low (the S&P missed a 12 year low by 2 index points).  The NASDAQ held 100 points (about 7%) above its lows.  Also, the NASDAQ is about 20% above its 2002 lows at 1,100 – that alone shows relative strength over the last few years.

Technology giants such as Apple (AAPL) and Google (GOOG) are well-above their respective November lows which is adding strength to the Index.  Other technology companies are holding their own throughout the upward correction in the market since November – some even have confirmed uptrends on their daily chart with prices trading above their 20 and 50 day moving averages.

If we look at the Relative Strength Line (Bottom of Chart), we see that the NASDAQ underperformed the S&P 500 until December when the ratio line broke a down-trend line (signaling the beginning of outperformance) and that trend has continued to this day.

Pairs traders can take advantage of such performance by buying the QQQQs and shorting the SPYs (or equivalents) to try to take advantage of over/underperformance, but that’s a whole other strategy that may not be appropriate for newer traders.

Generally, it’s a good sign for the market when small-caps and technology companies outperform the S&P 500, but we should take nothing for granted in the current environment.

Keep an eye on the NASDAQ and its Relative Strength Ratio for additional clues going forward.

Corey Rosenbloom
Afraid to


CFO change at Yahoo! has investors buying calls

Today’s tickers: YHOO, SWY, ARNA, LCC, AMX, UNH, AET, CI, HD, BAC & XLF

YHOO – Yahoo!, Inc. – Shares of the global internet brand have rallied over 5% to $13.12, and options traders have added to the high by establishing bullish positions across multiple contracts. Perhaps today’s upward move is due to an announcement that Yahoo! may join forces with Microsoft despite the failure encountered with last year’s buyout attempt. A management change emerged also with CFO Blake Jorgensen announcing his departure. There have been several since Jerry Yang handed the reins over to CEO Carol Bartz. The sunny outlook on the stock today was further solidified by the sale of over 2,200 puts at the April 11 strike price for a premium of 64 cents apiece. Calls were purchased at the March 14 strike price where 2,300 were traded at 65 cents each, while at the March 15 strike, 1,300 calls were bought for 57 cents apiece. The highest strike sought by optimistic traders was the March 16 strike price, where 3,000 calls were scooped up at 18 cents per contract. Calls were also in demand in April with 2,200 purchased for 1.08 at the 14 strike price, whereas in July investors traded nearly 3,000 calls at the 15 strike for 1.35 apiece. The most bullish play was certainly at the March 16, as shares would need to rally by another 26% to the breakeven price of $16.57 to yield profits. Option implied volatility has risen from 70% this morning to the current value of 78.5%.

SWY – Safeway, Inc. – The food and drug retailer’s shares have fallen 12% today to stand at $18.59, after fourth quarter earnings failed to meet analyst expectations. The increase in profits in the fourth-quarter by 12% was not sufficient to deter the decline seen throughout today, but one options investor has found a way to take advantage of the downturn. At the April 20 strike price, a buy-write (or covered call) was initiated when one trader sold 7,500 calls for a premium of 88 cents, while simultaneously purchasing underlying shares on the stock when the price was at $19.14. It seems that this investor is doubling up on his gains by pocketing the 88 cents in premium and by betting that shares will rise by at least 86 cents to the 20 strike. If the underlying shares can reach or surpass…
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Bernanke’s Boiled Frog Plan To Recapitalize Banks

Mish Shedlock and Paul Krugman are finally in complete agreement. What’s not clear is whether the frogs have any chance of surviving the heat.

Bernanke’s Boiled Frog Plan To Recapitalize Banks

Courtesy of Mish

Bernanke has fired yet another misguided missile to stabilize the banking system. His new program is called the Capital Assistance Program and supposedly it will restore confidence in banks and get them to lend. Here is a description of the program: 

The purpose of the CAP is to restore confidence throughout the financial system that the nation’s largest banking institutions have a sufficient capital cushion against larger than expected future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers.


  • Capital provided under the CAP will be in the form of a preferred security that is convertible into common equity at a 10 percent discount to the price prevailing prior to February 9th.
  • CAP securities will carry a 9 percent dividend yield and would be convertible at the issuer’s option (subject to the approval of their regulator).
  • After 7 years, the security would automatically convert into common equity if not redeemed or converted before that date.
  • The instrument is designed to give banks the incentive to replace USG-provided capital with private capital or to redeem the USG capital when conditions permit.
  • With supervisory approval, banks will be able to request capital under the CAP in addition to their existing CPP preferred stock.
  • With supervisory approval, banks will also be allowed to apply to exchange the existing CPP preferred stock for the new CAP instrument.

CAP Facts

1) Amazingly CAP fact sheet states the securities will yield a 9% dividend. However, any bank troubled enough to need the CAP is likewise too troubled to be able to pay a 9% dividend. Banks can’t get a 9% return on borrowed money and everyone knows it. Instead, expect preferred shares to be converted to common at inflated prices.

2) Digging a bit deeper into the fact sheet we see the "Conversion price is 90% of the average closing price for the common stock for the 20 trading day period ending February 9, 2009."

Think February 9 was selected at random? Think again. The first box in the charts below is

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As GM Goes, So Goes the Nation

Can what’s good for GM now be bad for the country?

As GM Goes, So Goes the Nation

General Motors (GM) was founded in 1908 in Flint, Michigan, and grew to be the largest corporation in the world. Its market capitalization reached $50 billion in 2000. In the past week, its market capitalization dropped below $1 billion to levels last seen during the 1920s. The story of General Motors is the story of America. In 1953, at the peak of its dominance, its President, Charles Wilson, declared before Congress that what was good for the country was good for GM and vice versa. Its rise to power and decline towards insolvency parallel the rise and fall of the Great American Republic. Overconfidence, hubris, lack of courage, foolish decisions made, and crucial decisions deferred have been the hallmarks of GM and U.S. GM’s stock price reached $1.77 last week, a 71 year low. It peaked at $100 during the Dot Com boom in 2000 and was still at $50 in 2007. The market has voted and it says GM is bankrupt.
American carmakers have seen their market share drop from 85% in 1985 to 43% today. GM’s market share peaked at almost 50% in the 1960’s. It reached a historic low of 19.5% in January. Its sales plummeted 49% from a year ago. GM has too much debt, too much bureaucracy, too many plants, too many car lines, too many employees, and too many future healthcare and pension obligations. Of course, the only way a company can be in such a disastrous position is through decades of mismanagement. The only logical solution is for GM to enter a pre-packaged bankruptcy with financing provided by the U.S. government if bank financing is unavailable. Shareholders and bondholders will be wiped out. They made a bad investment. Plants will be closed, UAW contracts restructured, management replaced, employees fired, debt written off and future obligations reduced. A much smaller viable company that can compete in the 21st Century would exit bankruptcy in a year or two. A profitable, low market share is preferable to a high market share with billions in losses.
Source: Automotive Data Center

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Phil's Favorites

Decoding the Fed


Decoding the Fed

Courtesy of John Mauldin, Thoughts from the Frontline

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

"There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effe...

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Zero Hedge

The Verdict Is In: "Negative Rates Are A Huge Negative For Savers, Low-Income People, And Investors"

Courtesy of ZeroHedge View original post here.

With the IMF's annual meeting now concluded, few topics discussed during the past week which saw the IMF downgrade its outlook for the global economy to the lowest GDP since the global financial crisis...

... evinced as powerful a response as negative interest rates, and for good reason: long seen as the last "red line" of central banks before they are forced to admit defeat, some $15 trillion in debt now trades w...

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Digital Currencies

Five hurdles blockchain faces to revolutionise banking


Five hurdles blockchain faces to revolutionise banking


Courtesy of Markos Zachariadis, Warwick Business School, University of Warwick

Blockchain is touted as the next step in the digital revolution, a technology that will change every industry from music to wast...

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Chart School

Gold Stocks Review

Courtesy of Read the Ticker

Gold stocks are swinging back forth between the range, and a break out swing higher is due. Gold stocks are holding a near perfect Wyckoff accumulation pattern. All should get ready to play this sector. Yet we must recognize that gold stocks are a one of the most crazy rides at the stock market fair, so play very carefully.

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GDX PnF chart from within the video

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Important channels around the HUI.

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The Technical Traders

Treasuries Pause Near Resistance Before The Next Rally

Courtesy of Technical Traders

Our research team believes the US Treasuries and the US Dollar will continue to strengthen over the next 2 to 6+ weeks as foreign market and emerging market credit and debt concerns outweigh any concerns originating from the US economy or political theater.  Overall, the major global economies will likely continue to see strength related to their currencies and debt instruments simply because the foreign market and emerging markets are dramatically more fragile than the more mature major global economies.

We believe the US Treasuries may surprise investors by rallying from current levels, near price resistance, to levels above $151 on the TLT chart. 

Our belief ...

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Insider Scoop

48 Biggest Movers From Yesterday

Courtesy of Benzinga

  • Hepion Pharmaceuticals, Inc. (NASDAQ: HEPA) shares climbed 43.2% to close at $3.58 on Thursday after the company announced the publication of a research article, "A Pan-Cyclophilin Inhibitor, CRV431, Decreases Fibrosis and Tumor Development in Chronic Liver Disease Models," in the peer-reviewed Journal of Pharmacology and Experimental Therapeutics.
  • Synthesis Energy Systems, Inc. (NASDAQ: SES) rose 26.9% to close at $9.20 after surging 12.24% on Wednesday.
  • Assembly Biosciences, Inc... more from Insider

Kimble Charting Solutions

Bank Index Breakout? Stock Market Bulls Sure Hope So

Courtesy of Chris Kimble

One of the most important sectors of the stock market is the banking industry and bank stocks.

When the banks are healthy, the economy is likely doing well. And when bank stocks are participating in a market rally, then it bodes well for the broader stock market.

In today’s chart, we look at the Bank Index (BKX).

As you can see, the banks have been in a falling channel for the past 20 months. As well, the banks have been lagging the broader market during this time as well – see the Ratio in the bottom half of the chart above.

That said, th...

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Lee's Free Thinking

Look Out Bears! Fed New QE Now Up to $165 Billion

Courtesy of Lee Adler

I have been warning for months that the Fed would need new QE to counter the impact of massive waves of Treasury supply. I thought that that would come later, rather than sooner. Sorry folks, wrong about that. The NY Fed announced another round of new TOMO (Temporary Open Market Operations) today.

In addition to the $75 billion in overnight repos that the Fed issued and has been rolling over since Tuesday, next week the Fed will issue another $90 billion. They’ll come in the form of three $30 billion, 14 day repos to be offered next week.

That brings the new Fed QE to a total of $165 billion. Even in the worst days of the financial crisis, I can’t remember the Fed ballooning its balance sheet by $165 bi...

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The Big Pharma Takeover of Medical Cannabis

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


The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:


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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...

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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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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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