Saturday, December 18, 2010

Check Out My New Youtube Video!

Hello World,

I posted a new youtube video on Bernanke's  Blunder - see side bar here on the blog.

. . .

My podcasts are now available at my new hosting service at:

Make sure to change your favorites link to the above site, or find me on iTunes at:

All of the prior podcast shows are archived at both sites for your convenience - and all free!

-- H. L. Quist

Viewer comment:


Your vids are awesome I was just looking thru ur channel. You shud try get noticed more 
and get the views up -- copied from youtube viewer.

Thursday, December 2, 2010

Special Seminar Coming Up - Make Reservations Today

Hello World,

H L Quist will be speaking at the Southwestern School of of Real Estate next Wednesday at 8:30am.
This event will be an important review of economic events that occurred in 2010 and Mr. Quist's forecasts for 2011. In his view there are strong indications that an economic recovery has already begun and all markets will surprise on the upside next year.
Seating is limited and you must call for a reservation. There is a $10 fee for all attendees.
WHERE: Scottsdale Camelback Resort(Not Camelback Inn)
6302 E Camelback, Scottsdale, Az.
TIME:  Wed. Dec. 8, 2010   8:30am
RESERVATIONS: Burt Sweetow  480 656-0017

To purchase books in print or ebook versions including iPad click here.

To ask a financial-related question send to:

hlquist at djmwealth dot com

Wednesday, December 1, 2010

Free Preview of CMV for December, 2010

Hello World,

Below is a preview of the CMV (Contrarian Market View) Newsletter for December.  See the end of this post for a free book offer with the purchase of a subscription to the full monthly newsletter. (Note: due to the limitations of a blog post the appearance of this preview is not as it will appear in the actual subscriber copy.)

December, 2010

H. L. Quist's
Contrarian Market View

The CMV Portfolio continues to outperform all the major indices up 30.1% YTD whereas the S&P 500 is up 6.47%.  Investors who are concentrated in Sector #5 (Precious Metals) are experiencing unrealized gains of 30% to 40% YTD.

Market Overview

CMV believes that it should be instructive and worthwhile to review our forecasts and observations for the past eleven months in order to assess the relevance and value of this newsletter to its' subscribers.  The January 2011 issue will feature CMV's forecasts for the year ahead.  Here's a capsule of 2010.

This inaugural issue was primarily devoted to articulating the philosophy and methodology of the Contrarian Market View (CMV).  We stated:

CMV is not a market timer, but we don't want to be 100% exposed at a major turn in the market.

In our opinion, the most effective way to deal with continuing market volatility in the future is through "Active Management."  Some of the observations made by CMV eleven months ago were:

"The state of California could file bankruptcy in early 2010 absent a Fed bailout."  (The bailout came in the form of $30 Billion in Build America Bonds guaranteed in part by the Federal Government.)

"The USD (US Dollar) further rallied sharply from 74 to 78 propelled by the downgrade of Greece's sovereign debt...Ultimately however, CMV expects a significant devaluation of the USD..." (The USD continued to rally as CMV reversed its' position and reached a high of 88 on the Index in June, 2010.  It has returned to the 80 range at the end of November.)

CMV recommended a Contrarian purchase of Ford (F) at $10.00/sh and a stock in an unknown sector known as "rare earths" (REE) at $3.86/sh.  (As of this date Ford is up 59% and REE is up 158%.)

CMV recommended the purchase of TBT, an ETF that would profit from rising bond yields and forecast that the 10 year T-Note yield could exceed 5% in 2010.  (CMV reversed its position in May, 2010 to TLT.  The forecast was premature and bond yields declined in mid-2010 as fear of a "double dip" grabbed the headlines.)

CMV introduced its' subscribers to the "Inflation Jeannie" whose reference was taken from the 60's sitcom "I Dream of Jeannie" starring Barbara Eden and Larry Hagman.  A sudden rise in the Producer Price Index (PPI) in the preceding November, foreshadowed (in CMV's opinion) the rise in inflation and Jeannie's appearance from a dormant state in her bottle.  (The threat of a "double dip" and deflation by mid-year forced Jeannie to return to the confines of her bottle only to resurface again in late 2010.)

As early as February 2010, CMV made this political forecast:

"All of those senators and congressman and women who supported this Keynesian irresponsible spending also face a rebuke and defeat in November."  (Pretty good call 10 months in advance.)


"The current Tea Parties will end the power hungry far-left progressive's desire to take control of this country."  (Not 100% but the spending will be significantly cut.)

"Its' been CMV's consistent position that the solution to the entire real estate market is a formal devaluation of the USD."  (QE2 is a formal devaluation of the USD.  CMV believes that QE2 is another short-term fix that will lead to adverse longer-term consequences but should lift real property values.)

CMV vividly disclosed why the banks were not lending to businesses using a chart from the Federal Reserve that revealed that commercial and industrial loans at all commercial banks had declined by $600 billion from 2007 to 2009.  Unknown to the average investor and business person, the commercial banks were borrowing from the Fed at a minuscule rate of .25% and then loaning it back to the Fed at 1% and the Fed in turn used the money to buy US Treasury Bonds.  Unknown to perhaps 99% of the US population, there weren't sufficient number of bidders to buy US debt at some of the auctions and the Fed became the secret "direct buyer" for the unsold bonds.

(The above charade has now been replaced or augmented by QE2 whereby the Fed creates the money out of thin air and buys the bonds.)

Despite a poll of newsletter writers that showed that bullish sentiment at 34.1% was the lowest since the bottom of the stock market in March, 2009, the CMV portfolio was up over 6% YTD and the commodity Sector exceeded that number.  CMV alerted its' subscribers to the duplicitous motives of George Soros, who while attending the World Economic Forum in Davos, Switzerland, claimed that gold was in a bubble and it would soon burst.  Bullion dropped $49 the next day and the world's most devious market manipulator added $421 million of the ETF GLD to his portfolio shortly after his announcement.

(CMV would soon name George Soros as the "Most Dangerous Man in America" before Glenn Beck exposed him.)

CMV took the Contrarian View that the economy and the stock market would continue to outperform the dire forecasters who were mouthing "double dip."  CMV said:

"...[consumer] spending could surprise on the upside.  Ford's sales and profits will be the industry's leader."  (Barring an unforseen event, Christmas 2010 will confound the experts also.)

(CMV was overly optimistic on the growth of the GDP in the 4% range for 2010 unless the fourth quarter exceeds all projections.)

As early as April CMV highlighted the massive short position in silver held by J. P. Morgan Chase. (As reported in the November issue of CMV, two lawsuits have been filed against the bullion banks for fraud.  Bart Chilton, an officer for the Commodity Futures Trading Commission (CFTC) stated publicly that he had reason to believe that fraud has been committed.)

In the summer of 2009 H. L. Quist's How To Profit From The Coming Inflationary Boom And Avoid The Next Crash was released which alerted readers (p. 23) to the House Committee on Education & Labor's study on the government's conversion of all privately held 401K and IRA retirement plans to a government retirement account (GRA) managed by the Social Security Administration.  In the April issue of CMV, we informed our subscribers that the focus had evolved to requiring the GRA to purchase US Treasury debt.  The warnings have now reached Code Red.

(The Obama Administrations has set its eyes on an estimated $3.6 trillion in IRA's and an additional $2.4 trillion in 401K's to save the US from bankruptcy.  It is imperative that you go to the following sites and discover for yourself that the proposal to confiscate your wealth is far beyond the discussion stage.  The Argentina government ‘confiscated' all private plans in 2009.)

CMV issued a Special Bulletin on May 9, 2010 in response to the European debt crisis and the "flash crash" in the US.  The DOW had declined 7.4% or 771 points off its' April 26th high.  CMV's recommendation based on its Risk Tolerance Model was:

CONSERVATIVE:   80% Bonds (#1 PTTRX) 20% Gold & Silver (#5)

MODERATE:   60% Bonds (#1 PTTRX) 20% Gold & Silver (#5) 20% US Equities (#2)

AGGRESSIVE:   10% Bonds (#1 PTTRX) 40% Gold & Silver (#5) 20% US Equities (#2) 10% each (#3, 4 & 6)

SPECULATIVE:   0% Bonds, 50% Gold & Silver (#5) 10% Each (#2,3,4,6, &8)

(As the second half of 2010 unfolded, Bonds (TLT and PTTRX) performed well.  Precious Metals, Uranium and Rare Earths substantially out-performed all of the markets.  CMV attributes its right recommendations to good luck and vision and sincerely hopes they have worked out well for you.)

CMV then issued another Special Bulletin on May 18, 2010 recommending that subscribers consider the following action:

1.  Reduce exposure by 50% on all US equities except GRX, FAIRX & SHSAX.
2.  Reduce exposure on all International Equities by 50%
3.  Switch position from TBT (short bonds) to TLT (long bonds)
4.  Sell GLD and SLV at market and replace with PHYS or SGOL.

(CMV's concern was that the PIIGS debt crisis in Euroland, the oil disaster in the gulf, inflation in China, and the Obama administration's declaration of war against Wall St. could create a contagion that would cause a sharp market decline.

The S&P 500 had already declined almost 10% since April.  On May 29, 2010 CMV recommended the sale of all US Equities with the exception of FAIRX.  Despite the sell-off in equities CMV made several bold recommendations:

"CMV has a sense that this group (Precious Metals) is poised for a major breakout to the upside."  (Gold bullion was $1181/oz and Silver was at $18.26/oz at the time.  GDXJ was at $25.74/sh. The break-out occurred. Au reached $1410/oz, Ag reached $28/oz and GDXJ topped $36/sh.

"RRLMF (which was admitted to the NYSE/AMEX and changed its' symbol to REE)  is the best (rare earth) prospect in the US...The stock is down almost 20% this year. It's a BUY." (REE was at $3.11/sh as of May 1, 2010 and dropped further in June before reaching $13/sh in October.)

In the June issue, CMV raised the question Is The Pro-Growth / Inflation Trade Over?  Talking heads on CNBC proclaimed that a "double dip recission" was in the offering.  On June 7th, CMV issued another Special Bulletin aimed at those investors who had an AGGRESSIVE or SPECULATIVE Risk Tolerance, suggesting the use of a number of Short Positions to hedge portfolios in the event of a major market sell off.

(Fortunately the major sell-off in the equity markets never materialized and CMV recommended on October 1, 2010 that all short positions be sold at a minor loss or what should be considered as a cost of insurance.)

CMV, exhibiting its x-ray vision accurately forecast the Fed's most provocative strategy in June when we said:

"To counter the sudden trend change (double dip recession) the Fed, the US Treasury and the Keynesian-controlled Congress will resort to creating more fiat currency and deficit spending..."  (Ben Bernanke announced QE2 in August.)

Concerned that the ETF trustees of gold and silver bullion did not have the actual metal on deposit to back the ETF shares, CMV recommended the sale of GLD and SLV.

(GLD showed a profit YTD of 11.35% and SLV 12.27%.  The jury is still out on whether or not there's skullduggery at J. P. Morgan Chase and HSBC banks.)  On November 29, 2010 an article written by Nadezm Walayat in "Market Oracle" indicated that WikiLeaks Founder Julian Assange would soon release information on several major banks that could cause financial contagion panic.  Could it be JPM's silver scam?  Could it be BofA/Countrywide who has committed "flagrant violations" and "unethical practices"?  BofA stock as down 3% on November 30, 2010.

CMV's correct assessment of the downturn in the economy and the recommended asset reallocation proved to be profitable:

TLT produced an unrealized gain of 5.14% during the month as the 10 year yield fell from 3.25% to 2.93%.

The DOW was down 6.27% and the S&P 500 7.57% for the month and the new short positions gained as much as 5.57% for QID.

Despite the decline in the equity markets gold reached an all-time high of $1257/oz.  Gold rallied despite the sharp rally in the USD to 88.50 on the Index.  Gold was "bifurcating" from the USD.

CMV's report that there was a severe supply-demand imbalance in Uranium gave investors an opportunity to lock in recommended names at low prices.  U3O8 was $40/lb in July.  (It reached $60/lb in November.)

Anecdotal evidence that the US economy was decelerating was everywhere.  US Treasury Bond yields were declining as the 10 year reached 2.89% and Fed Chairman Ben Bernanke formally announced that the Fed would purchase more US debt in the future.  His comments from November, 2002 that there would never be a depression in this country because "The Fed has at its disposal a new technology called the printing press" (which your author had based his investment strategy on at that date) was about to ring true.

CMV concluded that, despite all the gloom and doom and Robert Prechter's (Elliot Wave International) forecast of the DOW declining to 1,000:

"The combination of increased consumer demand, Quantitative Easing and devaluation of the US dollar will, you guessed it, create a temporary but devastating INFLATIONARY BOOM and BUST.  CMV rejects the strategy but recognizes the opportunity to profit from it.

(As the holiday season approaches the retail-experts have done a 180° turn and now forecast a robust increase of 4% to 5% in consumer spending over last year.  CMV saw it coming in August.)

In anticipation of a major supply imbalance of uranium CMV recommended two microcaps in this Sector.  MGAFF at $.60 and DNN at $1.50.

(As of November 30, 2010, MGAFF is up 136% and DNN 107%.)

CMV poked a little fun at pundits and forecasters who called for a major sell-off in the US equity markets during the historically dangerous months of September and October.  Namely, James Miekka who dubbed his theory the HINDENBURG OMEN after the devastating crash of the German airship in 1937.  (All four short positions were down modestly for the month as evidence that a crash did not occur.)

We introduced George Soros the "Most Dangerous Man In America" to it's subscribers in September which provoked a critical question:

"How do you make a living, manage your investments and plan for retirement when there are those in power who want to destroy capitalism?"

(And, CMV would add, profit from its demise.)

CMV's most prophetic statement was:

"CMV sees a relatively short period of Deflation followed by a sharp increase in the prices of hard and soft commodities..."

(Not surprisingly that's exactly what has happened.  In 16 months cotton rose from $.45/lb to a high of $1.50/lb in November.)

CMV issued a dire warning for MUNY Bond investors in September:

"There's about $3 Trillion invested in MUNY BONDS with cities facing a cash crunch and huge undisclosed unfunded pension liabilities.  CMV recommends a SELL on MUNYS."

(There was a mass exodus from MUNYS in November and redemptions took many mutual funds down over 10%.  What was regarded as a "safe haven" became a conservative investor's nightmare that few had ever dreamed of.)

The CMV portfolio gained a robust 12% in September as our forecast proved to be accurate and it paid dividends.  Sector #5 (Precious Metals) had an average unrealized gain in excess of 25% for the month.  In Sector #8 (Special Situations) REE topped $9.00/sh from a low of $2.00 in July and MCP and TASXF were up over 100% YTD.  SALZF which was recommended on March 1, 2010 at $.86/sh was acquired by Talison Lithium, Ltd. at a premium of 125% over the entry price.

September also marked the reappearance of the Inflation Jeannie as few saw the rapid change from a fear of Deflation to a revival of the Inflation Trade within a couple of months.  CMV encouraged its subscribers to employ the new paradigm to wealth accumulation:


Bond yields were rising and PTTRX topped out at a 14% unrealized gain YTD but dropped 3% in September.  MUNY BONDS imploded and when the Build America Bonds (BAB) ends, many cities and states will be SOL.

CMV gave its subscribers a tutorial in Patience in October regarding #8 Special Situations:

"Three months ago 100% of the names in this sector were in negative territory.  CMV didn't FLINCH one iota.  When you invest in resource exploration stocks you must have knowledge, conviction and patience.  If you don't possess these attributes you'll never make SERIOUS money in this sector."

CMV recommended a penny stock GRGNF on October 1, 2010 at $.22/sh.  As of November 30th, the stock is up over 100%.

As a direct result of the counter revolution (the elections) CMV made this very bold forecast:

"CMV believes that there will be a sea change in public sentiment in 2011 that will reverse high unemployment and increase the nation's GDP and tax receipts."

(It didn't take long to see tangible results of this intangible.  Fortified by more certainty (politically), and tired of "frugal fatigue," consumers appeared ready to spend, spend, spend at Christmas.)

CMV issued its second tutorial on QUANTIFYING RISK which was very well received and gave subscribers confidence to invest in sectors they were told were, and they perceived as, "too risky."

(As of October 31, 2010 the CMV Portfolio was up 25.23% YTD whereas the S&P 500 was a little north of 5.00%.  Investors concentrated in Sectors 4, 5, and 8 had realized and unrealized gains of 30% to 50%.)

November marked another sea change in Washington as the U.S. Treasury, up against a debt ceiling of $14 trillion, a FDIC faced with a task of closing 700 banks and no funds to pay off depositors and a Federal Reserve creating trillions of funny money so the government can keep the lights on, became the "bill collector from hell".  As pointed out in the November CMV.

   --Fannie and Freddie and other government agencies are requiring all the banking institutions that sold them toxic mortgage debt to repurchase those loans.  Estimates range from $100 to $500 billion.  When this contentious issue is settled the banks will pay.

  --The Justice Department has stepped up filing criminal complaints against bank officers who could be held personally and corporately liable for a wide range of misdeeds and face hefty fines and imprisonment.

  --The SEC has recently raided a number of hedge funds charging them with insider trading which, if found guilty, will generate substantial fines and imprisonment.

  --The IRS which has recruited 16,000 new agents in preparation of enforcing Obamacare, are aggressively stepping up tax collections while waiting for the premium "tax" to kick in.

What may turn out to be CMV's best recommendation was:

"The opportunity to profit in Microcaps in the resource and commodity sectors will be available for a limited time period going forward.  CMV's position is clear and concise.  Make some serious money while the opportunity exists and then get the heck out of the markets.  CMV's value to you is discovering the opportunity and to advise you when the game is over."

(The only thing CMV can't forecast — how much time do we have?)



The feature article in the November 18th Wall St. Journal headlined:


"A key gauge of US inflation has fallen to its lowest level since record-keeping began in 1957, underscoring the continued weakness in the economy...When volatile food and energy are subtracted, prices were unchanged last prices fell for the third consecutive month."

CMV believes that the American public is being deliberately spoon-fed deflationary dis-information for a specific purpose.  Briefly CMV will offer a rebuttal.

As reported previously, cotton prices have soared from $.45/lb sixteen months ago to a high of $1.50/lb in November, 2010 and have backed off to the $1.25 range.  Here's what's happening in the real world outside of US Bureau of Labor Statistics (BOLS):

  --Shandong Zaozhuang Tianlong Knitting has raised prices on Ralph Lauren Polo t-shirts and track suits as much as 70%.

  --Unitedtex sells $24 million annually in shirts and jackets to the GAP and they're increasing prices 4% to 30%.

  --Ningbo Seduno Group which sells about $30 million in men and women's clothes to the US per year has increased prices by 20% since July.

Chinese clothing manufacturers are faced with a "major squeeze."  US retailers are also being squeezed.  At some point US consumers will feel the squeeze in the form of higher prices.

Food prices are not included in the BOLS CPI numbers.  Here's what Phoenix area shoppers are faced with in a grocery market that is considered as one of the most competitive in the US:

Food Item                       Increase Over 2009
Turkey, 16 pounds            +  7.1%
Cube Stuffing, 14 oz         +29.2%
Pumpkin Pie Mix, 30 oz    +18.9%
Frozen Green Peas, 1 lb     +46.3%
Whole Milk, 1 gallon         +21.9%

On November 23, 2010 The Federal Reserve Minutes released to the public downgraded the Fed's outlook for the US economy and indicated that it wouldn't return to its former vitality for five years or more and the jobless rate could exceed 8% for two more years.  The Fed Minutes also revealed several other key points.  One, they "considered" capping long-term interest rates, and two, if growth surprises to the upside next year it will not trigger any quick reversal in policy.

The dichotomy should be obvious but its' relevance shouldn't be missed.  If the Fed sees anemic growth for several years, why would they need to cap long-term bond rates?  The market would dictate the rates.  And, if the economy surprised on the upside their plans are to invoke the "Greenspan Plan" and allow another bubble to inflate.

Here's CMV's simple interpretation of the Fed's Micro-Managed Stimulus Plan (MMSP):

1.  Convince the public that there is no consumer price inflation.

2.  Create asset inflation through devaluation of the USD and a perceived growth in equity and net worth (Revisit 2002-2007)

3.  Cap the Fed's and Treasury's borrowing costs while paying interest on the $14 trillion existing federal debt with cheaper dollars.

4. Increase federal, state and municipal tax revenue through investor's personal and corporate asset sales (revisit .com bubble) and with increased consumer confidence and spending.

5.  Support the administration's plan to "confiscate" 401K and IRA assets and/gold bullion to pay down the federal debt to a perceived manageable level.

Real Estate

A Positive Sign Of The Times

In mid-November a grandiose grand opening signaled (to CMV a "change" in the real estate market — at least in the Scottsdale area.  Your writer attended a festive preview of Safari Drive St. Collection which is a stylish, mid-rise urban neighborhood located in the heart of Scottsdale at Camelback and Scottsdale Roads.  The combination of flats, town homes, and live / work lofts ranged from 1250 sq. ft. To 1795 sq. ft. and prices ranged from $419,500 to $699,500 — decidedly reduced pricing compared to the market peak in 2007.

Hundreds of guests were given a red carpet introduction to Safari Drive with a champagne glass that was filled by a lovely young lady who was hanging upside down suspended by an unobtrusive tripod a la "Circus Solei".  The symbolism of the inverted lady didn't go unnoticed to your writer — who interpreted it as a contrarian sign that the upside-down market was over.  More importantly, there hasn't been an upscale open house complete with dining and music in the Valley of the Sun for almost three years.

As evidence that a new era in real estate development is upon us is exhibited by the financial structure of the deal.  Four major nationally-known brand corporate names are the developers who are partnered with the FDIC who acquired the project through a take-over of a closed bank.  The local builder and marketer is Geoffrey Edmunds & Associates who is bringing this project to market at precisely the right time.

Another bit of anecdotal evidence that a real estate recovery is underway is a home builder client has just purchased four lots in an upscale Scottsdale development to build four luxury spec's. His concern?  "Do I have a three year time frame?"  CMV confirmed that in its' opinion his timing probably couldn't be better.

CMV stated, after the temporary resolution of the Greek Tragedy, that the crisis in Euroland was far from over.  Another one of the PIIGS is now bogged down in the mud — Ireland.  More ominous however, is German Chancellor Angela Merkel's assertion that the Euro was in an "exceptionally serious situation" which accelerated a sell-off in the common currency.  The unspoken reality is that the European Union which the globalists ballyhooed as the remedy to cure all future monetary crises  is on the verge of collapse.  The ultimate solution?  The WoCu — a world currency which includes the US.

Un-noticed by most observers was the report on FOX News recently of the meeting between Dmitry Medvedev of Russia and China's Wen Jiabao.  The two rising global powers have sealed their Shanghai Co-Operation Organization (SCO) agreement (revealed by The Myth Buster on November 14, 2010 on Gabcast).  The principal purpose of this alignment of the two communist countries is to establish a new economic order and circumvent the USD in trading.  The SCO represents a teutonic shift away from several centuries of European and US political and banking dominance.  What's critical to CMV subscribers and investors is that gold will be the reserve basis of their new economic order.  Informed reports indicate that both countries, who are major gold producers, are NOT exporting any bullion.  If you remove these two countries plus a 30% to 40% reduction in production from South Africa out of the supply equation, the price of bullion must move higher.  Think $2,000/oz by December 31, 2011.

The rest of the newsletter is only available to paid subscribers and includes the portfolio of recommendations.

Subscription box in in the left side bar here on the blog.
"GREED" and "PROFIT" are now available for you iPad users.

You can also pay for the year's subscription to the CMV (just $99) plus receive both books free (USA addresses only) by clicking here for the paypal payment window link.

Financial Questions? Contact hlquist at djmwealth dot com

-- H. L. Quist

Thursday, November 4, 2010

Free Preview of November CMV Newsletter

Hello World,

Below is a preview of the CMV (Contrarian Market View) Newsletter for November. See the end of this post for a free book offer with the purchase of a subscription to the full monthly newsletter. (Note: due to the limitations of a blog post the appearance of this preview is not as it will appear in the actual subscriber copy.)

H. L. Quist's
Contrarian Market View

Market Overview

CMV deliberately delayed the November issue in order to incorporate the two major events that will have a significant impact on our country and our economy for the next two years:


It didn’t make sense to speculate on what may happen when we could be more definitive.  CMV apologizes for your angst over the delay.  The election represents a resounding rebuke of the ideology of Collectivism and the Democrat’s agenda that they didn’t reveal and the voters didn’t want.  The great irony of this historical event is:


Why?  BO woke up a sleepy citizenry whose passivity and complacency allowed Hope and Change to come to power in 2008.  Now, the Republicans must deliver and not succumb to the big money special interests and business as usual that has governed for the past 50 years and has brought this country to the abyss.  It’s CMV’s view that if the Republicans fail to deliver, the Tea Party will become a new THIRD PARTY and play a pivotal role in 2012 and the future. You read it here first.

The first order of business is to stop the fiscal bleeding (deficit spending) but within months there could be blood in the streets.  Numerous cities and states in America have been and are relying next year on the federal government to bail them out.  Unknown to most Americans, 30% of California’s debt issuance in 2010 has been subsidized by the federal government in a program known as Build America Bonds. California is not alone.  30% of Illinois’ debt and 40% of Nevada’s debt has also been subsidized.  New York state has spent in excess of 250% of its’ tax receipts over the last 10 years.  Some of these funds have been used to continue pension payments and salaries.  Will the “new” Congress have the fortitude to tell the states to go cold turkey or will it be business as usual?  Make no mistake about it, budget cuts and reversal of socialism is going to be accompanied by considerable rancor.  There won’t be ‘reconciliation.’

Let’s look at the positive.  CMV believes that there will be a sea change in public sentiment in 2011 that will reverse high unemployment and increase the nation’s GDP and tax receipts.  Large US corporations, small business owners and investors, and those individuals who are the decision makers can now, more confidently, invest in America.  CMV forecasts that the economy’s performance (absent an outside event) will surpass most economists’ projections next year.

The Fed’s long anticipated announcement on QE2 was much ado about nothing.  Bill Gross (PIMCO) said it was “neutral.” In short, the Fed’s combined purchases of treasuries and other assets will total $110 billion per month which was already baked into the cake.  Also contained in the announcement was the Fed’s commitment to retain all rates at their present level for “an extended period of time.”  The Fed’s goal is to create inflation that will ostensibly create new jobs while maintaining historically low interest rates.  Sounds more oxymoranic than axiomatic doesn’t it?

Two economists at Goldman Sachs wrote a piece on October 25th that, in their opinion, the Fed really needs to buy a staggering $4 trillion in assets to get the economy rolling.  That’s in addition to the Fed’s current bloated balance sheet of $2.3 trillion.  The numbers are as incomprehensible as they are unsustainable.  The question that should be asked, is, Why will QE2 work when the $800 billion stimulus Plan and QE1 did not?  CMV will answer its’ own question.  Change in public SENTIMENT.  If business and the public are fearful of its’ government, no amount of liquidity could move the yardsticks.  QE2 and a change in SENTIMENT (post-election) could lead to overkill and a year from now the “I” word (that’s not impeachment) will be on everyone’s lips. The Fed’s goals is to push investors out of bonds and into higher risk assets.  Can you say: REAL ESTATE?

Here’s how the law of unintended consequences will negatively impact the Fed.  They presently have $1,079 trillion of 30 year fixed-rate MBS (bonds) on their balance sheet.  If (actually when) interest rates rise from 4% to 5%, the net asset value of those MBS securities will decline by about $162 billion!  To the Fed it matters not.  Their assets are derived from funny money but to bond investors it’s real money. The bond bubble will burst.  Before that occurs, however, CMV and its’ subscribers will be on the stage and out of Dodge.  In the interim however, let’s ride the wave of asset inflation.

Quantifying Risk

Let’s assume that you’re a subscriber of CMV or have previewed an issue on-line and have a brokerage account with a major Wall St. firm. You’ve observed that certain names recommended by CMV have produced outsized gains YTD in excess of 100%. You suggest to your broker that you would like to add a few of these names to your portfolio.  In all probability your broker’s reply will be:

“You don’t want to buy that company. It’s too RISKY!”

It matters not that for the past 10 years ending 12/31/09 you have been at risk in an S&P 500 Index Fund which has produced a zero return.  It matters not that your “blue chips” GE, MSFT, et al, have been dead money for 10 years.  So, what’s at work here?  First, your broker is probably unfamiliar with sectors such as precious metals, uranium, rare earths, commodities, etc. and you can be assured that your broker will be DOWN on what he or she isn’t UP on.  Secondly, the Wall St. firm may not allow their reps to buy those names, and thirdly, which is the point of this piece, they don’t know how to Quantify Risk.

The following methodology has been utilized by your writer for many years particularly in a market environment that exists today that, properly administered, results in these outsized gains.  Small and large fortunes can be realized in “penny stocks” in the resource sector but an investor must apply a different set of rules in order to Quantify Risk.  Here are a few:

1.  Sector Rotation & Momentum:
As CMV has repeated over and over, understanding the MACRO picture is critical to investing which is the microcosm. Grasping the significance and purpose of the devaluation of the US Dollar would have enabled the investor to see that there would be a major sector rotation to precious metals, commodities and a short position in the USD.  Risk is minimized when you secure a position in the very early stages of a sector rotation that gathers momentum as CMV will illustrate below.

2.  Sector Fundamentals:
What sustains a sector rotation over a larger time span is a supply-demand imbalance.  Most analysts will take a position that gold is a “timing” asset class and it only appreciates when there’s fear in the global markets or when inflation (which the talking-heads on CNBC say is non-existent) effects the CPI.  Almost entirely ignored is the fact that gold bullion has appreciated from $253/oz to $1,350/oz in 10 years, and investor, commercial and industrial demand far exceeds annual supply. 

Rare earths are a current phenomenon.  Since China controls 97% of the world’s production of rare earth elements that are absolutely essential for a digital and green world and is cutting exports to Japan and the US, fundamentals are driving the price of the metals and thus the stock price.

3.  Microcaps (Penny Stocks):
Most large brokerage firms will not allow their reps to purchase penny stocks for their clients. Certainly, brokers and investors have incurred massive losses in this arena but here’s how you can reduce your chance of loss and improve the upside:

a.  Management
Choose companies that have executives who have achieved prior success.  Use the “net.”  You can find out just about anything on anybody searching the Internet.  A past failure or SEC censure is a red flag and there are lots of them. 

b.  Stock Prices & Capitalization
For names under $1.00/sh look for companies with no more than 25 to 50 million shares outstanding. Early stage exploration companies, for example, will need to raise additional capital which means dilution to existing shareholders.  If an exploration company has 50 million shares out and sells out for one billion cash the investor will realize $20/sh. If a company has 300 million shares out, the investor would realize $3.33/sh

Assuming that the microcap has the ore in the ground but the grade and the total resource hasn’t been established as yet, the lower the entry price into the stock the better.  As the price rises the investor’s risk increases. If you’re in a stock at $.50/sh and it rises to $1.50/sh (which happens all the time) fed by speculation and day traders and the news then is disappointing or problems occur, the stock could retreat very quickly to your entry price.  At that point if you’re still in the stock you need to make a decision to sell or hold.

c.  Political Risk
You would prefer to invest in a country that respects private enterprise like the US, Canada, Australia, etc.  A classic example how bad a good opportunity can become virtually worthless is the story of Chrystallex (KRY).  The Canadian company had discovered and proved up a 20 million ounce gold resource in Venezuela.  KRY was ready to begin mining and had shipped millions of dollars of equipment to Venezuela.  Hugo Chavez and his government withheld final approval and essentially confiscated the property.

d.  Patience
There are three ways to play this market.  One, when the stock doubles, sell.  Two, when the stock doubles, sell half and let the rest ride.  Three, go for the home run or four-bagger (investor lingo for hoping the stock will quadruple in price).

In many situations, it is a matter of the individual investor’s mind-set, objectives and financial situation.  The old adage “you’ll never go broke taking a profit” holds true but you can make a profit on 9 trades and lost it all on the tenth.  The SERIOUS MONEY is made by those who identify the right name and patiently hang in there until the company achieves its goal of a sale or production.  One reader bought REE in March around $3.50/sh.  It dropped to near $2.00 in July.  He called CMV and said it was a “stupid” recommendation and he sold.  In October the stock reached $12.  He had no patience and no comprehension of the fundamentals.  CMV can also err. When REE shot up almost 300% from July to October, CMV sold half its client’s position with the intent to buy the stock back again after a correction. The correction was modest and short-lived.  We’re not infallible but we did discover a sector that was off almost everyone’s radar.

This tutorial is by no means complete but we hope it is helpful.  The opportunity to profit in microcaps in the resource and commodity sectors will be available for a limited time period going forward. CMV’s position is clear and concise.  Make some serious money while the opportunity exists and then get the heck out of the markets.  CMV’s value to you is discovering the opportunity and to advise you when the game is over.

Rare Earths Revisited

The global rare earth elements market which has produced spectacular returns in 2010 for CMV subscribers and clients, has amped-up to a new level.

The Japanese, who import 100% of their needs of REEs (about 32,000 metric tons or 24% of world demand) are involved in a serious confrontation with China which controls 97% of the supply.  With the Chinese hinting at a further reduction of exports, the Japanese have allocated 100 billion Yen ($1.2 billion) for the development of the elements offshore.  The US, which has a demand for 8% of the world supply has Molycorp Minerals, LLC (MCP) fast-tracking their closed mine in California to be in production by next year.  Rare Earth Elements (REE) which owns the Bear Lodge property in Wyoming and has seen its share price soar more than 300% in the past 90 days, has completed a feasibility study on its property which shows an exceptional internal rate of return (IRR).  CMV has been cautious in adding to positions in both companies recognizing that China could be rationing it’s exports as a negotiating ploy in the World Trade Organization (WTO) talks to head off protectionist policies originating in the US, Japan, and Europe.  A concession by China on its exports could precipitate a correction in MCP and REE which would be an excellent re-entry point in both names.  Demand should exceed supply for several years.  Mines don’t open or re-open overnight — especially in environmentally-challenged California.  As CMV goes to press a correction is taking place which has been over due.  Please take note that there is a newly issued ETF (REMX) that will allow investors a broad diversification in these companies.

The Real Dirt On Real Estate

Just when you thought you saw a light at the end of the real estate mortgage tunnel, the light turns out to be a train that threatens to leave the tracks.  My good friend and first class realtor, Ann Heins, has forwarded the following information that is a MUST read for everyone who has any skin in the game — any game!  The breadth-taking disclosures were provided by David Kotok ( from an unimpeachable source whom he wishes to remain anonymous.

Most of you are aware that the mortgage-backed securities (MBS) were sliced and diced into tranches of home mortgages rated from AAA, the least likely to default, to junk, the sub-prime debt.  Different tranches were sold to a wide array of investors worldwide but specific bonds were not actually signed over to the bond holder-investor.  The Mortgage Electronic Registration System (MERS) was set up to be the repository of the securitized mortgages to direct the defaulted mortgages to the appropriate tranches of the bonds.  MERS didn’t hold any mortgage notes and the Real Estate Mortgage Conduits (REMICs) didn’t own the notes either.  The bottom line is that somewhere between the REMICs and MERS the chain of title was broken.  In order for the mortgage note to be sold or transferred to someone else and be turned into a MBS, this document has to be physically endorsed to the next person.  All the signatures consist of the ‘chain of title.’ If for any reason any of these signatures are skipped, the mortgage note is no longer VALID.  Since the chain of title is broken it is conceivable that the borrower no longer owes any money on the loan. 

Were you able to translate that sentence?

The dirt becomes even murkier.

People began contesting their foreclosures on the chain of title issue.  The banks had retained “foreclosure mills” to speed up the massive volume of defaults and these law firms, quick to observe the broken chain of title, may have fraudulently through “robot-signing” repaired the chain of title.  Stories of employees holding up documents to windows to forge signatures and having at ready an ample supply of notary stamps are running rampant.  One law firm in Florida where the smell from the swamp originated, has processed 72,000 foreclosures this year!  Now, the title companies are refusing to insure the titles.  To add to a Halloween Witches Brew of toil and trouble Fannie and Freddie are demanding that the banks re-purchase about $250 billion of loans that lack proper documentation.

Murkier becomes mud.

Congress, anticipating a catastrophe heading into the elections and bowing to the banking lobby, passed the Interstate Recognition of Notarization’s Act so that the foreclosure mills forged and fraudulent documents would not be scrutinized by out-of-state judges.  The Senate passed the bill by voice vote so there would be no record of who voted for the bill.  The President, pocket vetoed the bill to avoid the wrath of millions of affected homeowners.

The top of the bottom line is simply this.  What happens to our fragile economy when citizens realize they don’t have to pay their mortgages?  Not only is the chain of title broken, the Rule of Law is breaking down which is a threat to all of us and the entire country.  More corruption thrives in this environment created by those Masters of The Universe in banking, Congress and on Wall St., who have assumed no personal responsibility for this crisis and have retained their wealth and retirement free from remorse and restitution.

Could Bank of America Shares Fall to $2.50?

That is the title of an article written by Steven M. Sears in the October 25th edition of Barrons. To most sophisticated observers the major money center banks have successfully survived the financial crisis and more specifically, the mortgage mess.  Bank of America, however, with recent revelations of the legality of home foreclosures and the quality of mortgage assets, a conflicting picture emerges. (See Page 4 The Dirt On Real Estate).

Super sophisticated option traders are betting that BofA stock, currently as of October 24th, at $11.36/sh could fall to $2.50 by 2013.  Traders are buying PUT contracts (betting that the stock will fall) that will expire in January 2013. What do these traders know that most observers don’t? Here’s an insight.

The Federal Reserve Bank of NY, PIMCO and Black Rock have essentially accused BofA of selling them $47 billion of mortgage-backed securities with enough “junk” that they have impaired the earnings of these buyers.  Traders believe that there is a long litigious road ahead for BofA, and in the end BofA will pay multi-billions to settle. In effect, the market has judged the bank guilty.

How did BofA find itself in this unenviable position?  In one of the most ill-timed and ill-conceived decisions in the banking industry, BofA bought Countrywide Financial for $4.1 billion in 2008, at a time when it should have been apparent to anyone who could fog a mirror, the mortgage end game was nigh.  Rumor now is that the US Treasury “encouraged” a shot gun wedding.

In mid-October, 2010, Angelo Mozilo, the former CEO of Countrywide, agreed to pay the Securities & Exchange Commission (SEC) $67.5 million penalties to settle civil fraud and insider trading charges.  Most of Mr. Mozilo’s financial penalties will be paid by, you guessed it, BofA, along with two other former executives.  As part of the settlement, Mr. Mozilo agreed to a life-time ban from serving as an officer or director of a publicly-held company.

Unknown to most readers is that this settlement is directly tied to Mozilo’s “pump and dump” scheme whereby he sold $140 million in Countrywide stock when he knew the end game was near and investors took a massive hit when the stock became almost worthless.  Still pending, it should be noted, are criminal charges against the “sub-prime mortgage king.”

Another twist to this story is “The Friends of Angelo” who received “sweet-heart loans” from Countrywide.  An investigation into the mortgage mess and the influence peddling that occurred, reveals that 30 Senators or Senate employees received VIP loans from Countrywide.  For some strange reason a further investigation and charges have been delayed.  Jail time for the sun-baked and tanned Mr. Mozilo would be a heinous penalty!

. . .

This is from my friend Nick Tommer in Washington (state) who reports:

Why I’m Depressed
Over five thousand years ago, Moses said to the children of Israel, “Pick up your shovels, mount your asses and camels, and I will lead you to the Promised Land.”
Nearly 75 years ago, (when Welfare was introduced) Roosevelt said, “Lay down your shovels, sit on your asses and light up a Camel, this is the Promised Land.”
Today, the present economy has stolen your shovel, taxes your asses, raised the price of camels and mortgaged the Promised land!
I was so depressed last night thinking about Health Care Plans, the economy, the wars, lost jobs, savings, Social Security, retirement funds, immigration, etc. . . I called a Suicide Hotline: I had to press 1 for English; I was connected to a call center in Pakistan: I told them I was suicidal.  They got excited and asked if I could drive a truck.


The CMV Portfolio is up 25.23% YTD vs. The S&P 500 at a little north of 5.00%.  Advisory clients who are concentrated in Sectors 4, 5, & 8 have unrealized gains of 30% to 50% YTD.

The rest of the newsletter is only available to paid subscribers and includes the portfolio of recommendations.

"GREED" and "PROFIT" are now available for you iPad users.

You can also pay for the year's subscription to the CMV (just $99) plus receive both books free (USA addresses only) by clicking here for the paypal payment window link.

Financial Questions? Contact hlquist at djmwealth dot com

Tuesday, October 26, 2010

Take a class with H L Quist

Hello World,
My program Arizona Real Estate Cycles and Trends is scheduled in November and December. Offered through Southwestern School of Real Estate the classes are scheduled at the Scottsdale Camelback Resort, 6302 E. Camelback Road, Scottsdale on the following dates:
In this program I discuss cycles and trends in real estate with an overview of the current economy.
November 16th -- 12:00 to 2:45 p.m.
December 8th -- 8:30 to 11:15 a.m.
The program for real estate professionals is also open to the general public. There is a small fee to attend either class. Call 480 773-5343 for registration information.
My books are now available as an ebook or iPad version. Visit my publisher's page for my books click here. Of course the print copies are still available through your favorite book seller.
-- H. L. Quist

Monday, October 25, 2010

BlogTalkRadio Show - Interview with H L Quist

Hello World,

Tune into my guest appearance on Ron Nawrocki's talk radio show.

-- H L Quist

My books are now available as ebook options to print including a version for iPad

My Books

Tuesday, October 12, 2010

Today's Youtube on Ben Bernanke and The Inflation Jeannie

Hello World,

See the sidebar here for my youtube video on Ben Hooking up with Jeannie, The Inflation Jeannie that is!

To sign up and receive the Contrarian Market View newsletter for investors see the sidebar here for the subscription link.

-- H. L. Quist

Also my books are now available as ebooks or for iPad users. Click here to go to my publisher's store front for the links.

Thursday, September 30, 2010

Free Preview of October CMV Newsletter

Hello World,

Below is a preview of the CMV (Contrarian Market View) Newsletter for October. See the end of this post for a free book offer with the purchase of a subscription the full monthly newsletter. (Note: due to the limitations of a blog post the appearance of this preview is not as it will appear in the actual subscriber copy.)

October, 2010

H. L. Quist's
Contrarian Market View

Market Overview

Given your inquiries and comments, many CMV subscribers are confused, flummoxed and depressed. The common thread in the preponderance of your emails and calls is your inability to determine the future direction of the economy or in a more macro sense, the direction of the country. This issue of CMV is deliberately dedicated to bring clarity and profitability into your life. Focusing on the economy and reducing the possible outcome to a minimum, CMV envisions three distinct scenarios looking forward to 2011 and beyond:

1. The Bernanke Re-Flation Plan Succeeds
On September 21st, the Federal Reserve's Open Market Committee made it abundantly clear that it wants more INFLATION. The Committee announced, "Measures of underlying inflation are currently at levels somewhat below those the committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability."

In short, we know what the Fed will do. What we don't know is, will their strategy be successful? CMV believes it will and it could open the door to enormous profit-making opportunities for you — IF you dare to share CMV's vision.

Under this scenario the following results most likely would occur:

The new Congress would cut off additional stimulus funds, extension of unemployment benefits etc., thereby putting more pressure on the Fed to create "growth and employment opportunities." (As stated)

The Fed would undertake massive Quantitative Easing (QE-2) which would flood the markets with liquidity and further devalue the US dollar.

Stock and commodity prices would surge as a result and the appetite for risk would become ravenous. Bond investors would nail down profits while freeing up multi-trillions of investment capital that eventually would find its' way into real estate.

In the early stages of the RE-FLATION CYCLE, manufacturers and retailers would discover pricing power and new profit margins, employment demand would increase, consumer sentiment would turn positive and the illusion of permanent prosperity would return echoing the sights and sounds of THE GREENSPAN PLAN of 2002.

THE BERNANKE RE-FLATION PLAN is another short-term fix that ultimately results in another longer-term problem — a crack-up boom. As the Wall St. Journal editorial opined on September 23rd, "Central Bankers who wish for more inflation usually get their wish, and the result is rarely benign." In the interim, however, enormous profits can be realized. (See pages 15-18)

2. The Bernanke Re-Flation Plan Fails.
Ultimately it will. It's simply a matter of time. CMV's position is that there is one LAST RODEO — meaning, the RE-FLATION PLAN will be the last desperate attempt to cover up all the Fed and political transgressions of the past 50 years. The only question is, will the US (and most of the world) have a temporary reprieve before THE GREAT RECKONING? CMV's answer is yes.

Let's reduce these two widely divergent scenarios to the minimum. Given a choice between INFLATION and DEFLATION (aka Depression) what choice would bankers take? Inflation, of course! Why? The Fed believes (firmly) that they can prevent Inflation from getting out of control. Deflation, on the other hand, is a death knell that has little chance of resuscitation. Although it hardly needs to be said, the following results would quite possibly occur.

Gross Domestic Product (GDP) would continue its decline and return to negative in 2011-2012.

Unemployment would rise significantly above the Bureau of Labor's fallacious 10% and consumer sentiment would plunge. Prices of most goods and services would decline dramatically as demand disappears.

The Federal Debt and the Budget Deficit both would explode as the Treasury's tax revenue plummets and QE-2 balloons. An international monetary crisis looms large as the prospect of default by the US on its sovereign debt becomes possible.

Fed Chairman, Ben Bernanke, has resolved that this scenario will not occur on his watch.

3. Slogging To The Future.
What in the world is a "slogging economy?" A perfect model is Japan from 1990 to the present. Remember, Japan's efficient and torrid economy in the 1980s was the model for all the world to duplicate. What has the 20 year SLOG produced?

The Nikkei Dow reached almost 40,000 at the end of 1989. A resounding crash took the index down to 7,000 and their market has never recovered.

The outrageously over-valued real estate market which sported the highest inflated prices in the world collapsed about 70% and has only recovered modestly since the 90s. The Japanese acquired trophy real estate properties all over the world at premium prices such as Pebble Beach, the Rockefeller Plaza, etc. and either walked from their obligations or sold at severe discounts.

Interest rates for both borrowers and savers have consistently been the lowest in the world. Global investors have for years borrowed in Yen at about one percent and invested elsewhere at much higher yields in what is known as the "carry trade." The lesson learned is that low interest rates did not result in domestic economic growth. Is the US dollar the carry trade currency of the future?

The point of this exercise is that, in CMV's opinion, option number one is the most likely. The outcome of a successful RE-FLATION will present unique and alternative investment opportunities for those who dare to be different. As you will soon discover by reading the remainder of this issue of CMV, the INFLATION TRADE has already begun. Here's the bottom line:

The Bernanke Re-Flation Plan, if successful, should present unique profit opportunities for outsized gains that should be realized during the next two to three years. An inflation-induced boom will end in a resounding crash. You and your family are dependent on your ability to see that the future isn't what it used to be!


It appears that most readers of CMV have missed the opportunity in Rare Earth Elements that was presented to them many months ago. Advisor clients of H. L. Quist, however, discovered them in their portfolios. To get your attention and validate CMV's recommendations here are some of the results:

Symbol Date - Recommended Entry - Price/Sh Current - Price/Sh Unrealized Profit
MCP -- 8-20-10 -- $13.00 (1) -- $26.00 -- 100%
REE -- 1-01-10 -- $3.86 (2) -- $8.60 -- 123%
TASXF -- 8-01-10 -- $.81 -- $1.84 -- 128%

(1) #1 on the NYSE with an increase of 25.3% for the week ending 9/24/10.
(2) In July, 2010 the price/share declined to $2.00. Ranked #1 on NYSE/AMEX at 36.8% increase for the week ending 9/24/10

What are these 17 elements and what are they used for? Molycorp Minerals (MCP), the owner of a mine in Mountain Pass, California, and has the richest REE deposit outside of China, provides the following:

"Rare Earth materials create enabling technologies that are found throughout Hybrid Electric Vehicles (HEV), Plug-in HEVs (PHEV), all-Electric Vehicles (EV) as well as in standard gasoline or diesel vehicles. Powerful neodymium-iron-boron (NdFeB) magnets are vital in the electric motor and regenerative braking systems found in the above electric vehicle categories and are also crucial to several other systems in the vehicles. Virtually all HEV, PHEV, and EV on the road today also rely on Rare Earths (primarily lanthanum) in the battery pack which stores energy normally wasted during coasting and braking and saves it until needed by the electric motor. To estimate positive impacts to our environment, the US EPA assumes each HEV will have twice the mpg and only half the emissions as an equivalent gas or diesel vehicle. For every 100,000 HEVs (such as the Toyota Prius) that replace existing vehicles we save well over 1 million pounds of CO2 emissions per year and 4.8 million gallons of fuel. HEV, PHEV, and EV contain from 20 to 25 pounds of Rare Earths, where a standard vehicle can contain on the order of 10 pounds. Demand for energy-efficient electric vehicles is growing significantly. Global demand is projected to be 4 to 6 million vehicles per year by 2013 so the impact on the Rare Earth market could be staggering. Additional Rare Earth supply sources must come on line to support this growing industry. Hybrid electric vehicles: Headlight glass: neodymium. Hybrid electric motor and generator: neodymium, praseodymium, dysprosium, and terbium. Component sensors: ytterbium. LCD screen: europium, ytterbium, cerium. Glass and mirrors polishing powder: cerium. UV cut glass: cerium. Diesel fuel additive: cerium and lanthanum. Hybrid NiMH battery: lanthanum and cerium. Catalytic converter: cerium/zirconium and lanthanum." Source: Molycorp Minerals, 23 Jul 10

In August, the Chinese government which controls 97% of all the existing production of REEs, announced that they would cut their exports which amounted to about 64 million metric tons in 2005, by 70%. Two of the primary REEs, cerium oxide and lanthanum oxide increased in price by over 2,000% on the news! Now, here's the big news — if the above is not compelling enough to get your attention — from the September 24th issue of the WSJ:

"The Department of Defense is completing a study to identify the potential national security risks of rare-earth dependency."

In addition, the House Committee on Science & Technology in late September began marking up a bill that would encourage the US government to hedge against rare earth shortages. It's well within the area of possibility that the federal government would declare rare earths as "strategic to the national security" and purchase a proven deposit. Could MCP or REE be a prospect?

The Re-Flation of Real Estate

First, the bad news:

The Central Planners in Washington now recognize that despite all the loan modification programs like HAMP and other initiatives, the housing sector is not going to lead America to an economic recovery. In fact, it could lead to either Option #2 or #3 as outlined in the MARKET OVERVIEW, (Page 1). There are about 11 million residential properties whose mortgage balances exceed the home's value and a shadow inventory of an additional 3.7 million vacant homes. David Rosenberg, Chief Economist at Gluskin Sheff says, that if prices drop another 5% to 10%, 40% of all American homeowners would be "underwater" on their mortgages. That would be catastrophic for not only the homeowners but the real estate industry and the US economy.

Added to this witches brew of "toil and trouble" is that investors in 2,300 residential mortgage securities, worth approximately $500 billion, are suing the banks that originated or are servicing faulty subprime mortgage loans to repurchase them. The lawsuits contend that the originators stuck them with "flawed loans marred by poor underwriting and faulty appraisals" (WSJ September 23, 2010). Can you say fraud?

Here are a few of the prospective re-purchasers and their potential liability:

Bank of America -- $35.2 billion
J. P Morgan Chase -- $23.9 billion
Deutsche Bank -- $14.1 billion
Royal Bank of Scotland -- $ 9.4 billion

And, the list goes on. The question is, to what extent will these buy-backs effect the reserves of these banks? The principal benefactors of the buy-backs would be Fannie and Freddie and by proxy, the US taxpayer.

The Good News?

If, and it's unquestionably a big IF, the BERNANKE RE-FLATION PLAN is successful, there should be re-mediation of the mortgage mess. Here's why. Mortgage debt is a constant. The appreciation of real property values through inflation will reduce the number of 11 million homeowners that are underwater. More importantly it will change market sentiment and psychology.

A significant number of home owners, witnessing an uptick of home prices in their neighborhood, will be encouraged to pay their mortgage and wait to walk. Investors also witnessing the uptick will be encouraged to invest risk capital in search of a higher return and the residential market will be on its way to recovery. CMV believes that, as simple as this solution may seem, RE-FLATION will begin to fix the problem. Funny, why didn't the MOTUS (Masters of The Universe) think of that?

Or, have they?

Serious Money
Macro Investing

A good friend and former client shared with your author that he had interviewed recently with an advisor who, after analyzing the portfolio mostly intact from your author's management four years ago, stated that the client was too over-loaded in one sector and needed to ‘diversity.' The over-loaded sector was precious metals. The advisor's recommendation? Sell the Precious Metals and diversify into an array of equity funds. Completely ignored was the past ten year performance of the names in his previous portfolio.

For example, Oppenheimer Gold & Special Minerals Fund (OPGSX). During the past ten years, this fund has had an average annual return of 24% which includes the precipitous drop of 30% during the crash of 2008. In fact, this sector is the only one that has not only made a 100% "V" correction but has gone on in 2010 to robust new highs up 35% as of September 24, 2010. Most individual names in the portfolio mirror this result. The message here is that:


My friend is again my client.

It is CMV's opinion that the investment climate in America and quite possibly the entire world has radically changed. The clouds are dark, foreboding and unpredictable. Buy & Hold, Asset Allocation, Model Portfolios, and even stock picking based upon earnings and fundamentals are no longer the keys to wealth accumulation. Macro Investing with Active Management has become the new model for sophisticated investors.

David Einhorn of Greenlight Capital said in a recent WSJ article:

"For years I had believed that I didn't need to take a view on the market or the economy because I considered myself a ‘bottom-up' investor. The lesson I've learned is that it isn't reasonable to be agnostic about the big (Macro) picture."

Mr. Einhorn has placed a huge macro bet that gold prices will continue to rise because of concerns that the out-of-control US budget and federal debt has a negative impact on the US dollar. Do you want to follow the "smart money" or follow the advice of an advisor who still believes that Microsoft, GE and GM are good growth stocks?

There is no question that High Frequency Trading (HFT) has un-leveled the playing field. Another "Flash Crash" is almost inevitable. Super computers such as "The Beast" featured previously in CMV contribute greatly to market volatility. On any day the HFT is buying high risk assets and the next day makes a 180° turn to safe-haven US treasuries or currencies.

CMV took a Macro View years ago when he told audiences and clients that Macro Trends were the key to investing. Realtors, for example, refused to accept the fact that the boom was unsustainable.

The irony, of course, is that there is SERIOUS MONEY to be made in MACRO INVESTING at exactly this point in time and CMV can position you if you are serious about SERIOUS MONEY.

Assuming that the BERNANKE RE-FLATION PLAN succeeds these are a few of the Macro sectors that should significantly outperform any other investing strategy:

The Devaluation of the US Dollar — Sell Short

The Appreciation of Precious Metals — Buy Long

The Panic Demand for Rare Metals — Buy Long

The Number One Alternative Energy (Nuclear) — Buy Long

The Rise in Interest Rates (US Treasuries) — Sell Short

The Rise in Commodities — Buy Long

There is one critical supposition to support CMV's Macro Investing. If CMV is correct, the US is at the cusp of a short-term inflationary cycle that could morph into Hyper-Inflation. All of the above sectors should perform extremely well given this environment BUT it will come to a calamitous end when it has run its' course in a "crack-up boom." CMV's strategy is simple and direct:

Make Huge Gains And Get The Heck Out of Dodge!
(The Financial Markets)

When the next crash occurs CASH will be king. That cash may be in Canadian or Aussie dollars or Swiss francs but those that have no debt and cash will be wealthy, independent and positioned to seize opportunity. The non-believers will become wards of the government.

The Inflation Jeannie Reappears

CMV's favorite metaphor has lifted her lovely body out of the bottle. While the talking heads on CNBC continue to remind us that "there is no inflation" evidence to the contrary is surfacing everywhere. To wit:

Arizona cotton farmers are celebrating as they prepare for the harvest of this year's cotton crop. Early in 2009 the market price of cotton was about $.40/lb. Last week, cotton for October delivery reached $1.09/lb — the highest price since (get this) the Civil War!

Retailers, with lean inventories and current and discounted sales are faced with a major dilemma. Should they restock at higher prices or wait and hope they can get through the Christmas rush with current inventory.

In a related sector, Nike reported a 9% increase in operating profit of $559 million in its latest quarter due to improvement in demand for its athletic apparel and less costly discounting. What impact will the 150% increase in cotton prices have on Nike next quarter?

The travel industry has reported that Americans have spent much more on airplane seats, hotel rooms and rental cars than experts had projected. Hotel revenue which plunged 30% from 2007 to 2009 has now recaptured all the decline in less than a year. Revenue passenger miles has returned to 2007 traffic levels at the airlines which have increased fares 3.9%. Travel employment increased 2.5% in the second quarter of 2010. What's ahead? Increased prices, of course.

Steel prices have risen for some types of products as high as 12% and as low as 1% since this past summer. China, which produces about 50% of the world's output, has cut production 3% to 5% and recently increased its prices on plate steel by 12%.

Other base metal prices that have risen off their 2009 lows are:

Aluminum + 65% -- Nickel +154%
Zinc +105% -- Copper +164%
Tin +120% -- Titanium +265%
Lead +151%

The penultimate evidence that inflation is poised to have a decided impact on personal budgets will be witnessed by shoppers. Commodity prices have already seen a market increase this year.

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