Free Preview of April CMV Newsletter

Hello World,

FREE PREVIEW of the April CMV Newsletter section. (The recommended list is available only to paid subscribers.) (The actual newsletter is better looking, due to the limitations of blog posts.)

We are repeating our offer of a free copy of "The Aftermath of Greed" and "How to Profit From The Coming Inflationary Boom" with a paid subscription to the Contrarian Market View e-Newsletter -- a $140 value for the price of $99. This offer is open to US residents (books shipped to a single address only) and will be available for a limited time only.

Here is the link to subscribe today http://bit.ly/CMVyearbook
.

April, 2010
H. L. Quist's
Contrarian Market View Newsletter

Market Overview

The Economy:

Double Dip or Skinny Dip? In market terms, is the economy headed for a second recession or is a recovery at hand and is it time to jump back into the pool? (Swimsuit or not!) Contrary to a plethora of pundits who maintain that the US is on the precipice of financial collapse, CMV believes that the economy is going to surprise on the upside. We were courageous and correct when we re-committed to the equity market on April 1, 2009, and firmly believe that the economy will continue to outperform its' most vocal critics.

There's no question that portents of gloom and doom from Conservatives — particularly since the passage of Obamacare --- have obscured the positive. Be assured, CMV has not switched allegiance and moved to the left. Our position has always been consistent — when addressing the issue of money, you must separate political ideology from economic reality. A little history to make the case in point.

1975 - 1977
The oil embargo and Nixon's self-inflicted crisis and humiliation sent the economy and the markets into a free fall. The Dow fell 50% and the real estate market gave your writer the opportunity to buy a bankrupt premium residential property in Phoenix for $22/sq. Ft. Despite the election of a Trilateral Socialist as President who resurrected (again) John Maynard Keynes, we experienced a V correction within those two years. Look at the charts. The Dow rebounded 100% off its lows. And, by 1978 the real estate and commodity markets (Gold to $850/oz) were going ballistic despite rapidly rising interest rates. The prime rate rose to 21.5% and mortgage rates to 17% by 1980. Of course, the inflationary ‘crack-up boom' followed in 1980, but those investors and pundits who focused on the political and fiscal ineptitude of Jimmy Carter, missed the boat to Omaha. (Buffet discovered value investing in Omaha during this time period.)

1983 - 1985
The Recession of 1980-82 initially was a nightmare for Ronald Reagan. Official unemployment of 10.4% was higher then than the peak experienced in 2009. Despite Paul Volker's determination to kill the inflation dragon with high interest rates, the GDP jumped to 5.1% in the first quarter of 1983, 9.3% in the second quarter and remained at an incredible 8% for the next three quarters. The Garn- St. Germain Act, Supply Side Economics, Michael Milkin and The Plaza Accord were the stimulants which led to Black Monday in 1987, and the real estate collapse of 1989. The recovery in 1983 to 1985 was indeed robust and we suspect that those liberals hoping for Reagonomics to fail also missed the boat to Omaha.

1991 - 1993
The collapse of the real estate market — primarily commercial — the enactment of FIRREA (Financial Institution Reform and Recovery Enforcement Act) which formed the Resolution Trust Corp and closed 747 banks and thrifts in the US, created a similar mind-set amongst the real estate industry that exists today. Your writer forecast a real estate boom in 1992, which proved to be the longest and most profitable period in real property value growth in US history. It also marked the beginning of the .com bubble. Another robust recovery for those that had vision and courage and took a Contrarian view in 1991. (Isn't that what this is all about?)

2002 - 2005
The bursting of the .com bubble beginning March, 2000 followed by 9-11 brought a new level of negative psyche to all markets. "The Greenspan Plan," so named by this writer, was a deliberate strategy promulgated by the Federal Reserve to stimulate consumer spending. Memories should recall that it was the RE-FI cash-out phenomenon that not only created a "shop to you drop" mentality, it also gave birth to the sub-prime residential and credit bubble and Wall Street's Master of the Universe (MOTU) highly-leveraged and speculative bets. What most observers and participants failed to see early in the fall of 2002, was the rebound opportunity for all asset classes. This writer strongly encouraged investors to get fully invested in real estate, equities and commodities in the fall of 2002. Gains in equities and commodities of 200% to 400% from 2002 to 2006 were common. The key, of course, was an exit strategy to get the hell out of Omaha in 2007.

2010 - 2011
The rebound in the equity markets from March, 2009 has been rewarding to those who had capital and courage. Your writer re-committed to equities on April 1, 2009 — one year ago. The snap-back in gold from $700/oz in November,. 2008 to $1,220 one year later was as spectacular as it was rewarding for Contrarians. Real estate has not joined in the party because of the extent of physical and psychological damage brought on by the MOTU, well-documented by this writer in both of his books. So, what is CMV's outlook for the next two years?

1. Blue Chip Economic Indicators, a poll of 50 economists, all maintain that there will NOT be a second recession in 2010 and 2011. CMV agrees. The "crash" will come later.

2. The Blue Chip consensus expects the GDP to be a little less than 3% this year and a little over 3% in 2011. They also forecast unemployment to drop to 8.8%, by the end of 2011. CMV forecasts a higher GDP in the range of 4% to 5% for both years and unemployment to dip to 8% by the end of 2011.

3. The Blue Chip consensus expects consumer spending to remain in the 1.2% to 2% gains. CMV accurately forecast a robust fourth quarter of 2009 and sees the consumer much more confident going forward. The pundits say the consumer won't spend when unemployment remains high. CMV reminds the reader that unemployment remained above 10% from January through June of 1983, yet real consumer spending soared at an annual rate of 6.1%. CMV does not expect a repeat performance of 1983, but spending could surprise on the upside. Ford's sales and profits will be the industry's leader.

A few words on REAL ESTATE. Given the volume of e-mails and the anguish expressed by Realtors and developers, capitulation must be near. One Realtor remarked, "It will take several years for the market to recover," Employment opportunities are emerging in markets like Phoenix, which created 20,000 new jobs in February. Migration will soon follow. A new "enhanced" mortgage relief plan has just been announced (March 26,2010) which will require mortgage servicers to reduce principal if homeowners owe up to 15% more than the home is worth, to reduce payments to within 31% of the income and to skip payments altogether for the unemployed. Sophisticated investors are now willing to exchange zero returns on bonds for risk assets. Your writer's Realtor spouse and daughter have had more activity in the past month than in the past two years. Deals have been made, escrows opened and closed. There is a light at the end of the tunnel and it isn't a train! Market psychology can change rapidly. It's time to get back into the pool.

The China Syndrome
Do you remember the 1979 flick starring Michael Douglas, Jack Lemmon and the appropriately cast "Pink Lady" Jane Fonda? The film dealt with a cover-up of a potential meltdown of the Ventana Nuclear plant in California. Today, the potential for a currency meltdown between China and the US looms as ominous as a nuclear version.

At issue is China's past decision to peg its currency, the Yuan, to a fixed rate of 6.83 to the US dollar. The US claim (by the Keynesians) is that the resultant undervalued Yuan or currency manipulation combined with Chinese export subsidies has resulted in burgeoning trade deficits for the US, weakening our own manufacturing base and loss of millions of American jobs while China has prospered mightily. Recently, 130 members of Congress wrote a letter to the US Treasury demanding that unless China revalues the Yuan upward, the US should impose tariffs on Chinese goods. That's just what the US needs — a trade war with its number one banker. Duh!

To the Chinese, perception is more important than reality. If they bow to US demands, they appear weak, therefore China will delay the inevitable longer and when it best serves its interests And, what will be the result to the US when China revalues? US imports from China (which just about now covers everything) will appreciate in price thereby aggravating our inflation picture. On the plus side, our exports will be more competitive thereby expanding the US manufacturing base and reduce the trade deficit. Which do you prefer?

The bigger picture, of course, is that China has accumulated $2.5 trillion in US dollar reserves. They hold the ultimate trump card and already is re-shuffling the deck to recycle the shrinking dollar. What happens when China creates sufficient internal demand for its goods and doesn't need the US market? Our children could be speaking Mandarin. The most significant Mega-trend of our lifetime has been the shift in global power from Great Britain after World War II to the US and now from the US to China.

A Showdown At The OK (Gold) Corral
CMV and The Myth Buster have often reported on the market manipulation of gold and silver suppressing the price of both metals. A formal hearing was held at the US Commodity Futures Trading Commission on March 25, 2010. The charges presented to Gary Gensler, Chairman of the Commission were:

Comex data shows that the price of gold and silver are suppressed.

There is a direct correlation of price suppression and the positions of two US banks.

The Bank Derivatives Reports from Treasury Department Office of the Comptroller of the Currency (OCC) indicates these two banks are JP Morgan Chase and HSBC (formerly Hong Kong Shanghai Bank).

Appropriate enforcement action is required.

This writer's friend and hero, Bill Murphy, who founded The Gold Anti-Trust Action Committee (www.gata.org) many years ago, has implicated the US Government, the Federal Reserve and the major bullion banks as the perpetrators of the illegal scheme. Their motive, GATA says, is to maintain the purchasing power of the US dollar artificially high by concealing inflation and as a result, keep interest rates artificially low. Given the backdrop of the precarious state of the US and global economy, this issue has more relevance today than ever before. CMV suggests that you go to www.marketforceanalysis.com (Adrian Douglas) for a summary of the claims. To highlight the issue, from July to November, 2008, the two banks cited above went from having just 9% of the total net short position of silver to 99% thereby representing the entire net short position which is illegal. A short position is intended to suppress the price and the holder profits at a decline in price. As CMV indicated in previous issues, JP Morgan Chase, by virtue of its short position, would have been in serious financial condition if the price of silver increased. Of critical importance to you as an investor, JP Morgan Chase is the custodian of the silver in the SLV ETF. HSBC is the custodian in the GLD ETF. It's conceivable that neither of these institutions have the metal to meet their obligations as custodians.

President Barrack Obama (BO) in appointing Mr. Gensler to Chair the CFTC has vowed to clean up the corruption and bring transparency to these markets. Question is, will Gensler look into the abyss now confronted with these facts and clean up the mess or will he retreat and the bankers will maintain their control, as they have since 1913? CMV maintains that investors could demand delivery of bullion at contract expiration which will blow the lid off this entire scheme and both metals could reach levels never envisioned.

As a side note, despite the manipulation, gold has, since 2000, appreciated 10.1% a year against an average of All currencies. Some examples are:

US Dollar 14.9%
Swiss Franc 10.1%
UK Pound 15.1%
China Yuan 12.6%

Think back to 2000 and all of the financial advisers that told their clients that gold was "too risky" and a "barbarous relic." Pretty sound advice, huh?

One very important anomaly. The USD has rebounded in March from 81.00 to a high of 82.20 on the index which normally would be negative for gold. In spite of this dollar rally, gold has risen from $1,085/oz to $1,113/oz. We may have reached the point of BIFURCATION. Just like 1977 to 1980, gold will rise despite dollar strength and a dramatic increase in interest rates.

Interest Rates
CMV reported in the March issue of the "failed" auction of US Treasuries. 11% of the bonds at the February 10th auction were purchased by the Federal Reserve due to the lack of bids. A sudden drop in investor demand in the weak March 22nd auction further highlights the scenario forecast by The Myth Buster over a year ago. The 10 year note jumped from about 3.65% to 3.89% despite the fact that it was not offered in this auction. So, what is causing rates to rise?

Concern in Europe that Greece and other countries (PIIGS) may default on their debt.

The passage of Obamacare and the prospect of higher deficits in the US.

Social Security will record its first cash flow deficit (about $29 billion) in history this year, six years before forecasts.

US Treasuries have a higher yield than some US corporate bonds — a first in US history.

Echoing this concern, Steve Rodosky, head of Treasury and Derivative Trading at bond giant PIMCO said he was increasingly worried about the US fiscal outlook. In two days, 30 year mortgages were quoted at 5.125% up from 4.875%. Rates on many mortgages are linked to the 10 year Note. For CMV readers, TBT, our bond short strategy rose sharply from about $47/ sh to almost $50. Volume on the ETF skyrocketed from 5 million shares to over 15 million. The handwriting is on the wall. Read it! TBT should be a core holding. The Bond Bear Market has begun.

Additional fiscal concerns. Charles Krauthammer, who is a brilliant political analyst and who appears nightly on FOX News, said on Bill O'Reilly's Show on March 22nd, that the BO plan to raise hundreds of millions of dollars annually to attempt to meet the President's horrific deficits is a VAT — Value Added Tax — The European's answer to the constant dilemma that the US most assuredly faces. For those of you who haven't experienced it, you'll be forced to tack on a 10% to 25% (or more) tax on every retail purchase you make. (Possibly excluding food and health care.) Add $6,000 to that car you buy. When will this happen? Immediately after the mid-term election to be effective January 1, 2011. (Germany 19%, France and Italy 20%, Scandinavia 25%).

The biggest concern facing middle class America is the real prospect of the US Government's conversion of 401(K) and IRA and other retirement accounts. Sound absurd? In H L Quist's How To Profit From The Coming Inflationary Boom And Avoid The Next Crash, (p. 23) he cited nine months ago that the House Committee on Education and Labor had reviewed a proposal by Teresa Ghilarducci, a Professor of Economic Policy Analysis at the New School for Social Research in New York, to eliminate tax breaks for 401(K), IRAs and other retirement plans and convert them into Guaranteed Retirement Accounts (GRA) managed by the Social Security Administration. Now the focus has shifted to require that these plans purchase US Treasury Debt! These Marxists are totally committed to redistribute America's wealth and they can't resist this pool of trillions of dollars of private capital — particularly now when investors are backing off the purchase of US paper. If this attempt to "fundamentally change the United States of America" doesn't create a revolt, nothing will.

President BO, is doing his best to solve the unemployment problem. It is estimated that the IRS will hire 16,000 new employees to administer Obamacare and they've set aside $10 billion dollars in start-up funding. Unemployment in Virginia in counties close to DC have only 4% unemployment prior to the expansion of the IRS. The massive and highly remunerated bureaucracy that will grow during this presidency will absolutely destroy any chance of fiscal sanity.

What does this all translate to? Where are we, as a nation and it's economy, headed?
Rising inflation, morphing into;
Hyper-inflation, which leads to;
A Crack-Up Boom, which ends in;
US default and bankruptcy.

The only thing CMV can't tell you is, WHEN.

Subscribe to the CMV Newsletter and get real contrarian asset management assistance.

-- H. L. Quist

Free Preview of March CMV Newsletter

Hello Investor,

We are repeating our offer of a free copy of "The Aftermath of Greed" and "How to Profit From The Coming Inflationary Boom" with a paid subscription to the Contrarian Market View e-Newsletter -- a $140 value for the price of $99. This offer is open to US residents (books shipped to a single address only) and will be available for a limited time only.

Here is the link to subscribe today http://bit.ly/CMVyearbook

Be sure to provide your screen name and mailing address.

FREE PREVIEW of the February CMV Newsletter section. (The recommended list is available only to paid subscribers.)

(The actual newsletter is better looking, due to the limitations of blog posts.)

March, 2010

H. L. Quist's
Contrarian Market View Newsletter

Introduction

A CONTRARIAN is someone who looks at things differently than the majority of people. That definition fits H. L. Quist and CMV perfectly. In market parlance when 80 to 90% of investors are certain that the market is going to continue upward, the contrarian heads the other direction. Conversely, when the news is about as bad as it can get, the true contrarian is usually on the ground floor buying. That's what you can expect from H. L. Quist's Contrarian Market View (CMV).

CMV is not a market timer, but we don't want to be 100% exposed at a major turn in the market. In the past ten years there were two occasions to be defensive, significantly change the asset allocation, or be out of the market altogether.

March 2000 to October 2002
July 2007 to April 2009

The results, in the above case, were significant as most participants are painfully aware (Pages 68 - 75 How to Profit From The Coming Inflationary Boom and Avoid the Next Crash, by H. L. Quist). CMV anticipates that market volatility will continue in the future and our form of Active Management will serve the investor well.

In most cases, CMV anticipates that most readers will manage their own assets. In addition, most readers/investors will use CMV's specific recommendations to compliment their existing portfolios according to their own risk tolerance, time horizon and suitability. The recommendations included in this newsletter are principally aggressive and speculative in nature and should be used to offset or compliment the investor's complete portfolio. When determining what percentages should be in various asset classes, the reader/investor should list ALL of their assets such as cash in all accounts, life insurance and annuities, IRAs, 401Ks, commodity accounts, investment real estate, etc. The principal point of this exercise is that most advisors totally ignored alternative investments such as gold, oil, commodities etc. in past allocation of assets and not only failed to realize the gains these assets provided in the past 10 years, but they didn't have these gains to offset the losses in the .com bubble bust and the sub-prime market meltdown. Going forward Buy and Hold is not a prudent investment strategy.

Here is an example:

Risk Tolerance % Allocated to CMV
Conservative 10%
Moderate 15%
Aggressive 30%
Speculative 50%

The above is simply an example of how the reader/investor may want to use this newsletter and the
recommended portfolio. Please consult with your adviser and conduct additional research on your
own.

Market Overview

Inflation
This topic is a major focus of CMV for two primary reasons:

1. It could be the single most important factor to you in your investment, financial, retirement, business and personal planning going forward, and

2. Americans are inundated with manipulated information that demonstrates that the threat of inflation does not exist.

The following information is provided by Jeff Nielson writing for Bullion Bulls Canada in the February 20, 2010 edition entitled, "Bank Lending Plummets as Wall Street Strangles Economy." Nielson quotes extensively from John Williams' Shadow Government Statistics (shadowstats.com) whom CMV has also relied upon for factual (truthful) data on the US economy.

Nielson says, "John Williams now believes that US hyperinflation could kick-in as early as this year." Nielson adds, "However, with phoney inflation statistics pretending that there is no inflation in the US, many are asking ‘where is this inflation?' Confusing the issue further, a stubborn group of ideologues insist that there can't be inflation — because we are headed for a deflationary implosion."

To illustrate the point, the US Bureau of Labor Statistics (BOLS) indicated in mid-February that the Producer Price Index (PPI) rose 1.4% in January, or over 20% on an annualized basis. The PPI reflects the cost of finished goods which ultimately, of course, are passed on to consumers. In contrast, the PPI was a negative number in 2009. But BOLS is quick to add, if oil and food increases (which none of us consume !) are removed from the index, the gain is only .04% and therefore not a harbinger of inflation.

Similarly, the January Consumer Price Index (CPI) showed an increase of 2.6% over December, 2009 and, annualized, over 30%! However, when "seasonally adjusted" the increase was reduced to only 0.2%. Jay Bryson, an economist at Wells Fargo was quoted as saying in a Wall St. Journal article that there were substantial declines in rent, education and healthcare. Arizona universities (as some of the rest of the nation) just announced up to a 30% increase in tuition and the largest provider for health insurance in California, Anthem Blue Cross, just reported a 39% increase in some premiums effective May 1st. CMV suspects that none of these numbers will ever see the light of day at BOLS. John Williams reports that inflation was 9.8% in January. Who do you believe?

So, why would BOLS under-report or adjust the numbers to minimize inflation?

1. To convince the consumer that prices of goods and services are not increasing and therefore stockpiling or hoarding isn't necessary.

2. To minimize the cost of US Treasury borrowing. The Treasury currently pays approximately $360 billion interest on $10 trillion of debt at exceptionally low rates. The government will need an additional $2-3 trillion in new financing in 2010 alone. Interest on the Federal Debt will be the largest line item soon in the country's budget.

3. To minimize the bank's interest costs from borrowing from the Federal Reserve as well as the costs to large corporations, hedge funds and private equity firms.

Most consumers and some observers fail to recognize that inflation is first and foremost a monetary phenomenon. It's simple arithmetic. When the government increases the supply of money at the fastest rate in history the price of that commodity (money) must fall. The devaluation of the USD is in reality, the definition of inflation. Those in control of the inflation numbers and those who benefit most from lower interest costs are deliberately masking what is about to unfold. John Williams believes that the "Inflation Jeannie's" appearance will be sudden and soon. CMV believes that the process will be more gradual allowing investors to realize gains from asset inflation before the ‘crack-up boom."

Bank Lending
Closely related to the above analysis is the commodity or fiduciary element that creates this phenomenon — MONEY. The purpose of the TARP program was to save the banking system from collapse. Ostensibly, that mission has been accomplished (at the money center banks) and those institutions should now be in position to lend again as a requisite for recovery. That has not happened. Look at the chart below indicating the largest drop in commercial and industrial loans in history.




Source:
http://www.businessinsider.com/chart-of-the-day-commercial-and-industrial-loans-at-all-commer cial-banks-2010-2

Early 1990s
Note the drop in loans after the real estate crash in 1990.

2000 to 2002
Note the drop in lending after the .com bubble burst and 9-11.

2002 to 2007
Note the dramatic increase in lending leading up to the sub-prime fiasco.

2007 to Present
Note the incredible drop from +$300 billion in lending in 2007 to a minus $300 billion currently.

So, where is the money going? Jeff Nielson calls it the "scorched-earth" strategy. Here, he says, is what is happening:

1. The Federal Reserve monetizes (prints) massive amounts of new money.

2. The Fed loans the money to the money center and regional banks (he calls them OLIGARCHS) at a nominal cost.

3. Instead of lending out these funds, the banks deposit the funds at the Federal Reserve where they earn 1% interest (ostensibly at no risk).

4. The Fed then uses these deposits to buy U S Treasury bonds which funds the massive US budget deficits, keeps interest rates low and the bond bubble from bursting. These purchases are from "direct sources" which are not named but we can now conclude The Fed is the primary buyer.

An event occurred on February 10th, that went unnoticed by perhaps 99% of the population. The US Treasury had, what many considered, a "failed" auction. Every week the Treasury auctions off gazillions dollars of debt to the highest bidder. Normally the bid to cover ratio is 2/3 to 1 for every bond sold, or in other words oversubscribed. More bidders than supply means lower interest rates. In this particular auction however, 24% of the bond issue was bought by direct buyers who are not identified. Shazam! Up steps Mr. Bernanke and the Fed becomes the secret "direct buyer" for an estimated 11% of the total purchases - a record.

Tim Geithner, the Secretary of the US Treasury when asked about this "failed" auction and the problems in Greece, was quick to respond. "The US will never lose its' AAA bond rating." To observers like CMV this is government doublespeak, meaning a downgrade of US debt is probably imminent. What then? US bond yields balloon, the USD falls and the Inflation Jeannie exits her bottle to party.

So, what have these "banksters" accomplished in this charade? One, they've "kicked the can" down the road. They are avoiding an immediate debt default by the US Treasury, providing a good portion of the various stimulus programs, feeding FHA, Fannie Mae, and Freddie Mac to shore up the housing market and in short — delay the inevitable collapse.

Secondly, and most important for readers of the CMV, the "scorched-earth" strategy will create an inflationary boom or as Nielson says "The Mother of all Rallies." In a last-gasp desperation move the banks, given an additional injection of money from the Fed, will begin a frenzy of lending abandoning (again) all lending standards creating Hyper-Inflation described by Ludwig von Mises, as a "crack-up boom."

Herein describes the problem and the opportunity. This scenario to CMV is clear. The timing is not. But, in all probability CMV will be able to gauge the process and keep you advised. You should not miss the opportunity to achieve gains in your portfolio during the "Mother of all Rallies," but before it's over CMV will probably advise liquidation of all assets. (And, where to shelter them.)

The Stock Market
The Bears have come out of hibernation and it's not spring yet! The "fear factor" (that there will be a major decline in the market) is as high as it was in November, 2008, according to Shaeffer Investments. A poll of newsletter writers (not including CMV) shows that only 34.1% are Bullish which is the lowest since March, 2009, when the Bear market rally began. You may recall that CMV postulated in the January CMV newsletter that there could be a correction of 10% to 20%. Through February the correction is less than 1.0% Here is a quick insight into some of the Bearish soothsayers:

-- Meredith Whitney, who was one of the first analysts to call the sub-prime crash was Bullish until the end of 2009. In an interview with Maria Bartiromo recently on CNBC, she turned Bearish. Reason? The banks are under-capitalized.

-- Doug Fabian is a big Bear booster. He says this market rally is a "Bear Trap" much like the 1930 rally of 48%

-- Paul Farrell of Market Watch has listed 20 reasons why the market will fail in 2012. (CMV believes that there could be a significant rally in the ensuing two years also ending around that time.)

-- Bloomberg is forecasting a "great reckoning" in the US economy, meaning deflation.

-- Forbes believes that, in a short period of time, the total Federal Debt will equal 90% of GDP and the US economy will arrive at the "tipping point."

And, the Bearish beat goes on.

Late 2009 when the soothsayers were 90% Bearish on the US dollar and calling for its' demise, CMV (through its alter-ego The Myth Buster) took the Contrarian View and forecast a Rally in the dollar. Sure enough, much to the surprise and chagrin of the Bears, too many of them crowded together on to the same side of the ship and it capsized. What does this have to do with the stock market? When the Bears become the majority here, it will be time for the stock market to continue its rally that began in March, 2009. It appears that we're close to that point.

What's Bullish to CMV? Look at recent reported earnings:

-- Sears reported quarterly earnings of $430 million, up double from last year.

-- Target reported quarterly earnings of $936 million, up 54% over the same period last year.

-- Priceline earnings doubled and expect bookings to rise 48% in 2010.

-- Whole Foods earnings jumped 71% over last year.

What do these companies have in common? They all represent consumer spending and specifically to lower demographic groups.

It has been reported that over 80% of the S&P 500 companies have earnings in excess of estimates. Namely:

-- John Deere - earnings up 19% in the first quarter of FY 2010, and they're re-hiring workers.

-- Caterpillar also reported robust earnings and they're re-hiring 600 employees in the next 60 days.

-- Edmonds Shoe Corp. is also calling back laid off employees.

-- H-P reported a 25% increase in earnings and forecast an increase in sales of 26% in 2010.

What we have here, in CMV's opinion, is a massive disconnect between the Bullish indicators of business (specifically large corporations) and the consumer versus the Bearish outlook of the banking and government sectors. The question we all want answered is, will the economy continue to improve (as evidenced above) DESPITE the burgeoning Federal Debt and the incompetency and divisiveness in our political system? Most Bears see the out of control Federal Debt and deficits as the Sword of Damocles that will come crashing down to cut off the lifeblood to our Capitalistic system. Will Keynesianism succeed? Stay tuned and informed.

Leadership?

In February, the President signed an executive order creating a Bi-Partisan National Commission on Fiscal Responsibility and Reform. How absurd is that ... when the President's own budget proposal estimates that deficits will total $8.5 trillion over the next 10 years? According to the Wall St. Journal (WSJ) what the President is really trying to accomplish is "political cover" for huge tax increases scheduled for after the mid-term elections. The WSJ says this charade should be called the VAT (Value Added Tax) Commission because that will probably be the recommendation.

Representative Scott Garrett, (R, NJ) has introduced a bill titled the Accurate Accounting of Fannie Mae & Freddie Mac Act which would require an accurate accounting to taxpayers as to the total liability of these two mortgage giants now under control of the US Treasury. The massive losses that the "evil twins" plus the $1.6 trillion of their corporate debt are presently not included as taxpayer debt and, are in Washington terms, ‘off-balance-sheet' items. As CMV has reported on several occasions, losses will continue to mount, FNM and FRE executives will continue to receive outlandish bonuses and taxpayers will never know the true liabilities. In the end, our political leaders will bury the loss along with the twins. That's real "leadership."

In CMV's opinion, there is no other corporate market leader that was contributed more to the real estate debacle and the resultant financial collapse of the US economy than Goldman Sucks. Now we've learned that Goldman played a significant role in Greece's potential default on its sovereign debt! These Masters of the Universe (for humongous fees and commissions) advised the Greeks how to hide their ballooning debt off-balance-sheet — for a number of years until two weeks ago. Now the Grecians are rioting and storming the stock exchange and government offices to rally against budge cuts. Shouldn't they direct some of their ire to the true architects of this global chaos? (As CMV goes to press the Federal Reserve is opening an investigation into Goldman's involvement in Greece. Rots of ruck!)

For those of you who remain partisan, it's the call for change in all Leadership that is the mantra of the Tea Parties. These are former Democrats, Republicans and Independents that have got it figured out. And, this is the critical point: Inflation and its' big brother hyper-inflation are a direct result of loss of confidence in leadership and the value of the country's currency. This massive mountain of debt coupled with the change in public sentiment are the roots of the ‘flations.

. . .

The above is a partial preview of the March CMV Newsletter. To get all the information including the recommended portfolio, AND receive a copy of "Greed" and "Profit" subscribe today - click here.

-- H. L. Quist

H. L. Quist - Sunday's Radio Show was Great

Hello World,

My guest appearance on Pat Gorman's Hard Money Watch radio program was a great experience! If you missed it listen here -- the link should be active for several weeks, so send this blog to your friends and family.

If you have not purchased your copy of "PROFIT" my how-to-guide click here for the payment window where you can purchase the book for $20 plus shipping using your Paypal account or credit/debit card. Don't forget to give me your mailing address.

Also for any of you who would like to take advantage of my two book special of GREED and PROFIT for just $30 plus shipping click here, same kind of payment window comes up.

Stay tuned for more updates.

H. L. Quist

ANOTHER BUBBLE

As detailed in my book "GREED", I forecast in July 2005 that the massive real estate and credit bubble would "implode endangering the financial security of millions of Americans." Unfortunately, my forecast was accurate.

As I finished writing "GREED" in December 2007, the Dow Jones Industrial Average (DJIA) had declined about 7% from its October 2007 high and I wrote:

"At present the US stock market is overbought and over-valued. There could be a near-term nasty correction of (an additional) 10% to 30% in early 2008..."

As we painfully know the equity market bubble imploded into an all-out-bear market rout which exceeded my estimate.

Now, as all America ponders what's ahead in this "Aftermath of Greed," a third bubble has found helium and will, in your author's opinion, burst in 2009 catching unwary investors unprepared — again.

What is this latest asset bubble? Believe it or not, it's US Treasury debt!

Since this past summer, as the stock market began its precipitous decline and the housing and credit sector worsened, investors sought the safe-haven of US Treasuries, preparing for a recession or even a depression economy. Demand has been so great that yields have reached historic lows. One and two month T-bills pay less than one-tenth of one percent whereas they were about 5% in August 2007! Two year rates are below one percent and the bellwether ten year note currently yields under 3%. Although investors were principally seeking safety, those that bought Treasury debt a year ago have also enjoyed huge realized and un-realized capital gains (as yields decline the principal market value of the bond increases).

BUT — what happens (or perhaps when) the threat of the dreaded "Double D" — Default and Depression — subsides and the signs of recovery are promoted by the talking heads on CNBC? And, what happens when the inevitable whiff of inflation burns the market's nostrils? Billions, yes maybe a trillion will flee from the Treasuries as fast as John's during a raid on a house of ill- repute!

But, alas, there could be a silver lining in this bubble. Where will a large portion of this money go?

First, equities. A dramatic bear market rally could be ahead.
Second, gold. The ultimate money and inflation hedge.
Third, real estate. A surprising rebound could defy all prognosticators.

Most market mavens and economists predict there will be a slow road to recovery in all these sectors. "The Myth Buster" doesn't agree and envisions continued volatility in all markets. But barring a catastrophic event, there could be a decided upside bias in 2009. There isn't an easy way to quantify the amount of capital that will be re-deployed from Treasuries elsewhere, but I suspect that a considerable amount of the multi-trillions is not traditional, patient money. It's "smart money" looking for opportunity and outsized gains.

Where's the downside? At the US Treasury Department. The Government's refinancing needs may exceed $2 Trillion in 2009. Who is going to step up and buy Treasury debt in a rising interest rate environment? And, who is going to invest in a country whose currency is being defaced daily? The US shouldn't count on the Chinese. They're already holding $1.9 trillion US Dollars and Treasury debt and rumors out of China indicate that they're contemplating converting some of these dollars to gold bullion (4,000 tonnes). The reality is that the entire G20 is more than a little concerned about the global imbalances that the US has created.

Stay tuned to "The Myth Buster." Change is coming!

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-- H. L. Quist

A Paradigm Shift In The Aftermath of Greed

This report is the first of many blogs that will update my readers of "The Aftermath of Greed, Get Ready for the Coming Inflationary Boom" as well as those of you who may not have read my book.

Since the recovery of the residential real estate market is perhaps the primary exponent for a rebound of the broader economy, a critical update of the mortgage industry and the bailout of Fannie Mae and Freddie Mac (hereinafter referred to by their respective stock symbols FNM and FRE) is first and foremost.

Over five years ago I referred to FNM and FRE as the "evil twins", while teaching "Trends & Cycles in Real Estate" at the Southwestern School of Real Estate. Most attendees dismissed the inference, until now.

Citing reference from the excellent and courageous investigative journalism at the Wall Street Journal, I informed my classes that management at FNM was "cooking the books" and in time the story would unfold that could imperil FNM's existence as a publically traded company.

As I pointed out in GREED, the looting of FNM by Franklin Raines, its CEO, and others was particularly onerous. In 2000, Mr. Raines paid himself $20 million in compensation based, in part, upon $10 billion in profits that did not exist. Although Raines was ultimately fired, he was not required to repay bonuses received based upon fraudulent numbers and retired comfortably on $1.6 million per year — when he should have been serving time. Paul A. Gigot, who is the editor of the Wall Street Journal's editorial page and FNM's chief protagonist (and who was vilified from all quarters) sums it up appropriately when he said on July 23, 2008:

"The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left (like Paul Krugman of the New York Times), pseudo capitalists on Wall Street, by liberal democrats, and country club Republicans. Even now, after all their dishonesty and failure Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever."

FNM and FRE, the "zombies" of finance (the dead feeding off the living), have been bailed out by US taxpayers as part of a broader housing bill that will become effective October 1, 2008, which allows the US Treasury to extend an unspecified (say unlimited) credit line to the twins. The bill also authorizes the government to buy stock in either company. FNM's and FRE's stock price had fallen more than 80% in the past year. It appears to this writer that this equity provision was inserted into the bill to reassure institutional investors who had been called upon to shore up the firms' capital, that there wasn't going to be a full nationalization of the companies (near term) rendering their investment worthless.

Capitalism has morphed into a new economic model. Profits are retained by private interests and losses are absorbed by taxpayers (more later).

The other major component of the housing bill (which is tabbed the "Housing & Economic Recovery Act of 2008") is the expansion of the Federal Housing Administration (FHA) which will insure up to $300 billion in new loans for desperate homeowners who could not qualify for FHA loans under existing rules and law. Forget the old Great Depression era FHA. This is a new turbo-charged, gas guzzling, super slick version of the old Model T and it runs on your greenbacks.

Based upon information available as of this date, here's an example of how the new FHA program might work.

A homeowner (who has spent at least 31% of their income on a mortgage) has an existing high interest sub-prime loan with (let's say) Countrywide Financial. The loan may already be in default as is 48% of Countrywide's $30 billion sub-prime portfolio. The borrower can refinance with the new FHA on a 30-year fixed rate loan at an interest rate significantly lower than any prime borrower on a conventional basis. Countrywide agrees to write down their mortgage to 85% of the current appraised value in exchange for a new loan guaranteed by FHA. The borrower presumably now has a loan that is affordable, Countrywide owns a loan that is fully valued on its balance sheet and the risk of default is assumed by taxpayers. A perfect win-win you-lose scenario.

The housing bill (HERA 2008) has a myriad of other features. Some are:

— A fund to provide more low income housing.
— A tax credit up to $7,500 for home buyers repayable interest free over 15 years
— A provision whereby the homeowner will share in any gains with FHA on a sale or refinance of the home.
— Grants for states and local government to buy foreclosed homes
— Counseling for homeowners being foreclosed.
— Raise loan limits for FNM and FRE to $625,000
— Raises the Federal Debt Limit to $10.6 trillion from $9.8

The paramount question is: What impact will this legislation have on the real estate market and when?

Once the massive bureaucracies at FNM, FRE, and FHA initiate their new guidelines, I believe that the results will be decidedly positive. Markets move on fundamentals and emotion. The housing bill changes the fundamentals. The present psychologically depressed market atmosphere will quickly turn positive as refinancings slow the foreclosures and new sales begin to absorb inventory. Hope Now Alliance has reported that it has renegotiated 181,000 loans in June and almost 2,000,000 homeowners have remained in their homes since the program started — another positive.

The new FHA loan limits are the greater of $271,050, or 115% of the local area median home price capped at $625,000, therefore the largest market segment in the US will come under the new law. The down payment has been increased from 3% to 3.5%. Starting October 1, 2008, the FHA will no longer accept down payment "gifts" that are funded by the seller (unless provided by an uninterested third-party) which will negatively impact sales but some experts believe that the $7,500 tax credit provision will be as effective longer term for home buyers. Given the history of the ten boom and bust cycles in the US over the past 34 years, this bail out plan was predictable and should serve as the cornerstone of the inflationary boom I forecasted in GREED.

For all the positives, there is a cost.

Every crises creates an opportunity for those who seek more power. Henry Paulson, the US Secretary of the Treasury, has proposed that ALL lending agencies, banks, investment banks, mortgage companies, mortgage brokers, et al, come under the jurisdiction of the Federal Reserve. That may comfort some, but to this writer it is a consolidation of power in the hands of a few — collectivism. Remember, it was the Fed's Greenspan Plan that initiated the real estate and lending bubble in 2002 and the Federal Reserve that took no action to curb the "Merchants of Debt" which led to the market's implosion and this aftermath.

Market consideration aside, I'm compelled to advise my readers that what has occurred in July 2008 represents a paradigm shift in America. Capitalism, as I've known it during most of my lifetime (the 1930's an exception) has acquired a terminal (but curable) illness. The Greenspan Era marked by the commoditization of credit (where character didn't count) and the securitization of debt (where the originators of the loan no longer retained an interest in the loan) has imploded in the aftermath of greed and in its place America begins its slippery slide to Socialism. As outlined in GREED, this fifth bust cycle since 1974, has prompted another short- term government fix that will manifest itself in a greater problem later. As a market analyst, I can give you this upbeat positive economic forecast for the near term. As an erudite pundit, I have to admonish you:

SOCIALISM HAS AN UNBLEMISHED RECORD

IT HAS NEVER BEEN SUCCESSFUL

Your comments and inquiries are welcomed.

H. L. Quist.

Buster's Blog

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