Free Preview of CMV For January, 2011

Hello World,

The CMV Recommended List grew 45.17% in 2010!!!

The comparative results for 2010 were as follows:

The CMV Portfolio +45.17%

Dow Jones Industrial Avg. +10.95%

S&P 500 +12.80%

NASDAQ Composite +17.36%

Below is a preview of the CMV (Contrarian Market View) Newsletter for January, 2011.  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.)

January, 2011

H. L. Quist’s

Contrarian Market View

Newsletter

* * * *

REMINDER

Free Presentation and Luncheon Courtesy of

Golden Peaks Resources (GDPEF).

(Shareholders Only)

Reservations are Required.

Respond to: H.L Quist at 602 840-4117

or hlquist@djmwealth.com

January 14, 2011

The Sanctuary

11:30 a.m. - 2 p.m.

* * * *

Market Overview

Absent the following events that could have a material impact and alter or change our outlook for 2011, CMV offers its’ Contrarian forecast for 2011.  These “X” factors are:

1.  A Cyber attack on Wall St., the banking industry or government that would significantly impair commerce and confidence in our government ability to curtail this type of activity.

2.  A series of terrorist attacks on highly visible and innocent targets that would instill fear in the populace.

3.  A breakout of hostilities in the Korean Peninsula or the Mid-East.

Assuming none of these above events occur, here is CMV’s best guesstimate of major events that will influence your business, your investments and your family in 2011.

1.  The Economy and Financial Markets Will Surprise to the Upside.

Barron’s Magazine polled 10 prominent strategists and investment managers who collectively see the S&P 500 finishing 10% higher than this year’s close at 1258 or 12.80%.  Despite the Fed’s Reflation Plan to prop up asset prices while maintaining interest rates at historical lows they all agree that inflation will not be a problem.  David Kelly at JP Morgan Funds forecasts the highest S&P earnings at $98/sh for 2011 and the 10 year T-Note at 4.25% by the end of 2011.  When questioned as to what sector will best perform in the year ahead, 5 out of the 10 picked technology as the number one performer.  Remarkably, none of the 10 experts chose precious metals in their four or five favorite sectors.  One could assume that they missed the numero uno sector (gold funds) which have out-performed all sectors for the past 10 years.  CMV’s position is that S&P earnings are going to be tempered by higher raw material costs and the 10 year T-Note could be a full 100 BPS or more above the consensus of 4.00% despite Bernanke’s attempt to “cap” it.  Inflation by the end of 2011 will be the most off-repeated word in the English language but remains foreign to Wall St..

Despite the fact that the US economy will not reach the Nirvana of robust earnings, low interest rates and no inflation as forecast by these experts, the economy and the markets will surprise to the upside and you should be fully invested after mid-January.  An added impetus will be provided by the major banks who will aggressively increase their business lending in 2011 contrary to prominent pundits.

2.  The Us Dollar Loses Luster.

CMV described in the December issue that China and Russia had organized the Shanghi Co-Operation Organisation (SCO) which garnered very little notice in the US media.  In mid-November China allowed its’ currency, the yuan, to be bought and sold outside the mainland for the first time.  This is a critical step moving to full convertibility of the yuan and Americans are oblivious of the impact this will have on the international financial landscape and the value of the USD.  The goal of China and Russia and other states that are coming on board SCO, is to circumvent the USD in international trade and allow countries to settle transactions in currencies other than the USD.  The dollar has been the world’s reserve currency for over 60 years and 2011 will mark the beginning of the end of the dollar’s role.  When China severs the yuan’s link to the USD, the value of our currency will sink like a rock in a swimming pool and the prices of imported goods will skyrocket.

3.  The “Shock and Awe” Real Estate Loan Program.

The Obama Administration is actively in negotiations with Fannie Mae (FNM), Freddie Mac (FRE), and the Federal Housing Administration (FHA) to develop a new government program that would be aimed at reducing loan balances where borrowers owe more than their homes are worth. FNM and FRE which own or guarantee about half of the all the mortgages in the US, would transfer the reduced loans to the FHA and of course, losses will be absorbed by you guess who!  In addition FNM and FRE and other lenders plan to recoup somewhere between $200 and $400 billion from banks who sold them the toxic subprime loans.  CMV expects FNM and FRE to be “restructured” ostensibly using the bank proceeds.  CMV sees this imitative as a “game changer” and will stop the bleeding in the residential real estate market in 2011 if the plan comes together.  The plan will be adopted by the US Treasury and the Obama Administration without review of Congress and the cost heaped on you and I, the taxpayers.

4.  The Bond Bubble To An Asset Bubble.

The Federal Reserve Board Chairman’s goal is to create asset inflation by driving investors from near zero return bonds to higher risk appreciating assets — stocks, commodities and eventually real estate.  In CMV’s opinion, Mr. Bernanke will succeed in the near term.  There is an almost inestimable amount of trillions in government, corporate and municipal bonds that are, and will be ever-increasingly, diverted to risk assets.  Viola!  Asset inflation.  We have Mr. Bernanke’s “100% certainty that the Fed can control inflation.”  CMV believes that the Chairman will fail on this promise.  Unfortunately, with Federal deficits running in excess of a trillion per year, the US Treasury issuing new debt and re-funding old debt at about $4.3 trillion per year, interest rates will rise, reminiscent of the late 70s.  In late 2011 and into 2012 CMV believes that US bond investors will conclude that they will never be paid back with anywhere near close to the same purchasing power and the Fed will find itself in a series of accelerating QE programs which will inevitably lead to Hyper-Inflation.  CMV doesn’t know what the time frame may be but in the end trillions of dollar denominated debt will disappear and never be repaid.  More on pages 3 and 4.

5.  City and State Governments Will Default.

Meredith Whitney, the Wall St. analyst who accurately forecast the sub-prime debt crisis well in advance, recently said that there will be “fifty to one hundred sizable Muny defaults amounting to hundreds of billions of dollars in the next 12 months.”  In addition, some analysts are also including the states of Illinois, New York and California as candidates for default.  Many defaults would have occurred in 2010 had it not been for $140 billion in Build America Bonds that these governments used to pay interest on old debt, salaries to employees and pension payments to retirees.  The BABs are scheduled to end on December 31, 2010.

On December 27, however, Republican Congressman John Mica said, “I can almost guarantee” that the program for subsidized bonds will be funded next year.  Ignoring the Tea Party’s mandate, Mica is playing to Wall St. which made $700 million in the past 2 years on fees off of BABs!  Proving once again that the system is corrupt and will fail.

Austerity measures could be met with denial, anger and rioting.  It’s human nature for US citizens to take the position that ‘It can’t happen here” and refuse to accept the possibility that we’re no different than Euroland, Latin America or even third world countries.  Civil unrest could be the primary event of 2011 and 2012.  George Soros, who CMV revealed as “the most dangerous man in America” basks in the glory of the chaos he’s created in his quest to kill the capitalistic system and profit from its demise.

Ben’s Inflation Bubble

It is difficult for the average person to grasp the meaning of the term and the presence of “inflation” for a number of reasons:

-- We’re constantly reminded by the talking (Wall St.) heads on CNBC that “there is no inflation” because it undermines their purpose of a “Goldilocks” economy..

--  The Bureau of Labor Statistics has modified the methodology that produces the Consumer Price Index (CPI) to the extent that the index is worthless.  Removing food prices from the core index at a time when these prices are exploding is a perfect example how government deceives its citizens while it steals from them.

--  Economists tell us that we can’t have price inflation during periods of high unemployment, low money velocity and low GDP growth whereas it has suddenly appeared when those conditions exist.

--  People don’t equate Fed monetary policy and fiscal stimulus with asset and price inflation which is the direct result of current policy.  Inflation is first and foremost a monetary phenomenon.

Let’s look at some specifics:

   Corn is closing in on $6.00/bushel — up 50% since June.

   Spring wheat is $12/bushel — up 20% from a year ago.

   Feeder cattle is $124.75/100 wt — up 25% from a year ago.

   Coffee is $2.25/lb — up 7.5% in a week.

   Sugar is $32.5/lb — up 12% in a week.

  Cotton is $1.50/lb — up over 100% in a year.

To fully appreciate the cause and effect that’s going unnoticed in virtually all areas of the US (except farming country) is the incredible boom in farm land prices.  According to the WSJ (December 9, 2010) two tracts of farmland in O’Brien County in Iowa sold recently for $9,700/acre.  The article says that “land fever is running rampant” in the mid-west.  John Deere & Co. Says that net farm cash income will rise 31% this year and it’s the most profitable agricultural year in US history!  CMV can’t think of any group of hard-working Americans who deserve it more but consumers won’t agree.  Do Not blame it on our farmers!

Land prices are a factor of higher crop prices but what’s driving crop prices?  Some experts claim there’s a global food shortage particularly in China but there’s also the inescapable fact that our exports are priced in USD and our currency is melting as fast as a snowball in Phoenix in July.  Washington is ecstatic that exports are soaring but now you know why the reign of the USD is going to end — and much sooner than experts figure.

Here’s another aspect of this emerging picture that isn’t obvious.  Americans, since 2008, have been buying groceries and goods on a “just in time” basis or a few items at a time.  When it becomes apparent to homemakers that prices are escalating they’ll buy in larger quantity.  Bingo — demand impacts supply — prices increase and panic buying could ensue. Consumers will be shocked by the increases in food prices in 2011.

Another sign of the times.  Copper has popped to $4.25/pound.  It has been reported that one US source is hoarding close to a billion dollars of copper by warehousing the metal at the London Metal Exchange!  China is utilizing the same technique hoarding uranium, rare earths and gold.  The Chinese have this whole future scenario figured out and are trading dollars now for goods needed later.  In addition to massive price increases, could we see a trade war?  We’re on the cusp — The Future isn’t what it used to be! 

Ben Bernanke’s objective through QE2 is to create asset inflation and at the same time (with 100% certainty) control wage and price inflation.  Will he follow in the footsteps of his mentor, Alan Greenspan, who set out to inflate real property prices but failed to intercede to curtail the mania that followed?  Or, will he turn off the QE spigot and raise the Fed funds rate?  In CMV’s opinion, the Fed Chairman doesn’t make that decision — the banksters and politicians who “anointed” him make that decision.  Bernanke is simply a hired gun. By the end of 2011 the economy will be running on all cylinders and the banksters and the President won’t want it to stop.  The result?  Ben’s Bubble — the Fed’s FIFTH since the seventies.  Asset bubbles create profits. Investors take profits and pay taxes.  It’s like the 1990s all over again.  The same market frenzy during the .com bubble created a budget surplus and made Bill Clinton the teflon man.  BO wants to replicate his success.

As CMV has reiterated numerous times — this new bubble is the “Last Rodeo.”  Our creditors will lose confidence in our fiscal and monetary management and will refuse to lend to the world’s largest debtor nation..Our citizens will also lose confidence in the purchasing power of their currency.  The result?  HYPERINFLATION.  Ben will lose his job and the privately controlled Federal Reserve Bank of the United States will be dissolved.  When?  It’s just a matter of time.

The 2011 (Good) Surprise

In September 2010, CMV saw a change underway in the economy that most economists, market analysts and observers missed. While most experts were focused on the “double dip” and a decelerating economy ahead, CMV saw stealth evidence that the US economy was about to surprise on the upside in the fourth quarter.  Here are some observations that validate CMV’s forecast for a sharp economic rebound in 2011.

--  The Nation’s GDP rose at a 2.6% rate in the third quarter of 2010 and the consensus projection was a 2.4% growth for the fourth quarter.  CMV saw a massive increase in exports amongst other signs that would result in a much higher GDP growth in Q4. The port of Los Angeles’ activity was nearly at 2007 levels.  Barron’s had boldly forecast a 4% GDP increase and CMV saw an increase of 4.5%.  As of this writing economists are scrambling to revise their estimates upward for Q4 and the year 2011.

--  The cost of money was never cheaper and corporate balance sheets were never stronger at the end of Q3.  Private Equity firms and Wall St. can’t resist “free money” plus the obvious flow of funds exiting bonds that would be a catalyst for a dramatic turnaround in the stock market and corporate investment.  Wal-Mart and Coca Cola borrowed massive amounts of capital through the sale of bonds at an absurd yield of a fraction over T-Notes. CMV rests its case.  Bernanke’s QE2 announcement in August was frosting on the cake.  The “Fix” was in.

--  The election results, in CMV’s opinion, had much more of a significant economic impact than most may have been willing to admit.  A huge cloud of “uncertainty” was lifted from the shoulders of those businessmen and women who make the decisions on corporate expansion, capital investment and hiring that ultimately would reverse the unemployment picture.  An increase in new jobs in Q1 2011 will lead to a further increase in 2011 GDP.  CMV cautioned however that unemployment would not drop to (what has been considered normal) 5 to 6%   The “new normal” will be more like 8% but that will still spur the economy in 2011.

--  As late as the end of November the National Retail Foundation and retail pundits were projecting a modest increase in Christmas sales.  CMV, the true Contrarian, saw a much different picture.  Consumers were saving at a 5% to 6% rate during the entire year of  2010, credit card outstanding consumer debt was finally declining and “frugal fatigue” would result in a robust Christmas season.  As of this writing sales are estimated at $451 billion, or up nearly 4% over 2009 and very close to 2007 highs.  The surprise of course, was Internet sales up about 15% to $36 billion and a new phenomenon appeared which foretells problems for the sector.  Best Buy reported a dramatic drop in sales.  Why?  A potential buyer walks into Best Buy shopping for a wide-screen TV with all the bells and whistles and gets the full demo and info from the sales clerk.  He then pulls out his cell phone, locates a site that directs him to an Internet vendor that offers exactly the same model for 20% less.  Before the ex-potential customer leaves the store he buys the TV on-line.  Retail sales may be up on the aggregate but there is a massive marketing shift and re-apportioning of the pie.  Another certainty, sales taxes are coming on all on-line transactions — but prices will still remain cheaper.

For those experts who maintained steadfastly that consumer spending would not increase when there’s high unemployment, don’t know how to assess a change in public sentiment. CMV takes the position that American’s should be accumulating as much cash and investing every available dollar in order to prepare for the Great Reckoning which is a virtual 100% certainty.  We just don’t know WHEN.

Your writer was on a panel with two other pundits over a year ago.  One was the Treasurer of the State of Arizona and the other a stock market broker and analyst.  Both of these experts maintained that there wouldn’t be an upside economic reversal (the likes we’re about to see) because so much money was lost and consumers and investors were so psychologically damaged they would refrain from taking any risk.  Since March, 2009 the S&P 500 has produced a return of 81.6% through November 2010.  High beta stocks not including the resource sector are up a hard-to-believe 213.3% according to Barron’s!  As a testament to investor’s appetite for risk, margin debt is now $269 billion which is the highest since the over-leveraged market prior to the September 2008 crash.  These panelists like a majority of Americans, missed the “bus to Omaha.”

CMV can understand our State Treasurer’s negative outlook.  Every day he had to deal with a mounting deficit and borrow $2 billion to keep the lights on at the Capitol.  CMV fully recognizes that the fiscal situation at all levels, federal, state, and city, is unsustainable and can not continue. The choice that leadership at all levels has taken is to INFLATE the problem away which is now underway.  Like an Alka-seltzer, its’ a ‘Fizz’ or, temporary relief.  Assets will appreciate, tax revenues will increase and an euphoria of relief will change sentiment and all will appear that all is well again.  CMV’s value to you is that amidst all the gloom we saw the bloom despite the fact that the petals will again wilt and fall.  NOW is the time to make serious money.  By the time that the herd decides to join the game it will be too late.  The party will be over.

Randall Forsyth writing in Barron’s on December 17, 2010, articulated exactly what CMV has told you ad nauseam:

“...the Federal Reserve’s adoption of QE2 may turn out to be mere footnotes to the bigger story.  2010 could be the watershed marking the beginning of the end of the dollar-based, Western-centric monetary system...”

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Happy New Year!

-- H. L. Quist

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:

http://www.hlquist.libsyn.com/

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

http://itunes.apple.com/us/podcast/the-myth-buster/id407018026

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

-- H. L. Quist

Viewer comment:

Heya

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.

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

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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
Newsletter

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.

January
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.)

February
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.)

And,

"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.)

March
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.)

April
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.)

http://www.gpo.gov/fdsys/pkg/FR-2010-02-02/html/2010-2028.htm

http://www.americanthinker.com/2010/09/retirement_fund_trillions_lure.html

http://www.dol.gov/ebsa/newsroom/fslifetimeincomeoptions.html

May
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.)

June
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.

July
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.)

August
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%.)

September
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.)

October
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:

MACRO INVESTING WITH ACTIVE MANAGEMENT

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%.

November
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?)

December

Inflation:

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

INFLATION IS VIRTUALLY FLAT

"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 month...clothing 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.

International:
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.

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Financial Questions? Contact hlquist at djmwealth dot com

-- H. L. Quist

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

Newsletter

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:

THE ELECTION, and

THE FEDERAL RESERVE STIMULUS

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:

BARAK OBAMA WAS THE BEST THING THAT

HAPPENED TO AMERICA!

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 25^th 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 (www.cumber.com) 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 25^th 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 24^th, 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 RECOMMENDATIONS

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.

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