Aaron's Blog

The Fed has always played a major role in influencing how we invest, what we invest in and how long we invest in a particular sector for.  They change the interest rates on us, influence the amount of money printed and determine (especially in this day and age) which banks receive capital injections. Don’t think for a second that it was Paulson, or now Geithner, making these decisions alone. The Fed keeps everyone on a tight leash.  Remarkably, the Fed is now under intense scrutiny as the politicians try and determine whether they pressured Bank Of America into purchasing Merrill Lynch. With the Fed’s almighty power over our capital markets growing by the day, it is imperative every investor understands exactly how it works and more importantly, that it isn’t a government body, but rather a business itself. The Fed is a game changer and must be followed diligently, otherwise we are doing our portfolios and financial future a disservice.

I’ve linked in a great video interview with G Edward Griffin. He breaks down, in detail, exactly who the Fed is and how it works. I think you’ll

Good evening members,

I’ve been in the office for what seems like an eternity today – I guess it must be the beautiful weather outside. Before I head home I want to share this blog (in case you missed it in our Market Analysis section) from a class act and Pinnacle Digest affiliate, Stewart Thomson of Graceland Updates. This guy thinks outside the box and is always good for an eye opening read.

Enjoy

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1. The US dollar has fallen from a recent high of 120, and before that, over 160. It now sits around the 80 mark. The gold community has whipped itself into an all-out frenzy. Not good.

2. The markets are a bank congame. And you are the bank MARK. The US dollar isn’t going to zero. It is nearing the end of a massive bear market, not starting it. When the last bull market in gold ended as Jim Sinclair’s own employees worked thru the night selling his 2 million ounce gold position, those employees did not sell their own gold. Some went to the POORHOUSE as gold crashed.

3. “When this gold bull market ends, 97% of you won’t believe me when I say it’s over.” – Jim Sinclair. World’s Largest Gold Trader.

4. How will the gold bull market end? And more importantly, what actions will you be taking when it does? Answer: Most likely, the gold bull market will end with a new gold standard, a watered down version of a real gold standard. I don’t know what actions you will be taking when the bull ends, but I know what actions I’ll be taking. And it won’t be the actions that Jim’s employees took. In the last gold bull mkt I sold at the top while most gold writers said rates would soar and the dollar would collapse.

5. The solution to the current otc derivatives crisis, the economic crisis, the debt crisis, the solution is: Gold.

6. Some of you have written me asking if Ben Bernanke thinks gold is a currency. Of course he does. He knows it is the only real currency. Is he a jerk and a liar? I think so. An idiot? Not at all. He’s a genius. His actions are carefully planned, and he understands gold far better than most of us. He, together with the Treasury will use gold to end the crisis, taking his orders from the bankers that created the crisis to enrich themselves. Creating the crisis enriched the major bank families. Ending it will make them richer still.

7. The revaluation of gold against the US dollar will be accomplished by the re-introduction of gold as a CONTROL on the paper money supply of US dollars. It will likely be a control event, not a price event, not a conversion event.

8. Right now, every time the US govt prints money, there is no control on how much money can be printed. Put your car in park. Start the engine and floor it. With no governor on the engine it will blow up. The bankers removed the governor from the US dollar engine in 1970. The governor is gold.

9. The revaluation of gold against the dollar will be the re-instatement of Governor Gold. The mechanics of this control mechanism will be twofold: First the US Treasury and global central banks will create a buy program for gold. If the supply of US dollars is to be increased annually over a certain floor percentage, say 5%, enough gold must be bought by so the ratio of dollars outstanding to gold increases by only 5%.

10. What this means in plain English is that Helicopter Ben could increase the money supply by 10,000% if he wanted to, provided that he then bought enough gold to maintain the ratio of dollars to gold showing just a 5% increase. Bottom Line: Helicopter Ben gets his rotors clipped.

11. The bad news is this should have been done at gold $250. Or gold $400. Or gold $500. Why wasn’t it done then? Because the bankers wouldn’t

As a follow up to my latest blog on the gold market, I want to share with you an excerpt from one of the brightest minds in the business and an online affiliate to PinnacleDigest.com, Mark Leibovit. If I could recommend only one market commentator to you all, Mark would be it. We share similar opinions on gold, although he may be a little more bullish on the precious metal than I.

Mark is the Chief Market Strategist for VRTrader.Com. His technical expertise is in overall market timing and stock selection based upon his proprietary VOLUME REVERSAL (tm) methodology and Annual Forecast Model.

His Annual Forecast Model (available at VRTrader.com) has gained increasing notoriety on Wall Street as a predictor of future market movement. Released each year in early February, it has accurately pinpointed market highs and lows. It's claim to fame began back in 1987 when it predicted the ominous stock market crash nine months in advance. It also forecast the 2000 bear market - the report released February 1, 2000 entitled: 'It Looks Like An Honest to Goodness Bear Market'.

From Mark Leibovit's VRtrader.com Platinum Newsletter - June 2, 2009

"My intermediate target for Gold is 1200 and my big picture target (possibly within the next two years) is for 3000. We could go even higher, but if we think in terms of a 20-year up cycle, i.e., into 2020 there is plenty of time to see this unfold and I'm sure we're going to have to trade it (both long and short) along the way. With gold currently just above 950, it would be nice to see gold stay there and make an assault at the 1000 level and the recent high of 1007.7 and the old high of 1037. My view is that 1000 will become the new FLOOR for Gold just as 1000 became the new FLOOR for the Dow Industrials when it broke through to the upside back in 1982.

The contrary view here holds that deflationary forces will overpower inflationary forces and Gold will FIRST decline. That may be true, but the lessons of the 1930s show that gold-mining shares may show extraordinary gains in such a period. For example, between 1930 and 1935 Homestake Mining rallied from $80 to

Gold has been a very frustrating commodity for many investors this year. The precious metal had every reason to skyrocket in value over the last 6 months and has yet to settle, but for a brief moment, above $1,000 an ounce in 2009.

The question I am constantly asked is: Why isn’t gold trading above $1000 yet?

There are many reasons, but, before I get started…We should all hope and pray that gold doesn’t hit $2000 an ounce within the next 2 years like many gold bugs are predicting. If this happens, we might as well throw in the towel on the chance of our economy recovering within the next decade. If $2,000 is gold’s value in the near future, then something has gone terribly wrong in our markets and economy. And our money is worth squat, resulting in fear taking over the minds of investors everywhere…Not good. With that stated, I think a realistic value for gold, given our current economic environment, is $1200 - $1300 an ounce. But that won’t happen overnight. It’s going to take at least a year.

Investors need to have patience with gold as there are many factors influencing its value.

Below I have outlined what has helped gold increase in value (and will continue to) and what is holding it back:

Driving Gold Up:

• In Q1 there was a 38% increase in gold demand. The key to this statistic is that it was strictly through investments in ETFs. The most notable gold ETF is GLD (SPDR Gold Trust), which now trades more than USD $1.26 billion per day. Because of its growing popularity this ETF now has a major influence on the price of gold. And its influential power is only getting stronger by the day as more investors find out about it. Last year GLD (SPDR Gold Trust) held the #8 spot in the world for gold holdings, ahead of China and the Dutch. This tells me that mutual funds, retail investors and hedge funds are now becoming world influential powers in the gold market. And where do you think they will be investing when the stock market takes a dip on us? You guessed it. GLD or other gold ETFs.

• Sales of gold bars are up as well. For the past few months the demand for gold bars has skyrocketed. They are being sold for roughly $1150 an ounce. This is a leading indicator of where the spot price for gold is headed (currently $956.00 an ounce).

• Fear was at all time highs in Q1 of 2009 - the biggest driver in the price of gold.

• The dollar index is trending down rather quickly. The dollar’s health remains dependent upon foreigners’ appetite for U.S. assets, which will decline as the economy falters and the government continues to inject additional liquidity. This will drive up inflation and drive the USD down (only driving gold up further).

• In the past twelve months, the Federal Reserve’s balance sheet grew by 146%, the Bank of England’s by 158%, the European central banks’ by 58% and the Swiss national bank’s by 74%. When inflation finally kicks in (aggressively), it could provide the KICK gold needs to push through $1,000 and never look back.

Holding Gold Back:

• Strictly limited gold sales (403.3 metric tons -12% of its total holdings) are being discussed by the membership of the IMF as part of a package of expenditure and income measures to put the IMF's finances on a sustainable basis.

• Because of the recession, jewelry and industrial purchases in gold were down dramatically in Q1. The drop in jewelry sales, particularly in India, is reason for concern. It has risen moderately in Q2.

• Q2 has brought back some positive sentiment into the market. Gold has always risen on investor fear. When fear subsides, gold’s value decreases.

• Conspiracy time: The US government does not want to see

Hedge fund managers, derivatives traders and mortgage loan officers could have learned something from this kid! Sometimes less really is more.

A young boy enters a barber shop and the barber whispers to his customer, 'This is the dumbest kid in the world. Watch while I prove it to you.'

The barber puts a dollar bill in one hand and two quarters in the other, then calls the boy over and asks, 'Which do you want, son?'
The boy takes the quarters and leaves the dollar.

'What did I tell you?' said the barber. 'That kid never learns!'
Later, when the customer leaves, he sees the same young boy coming

During this recession there have been millions of layoffs in all sectors. Both profitable and unprofitable companies have been contributing to the unemployment rate which sits at a 25 year high.

Why is it that the PROFITABLE companies are laying off workers?

They will tell the public it’s because business is slowing down. They will also give forecasts for future growth not maintaing the same pace as the previous year. Blah blah blah.

The truth is, it’s because certain executives have personal monetary incentive to do so.

Public companies are ran by their largest shareholders. The more shares one owns, the more influential power they have. If you own a lot of shares in a company, you naturally want to see the value of those shares increase. The CEOs of public companies aim to please their large shareholders.

When a public company lays off workers, it typically has a positive effect on the stock price, even in this market environment.

The more expenses a CEO cuts, the more profitable the company becomes (or at least that’s the goal) and the large shareholders will be more approving of the CEO’s performance. When a CEO has the approval of the company’s largest shareholders, he will likely receive more compensation. Laying off workers is a strategy used to please the shareholders and help secure the CEO’s bonus…And job.

CEOs need to stop trying to manage their stock price. They need to refocus on managing the business. A company is as good as

Congratulations to everyone who has made money during this month long record breaking rally. Give yourself a pat on the back because you refused to listen to all the doom and gloom theorists who claimed the financial world was on the brink of destruction just one month ago.
 
So now that the rally is a month old and the markets have climbed several percentage points, what do you do if you’ve missed the boat and were sitting on the sidelines? Do you jump in and hope there is still more upside?

I think jumping in isn’t a bad idea if you’re an investor with a medium to long-term time horizon, but you have to be careful because volatility is extremely high. Don’t just jump into any stock you’ve been watching, now’s the time to be selective and look for the right opportunities.

I believe the right opportunities right now are in the small cap stocks. Why you ask? Aren’t they too risky?

Yes, they are risky, but the RIGHT small cap opportunities are the companies with enough cash to get them through the next 12 months without having to look for money, or at least not large chunks of money (to avoid dilution), and they must have a superior asset. I’m not claiming that one particular sector is the way to go (although I really like commodities right now), but I think small cap stocks have the most upside – by a landslide.

Over the last six months small caps have been beaten down worse than any other stocks. This is because they were the first asset investors looked to liquidate due to the perceived risk involved with holding them during tough times. Investors’ perception and fear during this recession has given us a gift within the small cap sector.  Let me explain:

Because of this recession unemployment will likely be higher than 10% in the US very soon. Disposable income is very low, for now, but this will change as the savings rate quickly increases (already near 5%).

Disposable income is typically used by retail investors to purchase a nice new set of golf clubs, a new car, home improvements and most importantly, small cap stocks. People buy small cap stocks when they feel they are in a safe enough financial position to take on some high risk ventures. Not too many people have the money to play with high risk equities right now and for that, a lot of great small cap companies have been extremely oversold. Many of them didn’t even move during this massive rally. In fact, a few of the ones on my watchlist have gone down during this rally and they have incredible assets, no debt and enough cash in the bank to continue developing for the next 2 to 3 years!

The market moves 6 to 9 months ahead of the economy, right?

Not so for the small cap markets. These markets move when risk tolerance is high. They have trouble gaining traction during recessions and therefore trend differently from the large cap markets. Small cap markets have yet to show us the returns of the large caps because disposable income is still low (I want to remind you that this won’t last). This gives those investors who missed the rally a second chance at major profits, but they will have to be patient. Good deals are everywhere and positioning yourself in the small cap market now (with the RIGHT companies) is a smart move in my opinion.

As the economy works its way out of this recession and we inch towards positive GDP, the retail investors will come back to the small caps in a big way. The key is to

It was announced over the last few days that AIG (American International Group) will be paying out bonuses of $160 million. That’s right, BONUSES!

These bonuses will be paid to the failures at AIG who ran that company into the ground and then asked for a bailout from the American taxpayers only a few months ago.  Now that taxpayers have forked over billions to AIG they have decided to take a little off the top and dish it out in the form of bonuses to some of their employees. Whatever happened to paying out bonuses based on performance? I thought that was what a bonus was for?

According to the big wigs who run the bucket shop known as AIG, these are “retention bonuses.” I guess they knew they couldn’t fool us if they called it a performance bonus so they renamed it and dished out the cash, or in other words, taxpayer money. I don’t know if I have ever been this disgusted in a company in my life. What’s the difference between this and stealing?

Forget about the retention bonus, send these guys to detention or better yet, send them packing. They claim they need to pay these bonuses out to retain the top talent…Is that a joke? If this company had top talent they would have never been in this mess.

How on earth will we rebuild Main Street’s confidence in Wall Street when this greedy, selfish behavior is allowed. This is an issue of lost values. Where is your integrity AIG?

This can’t be allowed or it will affect our

The markets were thumped this week by fickle investors. Geithner was too vague when explaining how he plans on fixing the banks which have been clobbered by $756 billion in credit losses. Because of this, panic sellers have once again created a great buying opportunity for optimistic investors like myself.

*I believe that if you’re an investor you have to have a glass half full perspective or you’re in the wrong game.*

We’ve all heard the reports and rumors about how there is a ton of money on the sidelines right now. This money is waiting to come into the market at the right time. No one knows when the “right time” will be exactly, but the big players are stockpiling cash and working on their prediction. To give you an idea just how much money is on the sidelines, let’s take a look at Cisco Systems Inc. (CSCO:NASDAQ), the technology giant whose stock has been hammered and criticized by many.

Over the last six months Cisco’s stock has gone from roughly $25 per share to as low as $14.20; a classic case of a powerhouse company getting hammered with the rest of the market. Like so many stocks, they bottomed in November and have been hovering between $15 and $17 since. Investors are now realizing Cisco has an ace up their sleeve and that their drop in share value may have been overdone.

The Ace: Cisco has roughly $30 billion in cash and equivalents which is the largest cache among high-tech companies and second to, who many consider the most powerful company in the world, Exxon Mobil (Among S&P 500 companies).

Thanks to the economic crisis Cisco has put themselves in a position to acquire

As you may know by now, I am a cheap investor. This means that I usually only buy bottom feeding opportunities. Research In Motion (RIM:TSX)(RIMM:NASDAQ) has been on my watchlist for quite some time and to many investors, it is a great bottom feeding opportunity.

*Helpful Hint: Being cheap when it comes to investing is good, but not so good when you’re taking your lady out on a date*

Despite RIM’s collapse in share price during the last six months, I still haven’t pulled myself together to purchase a few shares. The reason for my cold feet is that I was waiting to see how the Blackberry Storm fared when it hit the market. I had my reservations before the product was released. Copying an idea isn’t what made RIM a powerhouse in the smart phone market. They did make slight alterations, differentiating the Storm from the iPhone, but after owning the product for a month now, I think they made a mistake.

I’ve been a Blackberry owner for 4 years and in that time have probably owned just about every new model RIM has come out with. I love my gadgets and up until now I have loved RIM’s product. It’s easy to use, very practical, increases my efficiency and I think that is why people first started buying them. Unfortunately the Storm doesn’t work with the same efficiency as RIM’s older models. It’s tough to type with so I don’t like responding to emails on it because I don’t want my clients thinking I’m illiterate. It is also very slow at times and comes with one too many bugs. This has defeated the purpose of owning a Blackberry, at least for me.Why has RIM spent so much money targeting the iPhone audience? Clearly RIM felt threatened by the overnight success of Steve Job’s masterful creation, which instantly scooped up 25% of the smart phone market share. But the market they took over was never

I didn’t want to spend any time writing about the Madoff scandal because it deeply frustrates me when some individuals ruin the reputation of our financial market for their own greed. I don’t like to dwell on their selfishness and bring more negative words to the situation, but I can’t help myself this time.

On Wednesday, Bernie Madoff faced the possibility of losing his bail and spending the rest of his time awaiting trial in a prison cell. The reason: He allegedly tried to mail some of his finer watches and other jewelry to his family members. And these weren’t the type of watches you or I might wear. The estimated value of the jewelry is around 1 million dollars. He allegedly did this after the court ordered an asset- freeze. Knowing it was wrong, he still tried to beat the law, AGAIN.

I was reading Bloomberg.com (a great site) and found this quote that sums it all up:

“The critical fact is that the defendant, knowing of the order, consenting to the order, violated it,” Assistant U.S. Attorney Marc Litt said at today’s hearing. “By violating it, the defendant acted 180 degrees opposite to his stated intent after his arrest, which was to see to it that the victims got back as much as possible.”

The result of the trip to court:

Madoff exited the court (not surprisingly, in a bullet-proof vest) and was escorted back to his multimillion dollar Upper East Side apartment.

I don’t care how good Bernie Madoff’s lawyers are (which are probably being paid with the victims’ money) he should be awaiting trial from a prison cell after his demonstration of disregard for the law and investors’ money. If not a prison cell then at least a

Happy New Year to all of you! I think it’s safe to say no one will miss 2008.

The price of oil has risen sharply since I last wrote you on December 19th stating this would happen. Since the 19th oil has risen almost 24%, making it the highest commodity gainer in that two week time period. As oil attempts to stabilize above $40 per barrel, the stories surrounding the black gold are increasing significantly.

The war going on between Israel and Hamas is one of many reasons the short speculators have turned their bets long. A lack of confidence in the US dollar is another reason why shorts are getting killed. The most significant reason is Russia cutting off natural gas supplies to its western neighbor, Ukraine, for the second time in three years. Why is this significant? Because Ukraine supplies Europe with 25% of its natural gas. Many European countries don’t deal with Russia so they have established Ukraine as a middle man, therefore not losing the goods from Russia, but not dealing with them directly. When the news broke on Wednesday about this story, oil spiked. It went from roughly $39.00 per barrel to $44.50 in a matter of two hours. This was after a miserable energy report, showing soft demand from consumers.

We have soft demand, but a story breaks on a supply cut in Europe and oil spikes. This tells me two important facts:

1.) People believe demand will pick up.

2.) People believe we will have supply issues down the road; a sign for me to stay long and look for entry points on down days.

When a decrease in demand is ignored because of the potential of

On Thursday oil closed below $36.50 per barrel; an unbelievable price considering that just six months ago it was above $140.00. When oil was trading above $140.00 I wrote about how ridiculously high the price was and how a severe drop was imminent. Now, I am making a case for its imminent rise.

Read Blog from July 3, 2008: Why Oil Will Fall

No matter where we are in an economic cycle there will always be overreaction, to the upside or downside. In the summer it was an overreaction to the upside and now in the winter it is to the downside. Either way, the one who knows the intrinsic value stands to make massive profits.

I’m always looking for bargains and now is the easiest time to do so (if I have a long-term view). With that stated, the reason I have developed an obsession with buying and selling oil is because it has long-term and short-term potential. Over the past few weeks I have taken several positions in an oil ETF (both long and short). I believe oil has almost bottomed and with its high volatility can provide great short-term profit potential as well as the obvious long-term potential. It’s not common to find an investment which can make you 25% over the course of a week and also provide exceptional long-term profit potential.

I believe oil will have a fair market value around $55 per barrel in 2009. That’s 50% higher than what it’s trading at right now. And when you trade leveraged ETFs (if you're a risk taker) your gains and losses are usually in multiples of 2 (daily not annually). You can see the potential.

I’m not predicting $36.50 per barrel to be the bottom, but I do believe that at some point over the next 12 to 18 months, the price of oil will be higher…Much higher. There’s even a chance that by Monday of next week it could be back around $40.00. After all, the February contracts are valued around $43 and Friday is the closing of all January contracts.

No one knows for certain where the bottom will form but I truly believe that oil’s price is already undervalued. There are many aspects which lead me to believe this.

1.) Many projects have

Each morning when I arrive at my office I do what I call the “30 minute drill.” Before the market opens I visit each of the sites listed below and look for stories which catch my interest. The knowledge which some of these sites provide is paramount to my success when trading ETFs – my new hobby. I hope they can be of help in your trading ventures and please feel free to share some of your own.

My Favorite Sites:

General Finance

www.economist.com

http://www.forbes.com/markets/

Entertaining and Educating

http://www.kudlow.com/

Technology

www.TechCrunch.com

Now that Paulson has backpedaled and changed the way the bail out will work, I think it’s safe to say this will not be the stimulus America needed. I never believed the bailout would completely fix the problems corporate corruption has caused but I truly believed it would have a far greater affect (even in the short term). I watched Bush’s speech late last week in New York and found myself a little uneasy with his confidence, or lack thereof. Although the market immediately skyrocketed (the DOW swung about 700 points in an hour), he did nothing but make me feel relieved a new president was taking over. I’m not a Democrat supporter by any means, but at this point I feel anything is better than George W and his team.

The best stimulus of them all: The price of oil collapsing!

We’ve seen a massive cash injection into the U.S. economy stumble out of the gates with rules on how to spend it changing on the fly (thanks Hank). Perhaps the greatest stimulus America needed has come from a natural correction in the price of oil. No cash injection needed, no bailing out irresponsible lenders, but letting the market do what it does naturally.

American people are broke and are spending less and less on fuel consumption, softening demand. With the price of oil trading around $57.00 it is estimated to have already saved the American economy over