Less than 48 hours....

Thursday night we announced in class that Monday's classes will be the first to know about our most exciting, outrageous announcement in the last 6 months.  The clock is ticking.... in just under 48 hours All of our students will be aware.  Will you be in class to hear the news or will you simply be the last to know? 

Not sure if you qualify?  Monday's class is your last chance to join our current level 1 group as we will start registration for next month's class on monday.  If you want to sign up visit www.TradeSmartU.com to register and you can be one of the first to hear our most outrageous announcement YET!  

Here come the skeptics....

It's inevitable when someone comes out with such crazy notions as DOW 3000 that the critics would come out of the wood works.  My recent video comparing Dow 1929 to Dow 2009 is of course no exception.  Alas - a prophet is never welcomed in his own land.  The theory of contrary opinion is a tough position to back.  It's not popular.  That's why it's contrary.  Yet in the stock market it has been proven to very often be correct.  Even if the position is wrong but it provides a position of caution, it is still worthwhile.  

Yesterday I received a very thoughtful email from a student who was simply passing on some points of discussion from a friend.  With our student's permission I am posting excerpts from our exchange.  I figure it's easier to answer the critics as a whole rather than one by one.  So please enjoy the discussion.  

Jeremy/Josh, I have been constantly bragging about the stuff you teach in class with my friends and family. In one of these scenarios one of my friends pulled about your blog recently and has the following views about your blog write up.  I would appreciate your responses on his comments He (Jeremy) is an extreme bear, if he really believes in everything what he says.

Yes - right now it is true.  For the first time in my life I have been converted into a bear.  I have been bullish on the market for the last 15 years.  Even through the 2000-2002 downturn I was a believer in a strong recovery following the correction.  I was also strong on the economy and the market through the fall of 2008, and into 2009.  Strong in the sense I was a believer in the recovery.  I still traded the downside and in fact we made more money last sept/october than I've ever made in my life as a trader.  But I was bullish in the over all strength of the progression of the economy.  However I have come to understand some things about market swings, corrections, and macro level cause and effect that has caused me to turn bearish. I will likely remain bearish for the next several months.  At least until we see Dow 3000.  

He looks at US economy in isolation, and predicts equity markets crash (like Dow crashing to 3000) and hyper-inflation, with dollar plummeting. This scenario is worse than ‘stagflation’, which some economists believe will happen. Stagflation is ‘stagnation – no growth in economy’ plus inflation (moderate to high). The problem with his worst scenario is, when the market crashes to 3000 or a very low number, people stop spending, because their wealth has come down, and many would have lost their jobs, and the inflation cannot go too much up. These two opposites cannot merge.

Yes I'm specifically looking at/discussing the US economy.  First of all it's the economy I'm trading.  Secondly it is the largest economy in the world and all other economies ultimately in some way are affected by the US economy.  So I don't quite understand the isolation issue - but with regards to hyper-inflation and dollar plummeting....

Yes I'm concerned about hyper-inflation, but before I'm concerned about hyper-inflation I'm concerned about DEFLATION.  The biggest fallacy most economists (including Ben Bernanke) have about Inflation vs. deflation is that they confuse the cause with the effect.  Inflation is caused by too much money supply.  Deflation is caused by too little money supply.  The effect of each is that inflation causes prices to go higher, and deflation causes prices to go lower.  The reason is this... if people have a lot of money (via extra supply) they are willing to pay more for goods.  So the price of goods goes up because people can justify it, with the assumption the money flow will not stop.  When the money supply slows down people are not willing to pay as much, consequently businesses drop their prices to meet demand.  This creates the effect of falling prices.  But the cause is a smaller amount of money available to be spent. 

The last several years has been a period of economic growth based on an increase in CREDIT.  Credit is FAKE money supply.  It's money that is available to be spent, but is backed by nothing.  As the credit crisis has blown up, it has exposed the realities of the monetary market.  The effect of people who can not service (pay) their debt is one of a few things:

1) They stop spending and start paying down debt.  This causes less contribution to the consumption of goods as a whole, thus creating deflation

2) They restructure their debt - this is an okay scenario but generally the debt holder does lose some value.  The effect is still the same in that the debtor still slows spending. 

3) They default.  This is the worst case scenario as money simply disappears from the system. 

All of these scenarios create a deflationary environment.  

To counter this - the Federal Reserve (Ben Bernanke) is printing money, and creating IOUs and other forms of money to help INFLATE the market.  They are trying to counter deflation. The deflation alone is bad enough, but when they start debasing our currency through printing money the later effect is even worse - hyper inflation.  Since Dollars become easy to get people are willing to spend more of them for goods.  Hyper inflation is a worst case scenario and yet at the current rate it is a given that it will occur.  We are already experiencing deflation.  And deflation will continue until the goods fall to a fair market REAL value.  But by that time the damage will have been done and the extra printing of currency will already be setting up the scenario of Hyper Inflation.  

Before Bernanke was ever Fed chair he described how he would counter act deflation (in 2002 - speech).  Everyone made fun of him at the time because people said his actions were illegal and America would never go for it.  Here we are 7 years later and not only is he executing his plan as laid out, but America is standing by wondering what is happening.  Bernanke's speech about how he would counter Deflation, mixed with his actions which reflect his worst case scenario, is evidence alone that we are already well into a deflationary period.  I'd encourage you to read the speech but in short I'll sum up his points that the first course of action is to lower the fed rates to virtually zero - done.  The second line is to print money, buy up private assets, and bail out the banking systems - in action.  Bernanke says Deflation CAN'T happen in america because, in his own words. "The United states has a marvelous little invention called the printing press".  He really thinks he can print his way out of deflation.  And that's what he's trying to do.  The problem is Deflation is already happening.  His printing of currency is simply setting the stage for Hyper Inflation. 

They are comparing this recession with Great Depression, ignoring the many differences that exist between the two. It is possible for this recession to become another 1930s depression, but there are a whole bunch of differences. One important difference is, most of the traders at that time were like Bernie Madoff, and any regulation on trading was not even 1% strict as today’s SEC regulations. In other words, the stock market index was a number in 1920s, without any consideration to the fundamentals.

Oh but this argument assumes that regulation (or lack there of) is the problem.  It wasn't, and it isn't.  1920-1929, just like 1995-2007, was characterized by an inflation of credit, and subsequently an inflation of money supply.  The great depression was a prolonged recession for 2 reasons:

1) The recession was accompanied by deflation (as credit, and consequently money supply was contracting)

2) The government tried to regulate and spend it's way out, creating stagnation, and ultimately a prolonged recession leading to depression.  

THE WORST course of action during economic peril is regulation.  It is a fallacy to think that wall street was responsible for the great depression.  It was a symptom of the overall problem.  It's a fallacy to think "greedy wall street bankers" are the cause of our current crisis.  It is a symptom of the overall problem.   Beyond wall street and the presumed greed that drives it, is the congress passing laws that require risky lending.  THIS above all has created the credit crisis.  And now the banks are screwed from every angle.  They can't get their money, the government is telling them how to lend, and at the end of the day it is regulation that is preventing the free market from working. 

(please note I'm not defending some greedy practices and I'm certainly more ticked than anyone that AIG execs and lousy executives who screwed up and are getting bonuses with our tax dollars.  Yet my point is the same - if congress hadn't given them the bailout, they probably wouldn't have given their executives bonuses) 

As far as consideration of the stock market being a number in 1920s.... And how is that different than now?  How is that ANY different than the tech bubble of 2000?  Reality is the market IS a number.  Fundamentals are way more speculative than technicals because they "estimate" the value of a company, and never factor the emotion of the speculators who drive the market on a daily basis.  

Thanks, (name withheld for privacy)

Ultimately I hope I'm wrong.  I actually pray to God I'm wrong because I really don't believe the current work ethic in America is strong enough to survive a 1920's style depression.  America has become incredibly lazy, preferring government intervention and protection to the individual tenacity that the country was founded on.  I'm afraid for our country.  And yet I know if we could stop the government's current actions, get Bernanke out of the Fed and either abolish the Fed completely or at least appoint a true Free Market economists to the post, AND if the people would rise up and say "we're not going to let this happen" and start working their tales off.. we could stave off this crisis from being a total worst case scenario.  Unfortunately the Fed, Congress, and the President are doing everything they can to bring the worst case scenario to fruition, and the people are sitting on the sidelines assuming these political people have a clue about economics.  

As a contrarian in this situation, it is prudent to understand that my warnings may be useless.  But at least they were there.  It's better to sit in cash and wait than to be caught with your pants down as so many economists would suggest at the moment.  If  the country blindly ignores the larger problems, they will be caught with their pants down.  At least by following my logic one can be prepared for the worst, and also be educated to trade if the best case scenario comes to fruition.  The benefit of being neutral is the effect of flexibility.  

I hope this helps to answer some of your questions.  If you want to learn more I'd point you to three locations:

www.Elliottwave.com  - Prechter's book "Conquer The Crash" is an excellent discourse on deflation as well as some additional factors that are affecting the market. 

http://www.thomasewoods.com  - His book Meltdown is an excellent look at how the Fed has affected the current crisis. 

http://mises.org/  - This site as a plethora of information from the Austrian School of Economics point of view.  Austrian economics is the only primary school of thought which predicted the current crisis as it deals with cycles, not the assumption of progression.  

___

I hope this discussion gives all of you some better insight into my positions and at the very least I hope it opens up dialog for meaningful discussions.   Until next time Happy Trading.

WOULD YOU LIKE TO LEARN TO TRADE THE TOUGH MARKET TIMES?  Why not join us for the next Foundations of Stocks and Options class for Free! Next Class starts July 13th, 2009 

DOW Broke H&S Neckline Today. Bearish Reversal Likely.

Today the Dow finally made a close below the neck line of the head and shoulder's it has been forming.  Here is a current chart of the Dow.  (click the image to enlarge)

The head and shoulders pattern is a bearish reversal pattern, meaning when we see this pattern form it usually turns into a reversal.  The confirmation of the pattern and the signal to enter bearish positions comes with a close below the neck line of the pattern.  Today we finally have that close below the neck line.  See the image below (click to enlarge)

This very colorful graphic labels the parts of the H&S pattern.  This particular formation is a little unique in that there are 2 hits on the left shoulder. The Yellow line outlines the entire pattern.  The 2 left shoulders are marked, with the head being the peak in the middle, and the right shoulder is formed on the right.  The neck line is formed from the short term support after the left shoulder.  It is marked with the green line.  While yesterday we did break the line, the day closed above the neck line and did not confirm the break.  But today closed below the line, thus confirming the break. If this pattern pans out bearishness in the overall market is an appropriate trade.  

Book Review: "Meltdown"

Meltdown: A Free Market Look at Why the Stock Market Crashed, The Economy Tanked, and The Government Bailouts Will Make Things Worse.  

It's not often I run across a book which so eloquently and definitively documents what so many of us in the investment/capitalist world seem to know so well.  The reality is the last presidential administration and the current one, combined with congress, are both responsible for allowing our country's capitalistic roots and monetary polices to get out of control.  In Meltdown Thomas E. Woods does an excellent job explaining monetary policy and why government run programs destroy economies rather than help them.   

 I was particularly delighted to find another writer finally taking issue with the disaster Ben Bernanke is creating with the federal reserve by printing so much money and monetizing so much debt.  Citing Bernanke's 2002 speech "Deflation: Making Sure 'It' Doesn't Happen Here" Woods methodically describes the fallacies associated with this Keynesian type economic theory and why it not only does not work, but if left unchecked can and will ultimately destroy the US Dollar (or any fiat money system).   Woods even goes so far as to suggest doing away with the Federal Reserve completely.  Even proposing to allow a free market approach to currency as well by allowing commodity backed currencies to enter the market.  A very fascinating argument which alone makes the read worthwhile.  

One of the unique aspects of Meltdown is the central discussion of Austrian School of Economics as a competing theory of economic thought.  Woods argues, and I agree, that the Austrian school is the only theory of economics which accounts for economic cycles.  Following the Austrian School of economics a Government may minimize the affects of economic recession and even depression by simply allowing the free markets to run their course and work.  Woods does an excellent job of documenting several economic recessions in US history where the free markets were allowed to work and the affects of the recessions were so minimal economic historians have hardly mentioned them as a blip in the economic scale.  

Anybody who is interested in the financial markets (such as what we teach at TradeSmart University) would do well to read this book.  It provides a clear and distinct explanation of the causes and effects of the current crisis.  I was most delighted to find at the end of the book Woods laid out a plan for helping the US emerge victorious from this crisis that was almost identical to my own ideas which I recently laid out for a friend.  As such I would love to see every member of congress forced to read this book.  Alas I have little reason to believe they will take my suggestion, but you certainly may. 

My most pleasant delight in this book came from the referral to an excellent website of which I was previously unaware, chocked full of fantastic information related to economics and specifically Austrian School Economics.  The Ludwig von Mises Institute is a fantastic resource for anyone who cares to understand more about how free market economies work and how governments can and should act in relationship to true economic freedom.  I'm delighted to share this resource with all of our students and blog readers.  

ARE YOU PREPARED FOR THE COMING ECONOMIC CRASH?  REGISTER NOW TO PARTICIPATE IN TRADESMART UNIVERSITY'S FOUNDATIONS OF STOCKS AND OPTIONS ONLINE SEMINAR FOR FREE!  

Will The Current Jobless Numbers Do the Market In?

The numbers are in, and they don't look good.  The official unemployment rate released last  Thursday says the United States is now sporting 9.5% unemployment.  Unfortunately that number doesn't really tell the whole story.  The same report from the Department of Labor says when factoring in the number of people who are displaced from a career but still managing to find a part time job the real unemployment numbers are actually closer to twice that at 16.5%.   Translated that means if you look around out of every 10 people you see on the street, at least 1-2 of them is jobless.  In the words of The Ladies Man... "uh yea, about that...." 

The market didn't like the news one bit with the DOW selling off 223 points.  A shocker for some, but very predictable for us and our students who have been watching this market turn developing.  This little bit of news is just one more piece of the story confirming our prediction that the overall weakness in the economy mixed with lousy government policies is about to send the markets hurtling down yet again.  We just posted a video discussion of the technical reasons why the market is preparing to sell off and today's closing price may just be the impetus needed to break this lackluster sideways movement out of it's box and get it moving again... albeit down. 

This chart shows the recent head and shoulders pattern forming on the DOW.  A break and close below our line at 8261 would signal the likely completion of the pattern and would likely trigger at least some portion of a major sell off.  

Beyond technical issues alone the fundamental data which is now being released is a nail in the coffin of this current economy.  Countries around the world are scrambling to figure out if the Dollar will hold it's value and all eyes are on the upcoming G8 summit where China will be pressing hard to sure up their investment in US Dollars with some sort of non-fiat guarantee.  

The coming uncertainty will certainly mean the loss of millions in personal retirement accounts across the country.  However the coming crash also presents some incredible money making opportunities for the educated stock investor.  During the last major swing down in October 2008 we made over 400% on our trades and many of our students did the same.  

This market uncertainty and volatility is exactly why we offer the classes we do at Trade Smart University.  It is our desire to help all of our students learn to trade the market with confidence no matter what the market conditions, and no matter how high or how low the market moves.  That's why we have decided to extend the limited time offer we set up for our Foundations of Stocks and Options class for the rest of the year. 

If you want to make sure you are prepared for the coming stock market implosion sign up to take our Foundations of Stocks and Options class for free!  The class meets twice a week for four weeks starting July 13th and will give you the perspective you need to understand where the market is moving and how you should move your money accordingly.  

The Next Major Market Drop Is Coming . . . Are You Ready?

Written by: Jeremy Whaley

Recently I have been working on a new upcoming Special Report called “Delusion.” It’s a look at how the government, media, popular economists, and common discussion forums are consciously ignoring the most basic of economic principles and ushering in their worst nightmare in economic meltdown. With so many heavy thoughts on my mind I wanted to take a moment and write some blog posts to give all our readers a heads up to the coming crash.

As I begin, I want to help catch you up to speed with what our students have been learning over the last several weeks. Watch this 10 mintue video of a technical case study for why I think the dow may fall to 3,000.

The current “recovery” in the US stock market has some people believing the worst is over and the economic hardships will be ending soon. However, the wise investor who is willing to open his eyes to differing opinions knows the same people who predicted the most recent wave of market woes are expecting still lower moves in the coming weeks and months. Here are five reasons the stock market is about to continue its move lower and what you can do about it.

1. All of the informed economists are predicting a deeper crash.

Most economists missed the most recent downturn, which has been described as “the worst economic crisis since the Great Depression.” They are popular economists who pretend to be educated but rarely catch the major economic swings. However, a few informed economists did not miss the downturn of 2008. Harry Dent, Robert Prechter, Thomas Woods, and the entire Austrian School of Economics, just to name a few, saw this disaster coming years in advance. They warned, but no one listened. And they are all in agreement: the worst is yet to come. Are you ready...?

2. Market technicals reveal the current rally is over.

Since the low in March 2009, the stock market has enjoyed a decent rally. But most people fail to realize that the Dow is currently telling us a story if we know how to listen. The Dow chart reveals a classic head and shoulders pattern forming, which is indicative of an impending reversal. If the economists mentioned above are correct, the downturn will be worse than before, and this current head and shoulders reversal pattern says NOW is the turning point. Are you ready...?

3. The forms match the Great Depression.

In 1929 the stock market finished the great bull run of the 1920s with a bust—a bust that gave up 50% of the total market value. After a small six-month rally people thought the market was recovering only to be thrust into an even worse market selloff that gave back virtually all of the value of the market. More recently, since the extreme highs in 2007, the market has again lost right around 50% of its value. This was followed by the current six-month rally, which has everyone buzzing of market recovery—just like in 1929. Yet just like 1929, all indications are that the market is about to enter a horrible bearish turn that will wipe out the complete retirement of many investors. Again, just like in 1929. History has a strange way of repeating itself. Are you ready...?

4. Government spending has bankrupted the apathetic American people.

The Bush administration began a wave of spending never before seen in American history, but the Obama administration is making the previous administration look like child’s play. Yet the American people are sitting on their hands and holding their mouths in the hopes that their suspicions are wrong—that the government really does know what it’s doing. However, on a daily basis more and more non-existent tax dollars are being spent in a futile attempt to stave off what the government knows is coming...another Depression. And the people are just watching in denial—delusional bystanders, if you will, hoping what they know in their gut is not true. And all the extra spending is guaranteeing the eventual outcome the government is “trying” to avoid. This massive government progression has already bankrupted America, but no one is listening. It’s just a matter of time before the house of cards comes falling. Are you ready...?

5. The Federal Reserve has created a no-win trap that is ensuring a market collapse while setting the stage for a hyper-inflation never before seen in America.

The Federal Reserve’s job is to prevent economic meltdown, yet they created a nightmare through their controlled inflation policies, policies they are now trying to fix by extending the nightmare and hoping it ends differently. Over one hundred years ago the Austrian School of Economics predicted this eventual outcome from any central banking system. Yet the Fed believes it is better than the laws of economic nature.

Ben Bernanke, in his explanation of how the United States is immune to another Depression, announced in a speech given to the Washtington D.C., National Economists Club in 2002 his plan to take over private sectors with the Fed, take over private banking and private industry, and manage our way out of any economic troubles. No one listened and no one understood the dangers in his plans. Now people are questioning how this man took so much control, and all the while Bernanke is printing money like it’s monopoly money, trying to overcome the nightmare the Fed itself created. Meanwhile, the value of US currency is about to become worthless. This money printing is creating a situation of hyper-inflation that will in all likelihood be the demise of the US Dollar. Are you ready...?

The coming economic crash will make the last two years look like times of economic prosperity. And yet you can survive if you know how. If you want to survive the coming crash, you have to be prepared. Trade Smart University teaches students just like you how to spot and profit from both bullish and bearish market reversals. While most Americans are about to lose everything they’ve ever saved for retirement, if you know how, you can prosper from the largest stock market crash in US history. Will you be on the right side of the trade? Do you know how to make money when the market goes down? Are you ready...?

Because we truly do want people to take charge of their financial future, Trade Smart University is giving away the entire first level of our premium trading class, Foundations of Stocks and Options. This class is a $600 value, and you can sign up now to take it for FREE. Simply go here and register. Be Ready.

2009 Stock Picks Mid-Year Report Released!

Back in January we made the announcement of our top 9 stock picks for 2009.  At the time we also announced the accompanying special report which was to be released.  However, 2 days after we made the announcement I became deathly ill (well I felt like death) and a week after that all of our family crisis, which most of you students are familiar with, started up.  Long story short the report has sat there in the archives of my computer half finished for half a year now. 

The good news though is I have taken this week (which was suppose to be a week off) and updated and finished the report!  It's just become a mid-year report instead of a start of the year report.  But all of the stock charts are completely updated, complete with my lines drawn for your trading enjoyment.  As we speak the report is with our editor going through final revisions and will be available for download tomorrow!

The full report includes our 9 top stock picks plus 41 bonus picks as well as some extra bonus picks I call "dessert".   A full chart of every stock is included in the analysis as well as a full size chart of every stock included in the appendix to the report.  The entire report is over 120 pages of charts and analysis!  And it's yours for free!  And the best part is since we made these picks 6 months ago, our mid-year analysis has totally confirmed these were AWESOME picks.  

If you're new to The Financial Puzzle and would like to know how you can learn to analyze stocks on your own as well as how to trade the market in no matter the economic conditions, why not signup to take our new class starting June 1st.  We're offering the class for free even though it usually costs $600 and we've had many students say it's worth at least twice that.  But for you the class is FREE - so sign up right now.  

For the rest of you the Top 9 Picks for 2009 and 41 Bonus Picks Special Report will be available for download tomorrow.