Here is an excellent photo presentation depicting global issues of pollution

http://www.msnbc.msn.com/id/34114624

A former reader back in March of 2008 asked the group where the safest place to put $500,000 for the next five years.  I do not remember much of a response from others, however I suggested purchasing equal amounts of the DIA, SPY, EWU and EWJ exchange traded funds in 2% or $10,000 increments on each 100 point drop of the Dow Industrials. 

At the time a few members of this list severely criticized the idea some suggesting it would guarantee a loss of all or most of the money.  At the time the Dow stood at over 11,000 and it was clear the market was still set for a further decline.  The question always in such cases is how much of a decline and what are the chances of someone one accurately picking the bottom.  Remember at that point I had sold out short term positions at the end of 2007 and the Dow Industrials was already down 30%.  Since no one on this list accurately called the bottom with my April 2009 bullish call probably coming the closest and since even a few on this list were actively and aggressively bearish at or near the bottom often growing more bearish with each rise in the market suffice it to say timing and trading probably do not work.  Or perhaps work in retrospect. J

Before I visit the current results I do want to add a couple of things that supported my scenario as both rational and logical.  First it was obvious by March 2008 that the world financial system was in deep trouble.  Probably for the lack of Uncle Ben and the US’ immediate and aggressive action the crisis would have been far deeper.  While the Dollar had fallen substantially under the Bush Administration, liquidity remained high as evidence by the demand for US T-Bonds.  Buying T-Bonds in such a case would have been a defensive measure but it was not a long term five year horizon strategy.  Forced liquidation was poised to drive all asset classes lower, however once forced liquidation was over assets had to rebound and rebound quickly in price.  Such a break offered in the face of the Long Wave Upgrade a once in the life time opportunity.  The use of a metering formula took the guess work out of when to buy and gave a rational and logical way to enter the market.

Stock picking at the time was both risky and not in keeping with capital preservation which was the goal of the exercise.  What I saw as the greatest area of stability was to invest in the wealth creation engines of the three biggest economies in the world.  Innovation is the key component of the Long Wave Upgrade and historically the most innovative economies in the world are the US and the UK.  I added in Japan simply because its economy has evolved to the point where new innovations are arising.  This was my thinking and while one can argue an investment in Gold may have been as profitable and safer, Gold took a long time to respond and for a time frame of five years I still believe this combination will return the best gains.

During this time the account accumulated the following

EWU 10,132 shares for a percentage gain of 25%

SPY     1,453 shares for a percentage gain of 19%

DIA     1,541 shares for a percentage gain of 18%

EWJ   15,448 shares for a percentage gain of 14%

Maximum draw down was 38% which is fairly large, but the intent was to create a drawdown since it was impossible for anyone to know how low markets were headed.  However the annual loss at the end of 2008 was only 5.7%.  The account went briefly into $40,000 margin position at the lows.

As of today the account is up $103,000 with a 26.7% annual gain for 2009.

Note on Gold.  Had the entire fund been put in GLD, the gold ETF, the overall gain would have been 20% with a maximum 9% draw down.

One other component suggested at the time was to put only $400K into the investment pool and use the other $100K to pay for a year’s trip around the world.  With the Long Wave Growth Period comes a great deal of social upheaval.  Besides getting an education on the world political system there are probably many places to see that will either be off the grid or substantially changed over the next five years.  Since the worst of the damage was projected to occur in the first year being away from the emotional needs of investment decisions while markets were falling was probably wise.  As it turns out a year was a little short and probably returning at the market’s low with exceeding pessimism might have induced one to sell at the worst possible moment.  However, in just the first year the world changed significantly and is posed to change more going forward.  So maybe an 18 month trip was a better time frame retuning to find your market gains paid for most of your trip.

These are the results and as you can see not only was I right on the strategy it also proved to be a pretty rational way to manage the opportunity ahead.  Yet the game has not yet run its course.  There is a little over three years to run so we will have to wait and see if at the end of five years if this proved to be the best strategy for a conservative and relatively safe investment.      

Marc,

Rather an eclectic post.  Lets deal with the first fallacy – Hussein and WMDs.  Hussein had stock piled 50,000 tons of Yellow Cake prior to the First Gulf War.  The UN inspection team sealed the site but did not remove the Uranium.  Cheney wanted to use this information as one of the reasons for invading Iraq, but the disclosure of the site would have acted as an attractant for every yahoo “would be” terrorist in the region.  To get the same impact Cheney’s henchmen forged the Niger memo to which Plame’s husband took exception.  The Plame affair was the result with Libby falling on his sword. 

Now Cheney, Rumsfeld and Bush messed up badly in the follow up to the Iraq invasion, but they did keep secret the existence of the yellow cake managing to transfer the material to Canada for reprocessing into fuel while providing the new Iraqi government with a bit of needed income.  So before you write there were no weapons of mass destruction in Iraq, consider the validity of the Cheney 1% doctrine following the 9/11 attack and the need to eliminate risk from Hussein’s stockpile.

Now this may not seem to have much to do with Global Warming, but in fact it does.  While I am on record some time ago as Fred noted in calling Global Warming equivalent to one of Charles Mackay’s “Extraordinary Popular Delusions”  (good book worth the read), the danger in the Global Warming movement lies in ignoring the real sources of pollution.  In the news today is an article of the aftermath of the Union Carbide chemical spill in India that at the time killed 10,000 people.  Today the site remains toxic with chemicals seeping into ground water with over 200,000 people disabled or ill.  To most US Citizens what happens in India stays in India, but similar hot spots remain in the US threatening people’s health and lives.

For example, the US government used the Fallarone Islands 20 miles off the coast of San Francisco to dump approximately 50,000 drums of nuclear waste.  This was only one of many dumping sites around the world.  Uranium mining along with many other abandoned mining operations poses serious health hazards that are being masked by the concentration on Global Warming.  While the US and EU have pushed China and India to adopt emission standards on cars the concern of CO2 from coal fired plants pales in comparison of the pollution for such contaminants as Mercury and other heavy metals. 

Further more the fight against global warming may be a failed attempt at fighting yesterday’s battles.  As Lowell Wood is quoted in “Super Freakonomics” – “:.. the particulate pollution generated in earlier decades caused global cooling…  The trend began to reverse when we started cleaning up our air.”  Quoting his associate Nathan Myhrvold  - “… warming seen over the past few decades might actually be due to good environmental stewardship”.

Some time back I quoted a NASA report that suggested cleaning up the air in the LA basin might have reversed the cooling that was taking place in the arctic during the 1950-70s.  The concern for scientists in the early 1970s was about global cooling lowering crop production yields leading to starvation.  While there is evidence temperatures began to cool since 1998 the only publicity arises selective areas where temperatures have risen.  Further there is strong evidence that incremental increases in CO2 have a diminishing impact on temperature.  Even the rise from 280 parts per million to 380 as it stands today is well below historic ranges for CO2 prior to man’s impact on the environment where concentrations ranged to 1000 ppm.

Now on to the question of fraud and the release of the memos.  The memos show nothing more than the healthy debate that arises from any scientific community.  Cherry picking e-mails to make a point is fraud in itself.  The scientific community responds to fad just as any other.  If global warming research is the popular thing then the science community will concentrate in that area in order to receive grants.  Only when there is a shift in peer pressure will research countering consensus come out.  Once the flood gates are opened, much like the king’s new clothes, considerable doubt will be raised and the scientific community and public attitudes will readjust.  If there is a culprit in the conspiracy on global warming it is the press that publishes the extraordinary and the public who accepts the surface information without digging.  The critics and evidence (very reputable and intelligent critics) against Al Gore’s interpretation of Global Warming has been out there for some time.  It is just selective reporting that has ignored the reality of the situation.

I do think the global warming fad is reaching some limits of credibility.  The majority in the world see no difference in their day to day living while the worse case doom and gloom scenarios have failed to occur.  In many cases Global Warming enthusiasts have backed the wrong horse in their examples supporting disaster.  Such exploitation weakens the Global Warming argument opening the door to the next fad or popular trend.  At least the world is not returning to MacKay’s Children’s Crusade or the French trend of slow poisoning.

E. V. Baranov - CEO

The Kondratyev Theory Letter ( The Letter )

http://www.kondratyev.com/

Well Eric, you were right.  Global warming hype is fraudulent along with the guru, Al Gore and all the others in his cool-aid group.

http://www.canadafreepress.com/index.php/article/17187

Fred

Eric,

A conversation I had recently reminded me of your discussions about fads.  I was speaking to a person last week who was quite proud of the fact that he had purchased 10 gold coins and their value was up.  But as we talked about it, I got the impression that just “owning’ the gold was much more important to him than the investment value.  It reminded me of the “cool’ factor that seems to drive some fads: it is cool to own gold at the moment.  It will be interesting to see how far gold will go.

Cheers, Chris

Here is an interesting twist to the Gold story.

http://www.cbsnews.com/stories/2009/11/25/60minutes/main5774127.shtml

Some time back in one of my critiques Gold, I included the factors of environmental damage, stating that one day we will look back on Gold and Gold mining as barbaric.  But then again all cultures start from brutal conditions and evolve into a more ordered society.  So far this is not happening in Africa where in the wake of colonization conditions continue to decline into chaos and brutality.

Social impact on markets is important.  If the public of industrialized nations decide on the unpopularity of gold as they have furs then the demand for gold will fall off.  Today Gold hit my target of $1200, however part of the price increase was an almost 2% decline in the Dollar.  In the past few weeks Gold has gapped up each week forming a blow off pattern.  I am not ready to call a top to Gold, but the market at this point is quite over bought. 

Here is a subject revisited – The computer driven car.  Probably Microsoft with its Blue Screen of Death has hampered the acceptance of robotically controlled cars for at least a generation.  However, over the past two years the current experimental state of robotic controlled automotive technology has made great strides in the ability of technology to control cars.  Like a computer beating a chess champion will this technology begin to auto win races?

http://www.timesonline.co.uk/tol/driving/features/article3237606.ece

The demonstration of a modified conventional car suggests a retrofit market bigger than the new car market – at least for a while.

Matt,

Yes, Congress crafts a bill to benefit those that contribute.  However, not every lobbyist can be satisfied.  There are always disappointed lobbyists and in the end economics rules the day.  The job of investors is to sort out those areas that will profit.

Actually to give Congress credit, many laws have significant positive outcomes.  Seat belts and pollution controls for cars were mandated by Congress much against the desires of the Auto Industry.  The result is cleaner air and safer cars.  True also are positive outcomes for almost every major piece of legislation from Civil Rights to Medicare.

Medicare is demonized by the Right and was fought by the AMA.  Yet while costly it has resulted in longer lives and better health for older people.  AARP is not about to roll back on Medicare even with the fraud and excesses that exist in the system.  Unburdening the corporation and providing health care access for the rest of the country will in the end result in a healthier and more productive work force.

The next thing to consider is where the great gains come in health care.  They do not come from hospitals – although the recovery rates of emergency rooms has improved significantly over the past 20 years.  The big gains have and continue to come from improvements in Pharmaceuticals. 

Any health plan no matter how it rations drugs will benefit the Pharmaceutical companies.  After that we need to filter down to those companies that can computerize health records and automate screening and diagnostics.  

E. V. Baranov - CEO

The Kondratyev Theory Letter ( The Letter )

http://www.kondratyev.com/

Here is an interesting situation.    In the 1920s when margins were a few ticks and a bucket shop had a loss on a stock they would execute a real trade on the exchange below margins calls to flush out their clients.  The next trade would be at regular prices, but the bucket shop customers were plucked much as occurs in every gambling house today.

On Thanksgiving while the US markets were closed, world markets experienced what should be called a “Bucket Shop Raid”.  The fact the US market paid only mild tribute to the 1000+ point drop on the Hang Seng suggests the impact on the US and Europe economies by the Dubai swindle will be minor.

While I want to see a correction as much as anyone – now that I am flat – markets do not seem to be cooperating and instead appear to be ready to grind ever higher.  Yes a correction is due – but like waiting for it might be as frustrating as waiting for Godot.

Ok, there are many things wrong with health care and health insurance in the US.  Certainly, the health insurance companies need a serious ass kicking and then some better global rules under which to operate. The current hodgepodge of conflicting state regulations often exploits the consumer and makes fair claims difficult.  Computerized health care records and the reorganization of medical facilities as well as the delivery method of treatment are all need reorganization.  But some how I do not think the government has yet found a solution.  Sometimes a picture is all it takes to convey what went wrong.

http://msnbcmedia1.msn.com/j/MSNBC/Components/Photo/_new/g-091121-cvr-hlth-5p.grid-5x2.jpg

Now maybe it is just me, but somehow a bill almost two feet thick only looks like an attorney’s retirement fund.

For some time I have painted a dual scenario with Global Warming being a fraud on the level of Charles Mackay’s popular delusions and the need for coordinated global policy on the environment.  These two may seem in conflict; however, understanding both helps with projecting future events.

http://www.msnbc.msn.com/id/34035624/ns/world_news-washington_post/

Here is a great article on the destruction in Indonesia.  The article discusses the problem of forest destruction vs. economics of resources.  While I will disagree with the article about the dangers of the burning peat releasing carbon into the atmosphere, I will agree with the article about the destruction of forests that act as the world’s lungs.  The danger of emerging caches of natural resources is the shortsighted cost of resource exploitation.  Instead of carbon credits the ongoing cost of exploiting resources should include the total cost.  Instead of Oil companies, that used to receive a depletion allowance, a more appropriate policy is banking the true cost against clean up and development of new resources.  While in concept such a policy sounds valid, implementation is tricky.  Like Social Security how does a government bank assets that can later be tapped?

The article also conveniently fails to mention where the demand for Palm Oil comes from.  In their lust for displacing petroleum the EU has become a consumer of Palm Oil.  Like the Ethanol fraud in the US that at one point challenged food stocks and still dangerously diverts large amounts of highway funds to development and production, the EU, encouraged by short sighted environmentalists, has a preference for Palm Oil as a bio fuel.  With a large installed base of diesel engines Palm Oil easily replaces petroleum based fuels with the attendant destruction half way around the world.

So far Ethanol, Palm Oil and Oil Shale in Canada have created greater displacement, environmental destruction and higher fuel costs than the failed petroleum paradigm the environmentalists so desperately want to dismantle.  The law of unintended consequences is at work and as Globalization continues to expand even small adjustments in Industrial economies will continue to have a profound impact on peripheral areas  

Here is an interesting article that was pretty much buried in the news.

http://rawstory.com/2009/11/gen-wesley-clark-calls-exit-afghanistan/

Note the couching of the article in giving Clark’s credentials.  No mention that Clark was the Commander in the last war the US won. No title of the former Supreme Commander of NATO.  There is something very wrong here with Afghanistan and the Administration when there is little credibility given to those who have an impressive track record of accomplishment.  Clark is right – it is appearing with the re-coronation of Karzai and the desire of the military to waste more grunts that Afghanistan like Vietnam is not about winning and instead about blood money.

Over the years I have written a lot of negative things on Gold.  One theme in particular is my feelings the Gold market is manipulated. 

http://rawstory.com/2009/11/canadian-gold-mining-group-declares-global-production-terminal-decline/

It is always fun to read such stories of there not being enough or something – oil, corn, Dot Com companies and now Gold.  In the late 1960s when trading commodities I sat in brokerage houses watching the tape and talking to Silver bulls - older people who had invested their life savings in Silver.  Every day I heard stories of the shortage of Silver and how production could not keep up with demand.  And every week Silver prices declined stripping these pensioners of their life savings.

Now there is not enough Gold.  Central banks still hoard Gold – but we are running out.  Ok – I believe.  I also recognize a major top in the making when it occurs.  There are issues of timing, but the mood is being set.

Here is an interesting presentation.

http://www.msnbc.msn.com/id/33498869/ns/us_news-the_stimulus_tracker#/awarded/all/us/all/

Of the $700+ billion in Obama’s Stimulus Package only $34.2 billion has been awarded.  Such a slow implementation suggests either caution or fiscal responsibility.  More important is a look under the covers.  A large portion of the awarded funds have been directed towards hybrid and battery development.  This gives an insight into the administration’s preferences towards energy independence in shifting the basis of transportation.  Electric / hybrid cars are an important first step in the development of an automated individualized transportation system. 

It appears in my absence the market has done very little.  However, such lack of change is only on the surface.  Internally the market has deteriorated significantly, yet the indexes remain on the horns of a dilemma.  While indexes are deteriorating internally, a number of high profile stocks remain strong.  Such conditions favor a broad ranging market over a decline.

Gaps:  Two weeks ago the S&P gapped down starting the formation of a short term reversal.  Monday the S&P gapped strongly higher.  The key question here is will the S&P continue its run to new highs or die in breach?  Gaps have not yet turned bearish.

Momentum:  The most recent decline turned short term momentum negative.  Already Long Term momentum is stretched to near the over bought channel with the indicator turning down.  Failure of momentum to follow prices to new highs sets up a short term reversal.

Summary: The S&P is in a bit of a never land – some good some bad.  While the S&P has entered a short term acceleration window the preponderance of indicators suggest any move to new highs to be limited in extent and duration. 

Best guess – the S&P moves to new highs forming a bull trap.  Once the trap is sprung over the next three weeks expect a significant decline to take place.