Crash Market Stocks - Financial Tips On Making Money In The Stock Market

For the most part, I usually choose to not actively participate in day trading, most due to the time commitment required as well as the stress levels it can cause. However, every now and then something comes along that is worth a look.

PCBC is a Bank that has been on the decline since the turn in the market and has been flirting with FDIC takeover for the past 6 months. Just a few months ago, the bank found a saving investor to hopefully salvage sinking ship. Gerald Ford, founder of Ford Financial Fund, opted to invest $500 million in capital into the bank, in return for a majority of stock. Although, temporarily, it seems as though the transaction will be enough to keep the bank going, it has also heavily diluted shareholders of the stock, which has sent the stock sailing down.

The interesting part is that now the bank will be offering a unique opportunity for shareholders of the stock. According to their filing (which has also bee confirmed by their investor relations department), any shareholder of the stock as of close of August 30th (which is the day before the Gerald Ford transaction is set to close) will be given rights to purchase up to 15.335 times the shares they currently own at an offering price of $.20 per share. You do not need to be a preferred stock holder, this is open to the public.

Due to this, we have seen enormous amounts of volatility in this stock (up 20% yesterday, down 45% today). As we approach this August 30th deadline I expect to continue to see extremely large amounts of volatility followed by what should be a rather steep decline in the stock, as the $.20 offering deadline passes. Obviously, the main risk in this investment is whether or not the bank stays afloat. As for me, I am familiar with the bank, and am comfortable with their operations and I am also comfortable with Mr. Ford's ability to see a good deal. If you want to see some fireworks the next few days, tune into PCBC.

First of all, please excuse my lack of updates for the past while. Those that are active readers of this site know that this is merely a hobby of mine to update many of you of the changing in markets as well as my own two cents on the always changing economy... and hopefully to profit from it. The past several weeks have been extremely busy for me in other affairs and I have been pursuing a variety of different investment projects that has, unfortunately, eaten up a lot of time. It actually has a bit of irony in all of it, because the overall economy is behaving in a similar manner. In fact, I have not been the only one to be loaded with new projects and possible scenarios that was not available the past two years. The big question is, is it feasible and will it last.

No doubt, investment activity has picked up this year. There is money out there and it is getting itchy. Although many small businesses and middle America investors continue to see no light in this tunnel, know that there are several big businesses and banks who are seeing some of the best profits and deals they have ever seen. Unfortunately at this point, it is all about who you know and do you have the cash (isn't it always about that?). At any rate, phones are ringing more, people are at least trying to make things move, but there still remains a big elephant in the room. What is the economy's next move?!

Many "conservative" economists (myself included) strongly believe that we are directly headed for a "double dip" recession. It is very evident that the job market is not recovering nearly at the rate that was hoped by the Fed. Overall market growth continues to be sluggish, despite monumental bailouts and credits that have been given by government. Keep in mind that during all of this, interest rates remain at essentially 0%. So the big question, can Obama afford to continue to ruthlessly spend to continue this "mirage" of prosperity or will he finally come to the realization that a bit of pain needs to come before a true recovery can begin? It is his call and unfortunately either way calls for tough times ahead.

With that being said, it makes it hard to try and anticipate short term changes in markets. Although I have been busy recently pursuing new investment vehicles, I am making sure that everything I am pursuing is sustainable in an even stronger declining market. I have been offered many investment opportunities that forecasts massive jumps in activity the next five years and projects very rewarding returns, however, I continue to believe those forecasts to be far too optimistic.

One bright spot that seems to be benefiting from the collapse of large economies are the emerging markets. Sure, they will struggle with the rest of us and are somewhat tied to larger market performance, however, they have strongly outperformed most indexes this past year. ETFs like EZA, EWM, EWZ, and RSX have seen some extremely large returns and have rewarded investors who took the risk. The have traced back recently here, but as the Dow lingers near 10000, I would expect a short term "trampoline bottom," thus rewarding these ETFs even more. Time will tell, but I am in them.

Big banks are also strongly benefiting from recent government concessions. The foreclosure market has picked up tremendously, which is a direct correlations with the strength of their balance sheets. Earlier on, banks could not afford to take the hit on foreclosed assets, thus forcing them to modify loans or just not respond to delinquent borrowers. Now, they have replenished the vaults (at the Fed's and taxpayer's expense) and are much more aggressively taking back assets. As these assets hit the market, expect more declining prices in both residential and commercial real estate. It is definitely starting to get interesting. Happy Trading.

Many analysts have quickly written off the possibility of deflation due to the large amounts of government spending that has taken place. However, there are still many who know the adverse effect of market crashes, one of which is huge deflation risk. As for me, I continue to believe the beast still lies ahead for us and I'm not alone. Jeff Cox at CNBC writes about how deflationary worries are causing for a spike in the long term bonds. Here is what he said:

With investment advisors convinced the economy may be headed for a bout of deflation, they're turning to longer-term bonds for safety.

The uncertainty of the current environment creates acomplicated picture for investors, but many advisors continue to feel comfortable with the safety of bonds, particularly those from the US government and for a longer duration.

It's part of a mindset that believes inflation could well be the economy's long-term worry—going out two, three or four years from now—but in the near term prices could turn negative and bring about deflation.

"It's hard to see where the inflation is going to come from," says Brian Nick, investment strategist for Barclays Wealth in New York. "The longer-duration bonds look expensive but also look like stable, safe assets."

Oliver Quilla for CNBC.com

Nick recommends investors target 7- to 10-year durations in bonds and Treasury notes, though some strategists are even backing the 30-year long bond [US30YT=XX 4.0663 0.0783 (+1.96%) ].

Long-term bonds are a bad bet in an inflationary environment as their value erodes as costs go up.

But in deflation, they make attractive tools for investors who have the security of decent yields but also see increases in their face value and collect handsome coupon payments. Prices and yields move in opposite directions, with higher demand driving up prices and pushing down yields.

Government bonds had a remarkable July, with the yield on the benchmark 10-year note [US10YT=XX 2.9681 0.0631 (+2.17%) ] ending the month virtually unchanged even as the stock market roared higher by 7 percent. Stocks and bonds often move in opposite directions as risk dims the allure of safe-haven investments like government debt, so a stronger stock market would drive yields higher

Nick recommends a barbell strategy, with longer-dated US Treasurys on one end and triple-A rated sovereign notes from companies like Germany and Sweden on the other end. The middle would include investment-grade corporates, high-yield Treasurys, convertible bonds and defensive stocks.

Jeff Cox
Staff Writer
CNBC.com

"Equities are going to be tough to pick individually in a declining market...You want to be in our opinion looking at higher-quality fixed-income," says Steve Baffico, senior managing director at Claymore Securities in Chicago. "That brings you to things like corporate bonds, asset-backed securities, even into the high-yield market, where there's a degree of undervaluation and some pretty high-quality product that's mispriced."

As with the question of whether the economy will enter a double-dip, the situation with deflation may be as much perception as reality.

Analysts say the economy may not actually meet the dictionary definition of a double-dip, though it will still feel like one. The same may be true for deflation, defined as a drop in prices often due to a decrease in money supply.

The Consumer Price Index has declined for three straight months but is up 1.1 percent for the 12-month period ended June 2010. And inflation slipped to 1.05 percent in June but trended above 2 percent for the preceding five months, according to the Bureau of Labor Statistics.

"A base case could be made for generally improving growth and moderate inflation. From an investment perspective, long-term assets such as long-term Treasury equities, corporate bonds and structured products are relatively attractively valued," says Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, N.J. "A diversified portfolio among these longer-term assets is going to offer some protection against deflation."

But with a $13 trillion debt looming and about $1.8 trillion on corporate balance sheets, the timetable for the deflationary environment is very much in question.

"This is a little bit trickier than going out to the long end of the curve, because we could see some sort of implosion in the Treasury market," says Abigail Doolittle, founder of Peak Theories Research in Albany, N.Y. "It's a matter of timing that very carefully."

Doolittle says investors can use longer-term bonds, including the 30-year, but not as hold-to-maturity vehicles. Trading bonds is common for institutional investors but is a little tougher road to navigate for less sophisticated retail investors, who are best off using an experienced advisor for help.

She is an even bigger advocate of cash, including foreign dollars such as Canadian and Australian denominations—countries that have raised rates and defended their currencies.

"Just because of the massive deficit, it's really going to put pressure on the dollar and Treasurys. When that happens you could see a spike higher in yield and a spike lower in prices," she says. "That's something the retail investor does not want to get caught in."

Indeed, today's deflation tremors might only be a precursor to tomorrow's inflation earthquake, as easy-money Federal Reserve policies and huge cash reserves make their mark.

"Investors need to be very cautious to try to protect themselves against systemic risk and dollar risk," says Doug Noland, manager of the Federated Prudent Bear Fund, which holds a balance of shorted stocks and benefits on the stock market falling. "It's time for investors to hunker down through this period without big losses. This is an incredibly uncertain environment."

Anyone who is familiar with this site, knows that I am a big advocate of Martin Weiss, whom I believe is accurate in evaluating the effects of our current fiscal practices. As we know, last week was a pretty critical meeting with Fed Chairman Ben Bernanke and congress. Since then, we have seen the market rally almost 500 points, which once again shows that investors are not picking up on the signs. Dr. Weiss outlines some of these critical signs and gives real, practical reasons why we should be a bit skeptical when feeling that we are out of the recession:

In his testimony before Congress last week, Ben Bernanke lifted the Fed’s skirt and gave us a glimpse of the disasters now sweeping through the U.S. economy.

But there are four bombshells he did NOT talk about:

FIRST and foremost, what’s CAUSING the economy to sink? The stock market has not yet crashed. Interest rates have not yet surged. Gasoline prices have not skyrocketed. There has been no recent debt collapse, market shock, or terrorist attack.

So what is the invisible force that’s suddenly gutting the housing market, driving consumer confidence into a sinkhole, and killing the recovery that Washington was so avidly touting just a few months ago?

Bernanke won’t say. But the answer is clear: The recovery had very little substance to begin with. Rather, it was, in essence, a mirage — a dead cat bounce bought and paid for by Washington’s massive bailouts, stimulus programs, and money printing.

Put another way, the recession never really ended. Yes, we saw some growth in GDP. And yes, thanks to that growth, some companies are still reporting better earnings — the news that spurred a rally in the stock market last week. But at the core of the economy, the fires that started the recession are still burning intensely.

SECOND, Bernanke failed to point how that …

The U.S. Housing Market Is Now LOCKED Into a Chronic, Long-Term Depression

Housing starts — the most important measure of the housing industry — is still a disaster zone.

Beginning in January 2006, they suffered their worst plunge in recorded history — from an annual rate of 2.3 million to a meager 477,000 in April 2009. Thus …

In just three years, 79 percent of America’s largest industry, impacting more Americans than any other, was wiped away.

Then, despite a series of government agency programs to shore up the industry … plus $1.25 trillion poured in by the Fed to buy up mortgage-backed securities … plus a big tax credit for new homebuyers, housing starts perked up ever so slightly: They recovered to an annual rate of 612,000 in January of this year.

But this recovery was so small, it retraced just 7.5 percent of the prior fall. In other words,

Even after massive government efforts, and even at the highest point in their recovery this year, the housing industry recouped less than one-tenth of its historic three-year bust from 2006 to 2009.

Worse, the housing industry has now resumed its decline.

The most alarming factor: Widespread “strategic defaults” on home mortgages.

These are defaults by homeowners who can afford to meet their monthly mortgage payments, but have deliberately decided to stop paying.

They realize their home is worth less than they owe on the mortgage — transforming it into a dead asset they’re willing to give up. They know their bank, already overwhelmed with foreclosures, won’t get around to evicting them for as long as two years, allowing them to live in the house cost-free. They also know this tactic can give them tens of thousands of dollars in extra cash. So they’re defaulting en masse and getting away with it.

End result:

• New supplies of foreclosed homes hitting the market as far as the eye can see …
• Bankers who would rather cut their wrists than finance new homes, and …
• A new slump in housing that’s worse than even some pessimists were expecting.

THIRD, despite his now-famous quote that this is “the worst labor market since the Great Depression,” Bernanke failed to reveal that …

Official Government Data GROSSLY Understates the Magnitude of Unemployment

Bernanke did not mention that the percentage of long-term unemployed in America is the worst it’s been since the government began keeping records in 1948. Two facts:

Fact #1: A record 4.39 percent of the work force — or 46.2 percent of the unemployed — have been out of work for 27 weeks or more. That’s DOUBLE the worst level ever recorded and TRIPLE the peak level seen in five of the past six recessions.

Fact #2: On average, America’s unemployed have been out of work for 35.2 weeks, also the highest on record.

Bernanke did not remind Congress that, based on the government’s own broad measure, the true unemployment rate in the U.S. is not 9.5 percent. It’s 16.5 percent — or seven full percentage points more than the figure Mr. Bernanke likes to refer to.

This broader measure includes workers seeking full-time employment, but temporarily settling for lower paying part-time jobs. Plus, it’s supposed to also include “discouraged workers” — those who have given up looking for work because there are no jobs to be found.

Nor did Bernanke confess that, during the Clinton administration, discouraged workers were “redefined” to EXCLUDE those who had been out of work for more than a year — and that definition continues to be used to this day.

That makes absolutely no sense. If they’re out of work for a year, they’re discouraged. But as soon as they’re out of work for a year and one day, it’s suddenly assumed they’re happily going about their life?!

Thus, precisely when economists now recognize that one of the biggest challenges of this Great Recession is long-term unemployment … the Obama administration, both parties in Congress, and all U.S. government agencies continue to exclude the longest term unemployed from every single one of their unemployment statistics.

This could go down in history as one of the greatest deceptions about the true state of U.S. labor markets. And according to John Williams of Shadow Government Statistics, it’s big:

When you add these long-term discouraged workers back into the jobless count, you find that the real unemployment rate in the U.S. is actually 21.6 percent!

FOURTH, Bernanke failed to point out that all this is happening despite …

The Biggest Government Interventions of ALL TIME!

The full scope of the government’s interventions is now official:

In its July 21 Quarterly Report to Congress, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) tabulates the government’s bailouts, stimulus programs, and money printing escapades since the debt crisis struck in 2007, as follows:

According to SIGTARP, at mid-year 2010,

• The Fed has pumped in $1.7 trillion through its massive purchases of mortgage bonds, Treasury bonds, and agency bonds.
• The FDIC has thrown another $300 billion into the pot, shutting down over 100 banks so far this year.
• The Treasury has pumped in a net of $300 billion in TARP money (even after paybacks), plus another $500 billion in money outside of the TARP program.
• Plus, several other government agencies have chipped in another $800 billion.

These official numbers are actually LARGER than we were estimating. We had the total pegged at $3.5 trillion (not billion), including the 2009 stimulus package.

SIGTARP has it at $3.7 trillion, excluding the stimulus but including a myriad other rescue programs — by the Federal Housing Finance Agency (FHFA), the National Credit Union Administration (NCUA), the Government National Mortgage Association (GNMA), the Federal Housing Administration (FHA), and the Veterans Affair (VA).

But no matter how you count it, some outstanding facts are absolutely self-evident:

FACT: The enormous magnitude of the government’s intervention FAR surpasses anything ever witnessed in the history of humankind.

FACT: It’s not working! Housing is still collapsed. Long-term unemployment is the worst ever recorded. And the recovery, already anemic, is aborting prematurely.

FACT: Most important, it’s winding down! Through mid-2009, the government intervention programs tabulated by SIGTARP were being ramped up at a furious pace — a total of $3 trillion overall.

So over the 12-month period from mid-2008 through mid-2009, we estimate they were running at the average monthly pace of about $160 billion.

But since mid-2009, they have been far slower, running at an average monthly pace of only $58 billion, or just one-third the prior level.

And right now, the pace of new funds injected into the economy through these government rescues are merely a trickle compared to their earlier rate:

• No new stimulus is in the works.
• No new TARP funds are forthcoming.
• The Fed has wrapped up its bond buying splurge.
• And the ONLY significant continuing programs are for housing — the one area where the government has admittedly seen the WORST overall results, according to SIGTARP.

Bottom line:

If you were counting on the government to prevent the second major leg in this great double-dip recession, don’t hold your breath. To the contrary, the primary CAUSE of the second dip is the government’s conspicuous absence from sectors where it was, until now, the biggest mover, shaker, buyer, and financier.

Your ACTION

With this rapidly shifting quicksand, you must NOT be lured by Wall Street’s siren songs. You must not get trapped again in vulnerable stocks, mutual funds, or ETFs. Instead …

1. Greatly reduce your exposure to stocks, especially in sectors tied to housing, such as construction, home improvement, consumer appliances, and mortgage finance.
2. Move the proceeds to cash and cash equivalent, regardless of low yields.

Good luck and God bless!

Martin

Fed Chairman Ben Bernanke graced us with his presence on Wednesday as Big Ben gave a formal economic update to the senate. Wall Street was not very pleased.

After opening the day in the green, just shortly after Bernanke's opening remarks, the Dow sold off quickly into the red over 140 points. It remained down under 100 for the remainder of the day.

So what caused the negative response. Well, quite a few things. First of all, investors are getting more and more impatient with the recovery. Here we are, well over a year into the so called "recovery" and we have seen just minor blips in the economy. Keep in mind, this is after enormous amounts of government spending as well as record setting Fed policies that are in place to help the consumer. With all of this, we have only seen a slight improvement and from how Bernanke sounded today, he does not see it getting much better anytime soon.

Bernanke said that the current economy is in a very "fragile state" and that plans are in motion by The Fed to take action if conditions worsened. He says that although we've seen in slight rebound in unemployment, now at 9.5%, he expects that rate to slow and remain above 9% for the rest of the year. Consumers did not like that.

In addition to that, he said that the housing market continues to be in a weakened state due to mass amounts of distressed and foreclosed inventory that is weighing on home values. Thus consumers will continue to be forced to tighten consumer spending, which will effect the overall economy. This is the devastating domino effect I discussed way back last year.

Bernanke said that inflation was not a current concern at the moment, which is pretty obvious, but he failed to address the issue of deflation, which would seem to be the more imminent beast at the moment. Despite many economists dismissing the idea of deflation, many Fed officials are quite worried about it. Also, when you look at fundamental data, deflation becomes a huge concern. It may have been a wise choice for Ben to dodge that subject.

At either rate, I expect this news to weight pretty heavily with investors. I expect overall momentum to remain down for the next week, which should provide a good short trading environment for the time being. I will be making some trades early tomorrow. Happy Trading.