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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: GROUND ZERO™ who wrote (89062)	7/25/2009 7:50:26 AM
From: fred woodall	1 Recommendation Respond to of 94695

“Now There You Go Again” Richard W. Wendling 06/26/09 comments@bearfactsspecialistreport.com wendling_r@yahoo.com bearfactsspecialistreport.com The sub-title above was taken from the 1980 Presidential debate between then President Jimmy Carter and then California Governor Ronald Reagan. Mr. Reagan made the statement; “now there you go again” after president Carter had made some misleading and tainted statements about Mr. Reagan’s health reform agenda. The purpose for then President Carter’s remarks was simple, he wanted to confuse and sway the public about the truth and instead mask it in a veil of miss-statements. Now why is this statement so important nearly 30 years later? Because the American investor and American citizen are again being miss-lead and miss-informed with tainted information being supplied by the financial markets, government offices and “Banking Industry” giants. What is this latest shameful act of persuasion on the unknowing investor and public, two words, “Accretable Yield”. The definition for Accretable Yield is, “the difference between value of the loans on the banks’ balance sheets and the cash flow they’re expected to product in the future.” Note the keyword, “expected.” To give you more clarity of what this means picture J.P. Morgan, Bank of America Corporation, PNC Financial Services Incorporated and others will begin posting profits in excess of $56 billion. How will they be able to do this after just receiving TARP money’s to bail them out? The answer is quite simple, “Accretable yield.” By using this system, which has been on the books for years but never really used, these super banks will be able to book income on loans that they have on their books at “reduced credit quality” [i.e.] level II and level III toxic asset loans, by recognizing the value of the bonds on their balance sheets and the cash flow these securities are “expected” to earn. It is important to realize that we are not talking about cash that has already been earned, nor cash in the bank, we are talking about cash flow that these banks are expected to earn. It is my thought that the governmental arm of the specialist system is somehow behind this stock manipulation. After all they are the ones who have been working day and night behind the scenes this whole time using both the Federal Reserve and the Treasury Department to force banks to take money that they didn’t want, and when necessary they used their other arm, the Media to intimidate them into taking the money. You would have hoped that the American investor after months of losses and manipulation of both the stock markets and individual stocks might have started showing a lot more interest and distrust in both the governments and financial sectors handling of this situation. But as per usual they continue to stumble along relatively happily with their hands well secured over their eyes. To show just how rotten this system actually is lets look at JP Morgan Chase which is expected to book as much as $29 billion in windfall income. When they bought Washington Mutual last year for $1.9 billion and were allowed to mark down the “toxic debt” that came along with that sale down to “fair value” which ended up being less than 75% of the $118 billion it acquired their balance sheet only showed them holding $88 billion in debt. Now JP Morgan says those same debts will appreciate by as much as $29 billion or more over the life of the loan. According to the Financial Accounting Standards Board rules, buyers like JP Morgan carry these loans on their balance sheets at fair value. Then as the borrowers repay those loans they are allowed to book profits. By keeping the value of the loans low, the profits on such a small base is gigantic. The incentive for these institutions is to write down the value of the loans so aggressively that they are practically worthless. That way when the buyer folds them into its balance sheets the returns are huge. This will lead to massive profits. If the government is successful in reducing mortgage rates and the housing markets stabilize, the banks get to make up entirely new numbers and “bring more of the loans current” which means that they are able to assign whatever brand new values they want to the very same toxic slime these banks wrote down only months ago during the purchasing process. The farther that they wrote down these assets as part of the acquisition process, the higher they can now write them “up” in the months ahead, and the more powerful the “profit” surge we will see. The motivation behind this new use of market manipulation is three fold: 1) First, the banking industry remains in a total state of chaos. Despite widespread attempts to calm things down, the banks don’t trust each other and the public trusts them even less do to their losses. So profits, whether illusionary or not, would go a long way to re-establishing some sense of normalcy. 2) To the degree that the banking system remains on the Federal payout system and their balance sheets are still a wreck, the ability to add new earnings is a lifesaver. Not only does it allow them to equalize earnings, but it also makes their stock values more attractive to the average investor because of the apparent “growth” potential that exists as we move forward. 3) Because the newly accreted earnings will flow directly to income and the banks have stockpiled a huge war chest of write-offs, financial institutions maintain a substantial buffer that can be used at their discretion whenever they need to manipulate their earnings. Now why is all of this information relevant? The current financial debacle that we are working our way out of is based on false and misleading financial information supplied by the banking system. While all of the information listed above is perfectly legal it is mirror image of what got us in this problem to start with. To quote Mr. Ney “Wake Up”. Until the investing public and Americans as a whole wake up to this miss-leading information they are setting themselves up for another fall in the future. Will it be in the next year or two? No. But as the market place sets up the extensive rally to the upside that I am expecting they are also pre-programming the issues that will eventually de-rail it. One of those major issues will be this misrepresentation of assets on balance sheets. Unfortunately, all of us will pay for the financial greed of a few individuals. Now before we get into the monthly report I have received several questions regarding the recent price drops in several of the major holdings in the model portfolio. General Electric (GE), Chesapeake Energy (CHK), NYSE Euronext (NYX), and DuPont (DD) have all seen short sharp declines. What is the reason for this decline? My friend Ted from the Ukraine supplied me with the answer to this question. Ted follows and play’s the “Options” market place. He informed me that those four stocks listed above had massive options contracts outstanding during last week’s options expiration week. The week before the declines started many traders were positioning themselves to book massive profits on these stocks as they continued higher. Since specialists were on the other side of those options contracts and since they have unilateral control of the stocks prices and had no intention of allowing investors to book those massive profits they conducted a “Pooling” effort, which is against SEC regulations and dropped those issues down to even or below the original prices causing almost all of those contracts to expire worthless. Investors however again had absolutely no clue that they were being “Fleeced” by the “System” because the “Media” was used to blame individual stocks, oil prices, commodity prices and the world economic situation for both the markets and individual stocks declines. It never ceases to amaze me how individuals spend their entire lives working hard to make a living, and then when they accumulate enough spare money to invest in the market place they spend virtually no time investigating where their money is being put to work. Then, when their investments end up going South and lose a substantial portion of their money they simply throw up their hands and say, “well I made another bad choice of stocks”. Instead of researching why they lost their money they simply move on to the next stock, and more than likely repeat the process again. When I wrote last months report I stated that specialists and their system systematically start dropping the broader based 3500 plus stocks in the DJIA three to six months prior to dropping their selected stocks and the thirty industrial issues. I also stated at that time that in my opinion they had initiated the beginning of that decline last month. Now to re-enforce that last statement please look at the Summation Index Chart abov index has been declining for the last seven weeks. While the DJIA has declined marginally, 62 points. The Summation Index has dropped 1870 points or 25 percent. Since the index is based on the difference between advancing issues minus declining issues and then mathematically calculated, it visually shows how the internals of the market place are receding versus the sideways picture that the DJIA is portraying. The average investor never sees this because his entire life he has been programmed to follow only the movements of the DJIA. This has allowed specialists and their system to continually rob the investor of his or her hard earned money while giving them the illusion of strength in the market as the DJIA moves sideways to higher. Then once they do decide to drop the DJIA investors will decide that it is time to sell and then they will first become aware of just how much of their money they have already lost. Hence they decide to stay in the market a little longer hoping for a rebound so that they can leave with more of their money. However, that rebound never happens. Then once the market goes into a “free fall” mode they panic and sell everything as the market hits its bottom. That’s why it is important to know exactly where you are in the cycle before you are buying or selling. For the month of June 2009 the DJIA has had a net loss of 62 points. The reason for this e. As you can see sinc slight decline and sideways movement is simple, “accumulations of stock”. In last months report I discussed how specialists needed to re-fill their trading accounts with stock before moving the markets higher. As the Dow chart on the previous page indicates volume has continued to be light during this sideways movement indicating that this phase is only for accumulation and not high volume which would indicate distributions and short selling. The chart also indicates that while moving sideways near term the specialist system has held the market above the 23.6% Fibonacci retracement levels. Since we are now moving into what is commonly called the summer doldrums for the broader market place, it is possible that specialists will continue this sideways to slightly higher movement until Labor Day and then initiate their assault on the 10,300 levels before starting the short steep decline I am anticipating. Currently, even though the internals of the DJIA are moving lower I have seen no indications from the specialist system that they are in position to start the major decline. While the broader based stocks will more than likely continue to move slowly lower, specialists coveted stocks and selective DJIA stocks will continue to move higher. If you are currently holding positions in stocks listed in the model portfolio continue to hold them. I believe these issues will continue moving higher until late September or early October. Richard W. Wendling 06/26/09 comments@bearfactsspecialistreport.com wendling_r@yahoo.com