Globevest

A GAME OF CHANCE?

2008-06-25T09:17:00.000-07:00

Dusting is a good example of the futility of trying to put things right. As soon as you dust, the fact of your next dusting has already been established.

George Carlin 1937-2008

All of us have been there. All of us have thought how sweet it would be.

You’re at the crap tables in Vegas or about to pull the lever on a “one armed bandit,”
and you think to yourself ... "wouldn’t it be great if this game was fixed in my favor." But then you toss the dice or yank down on the handle, and just like that … "snake-eyes" or "box cars."

Even though the odds are always stacked against us in Vegas or Atlantic City, we still play. We do it because we believe it’s a level playing field. We know there’s always somebody watching, whether it’s the state gaming commission or the “eye in the sky.” It may be gambling, but there are rules that make it equally hazardous for everyone.

The same can’t be said for the energy futures market.

By conservative calculations, at least 60% of today’s $138 per barrel price of crude oil comes from unregulated futures speculation by hedge funds, banks and financial groups using the London ICE Futures (Intercontinental Exchange) and New York NYMEX futures exchanges and uncontrolled inter-bank or Over-The-Counter trading to avoid scrutiny.

US margin rules promulgated by Commodity Futures Trading Commission (CFTC) allow speculators to buy a crude oil futures contract on the Nymex, by having to pay only 6% of the value of the contract. At $138 per barrel, a futures trader only has to put up about $8 for every barrel leveraged. The trader “borrows” the other $130 to complete the speculative transaction. Although speculation adds liquidity to the markets, this liberalized leverage of roughly 17-to-1, has been a key component driving prices to the sky high levels we’re seeing today.

Although rising demand from China and India is well known, the problem may not be a lack of crude oil supply. In fact, there is ample evidence that there is net positive global surplus of oil. Yet the price climbs relentlessly higher. Why? In my opinion, the answer lies in what are clearly deliberate policies that have permitted unbridled oil price manipulation.

The US Government’s Energy Information Administration (EIA) in its most recent monthly Short Term Energy Outlook report, concluded that US oil demand is expected to decline by 190,000 b/d in 2008. This drop in demand is mainly owing to the deepening economic recession. Chinese consumption, the EIA says, far from exploding, is expected to rise this year by only 400,000 barrels a day. That is hardly the "surging oil demand" blamed on China in the media.

According to EIA, because of falling domestic demand, US, stockpiles of oil climbed by almost 12 million barrels in April. During the same period, retail gasoline demand fell by nearly 6%. Refiners are now running at about 85% of capacity, down from 89% a year ago. Normally, during this time of year, they would be running at about 95% capacity.

That means the key oil consuming nation, the USA, is experiencing a significant drop in demand. China, which consumes only a third of the oil the US does, will see a only a minor rise in import demand compared with the total daily world oil output of some 84 million barrels, less than half of a percent of the total demand.

The chief problem faced by the major oil companies is not finding replacement oil, but keeping the lid on world oil finds in order to maintain present exorbitant prices. At today’s prices, the pressure to boost both domestic and international production has become dynamic. Here, the oil companies have some help from Wall Street banks and the two major oil trade exchanges—NYMEX and London-Atlanta’s ICE and ICE Futures.

The oil price today, unlike twenty years ago, is determined behind closed doors in the trading rooms of giant financial institutions like Goldman Sachs, Morgan Stanley, JP Morgan Chase, Citigroup, Deutsche Bank or UBS. The key exchange in the game is the London ICE Futures Exchange (formerly the International Petroleum Exchange). ICE Futures is a wholly-owned subsidiary of the Atlanta Georgia International Commodities Exchange.

ICE was focus of a recent congressional investigation. Through a convenient regulatory loophole known as the “Enron Exception,” the ICE Futures trading of US energy futures is not regulated by the Commodities Futures Trading Commission, even though the ICE Futures US oil contracts are traded by ICE affiliates in the U.S. In 2000, at Enron’s specific request, the CFTC exempted the Over-the-Counter oil futures trades. We all know how that turned out, and now this gapping exception is coming back to haunt us.

In order to prevent unchecked market manipulation by producers and suppliers, CFTC regulations require traders to disclose the identity of their major trading clients. Under the “Enron Exception,” no such disclosure is required. It is this cloak of anonymity that has permitted over-the-counter speculators here and in London to drive prices with impunity.

Look … I believe in the free market. But when the game is rigged, who wants to play.

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

FOOD FIGHT

2008-06-18T08:35:00.000-07:00

Food fights can be fun.

Nothing says I love you better than a pie in the face. Who hasn't reveled in the idea of touching off a lunch room melee by flipping a flank steak at an innocent bystander or playfully sending plate of spaghetti, with meatballs, airborne?

Who can forget epic slapstick brawls by everyone from the Three Stooges to Marx Brothers. Even today, when in doubt, modern comedy writers fall back on the old reliable. Some things are always funny.

Funk and Wagnalls, the authority on all manner of things wild and wacky, defines a food fight as “a spontaneous form of chaotic collective behavior in which food is thrown around a room, usually a cafeteria, in the manner of projectiles.” In a nod to this comic tradition, Messrs. Funk and Wagnall add, “it is usually started by one person, sometimes by accident.”

Food fights are woven into the fabric of several western cultures. For centuries, the Spanish have had their “Tomatina” and the Italians the “Battallia degli Aranci.” In the Spanish version, citizens young and old, rich and poor, gather in glee to hurl tomatoes at one another. Not to be outdone their Mediterranean cousins, the Italians stage mock battles in which oranges replace grenades as the weapon of choice.

In the wake of the storms and mid-west floods, however, the fight over food has taken on new, and less comic dimensions. With energy prices at all time highs and a growing percentage of corn already committed to ethanol production (nearly 30%), the price of grains has soared. After U.S. Midwest flooding damaged an estimated three million acres, corn, wheat and soybeans are trading at or near new records. As the growing season progresses, and the reality of crop damage sets in, global food inflation will likely accelerate.

From a global perspective, this is the “perfect storm.”

According to USDA, 2007/08 will mark the seventh year out of the past eight in which global grain production has fallen short of demand. This consistent shortfall has cut supplies in half-down from a 115-day supply in 1999/00 to the current level of 53 days.

In a recently released report on global conditions, the Department said “the world is consistently failing to produce as much grain as it uses." Analysts said, however, that the current low supply levels are not just the result of a transient weather event or an isolated production problems. Rather, low supplies are the result of a “persistent draw-down trend."

For America's growers, even those whose acreage currently resembles one of the Great Lakes, this is a boon. For worldwide consumers, however, including those in the U.S., food prices are spinning out of control.

To make matters worse, as the world has become more prosperous, more of the world wants to eat like Americans. This means more meat. It should come as no surprise that the fastest growing restaurants in both China and India are MacDonalds and Kentucky Fried Chicken.

More meat means more livestock feed. Most livestock are fattened on corn-based feed. This year alone, rising feed prices have pushed up the costs of meat and poultry in the U.S. by more than 40%. Pretty soon, the cost of the buns on your Big Mac will rival price points on its shrinking patties.

As Congress begins to tackle the causes and cures of global warming, the action focuses on gas-guzzling vehicles and coal-fired power plants, not on lowly bovines.
Yet livestock are a major emitter of greenhouse gases that cause climate change. And as meat becomes a growing mainstay of human diet around the world, changing what we eat may prove as hard as changing what we drive.

It's not just the well-known and frequently joked-about flatulence and manure of grass-chewing cattle that's the problem. A recent report by the Food and Agriculture Organization of the United Nations (FAO) said that land-use changes, especially deforestation to expand pastures and to create arable land for feed crops, is a big part. So is the use of energy to produce fertilizers, to run the slaughterhouses and meat-processing plants, and to pump water.

Believe or not, the international agency concluded that livestock are responsible for 18 percent of greenhouse-gas emissions as measured in carbon dioxide equivalent. Altogether, if their estimates are correct, that's more than the emissions caused by transportation.

Whew. I'll take my pie in the face now.

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

STALKING THE FUTURE

2008-06-10T09:30:00.000-07:00

Everybody loves corn. It’s as American as the SUV.

If Squanto hadn’t given corn to the Pilgrims, there’d be no Thankgiving. Corn makes the perfect flake for America’s breakfast table. It produces oil that let’s us pop our favorite matinee snack, and without it, corn bread would have an identity crisis.

Corn is America’s super crop. It seems that corn can do anything. In addition to food, it’s used in everything from adhesives and antibiotics to explosives, insecticides and shoe polish.

Now with gasoline and other fuel prices hitting all time records, we want to put a cape on the cob to fight our energy battles.

If you haven’t already guessed, I’m a card-carrying “tree hugger.” I’m also a fan of the family farmer. But corn as the savior of our energy woes is a really bad idea.

Producing corn is very energy intensive, and uses fossil fuels in virtually every step of the crop cycle: transporting and planting the seeds; operating farm equipment; making and applying fertilizer; and transporting the corn to market. Fertilizer, herbicide, and insecticide production consume the most fossil fuels.

Fossil-fuel based fertilizers also contaminate the soil and groundwater, but they can not be replaced by natural fertilizer: there are not enough animals to provide the fertilizer to grow the corn necessary to produce all the grain-based ethanol needed to run American cars. And the herbicides and pesticides necessary to grow corn at an industrial scale leach into the groundwater, too.

Whether or not ethanol production from corn is efficient is debatable. Proponents of corn-derived ethanol point to studies emphasizing an overall net positive energy creation. The naysayers claim that when the complete production costs of farming, seed, fertilizer, pesticides, fuel, ethanol distillation, etc... are taken into consideration, ethanol utilizes 30% more energy to produce than it creates. Ethanol proponents counter that this corn-based fuel reduces our carbon “footprint” and lowers greenhouse emissions because it recycles the carbon dioxide absorbed the plants during the growth cycle.

The economics of ethanol production is staggering. The estimated cost of building a single 100 million gallon ethanol plant is $140 million. Annually, the cost of natural gas to operate the plant ranges from $15-$25 million. A plant of this size will use nearly 2 million gallons of water per day. This is about 1700 gallons of water for every gallon of ethanol produced. Corn is already one of our most water intensive crops. With full scale ethanol production, the water numbers are mind numbing.

Ethanol, even in gasoline blends, cannot be shipped through the country's existing gasoline pipeline system because it is easily contaminated by water and corrodes the pipes. Presently, there are no working ethanol pipelines anywhere in the world. Corn-based ethanol is currently shipped by truck or rail car to fuel distributors, who then mix it with gasoline before delivering it to filling stations in more trucks. This adds to the cost of ethanol and to its overall CO2 emissions. In order to use
ethanol on any large scale, transport vehicles will either have to be retrofitted for ethanol, or the government will be forced to build or subsidize pipelines.

Although auto makers like GM’s Chevy boast about their “flex-fuel” capability, less than 4% of America’s 135 million cars are equipped to run on E-85 (15% ethanol mixed with gasoline). Even if your Chevy pick-up is E-85 compatible, finding a filling station that carries this blend is like trying to find ethics in Congress.

To be viable, corn-based ethanol will require massive federal subsidies. During 2007, ethanol production was subsidized to the tune of $3 billion. This is on top of the already $11 billion in annual subsidy raked in by corn growers. With corn prices at all time highs, the Hawkeye state is producing more millionaires per square acre than Silicon Valley.

When you factor in the effect of corn-ethanol on food prices and overall global food shortages, the debate takes on ethical dimensions that even I am not willing to tackle.

There are other, and potentially better alternatives to producing ethanol from edible food stocks such as corn. Many of these substitute fuel crops such as switchgrass can be grown on marginal land, require less water and external energy inputs. But that’s discussion for another day.

In the meantime, let’s keep corn where it really belongs, on-the-cob and in our breakfast cereals, and not in our gas tanks.

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

TAKE A NUMBER ...

2008-06-04T09:13:00.001-07:00

I’ve got a complaint. You know, a gripe, a grievance, a beef, a real bone to pick.

We were promised a recession --- now, where the hell is it?

If it walks like a duck, it quacks like a duck, well you know the rest. But as far as recessions are concerned, this duck just won’t hunt!

The credit markets are in a shambles. Oil and gas prices are slicing through uncharted territory, food prices make the “Dollar Menu” at MacDonalds look attractive and unemployment is climbing.

So, where’s the recession?

According to Merriam Webster, my daughter’s high school econ teacher, and the guy who makes my non-fat macchiatos at Starbucks, a recession is defined as “two consecutive quarters of economic contraction.”

Damn … despite record food and energy prices, despite the collapse of Bear Stearns and the precarious position of Lehman Brothers, last quarter, the U.S. economy actually expanded by nearly one percent. What a rip off!

Oh, how times have changed. Twenty years ago, five percent unemployment was seen as full employment. Today, it’s causing a panic.

During the “Great Stagflation” of the late seventies and early eighties, the inflation rate was eleven percent. While most of us are suffering sticker shock, and the price of gasoline has inspired a new generation of couch cushion explorers, the adjusted inflation rate is only four percent.

Apparently, it’s not as bad as we think.

To make matters worse, today, the ISM (Institute for Supply Management) reported that domestic service industries expanded at a faster pace that initially projected for May. An ISM measure below 50, is an indication that the economy is contracting. During May, non-manufacturing industries, which comprise nearly ninety percent of our
economy, landed an ISM score of 51.7.

Yesterday, Fed Chair Bernanke signaled that his campaign of rate cuts may be an end. What’s next … are we going to find out that the President’s rebates really worked!

Look, I’m an American, I want someone to blame. If this were a “real” recession, I’d get the chance to point the finger at the culprits. It wouldn’t matter to me whether it’s the President, the Congress, the Fed Chair or my barber. I’ve got a right to bitch and moan. But, if this is not a recession, what am I complaining about?

GET IN LINE …

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Shhh ... It's Our Little Secret

2008-05-27T16:06:00.000-07:00

This article is a departure from my former pieces, and may be a bit too racy for the puritanical. Read on if you dare … but don’t say I didn’t warn you.

As an investment professional, I’ve always got my ear to ground looking for new opportunities. Recently, I got an e-mail that intrigued me. It was from Adultvest.com, which touted itself as America’s only venture capital firm specifically aimed at promoting adult-based businesses.

One of the “dirty” little secrets of the internet, is that the revenue generated by the porn industry blows the doors off of everything else on the web. By the end of 2007, worldwide porn revenues --- are you sitting down --- topped $97 billion. Even though porn is banned in China, it accounted for roughly 28% of worldwide gross revenues, followed closely by South Korea at 27% and Japan at 21%. Apparently, the slumping U.S. economy also hurt domestic porn revenues, because we only accounted for about 14% of the global internet sales.

Let’s put this in perspective. Last year, internet powerhouse Google ginned about $11 billion in gross revenue, eBay, the web’s biggest swapmeet brought in nearly $7 billion, Yahoo, no slouch by any means, settled for a measly $6 billion, while giant internet discounter Amazon generated $14.84 in gross revenues.

These, of course, were their gross revenues. This means that their ultimate net earnings amounted to a fraction of these figures. Although there are currently no figures on the net income realized by the internet porn industry, most analysts agree, that other than salaries commanded by its biggest and most popular assets, their costs are marginal.

Even though the U.S. only consumes less than 15% of porn worldwide, nearly 89% of all internet adult products are conceived and created in the old US of A. Nearly 269 new porn sites go online every day!

The center of the porn universe has been and continues to be the San Fernando Valley, right here in Los Angeles. As a native Angeleno, it kind of makes me proud, in a perverse sort of way. Some folks call it the “Hidden Hollywood.” If I were an exec at Disney or Time-Warner, I’d sure like figure out how I could bring this burgeoning industry out of the closet, so that I could get a piece of the action for my stockholders.

Here’s what’s really troubling me … How can the U.S. be so successful and pioneering in an industry like porn, yet be eons behind the rest of the world in everything from manufacturing advances to higher efficiency transportation. As any computer geek will tell you, the porn industry has been ahead of the curve in nearly every tech innovation on the web. There has yet be a pop-up blocker or spaminator that can keep all the smut at bay.

The growth in the industry hasn’t come from multinational conglomerates backed by a host of global investment banks. Quite to the contrary, porn has grown on the backs --- forgive the allusion --- of societal outlaws and misfits whose entrepreneurial spirit should be the envy of MBA’s far and wide. If we’re looking for solutions to our economic malaise, maybe we should ignore the usual cast of Harvard, Yale and Stanford eggheads,
and look no further than those tempting little e-mails that all of us pretend to ignore, but secretly want to explore.

As any Madison Avenue sales exec will tell you … sex sells!

For your entertainment and educational pleasure, I have included two "must see" video clips. Don't worry, both are rated "G."

The first is the solicitation I received from Adultvest.com, and the second is an innovative display of critical business statistics that would make any marketing professional proud.

COME ON ... CLICK IF YOU DARE.

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Milking America

2008-05-20T09:53:00.000-07:00

We live in a topsy-turvy world.

Can you imagine it … $3.87 a gallon … for milk!

Is there no end to the lengths to which our nation’s farmers will go to make a profit? What’s next, $10 for a brick of cheddar --- a premium on extra-sharp --- a black market for Munster or Gouda? My wife and I have set up a bootleg churn in our garage, because even the price of “I Can’t Believe It’s Not Butter,” has spun out-of-control!

Yesterday, the Wall Street Journal reported that the Commodities Futures Trading Commission (CFTC), the federal agency that regulates the commodities industry, was launching a probe into milk price manipulation, and in particular, cheese futures on the Chicago Mercantile Exchange.

The CFTC alleges that the farmers’ cooperative that controls nearly one third of the milk in America engaged in illegal market manipulation. According to the Journal, the Justice Department is getting ready to charge the Kansas City based Dairy Farmers of America (DFA) with variety of anti-trust violations --- including conspiring to suppress the price it paid for raw milk in the Southeast, while raising the prices it charged retailers. There are even allegations of secret payments to regulators.

Is nothing sacred? Who do these guys think they are … Exxon-Mobil?

The irony is so thick you could whip into a dessert topping. If the dairy farmers and their evil henchmen are facing prosecution, shouldn't the oil industry face similar investigative scrutiny?

Look, I’m a capitalist. I don’t begrudge anyone a fair profit. The operative term, however, is “fair.”

In 2003 when oil was $30 a barrel --- a time dinosaurs still roamed the earth --- the
average price of gasoline was $1.52 per gallon. Despite this modest price, Exxon-Mobile still turned a profit of nearly $21 billion on $246 billion in sales. Not to shabby.

I’m not going to pretend that I understand all of Exxon’s costs. But obviously, when gasoline was selling for $1.52 a gallon they were able to turn a nice profit.

Here’s the math. Don’t panic. You don’t need your calculator or abacus.

Ok, I’m going to go slow so that even our regulators and the math challenged (like me) can follow. In 2003, the average price for a barrel of oil was $28. There are 42 gallons in a barrel which means that price of a single gallon of oil was about 66 cents.

If the main ingredient in gasoline is oil, and Exxon was able to turn a significant profit at an average price of $1.52 per gallon, that means that the aggregate cost of refining, distributing, marketing and tax was less than 86 cents.

Now, with crude oil trading above $125 a barrel and the average price of gasoline peaking above $3.80, Exxon still posted record profits of nearly $11 billion last quarter. At that rate, Exxon’s net profit for 2009 is projected at $44 billion --- more than twice what it made in 2003, when the average price of oil was only $28 per barrel.

I’m no genius. But if the price of oil went up and the cost of refining, distribution, marketing and tax remains constant, shouldn’t Exxon’s profits likewise remain in the same ballpark? Did Exxon or the other oil companies suddenly find a way to dramatically cut their costs, or is there something more nefarious at work?

So as you’re filling the bottomless tank on your SUV this holiday weekend, ask yourself, who do I have to thank for this blessing. The list is long. Do I thank Senate Energy Committee Chairman Ted Stevens of Alaska or heap praise on the excellent work done by the “Secret Energy Task Force” convened by our own beloved Vice-President Dick Cheney, the former CEO of Haliburton.

The “Task Force” first met in 2001 when crude oil was trading at about $20 a barrel. Cheney and his group of "concerned" citizens didn’t meet again until oil hit $55 in 2004, $70 in 2005 and finally $79 in 2006. As far as we know, after their 2006 meeting, it was "Mission Accomplished."

Are the dairy farmers being investigated because they're less American than the boys at Exxon or Shell? From my limited vantage point, their only real mistake was that they didn’t have their own secret task force protected by “vice-presidential executive privilege.” Otherwise who knows … milk might have hit $5 a gallon without a single regulator batting an eye.

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Alphabet Soup

2008-05-13T10:08:00.000-07:00

Has financial innovation gone too far? When PhD economists can't explain how your investments work, the clear answer is ... yes.

During a recent conversation with an old friend, I made the mistake of asking him how he was doing in the market. Without missing a beat, here is what he said:

“I recently met with my CFP, who also is a CIC and CLU, and associated with an FCM. He recommended that I stay the course on my LEAPS, look for the exit on my CDO’s, and attempt to marginalize my MBS losses. Overall, to minimize my CGT and to boost my EPS ratios, he's urging me to put more into ETF’s and to consider making a significant shift into EU-backed CFD’s”.

Translation:

“I’m not really sure what broker wants me to do. But I don’t want to look an idiot. So I’m going to swallow hard, pretend that I really understand, prepare for the worst and hope for the best.”

In the dog-eat-dog world of Wall Street banks, the quest to capture more your investment dollars is akin to the arms race. Everyone is trying to invent a better mousetrap. This has resulted in the development of extremely complex hybrid securities one piled on top the other, whose risk and return properties aren’t well understood.

These incomprehensible instruments were not set up to address fundamental economic problems. Rather, they are schemes to attract more and more of your investment dollars. More disturbing, is that it appears that many of these “innovations” were not created to build client wealth, but for the sake of the new brokerage fees they generate.

The profits of the investment banks promoting these "innovative" investment offerings have been astronomical. As long as everyone was making money, there were few complaints. Lawmakers and regulators have kept their hands off for decades to encourage financial innovation. But with the collapse of Bear Strearns, and the likelihood that other institutions may follow, the government is starting to take a closer look. Unfortunately, for the small investor, and the economy as a whole, it may be too little too late.

Everyone wants transparency. But regulators can’t regulate what they don't understand. And if the regulators are at bamboozled, how can investors be expected to crack the code? I'm in the business of investing, and frequently, I'm at a loss to explain how some of the newer financial instruments really work.

Transparency and disclosures are worthless as long as investment banks and their executives are intent on using a sleight of hand. Despite popular belief, there was plenty of disclosure about what Enron was doing. The problem was that it was so complicated that no one understood it, least of all the investors and regulators.

Wall Street bankers can’t be trusted to make things clear. It’s not in their best interest. Because if you understood what they were really doing with your money and real risks involved, you'd probably balk at the investment.

Simple is always better. As any mechanic will tell you, more moving parts means a greater chance for a breakdown. The same commonsense applies to investing.

No one would argue the investment acumen and wizardry of Warren Buffet. As the "Whiz" once observed; “If I can’t understand, they don’t want me to understand it.”

Translation:

If you don’t get it, and you can't spell it, don’t do it!

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

The World as We Don’t Know It

2008-05-06T09:44:00.000-07:00

As we know, there are known knowns. There are things we know we know. We also know there are known unknowns. That is to say we know there are some things we do not know. But there are also unknown unknowns, the ones we don't know we don't know.

Donald Rumsfeld

So here’s what we know … the price of oil has hit a new record above $121 a barrel (gulp). According to the Lundberg Survey of 7,000 gas stations nationwide, the average price at the pump for unleaded regular is $3.62 per gallon, up $.15 in the past two weeks alone. In California (always a leader), more and more stations are starting to post their prices at $4.00. Yikes!

Everyday seems to bring more reasons why the price of oil is skyrocketing. Last week, prices were affected by uncertain domestic inventories. Today, oil reportedly surged because of damage to a flow-station in violence plagued Nigeria, Africa’s largest producer. Next week the prices could spike because the “moon is in the seventh house and Jupiter is aligned with mars.”

Call me “Captain Obvious,” but nobody seems to know how high we will go.

Now there are predictions of a “super spike” ranging from $150 up to $200 a barrel!

Oil prices have reached this point without additional global turmoil. Granted, we still are fighting two wars in the Middle East and the threat of Jihadist terrorism persists. Additionally, there is no debate that Asian demand has ballooned and the dollar has cratered. But, in reality, there have been no new major events justifying this tectonic shift in prices. Yet here we are.

Two years ago when oil was trading below $50 a barrel, famed trader/raider T.Boone Pickens projected oil prices above $100. Analysts at noted investment bank Goldman-Sachs echoed Picken’s call. Rational thinkers (yours truly among them) scoffed at these predictions. Color me wrong.

In a recent press statement that would make master obfuscator Alan Greenspan proud, the folks at Goldman said: "The core of our 'super-spike' view is that oil prices will keep rising until demand declines globally on a multiyear basis, resulting in the return of excess capacity and a lower cost structure. Given this view, once excess capacity returns, we think prices can move sharply lower."

Huh?

The causes of the relentless climb in oil prices have been repeatedly chronicled -- demand from China and India, the falling dollar making oil an inflation hedge, speculation, OPEC supply restraints, supply threats in Iran, Iraq and Nigeria, and refinery bottlenecks in the U.S. … and the list goes on.

But what do we really know … let’s be honest … we don’t know, because we really don’t know.

If you’re in business or in the business of investing, how do you plan five-years in advance, let alone five-months? The watchwords are diversity and flexibility. As we have seen over the past three years, only the nimble will survive.

If you’re going to take your cues from anyone, you have to look no farther than Harvard and Yale. Their endowment portfolios have grown exponentially over the past several years because of their willingness to embrace diversity, flexibility and risk. Last year alone, David Swensen, Yale’s investment manager posted a 23 percent gain, and 16% annually over the past 10-years. Harvard’s endowment has seen similar results.

The key to success by these two Ivy League giants has been a mix of assets which are inversely correlated or non-correlated to one another. In their model, risk is ameliorated through this form of diversity. They trade everything from stock indices and commodity futures to real estate and currencies. If they're losing money in one sector, they quickly re-evaluate and shift to another. At one point, Harvard even hired several professional foresters to assess potential in the domestic timber market.

So here’s a simple survival rule for the current marketplace … When you don’t know what you don’t know, don’t get stuck on what you think you know, because you really don’t know what could happen. In other words, keep an open mind and be willing to change your strategies to fit the conditions of the shifting global economy.

If that makes sense to you, then you’re ready to face the unknown or to fill the job as our next Secretary of Defense.

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

The Big Game

2008-04-29T09:20:00.000-07:00

Like fans at a big game, the constant chant on Wall Street has been rising like a storm …

One and done! One and done!

The power pin-stripers are rooting for the real “monsters of the midway,” the hippest of hip hoopsters … the Fed. As the Fed's Open Market Committee meets today and tomorrow, investors and traders are hoping that as Ben Bernanke brings his team down court in the final drive to revive the ailing economy, they cut interest rates one last time.

Since summer, the central bank has incrementally reduced the key federal funds rate by 3 percentage points to 2.25 percent from 5.25 percent. On top of rate cuts, the Fed has been lending more money to banks, while the government is preparing to send out tax rebates.

What difference six weeks makes. Prior to the last Fed meeting, the markets were anxious about the implosion of global banks. Now, the “Wizards” are betting that the credit markets are on the mend, and that they can get back to business as usual. Are they daft or just deluded?

A quarter or even a half point cut by the Fed is not going to significantly alter conditions that have precipitated the current market malaise. The S&P’s Case-Shiller Index is reporting that home values have dropped 12.7 percent from a year earlier and foreclosure rates have doubled over the same period. To make matters worse, consumer confidence is at a five year low, fueled by mounting job losses, and soaring gasoline and food prices. Federal Reserve policy-makers may cut interest rates again in an attempt to shore up the financial markets and boost consumer spending. But cutting interest rates at this point may be like trying to cap a well fire with a thimble.

In a recent interview at the Milken Institute in Beverly Hills, Eli Broad, co-founder of KB Homes, the nation’s fifth largest homebuilder, said that he believed that home prices would likely decline another 20%. “I don’t think we’re anywhere near the bottom,” warned Broad. He went on to say that he believed that it may take 3 to 4 years before the market can clear out the huge and growing volume of unsold and unoccupied homes.

The economy lost 80,000 jobs in March, the most in five years. Consumer spending which accounts for two thirds of the economy rose only .07 percent, the slowest pace since 1991. Although government rebates are now being sent out, it’s not likely that this cash infusion combined with another rate cut will be enough to overcome the current consumer caution. The greater concern should be the impact that this action will have on rising inflation.

Historically, it’s not uncommon for consumer prices to flare early in a recession, only to settle back on slack demand as the economy weakens. But considering the prices of basics such as wheat, corn, rice and gasoline, discretionary consumer spending could be dampened until there is a significant shift in commodity prices. During this past week, crude oil surged near $120 per barrel and prices at the pump reacted accordingly.

Unlike past recessionary cycles, however, commodity prices are not simply governed by U.S. demand, but by the global appetite for oil and other raw materials. While Asian countries such as China and India are dependent on U.S. consumer behavior, their thirst for raw materials has not abated. Apparently, they’ve got a wad of cash burning a hole in their collective pockets, and they’ve got a hankering to spend it.

Even the high flyers are feeling the pinch. In a sign of the times, expense accounts for employees at some of the world’s largest investment banks have been drastically curtailed. Last month in a memo to its employees, Goldman-Sachs issued an edict that tabs for business lunches were not to exceed $100 per person without prior approval and that first class air travel only would be permitted for flights over 90 minutes. In further evidence of this clamp down, Deutche Bank told its employees that it would not longer approve the use of company credit cards for adult entertainment or brothels. Ouch!

In point of fact, there appears to be a real disconnect between Wall Street and world. Although the Fed has been a valiant foil for President Bush and his cadre of crack advisors, another rate cut will do little to soften the body blows to U.S economy. The recession must run its course. Cutting interest rates may boost Wall Street’s confidence, but it will do little to bolster the most important component of the economy … the American consumer.

None and done … None and done!

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Earth – Love or Leave it to Beaver

2008-04-22T10:03:00.000-07:00

"If it weren't for electricity, we'd all be watching television by candlelight."

— George Gobel

The problem with Earth Day, is it’s just not funny.

Do you chuckle when you think about the likes of Ralph Nader or Al Gore? Does the Sierra Club make you guffaw? Do folks sit around the campfire telling funny stories about John Muir?

In a rare comic reference to his 1965 tome about auto safety, and specifically the dangers of the Chevy Corvair, Nader’s staffers would often lament that, Ralph was "unfunny at any speed."

When the recent Academy Award winning ex-Vice-President was in office, the running joke among Washington insiders was: "If Al Gore was in a room with ten secret service agents, how do you which one is the VP?" Answer: "He’s the one who looks stiff!"

Maybe if the environment told jokes or was video game, we might pay more attention. As Groucho Marx was once heard to say: "why should I care about future generations … what have they ever done for me?" My guess is if you query most Americans, they probably feel the same way about he environment.

We could save the planet, but the problem is that most of us are unwilling to make the necessary sacrifices. We don’t want to pay the freight. Without our SUV’s, how will we arrive in style at our next camping trip, let alone to the dry cleaners? But in the end, Mother Nature doesn’t really care about which tax bracket you’re in or what you drive. You can even move to "Green Acres," but like your real mom, when she’s pissed, she’s going to find you.

As the saying goes, "the way to a man’s heart … is through his wallet." With oil topping $118 a barrel, and gasoline prices headed over $4 a gallon, all of sudden, everyone’s an environmentalist. Toyota can’t push enough of its Prius' off the assembly line, while mid-western farmers lining up at the “piggy trough” to get their ethanol subsidies. Even the Hummer’s gone hybrid.

Wall Street gets it. No one is saying that the captains of industry are "tree huggers." Nothing could be farther from the truth. Being the ultimate opportunists, however, they understand the bottom line ... going green is simply good business.

In the 38 years since the first Earth Day, what’s really been accomplished? Other than President Bush, who believes that we can solve the global warming problem by switching from Fahrenheit to Celsius, everyone agrees that climate change is a real threat to the survival of our planet. But as Mark Twain was often quoted as saying, "everyone talks about the weather, but nobody does a thing about it." Sadly, much the same can be said about the genuine progress we have made in protecting our environment.

Whether we’re really willing to admit it or not, all of us make decisions in our own best interests. Maybe economist Milton Friedman got it right, "corporate responsibility" [read personal] is an outgrowth of economic self-interest and preservation.

It’s no coincidence that Japanese and European cars have historically been more fuel efficient than our own. Since the early seventies, gasoline prices in Europe and Japan have been nearly double what we pay. With limited open space, suburban sprawl, a fixture in our universe, is virtually unknown to these nations. As a result, conservation and resource efficiency are an economic imperative.

Although all of us are feeling the pinch at the pumps and the grocery store, compared to prices in the rest of the industrialized world, Americans still are on easy street. Future Earth Days will come and go, but unless we as Americans decide that the real costs and consequences of our conduct are too high, nothing will ever change. In the words of English philosopher-economist Kenneth Boulding, "Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist."

Happy Earth Day!

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

If You Ask Me ...

2008-04-15T13:36:00.001-07:00

Here it is Tax Day again. If you haven't filed, you aren't reading this. If you have filed, you're most likely getting drunk to ease the pain.

Like me, you’ve probably become numb to the news --- oil at record levels pushing up prices at the pump; sticker shock over the price of bread and eggs; a deepening housing slump driven by the ever-widening subprime meltdown. Recession … stagflation … deflation … the weakening dollar. The worst inflation in 17 years. Whew!

Around every corner, there’s a new Nostradamus, adding to the confusion. The airwaves and e-waves are filled with expert predictions and advice. But, opinions are like … well you know … everyone’s got one.

As an investor and consumer, my head is spinning. Do I buy --- do I sell --- do I hold --- or do I simply duck and cover until the storm passes?

The simple answer is ... yes.

To survive or even thrive, in current market climate, you’ve got to be flexible. One size does not fit all!

In the end, sometimes the best course is fall back on the lessons you've already learned.

Lesson 1 - Don’t put all your eggs in one basket - If, for example, your portfolio is comprised primarily of equities or real estate --- diversify. David Swensen, Yale University’s money guru, has averaged better than 16% returns over the past 21 years. Through asset diversification, he has built an 18 billion dollar endowment that is the envy of the investment community. Swensen’s Yale portfolio holds a full suite of assets ranging from stock market indices to emerging market equities and even real estate. The key, according to Swensen is to hold assets which are either inversely or non-correlated with one another.

Lesson 2 - Follow the money – As we have seen time and again, big money goes where big money grows. Commodities are trading at all time highs. Rising global demand for raw materials and a weakening dollar have led to record prices for commodities including corn, rice and gold. Despite sharply rising costs, diesel fuel imports to China surged 49% in March. Jim Rogers, co-founder with George Soros of the Quantum Fund and best selling author of the books “Investment Biker” and “Adventure Capitalist,” believes that the bull market in commodities will last through 2017. From 1999 through March 2007, his Rogers International Commodities Index has posted returns of 281%, and 21% through the first quarter of the year. As Rogers puts it, “if this market were a baseball game, we’re only in the fourth inning.”

Lesson 3 – If its broke, fix it – The math is simple … if you’re not winning, you’re losing. If you called your broker back in 2000, as the bottom started fall out your portfolio, he probably tried to calm your jitters by saying “look, we may be down, but remember you don’t loose unless you sell.” A truism yes … but in a tumbling market, not very comforting. Good markets always are followed by bad markets. If you've got a profit take it. If you’re bleeding equity, stop the bleeding. Being right isn’t worth the risk. As one savvy trader put it, "marry to your wife not your trades!"

Lesson 4 - Buy when there is blood in the streets – Legendary European banker Meyer Rothchild built his family dynasty on the notion that you “buy on the sound of cannons and sell on the sound of trumpets.” When prices fall, whether in the stock or real estate markets, there will be bargains-a-plenty at the bottom. As famed corporate raider Carl Icahn has shown time and again, buy into weakness --- sell into strength.

Lesson 5 – Go to the mattresses – In times of war or siege, Italian families would abandon their homes for safer surroundings. Soldiers would sleep on the floor in shifts. In the “Godfather,” this term became synonymous preparing for battle. The key is to apply this same mentality to your investments. The market is not a garden party. Your brokers are not your friends. Don’t be afraid to make hard choices even if means that you must part company with a long-term advisor. In truth, you are the only one who truly has your best interests in mind.

Lesson 6 – Cooler heads will prevail – Knee-jerk reactions are a natural response as the markets appear to unravel. Recent stock market gyrations can shake the confidence of even most seasoned investors. The natural response is to convert to cash. While this may seem to protect your hard-earned equity, it’s not always the best course. With interest rates low and the dollar losing value against other major global currencies, not even cash is a sure bet. It's sensible to retain cash to pay bills or to have the flexibility to rebalance your portfolio with other assets. Instead of viewing the current shake-up as crisis, however, try to see it as an opportunity …

Lesson 7 - Don't accept candy from strangers - Need I say more?

HAPPY TAX DAY!

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Truth or Dare

2008-04-06T21:24:00.000-07:00

Truth or dare. You remember this game. We all played it when we were young. When your turn comes round, someone in the group gives you a devilish choice … tell the truth about your deepest darkest secret or face a trial by fire. If you refused to fess up by divulging your confidence, then you were forced to do something unspeakable … you know … like running around the room in your boxers, while belting out the lyrics to “I Feel Pretty” from “Westside Story.”

Whether you knew it then, this adolescent challenge was preparation for the morality play that we would face countless times as adults.

Okay … Truth or Dare.

When you heard that the Fed rescued Bear Stearns by underwriting the failed firm to the tune of $30 billion dollars, did you do a jig? Did you secretly stand up and cheer because those poor bastards --- Bear Stearns execs --- could keep their billion dollar bonuses? If you didn't applaud the Fed's action, were you willing to let the Wall Street giant collapse under the weight of its own ill-conceived risk? Did we dare?

Now Congress and the President are proposing to bail-out hundreds and thousands of borrowers across the nation facing foreclosure. This is where the rubber meets the proverbial road.

Truth or Dare.

Is there a greater risk to the economy if we let these borrowers fail or does the real peril come from taking the seemingly most compassionate course?

Risk transfer is the gist of modern economies. The vitality of the any economy is predicated on the notion that some players will prosper while others will fail. A “moral hazard” arises when an individual or institution does not bear the full consequences of its actions, and as a result, has a tendency to act less carefully than it otherwise would, leaving a another unanticipated party to bear to some or all of the loss. In other words, if investors are led to believe that there is a “safety net” ready to catch their fall, then it more likely that their perception of risk will be distorted. As a consequence, they more freely undertake levels of risk that they otherwise would eschew.

Consider this … if I build my house in a heavily forested area, knowing the risk of wild fires, should I expect the government to rebuild my ravaged home if I didn’t carry adequate insurance to cover my full loss? The same may be asked of borrowers and speculators who took advantage of historically low interest rates to purchase property at record high prices. Just like the homeowners on the mountaintop, they had to know that eventually they would face a wall of flames.

While a government rescue may be politically expedient in this an election year --- or the compassionate course --- the fundamental threat to our economy could be magnified if our public institutions step in to save the day.

The reallocation and transfer of risk have become booming industries. Governments, capital markets, banks, and insurance companies have all entered the fray with ever-evolving financial instruments. Pundits praise the creativity of these often exotic risk spreading devices. In the greater marketplace, these risk dispersion mechanisms allow entrepreneurs to assume more of it, banks to get rid of it, and traders to hedge against it.

But this is precisely the peril of these new developments. They mass manufacture moral hazard. They remove the only immutable incentive to succeed --- market discipline and business failure. They undermine the very rudiments of capitalism: prices as signals, risk and reward, opportunity costs. Risk reallocation or transfer of the type being proposed for this class of investors produces an artificial universe in which synthetic contracts replace real ones and where moral hazards replace genuine business risks.

It’s no surprise new investors and home buyers were lured into the real estate market. The sirens’ song of cheap money is a temptation difficult to resist. New borrowers were blinded by teaser rates, the prospect of purchases without down payments and the seeming ability to set their own initial monthly obligations. Market propagandists spun a world in which property values would rise without end. In short, the makings of a “perfect storm.”

The first concept that most economics and business students learn is that for every benefit, there also is a cost --- for every reward, there must be risk. Much as we’d like to believe otherwise, there is no free lunch! Unfortunately, as tragic as this may be, if our economy is to thrive in the natural course, these borrowers may have to be casualties of “Economics – 101.”

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

The Falling Dollar ... A Patriot's View

2008-03-28T13:21:00.000-07:00

American’s wear the Dollar like a badge of honor. Since World War II, U.S. Dollar has been the standard bearer … the flagship … the beacon in the night. Our greenback embodies the hopes and dreams of every American. Thus, as the dollar has declined, so has the pride of an entire nation.

But should we really care? Is it unpatriotic to do nothing as the dollar shrinks to a mere shadow of its former self? Are mom, apple pie and the American Way really at risk?

In my view … no!

I believe that we ought to be rooting for the dollar to further weaken. It is true, that a weaker dollar decreases our buying power at the gas pump or the supermarket. But a weaker dollar also makes exports more attractive, which may in the long-run lead to a sustainable upturn in domestic manufacturing and job creation.

It’s wrong to read too much in to the rapid decline of the dollar. The dollar, like any other asset fluctuates substantially from year-to-year. But overall, the dollar’s real value has changed very little. During the past 20-years, when the dollar is compared with a broad basket of the world’s major currencies, the greenback only has declined about seven percent on an inflation-adjusted basis. This is less than 0.5 percent per year.

All of us are feeling the pinch. As the subprime markets continue to unwind, it appears as if the “wheels” have come off the economy. In our rush to find a root cause, many of us, politicians especially, point to the ever-weakening dollar. But in truth, the market conditions we are witnessing today are part of a natural process. Historically, strong markets always are followed by stronger sell-offs.

The shrinking dollar not only stimulates U.S. exports, but will help to narrow our current trade deficit of nearly $700 billion --- a figure which amounts to nearly 5.1 percent of our entire gross domestic product. This staggering imbalance can only be addressed by curbing our appetite for cheaper imports and through a resurgence of our export sector combined with a devalued dollar. The Asian “tigers,” and in particular China, have prospered because of the dollar’s relative strength to their currencies. Maybe it’s time to put the “shoe on the other foot.”

At the upcoming April meeting of the G-7, exchange rate intervention by the world’s central banks to stem the dollar’s slide, will top the agenda. I believe that such intervention, however, will be counterproductive, and only will prolong the current recession. If world's central banks do intervene, causing the dollar to artificially rise, then U.S. economic recovery will stall because the benefits of a more competitive currency will be undermined.

Intervention by individual central banks may slow the dollar’s decline, but I do not think their actions ultimately will halt the slide. At this point, the negative fundamentals and overall downward inertia propelling the dollar simply are too powerful to overcome.

As an individual investor, I consider it as my patriotic duty to sell or “short” the dollar. Shorting the dollar not only presents significant speculative opportunities, but, in the end, I believe that I will be promoting an economy that is more competitive and resilient.

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Bullets Over Broadway

2008-03-19T12:53:00.000-07:00

Art frequently reflects reality. In the 1976 cinematic homage to television, the film “Network,” captured the pent up frustration and public outrage the nation was feeling toward an economy that had slipped in to a vortex of hyper-inflation and skyrocketing interest rates. Following the formation of OPEC, oil supplies were scarce and prices at the pump were stratospheric. It was not unusual to see desperate motorists camped at their local filling stations awaiting the arrival of the fuel truck, just so that they could fill their tanks.

Near the end of the film, in a scene etched into the memory of every moviegoer, disheveled newsman and national icon Howard Beale, launches into a tirade decrying the ills and corruption of a world gone mad. Rather than sit back, passively accepting their fate, Beale urges his viewers to go to their windows to yell the immortal line, “I’m mad as hell and I’m not going to take it anymore!”

On Monday, as the stock of Wall Street giant Bear Stearns fell 94%, J.P. Morgan Chase, with the backing of the Fed, stepped in to buy this former lion of the financial world for a pittance --- $2.00 per share. This was the deal of the century for J.P. Morgan! Not only did it acquire Bear Stearns enormous book of business for a song, it did so without risk. At $2.00 a share, with the Fed underwriting the deal, J.P. Morgan can simply flush away the bad debt Bear Stearns was carrying as a result of its ill-conceived subprime expansion, and hang on the gems still remaining in the failed bank’s portfolio.

In January, the five leading investment banking firms on Wall Street, including Bear Stearns, handed-out nearly $39 billion in bonuses to their top execs. These bonuses largely were tied to the record fees generated by the banks' subprime businesses. While these banking execs were toasting their good fortune, however, the Fed was quietly propping up the same Wall Street banks by absorbing nearly $400 billion in flawed subprime mortgage assets.

When the gavel finally came down on the J.P. Morgan “rescue,” and Bear Stearns slid into oblivion, no one asked whether the executives of the failed firm planned to return their billion dollar bonuses. No one asked what would become of the thousands upon thousands of shareholders, whose investment in the Wall Street giant had turned to dust. No one asked whether it was the role of the Fed to prevent Bear Stearns from collapsing into bankruptcy.

The significance of the silence was not lost on many Bear Stearns executives who readily agreed to the fire sale. They understood very well, that in the event of a bankruptcy, the courts would force them to return their billion dollar bonuses. The choice was simple --- return your Masarati or screw the shareholders with the taxpayers footing the bill? Face a potential stock manipulation inquiry by the Securities and Exchange Commission or retire quietly to your home in the Hamptons? It was a no brainer!

Is it the Fed's role prevent the failure of an investment bank that should have understood the risks it was injecting into its portfolio? No where in the the Fed’s mandate is there a license to prop up failing Wall Street firms. Rather, the Fed's prime fiat is to keep our currency sound. With the dollar falling to all time lows against the Euro and multi-year lows versus the Yen, it’s evident that the Fed has been asleep at the switch.

Can we, or more aptly, should we permit the government to keeping printing money as the dollar falls? Do we continue to allow the Fed to step in before other Wall Street Banks tumble? Aren’t we simply putting off the inevitable? If there is a natural order to things, shouldn’t the weak be permitted to perish? Otherwise, as history has shown us time and again, the drop will be deeper and more prolonged.

Japan is exhibit one. When the bubble burst, the Japanese central bank stepped in to prevent major financial firms from failing. It continued to print money. The result was a deflationary cycle that lasted for nearly twelve years. Japanese historians now refer to this dark economic period as the “lost decade.”

Wall Street can’t have it both ways. Either it’s the law of the jungle where only the fit survive or it’s not. If my business fails, because I’ve made imprudent choices, the government won’t bail me out. Just because their businesses are arbitrarily deemed “vital,” Wall Street should not be entitled to special treatment. I say, let the law of the jungle prevail!

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Inflation, The Crumbling Dollar and the Saga of "Client Nine"

2008-03-12T08:43:00.001-07:00

The only thing more pathetic than Elliot Spitzer’s ethical moral compass was Wall Street’s predictable response to the Fed’s promise to add $200 billion in available credit to banks to encourage lending. After staging the biggest rally in five years, the market has settled back into a state of self-doubt.

Market players are little the like the now deposed New York Governor. They want it both ways. Spitzer (better known as "Client Nine") wanted to be a "player" while maintaining his stern family-guy crusader image. Wall Street wants a bail-out for financial institutions while still expecting the Fed to cut rates by three-quarters of a point. Spitzer was forced out of office. Will Wall Street fare any better?

If business is war, then the only true casualty of this conflict has been the dollar. After gaining nearly 1.6 percent on the Yen following the Fed announcement --- the biggest move in six months --- almost half the gains were erased before the bell rang on Wall Street. At the same time, the Dollar fell to a record low of $1.55 against the Euro. Apparently, despite the Fed’s best efforts, there still remain significant misgivings about the ability of the banks to break the lending gridlock or to weather the churning seas of their own growing credit losses.

The Dollar simply can’t get a break. Because the market is so fixated on interest rate differentials, its getting sand kicked in its face by every bully at the beach. It’s gotten so bad, that even the Persian Gulf oil emirates are considering uncoupling their currency valuations from the Dollar. Bankers in Qatar, for example, are complaining that the crumbling Dollar is stoking inflation.

So what does this all mean?

The Dollar, like the "Empire State" governor, is in deep do do --- and the news is going to get worse before it gets better. As the U.S. economic slowdown deepens, it appears likely that the Dollar will extend its losses against most of the world’s major currencies for the next six months. The moral of the story … stay away from high-priced prostitutes and stay short the dollar!

Although the Euro may find a ceiling at around $1.57 and the Yen may stall at $1.00, there will continue to be trade opportunities with other currencies paired with the Dollar. Since mid-summer, the Canadian has had a bit of pull back. But as energy prices rise in conjunction with the weakening Dollar, the Canadian, along with other resource driven currencies like the Aussie and Kiwi will be likely beneficiaries. Additionally, if interest rates remain below in 5% in Switzerland, the Franc will continue to get attention from carry-traders and seekers of a safe haven.

Just to show you how short-sighted Wall Street players have become; the biggest question on everyone’s lips is not how we boost the U.S. economy or shore-up the sinking Dollar, but rather, "what did Elliot Spitzer really get for $5500 an hour?" I'm surprised that some bright Wall Street analyst has yet to opine that the inflated cost of these high-priced hookers is a direct result of the shrinking dollar. The next thing you know, we're going to have the "Spitzer Index" as a future measure of national economic health. Like meals out or the purchase of flat screen TV's, discretionary spending on hookers may be just as valid an indicator of consumer activity.

All of us have our own "private hell." But it seems that Elliot's along with the U.S. Dollar, is going to hotter than most.

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

The Dollar Goes "Down-Under"

2008-02-29T09:00:00.000-08:00

It’s like the celebrated tail of the beloved Dutch figure Hans Brinker --- the little boy who saved his town by putting his finger in the dyke. According to legend, as the fair-haired child was returning home from gathering wildflowers, he spied a leek in local levy. Seeing no one to help, he thrust his chubby finger into the breach. Wooden clogs and all, he remained at his post through the chill of night until through an act of providence; a local clergyman heard the child’s moans and brought the town engineer to plug the hole.

Unlike this charming Dutch story, the mere selfless heroism of a single champion will not be enough to hold back the torrent of bad news for the U.S. economy and specifically, the U.S. Dollar. While the President and his minions have promoted their promised rebate as the proverbial "finger in the dam," to most observers, it's easier to see the finger than the hole it's supposed to plug.

Battered by new fears of a recession, the U.S. Dollar is falling at a record pace. On Thursday, the Dollar sank to record lows against Euro, marking a multi-year slide in which the European currency has gained more than 40% against the beleaguered greenback. At the core of this turmoil is not just the deepening subprime housing crisis, but a continued surge in commodity prices, and in particular crude oil. With oil prices holding above the $100 a barrel benchmark, consumer confidence has plummeted.

Despite its stratospheric prices, oil has been a laggard compared to several other commodities. To date, natural gas prices are up 26%, coal has risen 56%, platinum has gained 41%, wheat has soared 41% and even an “exotic” commodity such as cocoa has swelled 38% in price.

Although the world may not be able to abandon the dollar as the “global” currency, the trade opportunities associated with selling dollars against other denominations are vast. While the Euro and Canadian will likely continue to rise against the Dollar, other currencies such as the Japanese Yen, Aussie and Kiwi (New Zealand Dollar) will likely see similar gains. In particular, I think that “commodity-based” currencies like the Aussie and Kiwi will see the most action over the next several months.

Australia, for example, has what the world wants --- I’m not referring to leggy blondes in bikinis --- coal, uranium, gold, silver, copper and other strategic metals. In July, the Aussie broke above $.85, and it hasn’t looked back since! Key currency analysts from ABN Ambro to the Royal Bank of Scotland are projecting the Aussie to hit parity with the U.S. Dollar by mid-spring, if not before. In the FX or foreign exchange market, traders can reap up to a $1000 for every penny rise in the Aussie’s value against the U.S. Dollar for every position they hold. With the Aussie currently trading at approximately $.94, this trade is attracting very significant attention, and it should attract yours.

Throw another shrimp on the barbie mate!

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Over a Barrel at $100?

2008-02-20T09:54:00.000-08:00

One hundred is a great number. If your baseball team wins 100 games, you start waiving your victory pennant. If your favorite TV show reaches its 100 episode milestone, you pop the champagne corks. If you’ve got 100 candles on your birthday cake, you’ve beaten the odds. But when the wholesale price of crude oil hits a hundred bucks, is it time to raise the white flag?

No! It’s time to change your investment strategy.

Yesterday’s historic close of the crude oil at a whopping $100.10, left the market breathless. Is this an anomaly, or is it the new reality?

In my view, we may be looking at oil in the $120-to-$150 area by the end of the year. It's not just oil; all commodities are moving higher. Soybeans are at $14 a bushel and platinum at $2,000 an ounce. Platinum, soybeans, gasoline and heating oil all reached records yesterday, as hedge-minded investors poured money into the commodity markets. Propelling this rise is a falling dollar which has lost 10 percent of its value against the euro over the past year as the Federal Reserve cut U.S. interest rates.

At this point, if you’re the Fed Chair, you can “pick your poisons.” The deepening housing slump is pushing the public perception of an impending recession. Yet with consumer prices on the rise --- up 0.4% since January on top of a similar increase from December --- the inflation genie may be out of the bottle.

As we approach the end of February, commodities are looking like the best bet in the investor marketplace. Last year, as the Fed cut rates and the dollar fell, gold surged 31%. With no rate hikes on the horizon, gold and other precious metals such as silver and platinum will likely continue to benefit.

In addition to precious metals, the commodities market is being led by the agricultural sector. There is no question that soybeans, corn and wheat will pull back from their historic highs as we approach the spring planting season. However, increased export demand combined with significant production decreases in overseas growing --- particularly in China --- and the prospect of escalating energy inputs, should drive prices higher. During this past week as the realities of severe weather and decreased domestic planting became apparent, the Chinese locked in soybean purchases at record levels. In the coming year, I think these supply and demand conditions will persist.

So, with oil prices settling into a new reality, is it time to surrender or is this an opportunity for those few individuals willing to alter their investment strategies? I say we pop the corks, waive the pennants and blow out the candles!

Check out this piece of monetary nostalgia. Simpler times --- a friendlier dollar.

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Top Ten List ... How I'm Going to Spend My Rebate

2008-02-15T07:40:00.001-08:00

Just this week, after little debate, and a lot of fanfare, President Bush signed his $168 billion emergency economic recovery plan into law. Under the plan, individuals making up to $75,000 a year will receive a rebate check for $600, while couples earning up to $150,000 are eligible to get $1200.

Like most Americans, it so rare to get change back, that I’ve had to do some soul-searching to prioritize how I will spend my refund while at the same time upholding my patriotic duty to help our ailing economy recover.

Here are my "Top Ten" picks:

10. Buy a removable disguise for Federal Reserve Chairman Ben Bernanke so that he can cash his paychecks at any bank without being recognized.

9. Get yoga classes for House Speaker Nancy Pelosi so that she can keep bending over backwards for the President.

8. Sign-up for a one year subscription to a credit repair service for the U.S. Treasury. After all, if they’re going to borrow against our children’s future, the least I can do is help them get a better credit score.

7. Get a tank of gas for my Chevy Suburban. With a fill-up, you get a free car wash and one of those plastic air fresheners shaped like a tree to dangle off your mirror.

6. Throw a pizza party for my accountant because this will be the first time I’ve gotten a refund without having to use it to pay his bill.

5. Make a $600 down payment on a $4000 flat panel TV so I can watch bigger than life summer re-runs of “Deal or No Deal.” I’m told that hi-def lets you see the secret clues the network projects each week on to Howie Mandel’s shiny dome .

4. Make a $600 down payment on my new vacation house in Detroit. For $1200, I may be able to get a 2-fer.

3. Buy $600 worth of shares in troubled mortgage lender Countrywide Savings. Hey, it’s simply good business to buy low-sell high!

2. Send a $600 donation to GOP presidential nominee John McCain just because it will piss-off Rush Limbaugh.

1. Establish a 24-hour consumer hotline in Shanghai so that the Chinese can tell us how they really want us to spend our $600 rebate.

As you can see, I haven’t yet made up my mind. In the coming weeks as all of us continue to check our mailboxes, please let me know how you plan to spend your rebate. I'm open to your suggestions.

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

What is a "Bridge to Nowhere" Alex ...

2008-02-11T09:30:00.000-08:00

In the popular TV game show “Jeopardy,” host Alex Trabek chides the competitors to "answer in the form of a question," rather than chime in with correct answers. To the uninitiated, the show’s canned format seems cockamamie. After all, from the moment we hit kindergarten until our dying breath, we're programmed to seek the right answers. To hell with the questions. We want the "gold star" for getting it right.

Like eager children, our elected leaders reflect the one-track orientation of the voters. In their quest to find the “right” answer to our economic downturn, leaders from the Oval Office to the Speaker’s Chambers were quick to whip out our national checkbook. Hailing their own bi-partisan cooperation, the President and Congress ballyhooed the cockeyed notion that a $600 rebate was the key to jump-starting our sluggish economy. According to their twisted logic, once American consumers get this whopping tax rebate, they’ll rush out to buy a flat panel TV so that they can watch Jeopardy in high def.

Now, pan the cameras north to Alaska. Visualize a double span, rising to 200 feet above ocean level, going from Ketchikan, Alaska (pop. 14,500) to Gravina Island (pop. 50 on a good day). The only thing of note on the island is Ketchikan's airport, which has six passenger flights most days --- maybe a few more during the summer. The ferries between Ketchikan and the airport run half-filled. And Ketchikan isn't even connected to the North American road system; if you go more than 10 miles from town, you run out of road.

Dubbed the “Bridge to Nowhere,” this $200 million dollar project became a national symbol of “Pork Barrel” run amok. But on closer examination, boondoggles like the Ketchikan Bridge, may actually be a better solution to the nation's economic malaise than the proposed rebate checks.

There is no question that America’s infrastructure is crumbling. Most of our roads and bridges were built around the time Elvis was king of the airwaves. Last year’s tragic collapse of a critical span over the Mississippi in Minneapolis is merely emblematic of the problem. A recent study by the American Society of Civil Engineers (“ASCE”) confirmed that about 25% of the nation’s 600,000 bridges are deteriorating or structurally deficient.

The linkage between the state of our infrastructure and industrial competitiveness is undisputed. Innovation and re-energized productivity, however, are meaningless if the goods produced can’t make it to market in a timely and cost-efficient fashion.

When queried about the efficacy of the proposed $150 billion rebate program, GOP presidential hopeful Mike Huckabee joked that the money might be better spent widening the I-95, the interstate that stretches between Maine and Florida. While Huckabee’s chances of reaching the White House may be DOA, his flippant answer may hold particular merit.

During the “Great Depression,” building roads and highways was a key component to our economic recovery. Although the strain on the federal budget was astronomical, in the end, jobs were created, the economy was stimulated and we were left with a national system that not only gave us the ability to better fight a future world war, but positioned our nation to become an industrial power.

I am not suggesting that we fire-up the WPA. But, in light of our current economic slide, a closer examination of its salient principles may be warranted.

This year, President Bush is requesting another $368 billion to fight the war in Iraq on top of an additional $200 billion to wage the fight in Afghanistan. According to the Congressional Budget Office, by 2017, the cost of these wars is projected at reach an unthinkable $2.7 trillion.

On the heals of 9/11, no one contends that the threat from Al Qaeda isn’t real. But what’s the genuine value of fighting the war abroad, if we’re losing the war on the home front?

As the painful reality of the coming recession takes hold, Alaska’s “bridge to nowhere,” is looking like the right answer. Thanks Alex.

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Year of the Rat

2008-02-07T11:20:00.000-08:00

Since the Dark Ages, rats have been an enduring symbol of disease and degradation. Mice are cute. But rats are described as vermin and their mere presence is referred to as an infestation. No gritty portrait of post-industrial London, Paris or New York is complete without the sickening image of these beatty-eyed creatures lurking amid garbage pales and gutters. When we think of rats, we see the images of “Willard” and “Ben.”

I think rats have gotten a bum rap. As any biologist will tell you, rats are clever, adaptive and resourceful. Unlike humans, rats always find the cheese. Recently, the creative folks at Disney-Pixar have tried to rehabilitate this reviled rodent by giving him a chef’s hat and a ginzu knife. But let’s be honest guys --- even the most macho among us gets the “willies” when a rat suddenly scurries across our path.

Chinese legend has it, that when the Buddha called the animals to come before him, only twelve complied. Seeing the procession of creatures, the rat sensed an opportunity, and hitched a ride on the back of an ox. When the animals arrived before the sage, the rat hopped off and was first in line to gain his wisdom. As a result of his gumption, the rat occupies the revered position as year one on the Chinese astrological calendar.

This story may be emblematic of the true differences between East and West. Like the rat, the Asian economies, and China, in particular, have shown great resourcefulness and adaptability. Although they still are a “communist” nation, the Chinese seem to find profit in everything. Nothing in the stream of commerce is too small for them to duplicate or manufacture.

The dizzying economic growth in China is producing more millionaires at a faster pace than anywhere else on the planet (closely followed by India). Shops that once hung roasted ducks in their windows and reeked of exotic medicinals, now are adorned with Gucci bags and are scented by French perfumes. Chinese streets that were jammed with bikes and rickshaws are now bumper-to-bumper with Mercedes moguls smoking Cohibas. Is the Chinese economic miracle mere good fortune or is it evidence of something more fundamental?

America was once the “factory to the world.” Innovation was the hallmark of American industry. Today, however, manufacturing jobs are shrinking at an alarming rate with the majority of Americans being employed in the service sector. Did we get lazy; did we lose our edge; or did we simply fail to adapt? Whatever your answer, much may be learned from the lowly rat.

Instead of lamenting the falling dollar, we ought to embrace it as an opportunity to build our export markets. Rather than mourn the loss of American jobs to foreign shores, we must push back with new and better products that are geared to the rapidly changing marketplace. For example, in recognition of the rising demand for environmentally friendly goods, consumer giant Clorox recently released its “GreenWorks” line of cleaning products. Since the 70’s, we have known that the development of domestic renewable energy sources not only will loosen the stranglehold of Middle-East oil, but foster a whole new class of American jobs.

Not so long ago, frogs were synonymous warts. Today, Kermit, America’s best known amphibian is the spokesman for Ford’s new line of “green” vehicles. Maybe with the arrival of “Year of the Rat,” it’s time we stop thinking about this four legged rascal as pest to be exterminated, and instead, exalt him as the symbol of the new American prosperity. Gung Hei Fat Choi!

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Phil Sees His Shadow --- Groundhog Day for the Economy

2008-02-05T09:23:00.000-08:00

PUNXSUTAWNEY, PA – In an annual pageant that is equal parts pomp and absurd theater, America’s number one underground prognosticator Punxsutawney Phil pronounced a continued downturn in the U.S. economy. Despite low clouds, fog and a freezing drizzle, a record crowd of 30,000 devotees gathered at Gobbler’s Knob to witness Phil see his shadow and issue his prediction of economic gloom. Phil is the direct descendent of a long line of gnostic groundhogs whose forecasts since 1887 have had an uncanny accuracy rate of nearly 80%. In a rare interview, our crack staff at Globevest caught up with this uncommon rodent to get his views on the state of the American economy.

GV: Before we get started, could you tell our readers a little about your background?

PP: Sure. After graduating cum laude from Wharton---I was classmates with Hank Paulson [Treasury Secretary] --- I took an entry level analysts’ position with the Philadelphia Fed. My folks, of course, were a little upset that I didn’t go into the family business. Dad worried that I might get buried in a mid-level cubicle … I digress. Anyway, after my twin brother Paul was implicated in the Duke Brothers’ [Randall and Mortimer] foiled attempt to corner the frozen orange juice market through bogus projections of an extended winter freeze, I was forced to abandon my career with the Fed and return to Gobbler's Knob.

GV: For years, your predecessors stuck to predicting the length of winter, what made you shift your focus to the economy?

PP: As you know, the only discipline less accurate than meteorology is economics. I thought, why not, predicting the economic climate could be a real growth industry. Besides, it’s tough to compete with the Farmer’s Almanac.

GV: In your view, is there any one factor that is casting the longest shadow over our economy?

PP: I would say that there are a number of alarming factors, but the recent ISM (Institute of Supply Management) figures showing a sharp decrease in non-manufacturing service sector business activity is particularly troubling. As you may know, an ISM reading below 50% is a strong indicator that that sector of the economy is contracting. January’s fall to a reading of 41.9% was a dramatic drop-off from December’s 54.4%, and the projected 53% figures expected by most economists. As you know, the majority of Americans are now employed in some aspect of the service economy, and this is a disturbing sign that this sector has reached the end of a long period of growth.

GV: Are there other major indicators that propelled you prediction of economic gloom?

PP: Although crude oil prices have pulled back from their record highs, inflated commodity prices are still putting a damper on the prospects for economic growth. In spite of lower energy prices, consumers have not seen much relief at the pump or in their grocery aisles. Moreover, if the frigid winter conditions persist throughout the mid-west and east, it is likely that we’ll see another spike in retail energy prices. Even with the promise of cash rebate from the federal government, consumers appear to be holding back.

GV: Do you see any bright spots on the horizon for our economy?

PP: So far Fed Chair Ben Bernanke has acted decisively and is ahead of the rate cut curve. But he must be judicious because he only has limited ammunition. A declining U.S. Dollar should help jumpstart our export market. A weaker Dollar has the added ancillary advantage of narrowing our foreign trade accounts deficit, at least on paper. It will also keep pressure on the Chinese to finally let their currency be marked to a true global market rate. Theoretically, if the Dollar continues to fall and the Chinese don’t uncouple the Yuan, they risk seriously eroding the buying power that has been built-up through their burgeoning export machine.

GV: Before you retreat for another year, are there any recommendations you would give our readers.

PP: First of all, you can’t bury your head in the sand! That’s easy for me to say, because I’ll be tucked away in my burrow safe from the twists and turns of the economy. All things being equal, however, I would encourage investors to lighten up on U.S. backed equities for the time being. By the same measure, I am not particularly sanguine about the gusto of foreign stocks. It may be a wiser to use this opportunity to diversify your portfolio into other asset classes, namely, commodities, currencies or even precious metals. Even with its recent correction below the $900 mark, I believe that by the time I emerge in search of my shadow next year, gold will have topped $1000. If you are going to remain in the equities market, use mechanisms that allow you to benefit in both bull and bear conditions. With the reduction in interest rates, this also may be good last chance to refinance. I’m not sure I would recommend buying additional properties, because I believe that real estate values have yet to find a bottom.

GV: Thank you taking the time to talk with us. I know you’re pretty busy getting ready to hibernate.

PP: My pleasure. Hopefully, by the time we meet next year, the economy will be on better footing.

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

The Patriots Should Take a Dive for the Home Team … America

2008-02-01T11:47:00.000-08:00

I’m a sports fan. I’ll watch anything competitive, except chess and poker. I root for the home team, but if I don’t have a team in the fight, I’ll pull for the underdog. Even though Los Angeles hasn’t had a football team since Al Davis skulked back to Oakland, I’ve always been a 49ers fan. It doesn’t matter whether John Brody or Joe Montana were slinging hash, the Niners have always been my boys. That being said, I approach Sunday’s contest not so much as a fan, but as an American patriot.

Each year, economists have observed the phenomenon known as the “Super Bowl Effect.” This occurrence has little to do with the pre-game spike in big screen TV purchases or the annual upswing in nacho cheese sales. It has nothing to do with multi-million dollar economic impact the contest has on the host city. Even though the sales of cholesterol inhibitors generally rise following our national day of gluttony, this not the effect economists track. Rather, history has demonstrated that if an AFC teams wins, the economy dips and if an NFC team prevails, the markets climb. (Luckily for me, the 49ers play for the NFC.)

The empirical evidence of this singularity is difficult to refute. During the 1970's and early 1980's when the AFC dominated, and the economy was weak. As the balance of power shifted to the NFC (thanks in large measure to my 49ers), the economy staged a remarkable recovery. Now with the return to preeminence of AFC teams such as the Ravens, Patriots, Steelers and Colts, the economy has plunged.

Econometrics specialist and self-confessed nerd Mike Moffatt conducted a statistical study to determine if there was any truth to the myth. Moffatt looked at the result of the last 39 Super Bowls. From his research, he concluded that there is a statistically significant correlation between the Super Bowl result and economic growth. For those of you that are mathematically inclined, Moffatt demonstrated that there was a .074963 correlation between an NFC victory and economic growth.

The “Brady” bunch may have a date with destiny, but their pursuit of a perfect season puts them on a collision course with our economy. Patriot owner Bob Kraft is no one’s fool. He’s a Columbia graduate and holds an MBA from Harvard. Kraft made his fortune as a captain of industry and through savvy investments. Pride may propel him to push his Patriots to historic heights. But at what cost to himself and our economy. As our nation tips towards a recession, Kraft of all people should see the bigger picture.

Bob, before the game, take Bill Bellichek aside, show him the stats. He’s a bright guy. If need be, offer him a bonus if he ditches his playbook. You can always write it off your taxes. Send a memo to Tom Brady telling him that the venue for the game has been switched from Glendale, Arizona to Glendale, California. Whisper to Randy Moss that he’s been traded for Terrell Owens. Drop the word that you think Rodney Harrison and Junior Seau should be put out to pasture.

Your bottom line and ours, depends on your willingness to trade your vanity for true patriotism. Despite the recent referee scandals plaguing the NBA, I assure you the Justice Department will look the other way. Come on Bob ... Take one for the home team ... America.

GO GIANTS!

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Oops, They Did it Again ---- Consider The "Britney" Plan

2008-01-29T20:50:00.000-08:00

Stimulus – Something that incites or provokes action

When the train wreck that's the Britney Spears soap opera rode a police-escorted gurney to Cedars-Sinai Hospital, celeb-mag sales spiked, traffic jammed gossip web sites, tabloid TV ratings rose and paparazzi photo prices surged. Britney's story is more than a public unraveling of a former Disney Mouseketeer. It’s about money: Every time she sinks to new lows, cash flows.

According to economist Dan Smith, a dean at Indiana University’s Kelley School of Business, bad-girl Brit is good for more than just another Hollywood headline. She’s an economic engine. Aside from the massive fortune she has amassed from her pop career or the nearly $737,000 she rakes in every month, Brit along with gal pals Paris Hilton and Lindsay Lohan, pushed up newsstand sales during the first half of 2007 one percent higher, to $2.39 billion. Spears is not just every celeb editor's dream come true. In fact, Brit's antics may hold the key to our economic recovery and be a viable fiscal alternative to the $146 billion economic stimulus plan the President is pushing Congress to rubber-stamp.

Consider this … George W. Bush is a “lame duck” president finishing his last year in office. In his day, “W” was known as a hardy partier. By his own admission, until he found Laura and the Lord, not necessarily in that order, he was a bonafide “booze hound.” Maybe it’s time that President stop looking to others to hoist the flag, and take one for the home team.

If Brit and her bunch can propel tabloid sales to new heights, produce scads of on-air ad revenue for the likes of “Entertainment Tonight” and “Inside Edition,” imagine the buzz and bucks that could be generated by “W – The Meltdown.” Throw in the true life perils of twin “angels” Jenna and Barbara, with the on-camera handwringing of a distraught Laura Bush, and you’ve got a boffo bonanza.

To hell with the $600 checks that the President and Congress want to mail out to the American taxpayer. Every red-blooded American would consider it his or her patriotic duty to lap up every minute of this juicy First Family saga. Flat panel TV sales would soar. Frozen dinner and snack food revenues would spike as Americans hunker down each evening to watch the next salacious installment. Madison Avenue execs would trample each other in the mad rush to book time slots. Ad revenues would be off-the-charts!

All of this would have the added benefit of making every American feel better about his or her lot in life. During the Great Depression, it was Fred Astaire, Ginger Rogers and Busby Berkeley who made us forget our woes. Today, as we reel from the subprime debacle, rising unemployment and a looming recession, a soap opera staring the First Family could be just the ticket.

As a sign of bipartisan solidarity, members of Congress could spawn their own scandals. They’re certainly not strangers to public spectacle. To complete their community service requirements, Jack Abramoff, Mark Foley and Larry Craig could be brought in as “technical” consultants.

By failing to implement sound fiscal policies to avert the current economic crisis, our elected representatives have brought shame to all of us. Now isn't it their turn. Bring on the paparazzi boys!

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

French Toast

2008-01-25T19:57:00.000-08:00

Stop me if you’ve heard this one … Q: How many Frenchmen does it take to defend Paris? A: Nobody knows; it’s never been done. Q: How many Frenchmen does it take to send the world markets into a tailspin? A: Just one.

On Monday, France’s banking giant, Societe Generale disclosed trading losses that may top $7.2 billion. Officials at France’s largest bank reluctantly admitted the mishap was the work of a lone 31 year old trader. According to European press reports, a junior bank employee, Jerome Kerviel, used his knowledge of the computerized trading system to circumvent security safeguards. Although Kerviel’s motives are unclear (he made no apparent personal profit from the trades), the episode was reminiscent of the 1995 scandal involving the collapse of Britain’s 240 year old Barings Bank at the hands of a single trader.

As details of the incident emerged, markets from Europe to Asia plunged. The news sent the Chinese markets into a free fall resulting in a 10% sell off while their European counterparts plummeted 5%. Fortunately, the U.S. markets were shut for the King Holiday. A similar fate on Wall Street was averted when Fed Chair Ben Bernanke flew to the rescue by slashing interest rates by ¾ of a point before the markets opened on Tuesday.

While the decisive action of Bernanke should be applauded, this incident further underscores the susceptibility of individual investors to circumstances beyond their control. It does not matter that Kerviel acted alone, or that French banking safeguards are slack. Rather it supports the simple wisdom of securing your portfolio through actual asset diversity.

No one disputes that Wall Street dodged a bullet. However, investors trading in markets other than the U.S. stock market saw significant opportunities to profit in spite of the alarming news from abroad. For example, on Tuesday, gold started the week below $850 per ounce only to close Friday nearly $60 higher at $910. Crude oil prices rose almost $5 closing to over $90 per barrel. Although the European calamity spurred the dollar make marginal advances against the Euro, the Canadian gained significant traction on the Dollar.

As the losses from the subprime debacle continue to pile up, the market has become hypersensitive. One Wall Street insider recently cautioned that, “the herd already senses the wolf and it won’t take much to spook em.” In other words, any negative news, no matter how attenuated, could trigger a “stampede.” When that happens, it’ll take more than a gun slinging, whip cracking Fed Chair action figure to keep the individual investor from getting trampled.

For a musical tribute to the Chairman, click on this link: It's a hoot!

To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Our Frankenstein Economy

2008-01-19T14:34:00.001-08:00

In the classic horror film, Mary Shelly’s gothic colossus is reanimated through massive doses of electro-shock. As bolts of lightning illuminate the silver screen, the Frankenstein corpse begins to twitch, and through the miracle of mad science is awakened from death.

After his resurrection, the creature (best-played by Boris Karloff) becomes like a doe-eyed child fascinated with flowers and the lost beauty of the world. But in a sad turn of cinematic events, the superstitious town folk are reviled by the great doctor’s marvel. In the tragic final scene, a mob armed with torches corners the creature in the village windmill, where his delusion life renewed ends in a pile of smoke and ash.

Apropos of the film (mea culpa for my second movie reference in as many weeks), the “mad scientists” in Washington are floating plans to stimulate our faltering economy. There appear to be as many proposals as there are lobbyists to promote them. The real hidden danger of any “stimulus” plan is the illusion that there is some type of predictive science that will produce a quantifiable outcome. Nothing could be further from the truth. In fact, if cornered and pressed to honesty, none of these otherwise well-meaning advocates could predict a certainty of result.

The prospect of a bipartisan deal briefly brightened Wall Street. But, at week’s end, the Dow fell nearly 500 points. During a speech to Congress, Fed Chair Bernanke gingerly told his audience that a well-designed and swiftly implemented stimulus package “could be helpful.” He, however, hedged his support of an economic jumpstart, when he said that “fiscal and monetary stimulus together may provide broader support for the economy than monetary policy alone.” As a self-aware man, the Chairman is forthright enough to acknowledge that no matter how well crafted the package, economic stimulus is by it very nature, a “crap shoot.”

The stimulus packages being pitched reflect a broad spectrum of political ideologies. Several conservatives lawmakers propose that the government grant additional tax cuts or provide direct tax rebates. On the other side of the aisle, liberals, urge a one-time cash enhancement to the monthly checks received by social security recipients. One group argues that any stimulus package must target low and middle income families. While the other advocates a package that jumpstarts corporate spending. The price tags for these proposed packages are just as varied as their proposed components. The projected costs range from a paltry $50 billion to whopping quarter trillion dollars! The sheer cost gap between the top and bottom ends of these proposals is further indicative of the inherent uncertainty surrounding the outcome of any stimulus package.

To complicate matters, Congress and the President also must weigh the questions of timing and the possible impact on the federal deficit. As Mr. Bernanke warned, a stimulus plan that kicks in too late or that worsens the structural budget deficit could be “quite counterproductive.”

As your father always taught you … don’t “throw good money after bad.” Apparently in an election year, the absolute truth of this advice is quickly forgotten. The federal government could scatter hundred dollar bills from the rooftops or drops bags of money from the sky. But unless we address the issues of our waning industrial base, long-term job creation and increasing the efficiency of resource use, we will be chasing good money after bad.

If the great minds of Washington and Wall Street are unable to agree, what course should the individual investor take? There is no question that the Washington and Wall Street insiders will push a package that protects their imbedded interests. This means that the savvy investors must be proactive to protect their portfolios.

Consider limiting your exposure by unwinding a portion of your stock market positions. Become more liquid. Find markets that are negatively correlated or actually non-correlated with the U.S. stock market. The big brokerage houses and hedge funds already are playing the foreign exchanges, precious metals, foreign currencies and indices. Why can’t you?

In this climate of flux and uncertainty, you must choose the type of investor you will be? Will you let the villagers chase you into the burning windmill … or will you decline the good doctor’s kind offer, and take responsibility for reanimating your own portfolio?

To learn more about my recommendations, visit our website at: www.globewestfinancial.com.

The "Golden Compass"

2008-01-16T09:16:00.001-08:00

In the recent film by the same title (I’ll leave the celluloid reviews to Ebert & Roper), legend had it that an ancient “Golden Compass” could be used to foretell the future. The rub, however, was that only a select few with the inherited knowledge of its antediluvian alchemy could interpret its cryptic symbols. In the end, of course, only a beguiling blond child whose purity and innocence was beyond filmic reproach, held the key. To her alone, fell the task of defeating the great evil.

Such notions may be terrific Saturday matinee fare, but in the harsh truths of today’s global economy, we had better hope that the “tea leaves” may be read by a wider cast of characters.

Over the past several weeks, financial talk show hosts from CNBC to CNN have probed a parade of experts about whether a recession is upon us. Their responses are reminiscent of a famed First Amendment obscenity case heard by the U.S. Supreme Court. In trying to explain their definition of unprotected “hard core” pornography, Justice Potter Steward, opining for the majority wrote, “"I shall not today attempt further to define the kinds of material I understand to be embraced . . . but I know it when I see it . .” In other words, “objects in your rear view mirror may be closer than you think.”

This whistle-stop in our economy has created tremendous angst among analysts and economists alike. Inverted (down sloping) yield curves have historically been a reliable indicator that a recession was on the way. In past crises, we saw the inverted curve for what it was; an indication of high demand and liquidity, not a reflection of a market where interest rates had been pushed too far.

Tragically, Fed Chair Ben Bernanke has a much tougher situation on his hands than Greenspan had to deal with 3-4 years ago. Over the next several months, life will become very tricky for central bankers. While the choices are few, Bernanke now must navigate the economy through a literal minefield.

Deflationary monetary events like the one that can be precipitated by the subprime collapse, are far more perilous to a central banker than “garden variety” recession. The world’s central bankers simply do not have an adequate array of weapons in their arsenal to fight this battle. As history has shown, circa Japan 1990-2005, the slide from recession to deflation can happen in a blink. If this occurs, central bank intervention may be of little value. While the Bank of Japan eventually cut rates to 0%, there now is no dispute that it waited too long. Once confidence evaporates, the dominoes fall.

The only bright spot may be that no matter the action taken by the Fed, or other central banks, gold and other “alternative” investments may benefit. The virtual implosion of the U.S. Dollar since September has been the main driver for the stratospheric prices of gold. On January 15th, spot gold prices broached $900 and nearly reached $915 by day's end. Although the prices have since retreated below $880 (mostly on profit-taking), you need not be the keeper of “ancient knowledge” to realize that gold is on an inexorably journey to $1000.

It certainly can be argued that the “gold train” already has left the station. There is no question that those that had the foresight to purchase gold in 2001 when it passed the $300 mark, may be ahead of the curve. But very few of us (including yours truly) believed that the economy could sink to such depths or that gold would push to the pinnacle it now has reached. Even in the dark days following 9/11, did any of us believe that we would see the type of tectonic shift we now are seeing in the economy.

Against this backdrop, investors are faced a decision that may be problematical. Do they ride out the storm in hopes that the economy will find new ballast? Or do they abandon ship? In its best light, this is no more than a classic “Hobson’s Choice.” Consequently, crafting an investment course in the middle ground may be the only prudent path.

The stock market will find a bottom. When it does, investors who are liquid will be an advantageous position to make great buys. Until then, however, investors must look elsewhere to build and retain wealth. Although I believe that gold still is good bet, I think silver and platinum have a similar upside. With Asian demand on the rise, commodity prices will continue in an upswing. Likewise, as emphasis away from the dollar as the world’s only reserve tender edges forward, investors should eye other currencies as an alternative. For example, yesterday, the Swiss Franc rose to a record high against the dollar as speculation of financial-sector losses swelled and the Euro flirted with 150.

Perhaps there is a “Golden Compass,”

For more information on my market recommendations, visit our website at:www.globewestfinancial.com.

To Cut or Not to Cut ... That's Not the Question!

2008-01-10T15:51:00.001-08:00

In the upcoming weeks and months all eyes will be on Fed Chairman Ben Bernanke. Will he be bold and begin dramatically slashing interest rates --- or will the continuing fear of inflation force him to proceed with caution?

As the post holiday numbers roll in, it’s becoming clearer that we are an economy in retreat. Only WalMart, among the major retailers produced positive figures. All the rest, including Target, Macy’s and Penny’s showed significant declines. With core inflation on the rise, driven chiefly by record oil prices and the specter of crippling credit card debt, consumer and investor confidence in the economy has begun to slip. The burning query is not if the housing market will continue to plummet, but how far.

Most economists are reluctant to utter the “R” word, for fear that it becomes a self-fulfilling prophecy. But, of late, the most dreaded letter among economic prognosticators is “D” for deflation.

To this point, the Fed’s seeming pre-occupation with inflation is akin to rearranging deck chairs on the Titanic. The greatest hazard to this economy is not the soaring price of ethanol, but the probable cascade in home prices, durable goods and ultimately, the stock market.

Throughout the tenure of former Chairman Alan Greenspan, the “Inflation Hawks” ruled Fed policy. Greenspan, however, governed the Fed during an era of relative economic growth and expansion. Today’s economic climate harkens more to the dark days of “stagflation” presided over by Greenspan’s predecessor Paul Volker. The only palpable difference between then and now, is the skyrocketing interest rates that dominated the late seventies.

Despite the fact that all economic road signs continue to point the way towards recession, and likely much worse, most investment professionals continue to blindly cling to their ingrained belief that nothing could possibly derail the U.S. economy or significantly reduce the value of U.S. assets. Apparently, there is no end to their paradise of self-delusion.

Likewise, until now, federal policy-makers have been all but oblivious to the economic “red flag” warnings in the economy. Despite the continued evaporation of home equity, record consumer debt levels and drooping retail sales, Washington has “stayed the course.” The President, and his team of crack advisers, still contend that the fundamentals of the economy are solid. They have ignored the recent surges in oil, gold and other commodities, and argue that rising exports resulting from a weaker dollar is sufficient to keep the recessionary forces at bay. But as the effects of the subprime crisis spill over into the rest of the economy, and unemployment grows, the Fed along with Treasury will be backed into a corner.

In his first speech of 2008, the Fed Chair finally acknowledged the dire straits for which the economy is headed. . He more than subtly hinted that further interest rate cuts are in the offing. Although Wall Street posted a positive response after his remarks, it is unclear whether the rise in the Dow was more a result of the speculation that Bank of America may acquire troubled mortgage lender Countywide.

If Fed Chair is to act, he must act boldly. Even a half point cut such as the one implemented in November may not be enough. If the goal is to stimulate investment and to rescue distressed borrowers, then he must cut deeper. With the current Fed Funds Rate at 4.25, his target should be a drop to rates by at least two full points by the end of the third quarter.

According to reports, the Fed Chair has carefully studied the Japanese economic recovery in the wake of its own real estate collapse. Part and parcel to their package, were interest rates, which at half a point, still are among the lowest in the industrialized world. These low rates not only have stimulated Japanese borrowing and investment, but also created a vibrant secondary market for Yen. (Global “carry traders” have been borrowing in Yen only to reinvest it in instruments with higher yields.)

Whichever option the Fed chooses, the impact on the purchasing power of the dollar will be substantial. While it is unclear how this scenario will play out in the economy, I would encourage investors to begin diversifying away from dollar denominated assets. This means that portfolio’s constructed primarily of inflexible mutual funds are most at risk. In addition to foreign stocks, investors ought to give serious consideration to hard assets such as gold, foreign currencies and commodities. If you plan to continue holding positions in the stock market, then hedge your portfolio with index funds. The advantage of a well-managed index fund is that it can benefit the investor in both “bull” and “bear” conditions.

Don’t be thrown by the volatility of these alternate markets. In my way of thinking, it’s better to brave the risks of a new market than to run the risk of a complete portfolio meltdown.

To learn more about my market recommendations, visit our website atwww.globewestfinancial.com.

History is a Harsh Mistress

2008-01-07T14:21:00.002-08:00

During the first stock trading week of the New Year, the Dow dropped nearly 500 hundred points. This down turn may be good news for post-holiday “bargain shoppers.” But rough reality is that this may be a preview road ahead as the markets come to grips with the growing losses associated with the sub-prime meltdown.

Frequently, as investors, we forget the basic equation … that for every buyer, there’s seller and for every winner there must be a loser. If this simple calculus is undermined, markets may become skewed and investors tentative.
While the multitude of bailout measures urged by the President and Congress to stave off a further wave of foreclosures and bank write-downs may appear to be the right think to do, such intervention may cause more long-term economic harm than good. The unintended consequence may be an artificial distortion of risk that deters rather than encourages future investment.

Healthy markets have a “natural order.” Risk and growth go hand-in-hand. Weak investments must be permitted to fail no matter the consequences. If the government intervenes in markets whenever it believes it has a “moral obligation,” this upsets natural order and will engender market confusion. Every gardener knows that a tree must be pruned to stimulate growth. The same analogy is true in the investment marketplace. Bad investments must be shed to before markets can progress.

The advent of low interest rates combined with rising property values precipitated an unprecedented boom in the real estate investment. Home ownership is at its highest level since the end of World War II. But because investment capital is by its very nature a scarce commodity, this flood of dollars into the real estate sector has taken its toll on the rest of the economy.

Real estate investment may lead to the development of personal wealth, but in the long run, does not promote economic progress. Investment in real property does not promote the development of marketable products or sustainable job growth. Consequently, unless and until the unproductive capital currently captive in the real estate sector is exonerated, this economy will remain stagnant and uncertain.

Historically, recessions can be triggered when economic illiquidity is combined with run away government spending and shrinking tax revenues. A protracted trough can be averted if unproductive investment capital is disgorged back into the economy. Under these circumstances, government intervention may not only prolong the economic malaise, but potentially deepen the impact.

A recent example of this economic phenomenon transpired in Japan. The export driven expansion in the 1980's stirred an insatiable Japanese appetite for real estate. Property prices in Japan and abroad inflated in concert with the Japanese buying spree. Japanese banks and investment groups dominated the real estate market in major cities across the globe. This absorption of available investment capital led to a shortage of Japanese liquidity. Instead of allowing the economic forces to take their "natural course," the Japanese government propped up the banks by injecting additional liquidity into the system while at the same time ignoring sound credit practices.

When the real estate "bubble" finally burst, Japan, Inc. was brought to screeching halt. The Japanese economy quickly slid from recession into a lingering deflationary period. This means that persistently declining prices actually retarded continued economic expansion. The impact was widespread. Although the Japanese economy now has regained some of its former luster, this did not occur without substantial economic pain.

Like the Japanese, the U.S. economy is at a crossroads. Should the federal government step in to prevent a collapse in the real estate sector as the Japanese did, or do we allow the economy to take its natural course? While deeper interest rate cuts by the Fed and the injection of additional liquidity into the capital markets may be politically expedient, especially in an election year, it may amount to nothing more than putting a Band-Aid on a bullet wound.

Everyone agrees that home ownership is a virtue to which any economy must aspire. With it comes a sense of national pride and prosperity. But if home ownership is not the byproduct of a fundamentally sound economy, then it ultimately may do more economic harm than good. The hard truth is that sustainable prosperity cannot be conjured by a patchwork of governmental policies. Even in the new alchemy of today’s financial markets, gold may not be spun from an economy that is threadbare. To attempt to do otherwise is to ignore the hard lessons of history.

To learn more about my market recommendations, visit our website at: www.globewestfinancial.com.

New Year ... New Dollar?

2008-01-03T12:44:00.001-08:00

In 2007, the Dollar had its worst year in recent memory. As the housing crunch and credit woes gripped the U.S. economy the dollar's long slide picked up momentum. This culminated in a record-breaking rout of the dollar toward the end of the year. In November the dollar fell to a record low against the Euro, with the British pound reaching a 26-year high and the Canadian trading a levels not seen in a century. When the dust settled at year's end, the Euro had gained 9.6% against the dollar, while the Canadian picked 14.8% in value. Although the gains were not as dramatic, the Yen settled 6.4% higher on the dollar when the ball dropped on the new year.

The main reason why we have seen such remarkable strength in the Canadian and Euro is not because of stellar economic conditions in Canada or Eurozone, but because of the deteriorating economic conditions in the US. Although the housing market had been struggling for months, its true problems did not surface until the third quarter. Bad loans, particularly in the sub-prime sector, increased significantly, and in late June, leading banks on Wall Street began to report major losses for their hedge funds. In July, AXA Investment Managers closed one of its funds to new investors, BNP Paribas suspended three of their funds, Goldman Sachs was forced to rescue one of their funds and Sentinel, a major US money manager halted redemptions. A snowball affect was seen across the financial markets creating a liquidity crisis that forced the European Central Bank and the Federal Reserve to pump billions into the financial system. The subprime crisis then went global, hitting hedge funds and mortgage lenders in countries like Germany, Australia and the UK. Australian mortgage lender RAMS Loans Group saw its shares crash 60 percent in the middle of August as the US credit squeeze left the lender unable to refinance $5 Billion in debt.

Unsurprisingly, this chain reaction led to a wave of layoffs in the financial sector. America’s biggest mortgage lender Countrywide Financial cut 12,000 jobs. Citigroup warned of 60 percent earnings drop in the third quarter while UBS disclosed $3 billion worth of losses. In the month of August, non-farm payrolls fell by 4k, the first drop in four years. Consumer confidence fell to a 2 year low, driving retail sales excluding autos down 0.4 percent. All of these factors stoked fears that the US economy could fall back into a recession. The risk as well as the conditions in the credit markets and the deterioration in economic data forced the Federal Reserve to cut interest rates for the first time since 2003, but the tables turned in October.

The credit markets began to stabilize, the spread between US Treasury and junk bonds receded from its highs, the stock market rebounded 800 points following the interest rate cut and the non-farm payrolls report for the month of September signaled stability in the labor market. All of these factors have shifted the market’s expectations for future interest rate cuts significantly. Fed fund futures went from pricing in 50bp of easing by the end year to only 25bp by Christmas.

When a central bank lowers or increases interest rates after remaining on hold for many months, their first action is usually not their last. In the case of the Federal Reserve, they have cut interest rates after remaining on hold for the past year and we still expect them to deliver more as we come into the new year. The losses already booked by several major banks including conservative institutions such as the Swiss-based UBS and Wells Fargo do not bode well for the future of the financial markets. The housing market is already in a downward spiral as inventories rise while new, existing and pending home sales continue to decline. The retail figures following the Christmas shopping season are not yet finalized. But from all preliminary reports, the outcome figures will be substantially less than expected. This means that we will see continued slippage in the stock market, which in turn embolden the Fed to continue cutting rates. As this happens, the dollar will continue to weaken against it major counterparts.

Inflation pressures are a serious concern for the Fed not only because commodity prices have hit record levels, but the US dollar is also weakening. Oil has been emblematic of the bull market in commodities, hitting a record $100 a barrel on January 2nd. In response, gold in turn hit a record high just shy of $870 per ounce. High energy prices have also driven basic food commodities such as wheat and soy beans to new contract highs. In mid-November wheat touched a record $10.00 a bushel. The full impact of escalating commodity prices still have not been fully realized nor does the uptrend appear to be over. On January 3rd, the usually circumspect Nabuo Tanaka, Executive Director of the International Energy Agency released a report projecting energy supply and demand pricing for 2008. Based on Asia's burgeoning demand propelled primarily by China and India, his agency said it would not be surprised to oil at $150 a barrel.

Do not expect US officials to stand in the way of further dollar weakness. With rising commodity prices, the US economy needs a weaker dollar. Not only does that increase foreign demand for US goods, but it can also spur renewed foreign investment. There are three different ways that foreign investment can help buffer any slowdown in the US economy and the US dollar. Over the past few years, foreigners have been big buyers of US real estate. According to a study by the National Association of Realtors, about one in five American real estate agents sold a second home in the year ending April 2007 to a foreign buyer. A third of these buyers come from Europe, a quarter from Asia and 16 percent from Latin America. As the US dollar continues to fall in lockstep with house prices, foreign buyers could provide the support that the US housing market needs to avoid a major crash. The second support could come from the US equity markets.

If the dollar continues to fall, foreign investors may begin to acquire companies with sound fundamentals that are also less vulnerable to a US economic slowdown. Both of these factors are contingent upon the US dollar showing signs of stabilization. Foreign investors will only swoop in with size when they believe that dollar weakness is nearing an end. The third factor is less contingent upon the outlook for the US dollar which is that a weaker dollar also makes US corporations more attractive buyout targets. Sovereign wealth funds of countries like China and Dubai are flush with cash and they are on the lookout for good investment opportunities. These funds already have demonstrated their hunger for U.S. assets.

As the first quarter opens, there are more questions about the dollar's continued value than answers. If commodity prices continue their uptrend, then clearly asset-based currencies like the Canadian will benefit. If the Japanese economy continues to demonstrate its solid fundamentals, then it too reach higher against the dollar. Both the politics and economy of the Eurozone are less certain. Higher commodity prices will put a damper on growth in Europe. Politically, however, the European Central Bank under the leadership of Jean Claude Trichet has shown a willingness to let the Euro inflate without intervention.

The bank's inaction may be as much about vanity as it is about the numbers. Europeans dream about a day when their currency will be on an equal footing with the U.S. Dollar. This political goal alone, may be enough to push the Euro to new heights above the 150 threshold versus the dollar. Given this understanding, I recommend staying long on the Euro, Canadian and Yen. I would look for oil and commodity prices to continue their uptrends, and would not be at all surprised to see gold pierce $1000. At all points, be wary of intermediate profit taking. Book your profits early, cap your losses on corrections, and don't be afraid to embrace the risk by buying into market weakness. As the legendary financier Baron Rothchild was fond of saying, "Buy when there's blood in the streets." Hold on ... 2008 is going to be a wild ride!

To learn more about my market recommendations, visit our website: www.globewestfinancial.com.

Global Markets on the Run

2007-12-28T12:25:00.000-08:00

We are only now beginning to feel the massive impact of the sub-prime mortgage collapse. Like most investors, my first instinct is to run and hide. But after taking a second calmer look, this economy may provide hidden opportunities for those creative few who are willing to take advantage of continued instability in the financial marketplace.

There is no question that low interest rates and cheap mortgages opened the door for many who otherwise may not have been able to own a home. Many (including yours truly) were lured by the "siren call" of the lowest rates since the end of World War II. When banks offer "free money," only a fool would say no. But as we all know, there is no "free lunch!"

The wide dissemination of cheap mortgages has resulted in a distortion of the financial markets. Most analysts now agree, that before the economy can stabilize, unproductive equity must be squeezed from the real estate sector. Unless and until this happens, even with subsequent rate cuts by the Fed, the economy runs the risk of a downturn leading to a possible recessionary trough. Evidence of this stall already can be seen in the month-on-month declining demand for durable goods at both the consumer and factory levels.

In my view, we are not so much in a credit crunch as we are in a liquidity crisis. Consequently, unless the Treasury wants to embark on money printing escapade, without regard for the inflationary result, the best source of additional productive liquidity to grow the economy must come from the real estate sector. While the acquisition of real estate may generate personal "paper wealth," it does not create the jobs or productivity this economy so desperately needs.

I view the current wild swings in the stock market as an opportunity to trade. These moves create intermediate term trends that we can take advantage of in the currency, precious metals and stock index markets. In my opinion, the dollar will continue to weaken in conjunction with the underlying fundamentals of the economy. On this basis, I believe that we will ultimately see a higher Euro, Yen and Canadian, along with a significant firming of the precious metals (gold, silver, platinum). Conventional wisdom dictates that market uncertainty always precipitates a "flight to quality."

Experienced traders and hedge fund managers are predicting $1000 gold. From my perspective, escalating prices of oil and other commodities, makes the likelihood of this projection even more plausible. I also think, that the foreign currency and metals markets may gain additional momentum if the Fed again cuts interest rates as an interim solution to the current sub-prime credit crisis.

As expected, the stock market put up a "Santa Claus" rally (shoppers love discounts, especially around the holidays). But I the looming spectre of negative market fundamentals and recent downgrade by of several major Wall Street players (including Goldman-Sachs) could trigger a deep stock market retreat. It is also likely that the weakening housing market will continue exert a lingering drag on overall consumer confidence. Consequently, I would not be surprised to see a deeper market sell-off after the first of the year.

With the prospect of this continuing uncertainty, it appears that the markets will continue in a dynamic flux over the next several months. While this tumultuous market environment does entail substantial risk, it also presents significant trading opportunities. If you can embrace the risk and are willing to diversify your portfolio, then we may be able to find a trade mix that works for you.

To get a fuller picture of what I am doing for my clients, visit our website at: www.globewestfinancial.com.