Let’s jump right in with your comments and questions on Obamacare.
Q: Why hasn’t the Republican controlled House defunded Obamacare? The House controls the purse strings of the nation. ~ Lorne D.
A: There’s a long way to go in this war, and the next step will be on the funding side of the battlefield. That’s coming shortly, as in right after November.
Q: It has been my experience that every time the government sets out to reform something it is always in favor of special interests. The people always lose. People in the middle class pay the bill and the special interests people collect. ~ Pappy
A: “Same as it ever was…”
Q: Obamacare is a train wreck by design… it was never intended to work. It is merely an intermediate step towards a single payor system. When things get bad enough, the public will turn to the government to fix this mess and the government will offer up a single payor system as the solution. Your health care will then be totally controlled by the government…. it is all about control and power. ~ Len
A: While you may be right, there may be a backdoor agenda, the truth is I can’t figure it out. I just don’t understand why the attention isn’t put on the insurance companies greasing the system that benefits them, the doctors committing fraud… in conjunction with the aiding and abetting insurance companies, and why the public is always duped so readily into believing that they are the ones who have to pay the price.
As Pappy says above, it’s always in the interest of special interests. We know that, and it is the same as it ever was. But it’s up to US – the American people – to protest and revolt if we have to. And we do have to. It’s our health, our money, our right to choose, and our right to change the government. If we want a better healthcare system, we need to start by changing our government.
Still, you can say one good thing for Obamacare… it’s going to be one of the biggest single wealth creation opportunities in decades. We’re talking trillions in new spending. Not all companies will benefit – but a select few are primed for higher returns on a scale that was simply unimaginable before this legislation was passed. My friend and colleague Keith Fitz-Gerald just released a new investor report detailing exactly which stocks will do well when Obamacare gets rolling. Click here to see that.
Now THIS next article got a lot of you talking…
Q [re: "Syria and the Markets and Our Own Bad Government"]: To prevent growing eruptions and protest, the guilty government officials start a war which reunifies the country and shuts up the protesters. A scenario replayed hundreds of times. We should be in a reunifying war shortly. Drones should be big business. Where do we invest? ~ Ashley G.
A: Same as it ever was. Yep, the Tomahawks will probably fly shortly.
I’m expecting oil to pop, whereupon I will add to my short position, especially at $110/bbl (WTI) and above, and look to cover around $85. I’m expecting a dip in stocks when the collateral damage is shown to include civilians, so I’m looking to buy some puts on the QQQs. I’m expecting that emerging markets will bear the brunt of a continued capital flight and stay short them, but look to cover when the smoke clears and markets tick up again.
All in all, I think the Syrian-ization of the markets is nothing but a distraction. We’re in a trading range and until we break up (to new highs) or down (below 14,444 on the Dow), we’re treading water, and Syria will be the lid on the pot. If it boils over, we’re going down. If it heats up then simmers down, we’re going higher.
Q: Shah, shame upon you; you made your millions under the American way and then you “moan, moan, moan”. This Nation is built on freedom for all, the price is high; not always easy. ~ Don
A: I don’t moan, I have nothing to moan about. I made my money and still make money the old-fashioned way – I earn it honestly. I don’t manipulate markets or stocks or anyone. I do, however, groan at the unfair weight of manipulation and greed us honest folks have to endure. Yes, we live in a beautiful nation with freedom for all; only some men use that freedom to enslave others who don’t see it coming, can’t get out of the way, or believe it is the price of freedom.
That’s not freedom, my friend, that’s a fraud on freedom.
Q: What is a good percentage for a trailing stop? ~ Henry L.
A: Henry, I don’t use just a percentage. I’m more interested in finding a place where, if I’m wrong, the price action will make me question why I got in in the first place. I’ll use simple technical analysis levels like support levels and sometimes whole numbers, or areas where there’s been a lot of turnover on big volume. I keep those levels within the percentage loss I can handle.
As my position moves in a profitable direction, I raise my stops to where I give the position enough room to come down a little (nothing goes in one direction forever, or for long) and consolidate and hopefully move higher. My first goal is to move my stop up to breakeven, so if the position comes down, I get out without a loss. At that point I’ll reassess reentering the position. If the position keeps going in my favor, I keep moving my stop, always giving the new level breathing room. If I don’t like the position any more or see other things in the market that make me worry a lot, I’ll use a much tighter stop to lock in as much profit as I can capture.
Q [re: "Why I'll Take the Free Market Over Government Any Day"]: I’m surprised Gilani has fallen for the mainstream legend that the evil banks are the problem – with the obvious conclusion that more regulation of the banks is the solution. I agree that there are a sea of bankers that should be in prison for their actions, however the basic problem comes right back to too much Government, which yielded too much money and pressure to put it in the wrong place. The too much money came from the Fed, which pumped money in with absurdly low interest rates and direct insertion of funds. ~ Paul D.
A: Paul, you’re right and you’re wrong about me. I know banks are the problem, I’m not wrong about that. They are out for themselves and use the public to make their money. It’s a great business, and their business demands they figure out how to make money with all the capital they have access to. They are judged against return on capital metrics. Think about that paradigm. Too big government didn’t force banks into anything. The Community Reinvestment Act was completely bastardized by the banks for their own profitability. I suggest you do some reading on its impact on the crisis. You’ll be very surprised by what you uncover.
I am for small government. The only problem with small government is that it too often lacks the checks and balances of a more “balanced” government. Small government sounds good, until you think about how a small coterie of government power mongers could turn our democratic republic into a banana republic, which is where we’re already headed with the big government we have controlled by a small bunch of money-wielding special interest groups, which includes bankers at the top of that special interest list.
I am for less regulation, NOT more. But “less is more” only when it is simple, clear, effective, and incapable of being manipulated (see my response just below on regulation). I’m all for that.
As far as the Fed, it is not part of the government. The Fed is beholden to the banks. It acts like it’s a part of the government, and Congress wants to think it can control it, but they can’t, they don’t. It’s the other way around. The Fed fed the markets with too much money – not the government. The government was a beneficiary, for sure. That’s part of the “backscratching” between a government desperate to pay for voters’ affection with their spending programs paid for (temporarily) by the banks that buy their debt with the money the Fed feeds them. It is about the bankers. It is ALL about the bankers, then government lackeys, in that order. In this case, number one stinks more than number two.
Q: Shah, I admire much of what you write. Your words are the basis of many useful conversations with a retired IMF economist friend. In this case, though, you have not proven your case that the government is not an important asset in stability of financial markets. You have, instead, proven that obscenely greedy bankers have caused almost every large economic disruption in U.S. markets. ~ Malcolm J.
A: The government is and can be more of a stabilization lever over the financial markets. I am an ardent advocate of government regulation. Only, there’s too much regulatory rubbish. Meaning, just like the tax code (ever see how big that book is?), the lengthy, complicated regulations we have are all that and more for the same reason the tax code is thousands of pages. Because there are loopholes written into the regulatory regimes, there are legal (and illegal but doable) slippery slopes written in by lobbyists for the benefit of their special interest groups. That’s the case for giving government an F on financial markets regulation.
All we need are simple, black and white rules and harsh penalties, including clawbacks, financial ruin, and jail time for the guilty. We have mandatory sentencing for some crimes; we should have the same for financial crimes. When it comes to grey areas where the regulations are black and white, let public juries decide the fate of the accused parties. Then, apply the sentencing laws.
I would never try and prove that the government is not an important ally in financial market regulation; it is the only ally we have in the battle against unmitigated greed and capital markets manipulation.
Q: From my little retail investor viewpoint, I see a lot of the problem is with speculators using… other people’s money to speculate, sometimes against me. If asked, I would suggest two things: first get rid of ‘short selling’. The idea of selling something you do not own is ridiculous. Second, get rid of margin purchase of paper investments. If we had an all cash market everyone would be playing with their own money and might make more careful decisions. ~ Robert C.
A: Unfortunately Robert, your little retail investor status is greatly enhanced and gives you a more equal footing with the big boys, precisely because you too can apply leverage in the form of margin to invest and hopefully profit by applying more capital into the markets than you otherwise would be able to. How many small investors would be shut out totally if they didn’t have the use of margin or some leverage?
I shudder to think how shutting out retail investors would undermine their prospects for growing their wealth. The game would be even more lopsided than it already is. That doesn’t mean that there isn’t something of a little gem in what you propose. It might make sense to scale back margin and leverage availability to giant investors as they add more and more to their exposure, which could ultimately expose markets to lopsidedness. That’s worth a lot of thought.
As far as shorting; I’m sorry to say that you probably have never shorted anything, ever. Try it, you will like it. Shorting is a clearing mechanism, a balancing mechanism, a market-correcting lever that is essential to smooth functioning of the capital markets. And the bigger and more interconnected markets get, the more important balancing runaway manipulation and counter-trend trading becomes. Without investors’ ability to short and profit by that type of positioning, we’d be stung by more Enrons and the like and more one-way manipulation sucking in more and more patsies, only to be hung out to dry and crumpled to death by pump and dumpers.
Q: Shah has been hitting the nail on the head consistently in his articles. However, I have to disagree on one point. It is not the Banks that are the problem, it is the BANKSTERS! If these incredibly greedy individuals were personally held to account for their own executive and excessive policies solely designed to increase their own individual bank accounts with obscene profits, share options, and bonuses, we might see more moderation in their self-interested behaviour. ~ A.J.R.
A: I stand corrected, thank you A.J.R.
Q [re: "Why Congress Is Still the Best Club in the World"]: Shah, you have singlehandedly destroyed my faith in the U.S. government and rules. You see, I am a well traveled Mexican citizen and always thought those kinds of privileges only occurred in “third world countries”. What you have described is the prevalent “way of life” for government officials in most countries in Latin America and some in the middle east and orient as well. I know because I work in all of these countries! It’s a rotten world! ~ Eli
A: Eli, where do you think those other nation’s governments and oligarchs learned their modern-day lessons? The American system is probably the best on the planet. But being the best and most open also leaves it vulnerable to corruption and pandering to special interests, which are the weeds that naturally infest the otherwise verdant landscape envisioned as democratic-capitalism practiced in our republic.
Q [re: "What's Really Going on Inside a Big Bank"]: None of it matters. The big banks are a key part of the International cartel. The FED (or other central banks) will bail them out of any financial trouble they might run into regarding derivatives or anything else. They are too big to fail. And they will not fail. True, the game can’t go on forever, but who is going to stop it? Congress? The regulatory agencies? Not a chance. So, the banks will continue to do what they do occasionally tagging a couple of “fall guys” to take the blame. The show must go on. ~ Owen K.
A: Lights, cameras, action! It is quite a show isn’t it? We love the comedy when we’re laughing all the way to the bank and cry when the tragedy of being as disadvantaged as we usually are hits us… while the comedians keep lining up at their banks.
Q: I can see a similar situation lining up with Netflix and Apple. Carl Icahn is a major shareholder in Netflix (over $1B) and he just took a position in Apple ($1.5B). Interestingly, Netflix and Apple are competitors in Netflix’s market. When you look at the balance sheet of Netflix they are worth a negative $700M. And there P/E is over 310. There is nothing there but air. And yet just the presence of Icahn as a shareholder has pumped the stock up to over $250. I would be very surprised if Icahn has not taken out derivatives on the short side of Netflix. Insiders have been jumping ship for over a year and no insider has been buying. What I want to know is this: I know that insiders must register their trades with the SEC within 2 days of making a trade, but do they have to register their positions in derivatives? This would be good to know, because if they don’t then I would bet that Icahn is shorting Netflix while going long on Apple. ~ Jeff P.
A: Jeff, private individuals don’t have to register their derivatives trades anywhere. Even hedge funds, that have to make quarterly filings, don’t have to list derivatives positions.
Q: Personally I can’t wait for another Lehman Moment. A moment that will destroy one of the too big to fail banks and set off a chain of falling banking dominos that will ultimately destroy the current crazy fiat monetary system. This will ensure a rethink about the gold standard and the way banks should and need to operate post-crash. The downside is the massive upheaval this will create in both a financial and social sense. ~ Peter K.
A: Peter, another Lehman moment would be more frightening than the last Lehman moment. And that was insane.
The two things in my life that I can’t believe happened, though they happened, were the events of 9/11 and the financial meltdown in the fall of 2008. Both were surreal, to the point that even now, they seem impossible; I can’t believe they actually happened, because the reality of both events is so beyond our imaginations that they seem unreal. But they were as real as real gets. Shaking the financial systems of the world to their core again would be such a dark event that if it happened again on the scale we barely lived through the first time, I don’t think our institutions could handle it. A gold standard is not the answer. The bygone days of what seems to have been an effective monetary management mechanism were actually fraught with problems. As far as our financial systems have grown, it’s impossible to apply a gold standard to them now.
Q: The President couldn’t begin to tell you what a Credit Default Swap is, or even what a put option is. He’s clueless, as befits a puppet. When asked about the stock market a few years ago, he said, “It goes up and down.” … He just trusts Jamie, the anti-Christ, when he says, “Don’t you worry your little head about it. What’s good for the bankers is good for the country. Here’s a check.” ~ Fallingman
A: Fallingman, I always appreciate all your comments, thanks for being a part of the conversation. It’s hard to dispute what you say here. So, I won’t!
Q: Thank you for the education. You make it understandable for those of us trying to figure out the complexities of modern investing… or should I say gambling. ~ Stu R.
A: Stu, it’s comments like yours that makes me love to write, thank you.
Q [re: "Why the JPMorgan Criminal Case Matters to You"]: If Shah Gilani or ExxonMobil want to get into the derivative market, OK. These entities are not commercial banks insured by me, the taxpayer as ultimate backstop. US bank holding companies and banks should simply value all derivatives at zero (0) on their balance sheet, set aside cash to cover 100% of outstanding (net) liabilities, and not include any derivative value in reserves. That, along with criminal liability for all listed operators if a violation is found should go a long way towards preventing another G W Bush meltdown. ~ Charles S.
A: That’s simple enough Charles. You’ve got my backing.
Q: “Figure out how to get banks to price everything on their balance sheets to reality.” The real difficulty which Shah has illustrated is that we really do not know what is reality. There is no clear measure for market price in an illiquid market, is there? ~ D.P.
A: Exactly, bank problems are lost in the smoke and mirrors. And why are smoke and mirrors allowed? To give banks wiggle room to make as much money as they can while supposedly abiding by the accounting and regulatory covenants, laws, and annoyances they pretend to follow. We don’t need more regulations to tell us how banks should weigh what kinds of assets as to their risk quotient. Make simple tables and make banks line up all their assets against them to the penny and presto, there is the clarity we need.
Q [re: "We Just Got a Glimpse Inside Wall Street's Con Game"]: Is it possible that the Nasdaq shutdown is to save Goldman Sachs’ backside somehow? ~ Anonymous
A: Anything is possible, but no, one had nothing to do with the other, at least in terms of giving Goldman room to move.
Q: How can u cancel something [a trading order] already done? ~ G.E.
A: There are many ways to do it. It happens all the time. Mistakes are made all the time and there has to be mechanisms by which they can be corrected.
Q: When I look at price action the old-fashioned ticker tape way, I think I can see the fingerprint of manipulation. It happens with regular frequency that a major move in one direction is preceded by a brief move in the opposite direction into identifiable technical stop-loss zones. The computers that drive this manipulation must first be given a directional bias. This may come from an analysis of a huge socio-economic data base, or from insider information. Once the direction is set, running down all the stops to ensure that enough sellers/buyers are in pain is a mechanical process. ~ Helmut
A: Ahhh… you’ve seen that hand, have you? I see it all the time Helmut.
Until next time…