Articles About Trading & Investing

Trade Your Way To Freedom

16 | By Shah Gilani

A few weeks ago, I told you a story about a woman who took my advice and used it to overcome her fear of investing.

As it turns out, it was an incredibly popular column.

Reader Robert from Vancouver wrote:

    Thanks Shah for trying to provide some financial education.

    There is a real and urgent need to teach people at least the basics of investing, the economy, and business.

I wholeheartedly agree.

That’s why I wanted to come back and build on the advice I originally gave you.

You see, once you make a decision to start investing, the next step is to make a commitment to become successful.

And today I’m going to show you how to make that next step…

To Be Successful You Have To Put On Trades

In a nutshell the advice I gave in my March 27 column was:

Start by taking positions in companies you know something about. It doesn’t matter if you like, or hate it. Just that you know enough about the company’s products, services, whatever they do, so the stock’s ups and downs make sense to you.

Once you pick a stock, you always start the same way. You put on the trade.

Never think that your trade, or your position, is an investment. It isn’t. It is a trade.

You can get out of it at any time.

If it turns into a brilliant pick, your trade will turn into an “investment” because it’s worth holding onto.

But to become a successful investor you have to start by putting on trades.

You can’t make money watching from the sidelines. But you also can’t be a deer in the headlights either. You can’t go into a trade and think it’s an investment and you’re stuck with it when it goes against you. It’s a trade!

And the reality is that some of your trades will be losers…

That means you will get out of positions with small losses. It’s part of the game. You will have some losses but they will be monumentally overwhelmed by the trades that will make great money. And the ones that keep going up and maybe pay you dividends will become the “core” of your investment portfolio.

And that’s your ultimate goal. You want to create an investment plan that leads to financial freedom.

Psychology and Perception are More Important Than Data and Facts

One of the reasons I say that you don’t need to be an expert on any company, or on any stock, is that no matter how much homework you do, no matter how much analysis you do, what makes perfect sense on paper may have nothing to do with how your stock trades.

When you watch your stock going up and down, you begin to understand the “psychology” of other investors – what they’re looking at, how they interpret news and data.

You’re one person with one position. There are millions of people like you watching that same stock. Collectively, their perception of news and data and the psychology of their fear and greed ultimately motivate them to take action, which moves the stock.

I can’t tell you how many times I’ve done copious amounts of research and been absolutely confident that I was putting on a winning trade, only to have my head handed to me because other traders’ perception of something that came along (it could be out of nowhere) was interpreted as a reason to sell the stock.

My saying is (and I live by it): Money moves markets, but psychology moves money.

What I’m saying is: Go ahead and do your homework. But your knowledge of your stock, or your position, has to include your understanding about how other investors perceive the stock and its likelihood to go up or down.

Market psychology is everything. I can trade anything, any stock, any bond, any commodity, any derivative, anything, because I trade on OPP – Other People’s Psychology.

It’s not easy reading the market’s psychology, or the perception the market has about a stock’s prospects. But it’s not hard either.

First of all, understand that there are two ways to trade psychology.

  1. You go with the flow.
  2. You go against the flow.

I do both, and quite successfully.

Going with the flow is all about the “trend.”

The Trend Is Your Friend

Live by that and you will make a lot of money.

In terms of market psychology I always look for the big picture first. What is the big trend? Is the market (we’re talking about stocks) in an uptrend or downtrend?

If it’s an uptrend I want to be buying stocks. If it’s a downtrend I want to be shorting.

Always go with the flow by trading within the big trends.

After all, if the market is going higher, why would you fight it? You don’t, you ride it.

Of course, there are nuances in following the big trend. The general market may be going higher but maybe the stock you want to buy falls in an industry that’s not going along with the big trend. You have to be careful about that.

That’s where going against the flow might come into play.

I make a lot of money following the trends and riding them. But, sometimes I go against the trend.

The reasons to go against the big trend start with the big trend. Maybe you see it stalling out. Maybe you think it’s about to turn around and go the other way. It’s at these junctures that going against the trend, in measured fashion, can be very profitable.

If I think the psychology has changed and the general market is turning bearish, but the market has still been holding onto its gains, such that I see selective selling, or profit-taking, I will put on a counter-trend position.

If you put on counter-trend positions at inflection points, meaning where the market seems like it could change, you aren’t taking a stupid risk. Instead, you are taking a shot that you can get ahead of the bigger shift in psychology.

What’s critical, is that whenever you take a counter-trend position you don’t “get married” to the position.

You’re going against the trend, which you don’t generally want to do. But because picking tops and bottoms can be extremely lucrative (and trying to do that exponentially ups your learning curve) it’s worth the risk. Again, you only do that when you think you sense a change in the trend.

If I take a counter-trend position and the trade starts out against me, I get out just as the big trend reconvenes its footing and continues. I will lose a little and move on.

Here’s another way to play a counter-trend within a bigger trend: Buy that stock you wanted to buy but didn’t because its industry group wasn’t following the big trend higher.

At some point, when I think that stock and its industry may be out of favor enough, I’d consider buying in. Why? Because if the big trend is still up and I think it’s strengthening, then buying an out-of-favor stock that has already gone down (but is a fundamentally good company, not some crazy stock) isn’t as risky as it seems.

And if you’ve done your homework and like the stock but have been surprised that it has gone down in a rising market, then you’ll know instinctively if it has gone down enough to make it a good “value” in the rising market. That’s not a risky position.

I can’t impress upon you enough that you know more than you think. You have to trust yourself. Use your own knowledge of how people react to gauge mass psychology, which sometimes is mass delusion. But that’s another lesson.

So, I’ll say it again. Tune yourself into the psychology of the market. The psychology of other traders and investors, of what they are reacting to, of their fear and greed.

Perception is reality when it comes to how money reacts.

Soon we’ll get into identifying trends and counter-trends and how specifically to trade them. I will recommend actual positions for us to take.

How To Overcome “Investing Fear” And Finally Get Started

39 | By Shah Gilani

Today, I want to tell you a story.

It’s a true story that also illustrates how the advice I often give to investors can help them reach their financial goals.

As you know, I have more than 30-years professional trading experience (I mean real big money trading). And folks often ask me, “How do I get started?”

In fact, several months ago, a young lady at the Fox studios in New York, who works there and with whom I had talked several times in the Green Room while a guest on Varney & Co., asked me that very question.

She is a person who never had an investing account and never made a trade, but because she was working at the Fox Business Network was surrounded by “the market.”

She had decided to overcome her fear about what she didn’t know and wanted to start investing in her future by learning how to invest in stocks. She wanted me to give her a stock recommendation.

But that’s not what I did…

I explained to her that for me to properly – and legally – give her one-on-one personal investment advice, I’d have to learn about her finances and her expectations and everything that’s important to know about a person before setting up a financial plan for them.

I told her she should manage her own future because she was willing to learn; and by learning she would become an expert on what was going to work for her.

Still, she was stuck on getting a stock recommendation from me to start with.

I asked her what she was interested in and what she knew about.

She said, “I’m not knowledgeable about any stocks, I don’t know about any of them.”

I told her she was thinking about stocks, and NOT to think about stocks. I asked again, “What are you interested in? She answered “fashion.”

Perfect. I asked her what designers she liked. Without missing a beat she said, “I really love Michael Kors.”

That’s all it took. I said, “Then why don’t you look at the Michael Kors company, and think about Michael Kors stock based on what you think about the company? You know the stores, you know what they sell, you know they’re popular and you know why.”

That rung a bell loud and clear. She agreed that she would love to follow the stock because she follows the company and its clothes, so she would have a great feel about how the company was doing, what direction it was going in and if they were getting more or less popular.

The next week I was back at Fox studios to guest on a segment. I ran into my friend. She excitedly told me she had opened an account at a discount broker (which I told her to choose over a big brokerage house) and bought Michael Kors stock. She bought it back in the fall of 2013 in the low $70s. KORS hit $101.04 not too long ago.

That’s how you start. You pick something you are interested in, something you like, something that you follow because you are interested in it, because you use their product, or their technology, or drive their cars. Whatever, it doesn’t matter.

The hardest place to start is always the beginning.

Lesson 1 is that every trade of course starts out as a trade. So does every investment.

It’s not complicated, so don’t overthink it. Even if you have the best intention of buying that stock that is going to be the perfect investment that makes you a billion dollars, you start out the same way every time. You buy it. THAT action is a trade. You’ve just put on a trade. If you’re lucky or smart enough, that trade will become one of your investments.

It should have a beginning and an end. It just so happens that if the end is measured in years or infinity, that trade has blossomed into an investment. That’s a great thing.

But, the reality is markets move, stocks move up and down. New technologies and paradigm shifts happen at the speed of a mouse-click. What might be a great trade that turns into a great investment doesn’t mean it will always be worth holding.

So, every beginning begins with a trade, you put on a position.

The question is, what position makes sense? What should you trade? What kind of investment keeps on appreciating and pays dividends and keeps going up?

There is no answer to that question. That is the question we all want answered.

Remember, no-one is more responsible for your money than you.

Yes, you can and often should listen to “experts” just make sure they are experts.

What’s important is what they say, the information they give you to ponder. It is an opinion, usually based on knowledge, history, analysis and it’s worth thinking about. Experts are best used as a mirror. What are they saying and what does their information mean to your thinking?

Brokers are NOT experts. They are intermediaries. Their principal job is gathering assets, not analyzing markets and picking stocks or trading.

Some brokers, and by some I mean an extraordinary few, are really good. The good ones actually “manage” money. They do their own thing. They don’t just follow what their parent company tells them to do. They don’t just shoehorn like accounts into the same tired and boring useless platforms. They do some of that, if they’re good, because they’ve set up better platforms. But those are the true money managers, not mere salesmen. If you find one of those brokers, they’re worth having. But that doesn’t mean you go blindly down their path.

It’s still your money… NOT THEIRS.

For most people, you’re better off doing it yourself.

There are plenty of resources on the Internet to do all the research you’ll ever need to do.

And there are plenty of really good investment newsletters that for a reasonable price give you trade recommendations with explanations. Still, again, it’s your money. That doesn’t mean you just follow anyone blindly. Yes, you can follow people, but never follow anybody past your own comfort level, on any trade, ever.

How do you do it yourself? You start where you are comfortable. You trade into positions you understand. If you’re following someone, including me and my investment newsletters, you can take all the recommendations if you’re given a plan to get out.

If you don’t have a plan to get out, don’t get into the trade. Or you can take the recommendations based on your comfort level.

So that’s your investing lesson for today. There will be more coming.

Of course, I’m going to continue to this Wall Street Insights and Indictments space to knock heads, call out some crooks and creeps, and tell it like it is.

But I’m also going to show you how to make big money in the markets.

Some of the lessons will teach you a little history, some will make you laugh — sometimes you’ll be laughing at me for some of the mistakes I’ve made.

But in total they will make you a better trader and investor. That I promise you.

Of course your input is incredibly useful. So please let me know what you’d like to learn about most? Just send me a message below.


The Two Biggest Moneymaking Decisions You’ll Ever Have To Make

50 | By Shah Gilani

Listen folks, I hate to tell you this but your chance for a comfortable retirement is falling fast!

Of course, we already know pension plans have been raided, depleted and “financially engineered” – AGAINST the laws that were supposed to protect you.

And if you think you’re protected because you’re a union worker, or municipal worker, or in some other job that you figured you’d put up with because you could retire well… WELL, those “protection” plans are all under attack, too.

Your benefits are being bargained away… and so are your cost of living increases and so are all the other promises you were made.

You need to wake up to your worst nightmare.

Of course, your 401(k) was invented to replace pension plans… but have you really looked at how it’s doing? I mean really calculated how you’re going to retire on it?

The Center for Retirement research said the typical 401(k) in the U.S. has about $120,000 in it. Do you even have that much?

They also calculated to retire comfortably you need 10 times what your retirement year’s salary was in savings. How much are you making now? Are you going to save 10 times that?

And as far as your employer matching your 401(k) to help you amass that retirement stockpile, forget it.

Newsflash: Companies aren’t required to match anything. They only do it to entice employees to come on board or stay. That is until it costs them too much. After the 2008 crisis, 20% of public companies suspended, delayed or stopped matching contributions altogether. This is a travesty for the average worker.

You see, your comfortable retirement is a long way off in the best of circumstances.

Today, just to have a decent retirement pot, you’d have to make 6% a year, compounded, every year. Are you making that every year on your investments?

No. Especially if you’re moving more money into fixed income at these piddling interest rates. 2% a year on a 10-year savings bond, really? Good luck with that.

Here’s the thing:

Anyone can learn how to build wealth… And anyone can learn how to make investments that grow.

I’m going to teach you how right here.

You see, you just have to slice it right. You have to allocate funds to play both sides of the markets – whether it’s stocks, bonds, precious metals, commodities or what have you.

Starting today, and continuing on, I’m going to use our Wall Street Insights & Indictments space to give vital insights on mastering the markets.

I can show you how to play the globe’s biggest asset classes and make our money grow exponentially faster than your piddling 401(k) can.

You’ll have the benefit of my more than 30 years of experience and success in the palm of your hand. You will be the master of your own destiny.

The great thing about investing the way I do is that you can make money consistently – just by being a simpleton.

Everyone loves to complicate things, which is detrimental to your financial health, especially when it comes to investing.

There’s so much news and data, so many opinions about events and data points, so many financial publications, so many shows, so many stocks, mutual funds, ETFs, futures, options, derivatives, so many opposing points of view about everything, it’s enough to make your head explode and your investing comfort level implode.

But I quickly distanced myself from all the noise that distracted me from being a successful trader.

Here’s what I learned:

If you want to make money in the markets, there are only two decisions that matter, only two decisions that you ever have to make.

They are: Buy it? Or sell it? That’s it, it is just that simple.

Look, I’ve made money in the markets every year for some 30 years. For me and for you, making money has to do with only those two decisions. Personally, I don’t put a lot of meaning on either of them.

If I buy and I’m wrong, I made a bad decision. I fix that by making another decision.

But what we’re going to do here each week is learn how to make good decisions based on the information we have at our disposal.

Stay tuned.


Follow These Flashing Signs And You’ll Make Money

7 | By Shah Gilani

The markets are on the soft side this morning, meaning the benchmark indexes are down. But not significantly. After all, what’s half a percent, or three quarters of a percent, or a percent between bookend bulls?

Or for that matter, what’s a few percentage points or a double-digit percentage drop, if you’re hedged?

We’ll see how the rest of the day shapes up, or shaves down.

Is this anything to worry about, this little swoon?

Maybe, maybe not. Only time will tell. The thing about time is to make sure you’re not out of it when you need to be putting on defensive positions to protect your retirement, your savings and your future… and to be in positions that make money from swoons.

The reason I’m not worried is because, as I told you here last Monday, there are macro worries out there that are going to lean on the market. We know what they are. I identified some of the big ones.

That wasn’t a cryptic message.

It was a heads-up for you to take action.

Before markets go down there are always signs. You just have to follow them, like we do in my trading services.

While I touched on some of the headwinds the markets are facing, as they were making new highs last week, it wasn’t just about watching the macro events, like Ukraine. There were signs, big red flashing signs.

The 10-year U.S. Treasury bond’s yield was dropping, meaning buyers of bonds were bidding up prices as they scrambled to the safety of Treasuries. When bond prices rise their yields fall. The 10-year yield has fallen from about 2.75% to 2.62% this morning. That was a sign. Investors were turning to a safe-haven trade.

Gold has been rallying. Investors turn to gold as a safe-haven trade when they’re nervous. It’s not rocket science. Gold has been rallying even after big-shot Goldman Sachs said the gold trade was dead. Analysts were calling for gold to drop below $1000. OOPS.

We followed the signs, so we held onto our gold positions and have profited nicely.

And as the signs began flashing – there’s no crystal ball needed, the flashing lights are out there you just have to have your eyes open and act – we began putting on a bunch of short trades.

It’s simple, well, it is to me after 32 years of trading from the Floor, to running a big bank’s hedging operations, to managing my own hedge funds and now in my “mellow” years to looking after my own money and my trading service subscribers: If you read the signs they illuminate the path.

As I’ve said here, I’m going to make this column more and more about you creating wealth, making money and beating Wall Street by playing the same games they play.

I’m still going to call out the politician and Wall Street crooks and level them for their misdeeds and outright crimes. That won’t change.

But the more I talk to folks who aren’t professional investors or traders, the more I want to help level the playing field and show people how they can make money.

And I’m not just talking about making money here and there; I’m talking about making money consistently.

It’s not rocket science. It’s just that Wall Street wants you to think it is so you give them your money. It’s sickening to me. I hate the user, beggar-thy- neighbor ways of Wall Street.

That said, make sure you have stop-loss levels in mind to get out of positions where you have nice profits. And get out of losers with small losses before they turn into big losses.

Don’t ever be afraid to get out of positions. The whole Wall Street mantra of buy and hold works if you’re Warren Buffett and you buy companies. But it doesn’t work for the richest guys on Wall Street (Warren is different, you’d be rich too if you started buying stocks in the 1950s and held on…those days are OVER).

The richest guys on Wall Street are traders. The richest hedge fund managers in the world, across the whole world, are all traders.

All trading means is that you take profits and cut your losses. It’s not a knock on investing. Investing is what you do when you get into a winning position and it keeps going in your direction. You hold onto it and as it keeps going in your direction you simply raise your “get-out” level so if the position goes down and you’re in jeopardy of eating into your big profits, you get out and reassess the situation.

What everyone needs to remember is that you can ALWAYS get back into that position if the stock keeps going up.

Trading is not bad. Market-timing is not rocket science. They are all part of smart investing.

Remember, every brilliant investment starts with a trade. You have to be in it to win it.

Editor’s Note: Las week, Shah blew the lid off the most lucrative trade in the world. It’s a trade that has led to the biggest gains in history bar none. Over the years, Shah has used it to generate very large returns for himself and his high-priced clients. Now, he’s taking a small circle of readers under his wing and showing them how to use this trade step-by-step to expand their net worth as much as 10-fold in the coming weeks. The opportunity ends at midnight tonight. Click here to secure one of the remaining slots.

New Highs… Now What?

40 | By Shah Gilani

The bulls are running today, being chased by hot mergers and acquisitions news.

As I write this, the S&P 500 is at an all-time high and the Nasdaq Composite is at a 14-year high. The Dow still has a few steps to climb, but there’s a good chance it too will reach for new highs in the next few sessions.

According to Matthew Keator, the namesake at Keator Group, a wealth management firm in Lenox, Mass., “People are recognizing that while some economic data has been muted, there is still a lot of value in the market based on corporate cash positions and multiples. From a perspective of overall fundamentals, things look pretty good, especially relative to other asset classes.”

He’s right about investors recognizing value in the market, and that corporations are sitting on fat cash positions.

It’s the big hoards of cash that’s pushing mergers and acquisitions. And there’s value in the U.S. market. But that’s all relative.

As Keator points out, things look good relative to other asset classes. And he might have added that values look good here because the U.S. is the cleanest dirty shirt in the laundry.

Elsewhere around the globe, things aren’t so rosy.

The U.K. just saw a bump up in their unemployment rate, the emerging markets are struggling, China is grasping for laundry detergent to clean up its shadow banking mess, and gold — which has been rising furiously — is indicating that not everything is hunky-dory.

So if you’re heavily invested in U.S. stocks, you’re in good shape.

But there’s a lot to worry about.

Economic data has been mixed, which is putting it nicely. What’s nice right now is that investors are looking past a host of soft numbers in the U.S. and figuring the Fed will roll over its “put” positions that traders and investors have come to rely on as a floor for the market.

After all, it is their articulated policy to create a “wealth effect” by keeping rates low to pump up equity markets. For that, they deserve a gold star.

But — and it’s a big but — what’s underneath the Fed’s stimulus efforts remains to be seen. If the Fed continues to taper, as they say they will, and if rates rise (by that I mean if the 10-year gets back above 3%), will emerging markets freak out? Will the flight out of emerging markets accelerate? Will their attempts to stabilize their currencies by raising rates (some by huge amounts) slow their growth to the point that they actually falter?

Make no mistake, the U.S. is the place to be for investors. That is if you’re all in and have been all in, and have a plan to take profits here and there, and see the taper for what it really is, the beginning of the end of easy gains for the markets.

I see that. I’m taking profits and raising my stops. I’m starting to buy some puts. I’m finding shorting opportunities that on a risk reward basis are positively ripe.

There are asset classes that are vulnerable here.

Where is “here?” Here is making new highs in the U.S. as the rest of the world looks to be slowing down. Yep, I said it, slowing down.

I’m not the only one saying it. Christine Lagarde, who heads up the IMF, just came out with a warning that they are seeing a dangerous propensity towards disinflation in Europe and elsewhere. What the IMF is worried about isn’t disinflation. They’re worried about deflation.

The macro of all macro worries (besides a credit crisis in China that creates a “Lehman moment”) is that the more than $14 trillion in global stimulus since the last credit crisis hasn’t created enough “escape velocity” for global economies (we’re all in this together now) to grow on their own without Mama’s milk.

Bad weather in the U.S. will distort GDP numbers and almost all economic data measures we all watch to see which way is up, or if there even is an “up.” That means we’ll have to wait until the end of the first quarter and probably well into Q2 before we get any clarity on growth momentum.

Meantime, the market isn’t waiting. The new highs are a sign of optimism that the weather is just the weather and that when we thaw out, spring will arrive with all its green shoots and the economy will flower.

I can only hope that spring will see us “spring” ahead.

But I don’t hope when it comes to trading and investing. I take well-calculated, measured risk and reward positions. And right here, I’m starting to put on positions that will scream higher for me if the weather isn’t just a blinking yellow light, if global growth slips, if China has a Lehman moment, if the Fed continues to taper, if the rally is a head-fake.

Sure, I’ve got on my core positions and they’re rising with the bulls. But I’m also selling calls on them here. I’ve had a nice run and now want to garner more income. And if those calls mean my positions get called away, so what? I make more money. I can always get back in. And in this market, I’d do that by selling puts.

All this was to be expected as record amounts of money came out of equity mutual funds the week ending February 5, 2014. Any move higher was bound to see a lot of that money come back in… and it has!

That’s what I’m doing right now. But I want to know what you’re doing.

Your view and your feelings are representative of investors in general. You are the market when it comes to “retail” investors, when it comes to the “public.”

What are you seeing out there? What are you feeling?


Don’t Believe the Headlines, Big Banks are Still Screwing You

4 | By Shah Gilani

When it comes to big banks’ bad behavior and the fines they pay to settle “allegations” — which are actually civil charges and which would be criminal charges if applied to any other business or in any parallel universe — things aren’t even close to what they seem.

Sure the headlines scream victory, at least monetary victory, for some ripped-off consumers, some hard-charging regulators, and our vaunted (NOT) Justice Department.

We think we hear the ching-ching of the Treasury Department’s cash registers ringing as they collect billions of dollars from miscreant, monster banks.

We think we can hear victorious regulators popping champagne corks as they celebrate settlement money coming in to prop up their budgets so they can keep going after these lawbreakers.

We think we can hear the cling-clank of consumers — who’ve been set up like bowling pins to be knocked down until the change falls out of their pockets at the feet of slobbering banksters — getting some of their stolen money back.

If that is what you think you hear, you’re tone deaf.

Here’s what’s really going on…

The headlines, like the ones that screamed JPMorgan Chase & Co. (NYSE:JPM) was paying a record $13 billion to settle misdeeds that may have accidentally contributed to the credit crisis and the Great Recession that maybe forever imposed on America’s middleclass and perennial underclass a new set of dream shackles, are BS. And I don’t mean back-stabbing.

Ripped-off consumers don’t get made whole. Regulators don’t keep a dime of what they extract. Only the U.S. Treasury rings its register on any regular basis… and you thought the deficit was declining on its own!

And the big banks? Not only aren’t they paying what the headlines trumpet, most of what they do pay, and far more disgustingly, a lot of what they say they are going to pay in restitution to consumers, they write off on their taxes!

That’s right, after they neither admit nor deny doing what they did, and settle on paying fines and other forms of remunerative compensation to prove they didn’t do anything wrong, they write most of those “expenses” off.

Of course those write-offs reduce their taxable income. So the public’s screwed again.

You didn’t know that? If not, don’t beat yourself up. Not a lot of people do.

But Congress does.

Some people in Congress actually want to do something about the games banks play with the settlements they negotiate with regulators, attorneys general, and the Justice Department.

But, of course, Congress being Congress, none of these “bills” have moved an inch.

Back on October 30, 2013, after JPM’s $13 billion settlement made headlines, House Democrats Peter Welch (VT) and Luis Gutierrez (IL) introduced the “Stop Deducting Damages Act of 2013.”

The bill as intended:

    …amends the Internal Revenue Code to: (1) deny a tax deduction for any amount paid or incurred for compensatory or punitive damages in connection with any judgment in, or settlement of, any action against a government; and (2) include in gross income any amount paid as insurance or otherwise due to liability for punitive damages.

Then on November 5, 2013, Senators Jack Reed (D-RI) and Charles E. Grassley (R-Iowa) put forward their “Government Settlement Transparency and Reform Act.”

The bill as intended:

    …amends the Internal Revenue Code to expand provisions relating to the non-deductibility of fines and penalties, to prohibit a tax deduction for any amount paid or incurred to any governmental entity relating to the violation of any law or the investigation or inquiry into a potential violation of law. Exempts from such prohibition: (1) restitution or amounts paid to come into compliance with any law that was violated or otherwise involved in the investigation or inquiry, (2) amounts paid pursuant to a court order in a suit in which the governmental entity was not a party, and (3) amounts paid or incurred as taxes due. Imposes new reporting requirements on governmental entities relating to amounts paid as fines or for restitution.

But neither of those “bills” came due.

Then on January 8, 2014, Senators Elizabeth Warren (D-MA) and Tom Coburn (R-OK) introduced to the Senate their “Truth in Settlements Act of 2014.”

Senator Warren explained the bill:

    When government agencies reach settlements with companies that break the law, they should disclose the terms of those deals to the public. Anytime an agency decides that an enforcement action is needed, but it is not willing to go to court, that agency should be willing to disclose the key terms and conditions of the agreement. Increased transparency will shut down backroom deal-making and ensure that Congress, citizens and watchdog groups can hold regulatory agencies accountable for strong and effective enforcement that benefits the public interest.

Meanwhile, Senator Warren’s website tells us:

    Under the Truth in Settlements Act, all written public statements that reference the dollar amounts of settlements will be required to include explanations of how those settlements are categorized for tax purposes and whether payments may be offset by “credits” for particular conduct. Companies that settle with enforcement agencies will be required to disclose in their Securities and Exchange Commission (SEC) filings whether they have deducted any or all of the dollar amounts of their settlements from their taxes; and federal agencies will be required to post basic information about settlements and provide copies of those agreements on their websites. To address concerns about confidentiality, the Truth in Settlements Act also requires agencies to explain publicly why confidentiality is justified in any particular instance. The Act also directs agencies to disclose basic information about the number of settlements they deem confidential each year and directs the Government Accountability Office (GAO) to conduct a study of confidentiality procedures and to provide additional recommendations for increasing transparency. These and other provisions of the Truth in Settlements Act will increase the transparency of government settlements and permit greater public scrutiny.

Where are these bills?

They were all DOA, as in dead on arrival.

Don’t bother looking to see if they’ve made any progress. I’ll tell you now, if any of them ever happen it will probably be in February, because it will be a cold day in hell before any of the big banks’ profits are meaningfully haircut by any “law.”

You want to know more about how settlements work, how banks negotiate them, how headlines about big fines are misleading? Read Part III of my series on settlements in today’s MoneyMorning.

But read it on an empty stomach, otherwise you might get sick.

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But today I’m changing all of that. Just go here and I’ll show you exactly how to trade this trade for exceptionally large returns. Anyone can do it.


Is This Goldman Sachs’ Most Dangerous Trade Yet?

92 | By Shah Gilani

Here’s something you probably don’t know, and it will really tick you off.

You probably do know the biggest banks in the world have commodities businesses.

Those lines of business might include trading desks (trading everything from gold and copper to kilowatts), transportation (pipelines, railcars and tankers) and storage (warehousing) operations, mining operations, as well as production, refining and raw and finished commodity distribution operations.

What you probably don’t know is that one of the “commodities” a few of these monster banks (Goldman Sachs and Deutsche Bank) trade is…are you ready?

Okay, I’ll tell… but you won’t believe it.

The Dangerous Stock Pile

I’m talking about uranium.

That’s uranium, as in “yellowcake,” the nuclear fuel ingredient. As in the stuff nuclear bombs are made from. Yeah… That’s uranium.

Right now Goldman Sachs and Deutsche Bank are sitting (not right on top of, though we could only wish) on some 5,511 tons of yellowcake.

It’s stockpiled in approved warehouses, of course. And safe and sound, of course, because these big banks are always the trustworthy fiduciaries of every business they diabolically manipulate, that is until they lose control of it.

What can you do with 5,500 tons of yellowcake? Why, you could fuel all China’s nuclear plants for a year, or 20 standard nuclear plants anywhere.

Or, you could build 200 nuclear bombs.

No one, least of all me, is accusing Goldman or Deutsche Bank of any wrongdoing when it comes to their nuclear ambitions.

But, I’m just going to put it out there.

And no, I’m not singling out Goldman (okay, maybe a little) because they’ve been caught manipulating a few things before. That list is long enough… and a study of how cloak and dagger they are when they’re doing God’s work (for their enormous bonuses) undermining governments and businesses, their own clients, and every other institution on Wall Street. It’s nothing short of scary.

Are we supposed to believe that Goldman and Deutsche Bank are above reproach?

In the face of all they’ve done, are we to believe they’re going to not only have their yellowcake but have us eat it too?

With their ability to manipulate governments, governments that they finance, and government officials they practically own, are we supposed to believe that Goldman Sachs isn’t going to sell yellowcake to the highest bidder to make the most money it can?

Not, of course, that they’d ever sell yellowcake to Iran, or Syria, or North Korea, or Sudan.

But other people would. And since Goldman and other giant, all-powerful quasi-nation state banks own the trading channels, transportation and warehouse facilities and can daisy-chain any commodity through any underground railroad they want, are we sure that the highest bidder trading with Goldman or Deutsche Bank isn’t going to deliver their yellowcake to any of our enemies?

This has gone too, too far. The big banks are dangerous oligopolies. God help us if they aren’t broken up or effectively dismantled and reduced to good old fashioned lending businesses.

Or am I just a paranoid idiot?

A Salivating Wolf in the Regulatory Henhouse

20 | By Shah Gilani

In case you missed the kerfuffle last Friday, Blythe Masters, the 44 year- old, super-smart head of JPMorgan Chase’s commodities trading business, declined to sit on the CFTC’s Global Markets Committee advisory board.

This came as a big surprise.

After all, many of us following the CFTC presumed the brainy Blythe had already accepted the position after she showed up as a member of the advisory panel that is formulating the CFTC’s cross-border rules for the global derivatives market on the CFTC’s website.


While all this is certainly laughable… there’s another part of this story that is actually repulsive.

I’m talking about the man responsible for what happened last week and what a slimy, slippery regulator he has been. Worse, he’s now acting head of the CFTC.

It’s like letting a pedophile babysit your kids. It’s sickening.

Let me show you what I mean…

The Wolf Exposed

Before I get to the sordid details regarding CFTC acting chairman Mark Wetjen… let me tell you the backstory.

And that begins with Blythe Masters.

Masters is a true Master of the Universe because the English brainiac helped develop credit default swaps (CDS) back at the old venerable J.P. Morgan when she started there in 1991.

As a fascinating aside, Masters is credited with successfully pitching a massive CDS sale on behalf of Exxon to the European Bank of Reconstruction and Development (EBRD) when she was on the J.P. Morgan swaps team in 1994.

The 1989 Exxon Valdez’s spill was looking like it was going to cost the company at least $5 billion and they wanted an open line of credit from J.P. Morgan, their primary banker.

Back then, Basel rules required banks hold 8% of outstanding loans as a capital reserve against losses. That was a lot more than the investment and merchant bank could manage.

Blythe came up with the idea of an Exxon CDS, which would establish the line of credit and at the same time offload the loan to the EBRD. The net result was the bank essentially made the loan for its usual exorbitant fees and didn’t have to reserve a drop of its precious capital. That transaction ushered in the era of credit default swaps.

Now, I admire Masters for her early work as a brilliant innovator and disrupter (in every sense of that word), and laud her as a thinking-outside-the-box genius.

But Masters is also the same woman Vanity Fair rated number 65 – just behind Bernie Madoff – in their September 2009 “100 to Blame” piece on who was responsible for misdeeds on Wall Street and the global economic crisis.

Masters, who was named by Jamie Dimon to run JPM’s commodity businesses in 2006 and sits on the bank’s corporate and investment banking regulatory affairs committees, has also been accused of lying to regulators over the banks “alleged” manipulation of electricity markets in California and the Midwest.

Masters herself wasn’t charged with any wrongdoing, but the bank settled with the Federal Energy Regulatory Commission for $410 million back in July 2013 for their September 2010 to November 2012 jiggering of energy prices.

And what about Mark Wetjen?

He’s the once-garbage man, once-bartender and still-lawyer who for seven years was the top legislative aide to Senate Majority Leader Harry Reid. Barak Obama appointed Wetjen as a CFTC commissioner in October 2011 and he became the acting chairman of the CFTC on December 16, 2013.

Since his appointment to the CFTC, which oversees derivatives trading, Wetjen, with the backing of Wall Street lobbyists, has systematically and methodically worked to weaken proposed CFTC rules that would have made derivatives trading more transparent and safer… for the world.

From day one as a commissioner, Wetjen proposed several bank-friendly changes to planned derivatives rules.

He unapologetically delayed rules by refusing to commit to voting for them.

He has championed giving Wall Street additional time to comply with established Dodd-Frank rules.

And he recently weakened a critical rule that under Dodd-Frank required traders using new swap execution facilities (SEF) to get at least five quotes (to ensure openness and diversity in the derivatives market 95% dominated by the five biggest trading banks in the U.S.) down to two, which is only one more than they get now.

The Democrat chairman has become the key swing vote on the panel, threatening to side with Republicans and vote down any rules his masters don’t want.

Mark Wetjen is a wolf in the regulatory henhouse.

His invitation to Blythe Masters is indicative of who he is and, more importantly, to whom he panders. He wanted her on the committee looking at cross-border derivatives rules.

The as-yet unwritten cross-border regulations, which will determine if and how the CFTC can monitor derivatives trades performed overseas by firms with substantial business in the United States, are mandated by Dodd-Frank, which still remains 63% unwritten.

Wetjen doesn’t want cross-border rules; he wants the CFTC to issue “interpretative guidance,” with virtually no force of law.

He has pushed for “substituted compliance,” to let overseas affiliates follow foreign rules instead of the U.S. laws. In other words he wants to let banks “offshore” their trading away from CFTC oversight.

In the words of former CFTC Chairman Gary Gensler, “that would make 70 percent to 80 percent of all derivatives rules irrelevant.”

Can you see where this is going? If you have any kids, lock them up.


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A Tale Of Two Profit Plays…

10 | By Shah Gilani

Earlier this year, I made you a promise that I was going to bring big profit plays your way in 2014.

In fact, I started the New Year off with two that I thought were especially opportunistic.

They’re already paying off – one in a big way – so I thought an update was in order.

That’s why today, I’m not only going to tell you how we’ve done so far…

I’m going to show you how you can capitalize further… and turn these two plays into even fatter profits.

My Two Profit Plays Dissected

Back on Jan. 2, I suggested that you sell short SLM Corporation (NasdaqGS: SLM). On Jan. 14, I followed up by recommending that you go long on Annaly Capital Management, Inc. (NYSE: NLY).

Let’s take a look at SLM first.

Profit Play #1

When I suggested shorting SLM it was near its 52-week highs, somewhere above $26.00.

Today it traded as low as $21.86 and as I write this it’s about $22.30

So, with my “trader’s” hat on I see we made a good call. At $22.00 we’d be up about 15%.

I don’t know about you, but I don’t mind making 15% in a month’s time. If I can make that in 6 out of 12 months that’s a 90% gain. Even if I lose 10% on 6 trades over the year (costing me 60%), I’d still be up 30%, net.

Of course, that’s theoretical. But that’s how I think as a trader. And it’s how I’ve scored dozens of big gains during my career.

I’m not going to make 15% on every trade… and I’m not going to lose 10% on every trade. But if I limit my losses to only 10% on any trade and I have several 15% winners, some of which I may have the good fortune to let run and make more on, I’m going to do well.

So, if you’re happy making 15% in just over a month, think about taking your profit.

What are your alternatives? Well, let’s dig a little further.

When I look at the chart for SLM I see it should “base” or consolidate around $22.00. It could go higher quickly, in which case I’d be thinking two thoughts:

  1. Maybe I’ll just take my $2.00 a share profit if it gets back up to $24.00 or…
  2. The stock had a nice drop, which I anticipated, that’s good… But it could bounce right back to $26.00. So, maybe I’ll let the trade move and not worry if it gets back to $26 because I won’t have a loss. I was willing to take a 10% loss before, so I’ll leave it alone in the hope that over time I’ll be right; it will go down and I’ll make more money on the trade.

Those are the options – but here’s what I’d do.

First, I wouldn’t be too greedy and sit on it a long time. I might take a profit at $22 and see if it goes higher. Then I would be rooting for it to go higher so I could short it again at $26 – or higher. But since it is above $22 I might wait to see if it goes to $24, and get out there for a decent short-term gain.

Of course, what we want to see is the stock base around where it is now – near $22 – and not go to $24.00 and then head back down and break down through the $22 level, which would have become short-term support.

In a nutshell, that’s how I look at the SLM position.

Profit Play # 2

Now, the Annaly Capital Management (NYSE: NLY) position is a bit different.

We bought in around $10.30 and it’s at around $11 today. That’s about a 7% gain. That’s a good start. And we’re getting a huge dividend yield if we hold on. So at worst we hope the stock stays here and we collect dividend income.

But here’s the thing…

This stock isn’t going to stay where it is. The chart shows NLY having made something of a base, having consolidated somewhat around $10. On the upside, if it can stay above $11 for a time, it has a good chance of going to $12.00.

However, the backstory reason I liked NLY was because (going against the crowd) I thought interest rates were going to fall and not rise quickly.

This came to me from watching the turmoil in emerging markets and thinking there could be some more trouble ahead. I also felt there would be a “flight to quality,” meaning an investor move into U.S. treasuries, which would raise treasury prices and lower yields.

That’s exactly what happened.

So, we were right. But what’s going to happen next? Will emerging markets strengthen and will rates start to rise? That would put pressure on our NLY stock. As rates rise, NLY will start to slip a little. How do we think this one through?

I think the emerging markets mess isn’t going to get cleaned up quickly, so I’m comfortable right where we are now.

I don’t want to see NLY go back down to $10. But if it does I’ll live with it. On this position I’d sit with it until I have a 10% loss, or if it drops to $9.27. Some of that will be hopefully offset by some dividend payments, but not if it happens quickly.

On the upside, if NLY goes to $12.00, I’d raise my stop-loss level to $10.50 or maybe $11.00 and get out if it slips back. Then again I’d want it to stay above $12 or anywhere near there and collect my dividends. Or you could get out at $12 and book a nice 17% profit and look for another trade.

This is how I think.

Remember, these are trades, not investments. So, I think like a trader.

However, when it comes to any trade, it’s only a trade until I fall in love with it because it keeps going up for the right reasons. Then it becomes an investment and I keep raising my stops and will hold on (especially if I’m getting a nice fat dividend!) as long as I can… as long as I’m making money from the dividend and sitting on a good gain.

As far as shorts go, to me they are always just trades. I never look at shorts as an investment.

When stocks fall they tend to fall fast, usually a lot faster than when they go up. So, once I’ve made a nice profit on my short positions, I ring the register.

How nice is nice?

That depends on how fast the stock drops. And when it does drop I ask myself why did it (was I right or did something else happen?) and will it drop further?

To be more precise, a nice gain is 10% in a short trade. 15% and 20% and 25% is better. If I get a 20% to 25% gain in a month or less, I’ll take it or take half of the profit and put a stop on the remaining piece of the position 50% higher from where I took my bigger profit.

I’ve got over 32 years of professional trading experience, and I know a thing or two, or three.

In fact, if you like these kinds of trades, I have something really exciting coming to you soon. I’ll be taking a select group of readers under my wing and showing them exactly how to make massive gains on these kinds of trading opportunities.

Keep a lookout…



The Rock ‘em Sock ‘em Fed Comes Out Swinging

45 | By Shah Gilani

Last Tuesday, January 14, 2014, the Federal Reserve finally had enough.

After supposedly looking into big banks ownership of commodity-related infrastructure operations (like warehouses, oil barges, and utilities) for the last two years, which came on the heels of their 2003 review of the same issues, the rock ‘em sock ‘em Fed came out swinging.

Now, they said, they needed to look at “all aspects” of what they’ve been looking at for two years. That’s not because they were looking the other way before.

It’s because now they’re thinking big and asking themselves, “What would be the systemic risk to the system if a big bank owned something like the Deepwater Horizon (the BP well that blew out and cost almost $50 billion to date), or Japan’s Fukushima Daiichi nuclear power plant (which was destroyed by an earthquake-related tsunami and is costing god only knows how much) and the bank got sued, and their share price collapsed, and depositors fled, and that caused a run on other banks, and put the entire financial system at risk?”

Yep, it’s time for a study, they said. And because they are maybe thinking about some related rule changes, in maybe a year or two or three (these things take time, you know), they put out a request for comment. You and I have 60 days to submit ours, and so do the big banks.

But that’s not the “timing” part of this story…

The timing of the Fed’s announcement on Tuesday was just amazingly coincidental, a stroke of almost incalculable luck.

Here’s why…

Because the very next day, Wednesday January 15, 2014, at a hearing called by the Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer Protection, a few well-meaning senators got all huffy about banks having their greasy hands all over stuff related to commodities.

The subcommittee wanted to know why nothing has been done to stop a handful of big banks from ripping off businesses and consumers by manipulating (that’s code for jacking up) commodity prices by controlling “gateway” commodity-related infrastructure? Inquiring minds want to know!

Of course, the banks believe that because they own this stuff, they have a right to manipulate it because it’s a free market, after all, and if you own the stuff… well, you know.

How’s that for timing? The senators had a Federal Reserve bloke give testimony, which was part of the Fed’s amazing luck, because the fellow had nothing much to say. Except of course that they had just put out a notice that they were looking into it and were waiting for public comment before taking a couple of years to put their ideas for new rules down into some regulation ledger so it could go out for even more public comment.

As you can imagine, it was another productive subcommittee hearing.

What the senators kind of wanted to say (but didn’t) was that their brethren in Congress back in 1999, in a sweetheart deal of a law proudly named for the senators who put the whole thing together, maybe shouldn’t have allowed big banks to continue to own commodity infrastructure assets.

But that was probably an oversight in the otherwise great Gramm-Leach-Bliley Act (also known as the Financial Services Modernization Act of 1999), the final nail in the coffin of the old Glass-Steagall Act, and which famously ushered in the era of mega-giant Transformer Terminator banks, the 2008 credit crisis, and the ensuing Great Recession.

Maybe you remember, maybe you don’t. The good Senator Phil Gramm, from the ten-gallon hat state of Texas, retired from his hard work in 2002 after delivering the law to his banker friends. He then rode off into his sunset years to ply his retirement dreams of barely working for millions of dollars a year as vice chairman of the investment banking division of mega-giant Transformer Terminator Swiss bank UBS AG (NYSE:UBS).

Yeah, that UBS. The one that has had to pay millions of dollars in fines for manipulating mutual fund prices, for money laundering, and for helping thousands of U.S. citizens evade taxes. The same UBS that, in 2002 (note the year), acquired Enron’s energy trading assets. Yeah, that Enron, the bastion of corporate fraud and corruption that managed to hide billions in debt from its investors in the biggest accounting scandal in American history. The same Enron that included Wendy Gramm, wife of Senator Phil Gramm, on its board of directors. (If you want to read UBS’ full rap sheet, check this out:

You see, it’s all about timing.

So, is now the time for big banks to be forced out of their commodity manipulation and hijacking businesses?

Give me some time to think about that.


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