Commentary for the Week of March 8

[We never tire of explaining why Facebook shares are just so much worthless crap, but the message seems to have been lost on the clueless hacks who bring us the business news each day. Over Labor Day weekend, they and their dim-witted "sources" (analysts hired under CETA?) were in an apoplectic tizzy over FB's latest plunge to yet another all-time low of 18.03.  Explained the au courant Market Watch: "Facebook Inc. slumped to a record low on Friday after a pair of brokers slashed their price targets on the stock."  Ahh. So that was it!  The Business [alleged] Insider headlined this shocker: "It's Becoming Clear That No One Actually Read Facebook's IPO Prospectus..." And the L.A. Times, taking a rare breather from Obama-mongering, had some bad news for government workers: "Public pension funds stung by Facebook's falling stock..." So. The pension-fund biggies are in Facebook shares up to tips of their pointed little heads.  Who knew?  To set them straight, and as a public  service, we have republished below a commentary from August 21 that spelled out not only the reasons why Facebook is headed significantly lower, but the exact price where the stock will attempt a dead-cat bounce: 13.97. For all of you portfolio managers unable to do the math, that's 22.8% beneath Friday's close.  And please don't tell us later that you weren't warned about buying the stock at these levels -- or that you never put much store in technical analysis.  RA] Facebook shares took another hellacious dive last week when the lock-up period for insider selling ended on Thursday.  Gluttonously coveted by investors in the months leading up to the IPO, the stock has become a pariah after falling 50% from its $38 offering price in May. Was it jinxed from the start, as some have

[With the global economy being kept afloat on a sea of lies, deceptions and delusions, Rick’s Picks has tried to tell it like it is. Unfortunately, in addition to the looming financial crisis there is yet another threat that would overshadow even the collapse of the banking system. In the guest commentary below, Erich Simon asserts that the U.S. is unprepared for an outbreak of bird flu and  that many millions of lives could be lost as a result. Although we had asked Erich how one might prepare for a pandemic, his response was grimmer than we had expected. To begin with, if you think you’ll be able to safeguard yourself and family by wearing face masks and practicing “social distancing,” you may be gravely mistaken. Read on to learn why. RA] Back in 2005, following the discovery of a highly pathogenic virus that had jumped the species barrier, Ted Kopple hosted a Nightline panel of health and emergency response officials. The subject was almost too scary to talk about, but an impassioned Kopple pressed his reluctant entourage. He learned little, but the lack of details was telling. The panel agreed unanimously that the time had come to start stockpiling water, “but not yet food.”  Shortly thereafter, in April 2006, the White House called a meeting to create a national response plan. Included were public disclosure guidelines and a pre-fab sound byte for the news media: "Officials fear that bird flu could mutate into a form that becomes easily transmissible…". Today, that fear has been realized. According to recent experiments sponsored by the Atlanta Centers for Disease Control, there are only five remaining mutations along one genetic background. In layman’s terms, this means that a single, naturally occurring strain could touch off a pandemic, In the months since then, the

[Sean Rakhimov, editor of SilverStrategies.com, is one of the savviest precious-metals commentators we know – not to mention, an early graduate of the Hidden Pivot Course that we offer each month to traders of stocks, options and commodities. In the article below, he explains why investable quantities of silver are shrinking. Mainly, it’s because some key South American countries have been nationalizing mines more and more aggressively, crimping supplies and scaring away outside investors.  What can we do about it?  With some specific suggestions, Sean advises watching the silver pros and putting our money where they have been putting theirs. RA] For a while, we’ve had a nagging feeling that we’ve been witnessing something profound that the markets have yet to grasp.  We are not talking about a global smorgasbord of events that has been amply covered elsewhere.  As readers might know, our particular interest is in silver, and that is where we see an elephant in the room that has yet to attract any headlines. No doubt most readers are aware of the recent developments in countries like Argentina, Bolivia, Peru and others, with respect to what can be broadly classified as “resource nationalism.” Our general views on the subject were detailed a few years ago.  As discussed by this writer and others, such developments are not new and certainly not limited to silver or even the mining sector.  However, in our opinion, it is in the silver space that these events are likely to have the most profound effect. Why? Because the silver sector is so small and the above-mentioned countries collectively make up a big piece of it. According to CPM Group’s 2012 Silver Yearbook, the countries named above are projected to produce some 170 million ounces of silver this year versus anticipated total global silver production

As last week ended the Dow was in yet another undeserved rally, recouping fully half of the 300-point loss it suffered earlier in the week. And yet, with exuberance gushing back into the markets, we found ourselves irresistibly drawn to…put options.  Hours earlier, we had missed buying some November out-of-the-money QQQ puts by two cents, and although this left us feeling slightly remorseful at the bell, we were cheered when it was reported after the close that Apple had been awarded $1.1 billion in its patent infringement suit against Samsung.  To be sure, the news itself was bad for consumers, bad for Samsung in particular, and bad for the retail electronics business in general. As how could it not be?  Apple’s victory has redefined patent infringement so broadly that, henceforth, any consumer electronics company with a designn idea is now at least somewhat more likely to find itself blocked or intimidated by a competitor's patents. Or so it would appear. Although we have not pored over the legal minutiae, we trust that a news report we read got it right in characterizing the lawsuit as pivoting significantly on “rectangles” – specifically, the size and shape of icons that can be maneuvered across a smart phone screen with one’s index finger.  Apple’s lawyers had claimed Samsung “stole” the shape of these rectangles, among other things, and now, unfortunately for all of us, the alleged theft has been defined in law so that any firm seeking to enhance the look of a smart phone screen with new shapes, designs or functionality will think twice before making such features commercially available.  And never mind that a fifth grader could have thought up the prosaic "innovations" that Apple has just won more than a billion dollars for patenting. Ripe for Correction So why did

Web-based crime is spinning out-of-control, presumably because it’s so hard to get caught and so easy to tap into an unlimited supply of rubes.  Here’s a test to determine whether you may be a rube yourself. Would you follow the instruction if this message popped up on your cell phone:  “Click here to claim your $1000 gift coupon”?  That’s what we thought. Of course you wouldn’t.  Only a retiree with a brand-new smart phone would be that stupid.  But suppose the sender had identified itself as Best Buy, and that you’d made a purchase at a Best Buy store just 15 minutes earlier? This is where the gullible and the feeble-minded get culled from the pack.  A quick thank-you note from a store where you’ve just made a purchase (and which has stored your phone number) hardly seems implausible, right?  But how about the $1000 prize? We took a pass, perhaps because we’ve never hit the lottery for more than $6.  Our first thought about the offer was that the outcome would probably be no different if, instead of following the link, we were to mail our wallet, credit cards, house key and Social Security number to some Russian hacker. Instead, we called a Best Buy store to ask whether they knew anything about this message. They did, but not much. Surprisingly, they rejected the idea that the scammer knew about our minutes-earlier purchase because they had somehow tapped into Best Buy’s server and were stealing point-of-sale information. Although this scam has actually been done before, big-time, Best Buy said the message we’d just received was merely a coincidence. We’d never gotten any similar messages before, but Best Buy was unpersuaded that it had been more than happenstance. They suggested we call corporate customer service, and we did.  It took

Looking for a cheap, low-risk way to play a $600 stock that can lurch and careen all over the place on any day?  We’re talking about Apple, of course, and you needn’t fear the stock if you use puts and calls judiciously and follow some simple rules. Yesterday, for instance, Rick’s Picks suggested calendar-spreading some far-out-of-the-money puts to establish a moderately bearish position.  Although we’ve been quite bullish on the stock and remain so, it may have gotten ahead of itself with the nearly 20% gains achieved so far in August.  Accordingly, when AAPL spiked yesterday morning to a new all-time high of 675, it seemed like a great opportunity to buy some put calendar spreads at the 620 strike, well below current levels. Specifically, we recommended buying the December 620 – October 620 put spread eight times for $14, or $1400 per. This strategy is not outright bearish on Apple; it merely leverages the possibility that the stock is overdue for a nasty correction.  Incidentally, we elected not to buy put options outright simply because, in the 38 years we’ve been trading puts and calls, we have yet to come across a single person who has profited over time by buying naked puts (or calls). Take it from us: spread-trading is the only way to go. On this particular trade, the ideal outcome would be for Apple shares to fall slowly to around $620 ahead of the October 19 date on which the October puts we are short expire. Those puts would be theoretically worthless with the stock trading at or above $620, but the December 620 puts we bought as a hedge against them would have increased in value to as much as $3300. (That’s how much at-the-money put options with two months left on them are selling

With U.S. stocks blithely on the rise against a darkening global economic picture, we keep telling ourselves it’s only a movie, it’s only a movie, it’s only a movie.  Except that it isn’t a movie. It’s an epochal tide of delusion; it is quite real; and if it hasn’t yet reached flood levels, it will soon, inundating stock markets around the world. For now, though, even as those once-tireless engines of growth, China, India and Brazil, grind their way toward economic limbo and the growing likelihood of synchronous global recession, it is still evidently possible for the Wall Street Journal to fairly rejoice over July’s modest 0.8% rise in retail sales. Hallelujah!  At long last, Americans have opened their wallets.  After a three-month string of declines, the Journal need hardly have reminded us that three-quarters of U.S. GDP is consumption-based and that a sustained uptrend in retail sales is therefore crucial to reviving consumer confidence and, in turn, economic growth. Would that a one-month credit-card spree were sufficient to lift us from the Great Recession!  The term “Great Recession” itself is used by everyone outside of politics and the news media to scandalize  economists’ declaration in 2009 that the recession had ended.  Yeah, sure.  Tell that to twenty million homeowners who are still underwater in a housing market that has barely upticked on 3% mortgages. Or to millions who are either unemployed or earning far less than they did before the financial crash. Or to legions of former shopkeepers who have abandoned storefronts and malls, turning the retail landscape into a visual reminder that the recession never really ended.  The Journal is hardly alone in cheerleading every statistical uptick that could serve to distract us from the previous day’s grim economic tidings.  The public may have a short memory, but

With the E-Mini S&Ps and Apple shares stealing up on potentially important Hidden Pivot targets the other day, we shorted both on the off chance that we might be catching the Mother of All Bear Rally Tops.  Of course, we’re not so crazy that we actually believe we’re going to nail the exact top of a bear rally that is now well into its fourth year. Still, it’s great fun to try, especially if you’re a permabear who believes, as we do, that one of these days stocks are going to take a plunge so nasty that it will make the 1987 Crash look like a picnic.  Regardless of whether we’re right or dead wrong, however, we expect to make money on these trades. The trick is to catch a “a top,” if not “The Top,”  and to take a small partial profit right away if possible. This helps build a risk cushion if our short whips around and heads higher, as happens so often.  But it also allows us to book at least a small gain if we should eventually be forced to bail out just above where we got in.  Rather than make bold claims about how often we succeed at this, we’d suggest asking subscribers yourself.  Click here for a free trial subscription that will give you a week’s access to the Rick’s Picks chat room, which attracts experienced traders and 'Pivoteers' from around the world 24/7. So how did yesterday’s two trades against-the-trend work out?  Not too badly, actually.  Although the Apple short was stopped out for a small loss because of a Hidden Pivot miscalculation (more on that below), at the final bell subscribers who followed the futures recommendation were still short the E-Mini with a paper profit of more than $400 per contract.  Earlier,

[In the guest commentary below, Erich Simon sees Quantitative Easing as the death rattle of the U.S. economy. Americans will be taxed just to stay afloat as the financial system edges toward a seemingly inevitable day of reckoning. And although the gold coins you’ve socked away will probably be easy to barter in very hard times, they will not save the day for a global economy that can be brought back into balance only by a violent wrenching of the gears. RA] In the good old days, before Quantitative Easing was used to “stimulate” the economy with printing-press money, bank loans were invested with the goal of producing sufficient profits to retire the loans. Sound investments produced profits, and society advanced -- both fundamentally through the creation of new businesses; and economically as a result of new jobs created and the wealth-multiplier effect. Money remained sound, and its desired property as a store-of-value was affirmed. But we are no longer in a growth economy. Rather, the economy is akin to a mature and declining product life-cycle. We have squeezed the final drop from the last technological apple plucked from the tree of the Industrial Revolution. The Green Revolution is similarly over, leaving behind state-sized swaths of barren, cracked and salt-encrusted clay, growing nothing more than the next generation of genetically modified Soylent Green. Inventions like penicillin have all been fully exploited. The latest medical breakthroughs, to fight cancer mostly, consume prodigious resources. The dot-com boom was the grand finale, an essentially frivolous exercise in non-productivity masked by its supposed social “contribution.” After the predictable March 2000 crash, the winds of deflation began to blow, so that we now find ourselves in the throes of a terminal unemployment hangover. Today, we are a crowded, resource-depleted quagmire, a sea of unproductive participants