Commentary for the Week of March 8

Although the Dow Industrials finished the week with a 186-point rally, there’s reason to hope that this latest, drug-addled binge will sputter out within the next two or three days if not sooner. The sleazeballs who engineered Friday’s impressive levitation had to pull out quite a few stops to make it happen. To get things rolling, they precipitously withdrew their bids Thursday night on news that Asian markets were getting socked, apparently because of bad vibes from Ukraine. The air pocket in U.S Index futures produced a quick 15-point drop in the E-Mini S&Ps – equivalent to about 120 Dow points. Now, it is not unusual for the night crew to push prices around a little when ostensibly tradable news comes their way. Such gratuitous oscillations usually occur within a relatively narrow range, and it is these nervous squiggles that make the long stretches of tedium in the wee hours tolerable for nocturnal predators. The added enticement is that there’s not much risk in this, provided one is not sitting on the can, or moaning over Russian porn, when all geopolitical or financial hell breaks loose as it sometimes does. In this case, however, because the Asian selloff was not serious enough to trigger a panic in Europe, let alone an avalanche in U.S. stocks, the downdraft amounted to a brazen heist. For perps accustomed to shoplifting, it was akin to their ordering the store manager to open the safe. The Music of Lucre The arpeggio of buying that followed was deftly played and lucrative, at least for its producers. By 4 a.m. Eastern, sellers were more or less spent when shares fell to a fire-sale level at which even widows and pensioners knew they’d been had.  It took but another hour to run up stocks sufficiently to ensure that

The one investment opportunity I regard as an absolute no-brainer also happens to be potentially among the most lucrative. How lucrative? Gains of up to 40% over the next 12 months are possible. More on that below. But before I divulge some further details, let me mention that this particular asset class has yielded well in excess of 20% in five of the last six years. You might think that such a terrific opportunity would have been discovered by now. In fact, the opposite is true. This particular investment has either been shunned or ignored by the crowd, mainly because it disdains the popular wisdom that Fed stimulus already in the pipeline is certain to produce serious inflation somewhere down the road. Have you guessed what investable asset I’m talking about? The answer is long-term Treasury bonds – the longer-term, the better (explained below) -- and the reason they have performed so well is not hard to fathom if you simply jettison the mistaken notion that inflation is inevitable.  I owe a debt of thanks for this insight to my good friend Doug Behnfield, a Boulder, Colorado-based financial advisor and fellow deflationist whose forte is building robust portfolios for high-net-worth individuals.  I have featured Doug’s thoughts here many times over the years, mainly because he is, hands-down, the smartest investor I know.  He is also one of the smartest guys I know, and his life outside the office reflects the same sort of Zen balance that he brings to portfolio management.  Doug is a consummate do-it-yourselfer, an avid hobbyist and a perfectionist -- as adept at landscaping a garden as restoring old Citroens or taking the helm of a sail-powered yacht. Beating the Geniuses Like all highly successful investors, Doug has the courage of his convictions and the fortitude to

[My apocalyptic interview with economist Kurt Richebächer in 1999 seems almost quaint 15 years after it appeared in the Sunday San Francisco Examiner. He predicted economic disaster; what we got was a quadrillion dollar derivatives bubble whose benefits bypassed the working man but enriched the fat cats of the banking world. Regarding economic Armageddon, permabulls will shake their heads and say, “You guys have been wrong forever.” Permabears, for their part, should only have to acknowledge a failure of the imagination. For who would have believed that the brazen lies that sustained the economy back then would metastasize a hundredfold, even as untold trillions in credit stimulus failed to produce much growth? Richebächer, who died in 2007, might shake his head in disbelief. But he would not recant.  RA] The dismal science will never be the same if Dr. Kurt Richebächer’s dire predictions for the global economy should come to pass. The former chief economist and managing partner at Germany's Dresdner Bank says a deflationary collapse lies ahead that will ravage the world's bourses and usher in a dark period of austerity and financial discipline. Probably not one economist in 50 shares his views, at least not publicly. Richebächer, now living in France, says many of his American colleagues have been seduced into ignorance and complicity by Wall Street's billions as well as by their love affair with mathematical models that shun fundamental laws of economics. Where they see a New Era of productivity growth and industrial efficiency, he sees duplicitous bookkeeping and manufacturing's steep decline. They talk of a booming U.S. economy; he sees a profitless mirage. They worship capitalism's bold risk-takers; he scorns them for recklessly piling leverage to the sky. Someone's going to be wrong, but judge for yourself who. Economic Heresy Like the theories of Copernicus

How do you see the economic endgame playing out for the U.S. and the world? That’s this week’s discussion topic, and although some in this forum will undoubtedly lean toward the Armageddon scenario, we should always leave room to imagine a far sunnier outcome, such as a Second Great Depression deeper than the Mindanao Trench.  I want you to have fun with this one, so set your minds free before you put pen to paper.  My own outlook falls somewhere in-between, tempered by the perhaps misplaced hope that the inevitable collapse of the financial system will not bring in its wake famine, disease, earthquakes, floods, endless global wars and the die-off of three billion human beings. All of these events have been prophesied in the Bible and by Nostradamus, but whether you choose to believe them or not is a personal matter. A Puny Bank Will Fail Whatever happens, there is no avoiding a ruinous day of reckoning for the shaky, quadrillion dollar derivatives edifice built by the feather merchants. The super leveraged financial instruments they’ve conjured into existence are manifestly without value even now, and the world will find itself quite broke the instant these digital “assets” get marked to market.  How might this happen?  My guess is that some outwardly niggling problem will surface in the banking system one day, triggering a global panic and an extended bank holiday. The catalyst is unknowable, although we were reminded only recently that it could be as seemingly innocuous as the failure of a puny Portuguese bank to make good on its obligations.  Another possibility is that the stock market will go into steep, prolonged dive for reasons that will not be clear till months or even years later. (Did the Smoot-Hawley Tariff cause the 1929 Crash?  The jury is still

The financial system's interminable endgame continued last week with a hiccup in global markets that was attributed to liquidity problems at a Portuguese bank. Some might have hoped Europe’s problems were behind us, especially with the spate of ginned-up stories concerning Spain’s miraculous economic recovery – if not in statistical fact, then speculatively in the shrinking spread between yields on Spanish paper and the debt of countries whose economies remain a few more steps distant from eclipse. Most of us, however, recognizing that any country with 30%+ unemployment among college graduates cannot in fact be recovering, view the news from Spain as patently false. Europe’s ongoing economic implosion has merely been masked by yet another, increasingly faint, upswing in the mood of investors with memories so short they evidently cannot recall the Great Financial Crash of 2007-08. In the U.S., a different kind of story, just as false, has sustained the upward trajectory of the stock market. The economy has been creating more than 250,000 new McJobs jobs per month lately, supposedly recouping all of the positions lost in the 2007-08 crash. With unemployment now running at a dubious 6.1%, the Fed is finding it easier to pretend that the recovery is sufficiently robust to stand on its own. To drive home this point, which no one actually believes, and to further "manage" our "expectations," quantitative easing is scheduled to be phased out in November. Fed Pretends to Dither We read furthermore that the Fed has been dithering more intensely than ever over the question of when it should tighten. I remain quite certain that this will never occur, at least not deliberately, since subjecting a quadrillion-dollar derivatives bubble to even a small turn of the screw could trigger the collapse of the  entire shoddy edifice.  How many of us

- Rick Ackerman, former San Francisco PSE market maker When the Federal Reserve will tighten: I worked some numbers over the weekend in order to refine my forecast for Fed policy. One prediction that has stood the test of time is that any real tightening by the central bank is as likely as a Martian invasion. Turns out that when you crunch the latest data available, a Martian invasion winds up being 1.835 times as likely as any Federal Reserve tightening now or in the future. The formula I used to handicap this bet is proprietary and somewhat esoteric, so I won’t go into it here. But the bottom line is this: Anyone who believes that deliberate tightening is even remotely possible, let alone likely, is delusional. Of course, many of the deluded are bound to argue that the Federal Reserve has already begun tightening via the “taper,” a gradual reduction in its sham purchases of Treasury paper and mortgage-backed securities that commenced with dubious earnest last winter. However, the tapeworm represents the sort of “tightening” that Fed-watchers, pundits, eggheads and the news media can wrap their delusional brains around, since it dovetails conveniently with the absurd myth that the Fed knows what it’s doing.  In fact, most of those who interpret economic news -- crypto Marxist-cum-Nobelist Paul Krugman chief among them -- couldn’t hold down a CETA job assembling doorstops. These are the same economic bozos, after all, who bought into Greenspan’s crackpot notion that inflated home prices constitute “wealth,” and that capital investment supposedly was expanding at a time when household savings growth in the U.S. was negative. Managing Our Expectations To put the tapeworm in proper perspective, it has amounted to the withdrawal so far of perhaps forty billion dollars’ worth of Treasury funny money per month

The suspicion grows that the stock market has been carving out a broad top, by turns bringing sufficient deviousness, pain, tedium, exhilaration, temptation, and most of all false hope, to the process that even those who have been preparing for it are likely to be caught off guard when the inevitable plunge comes. Further evidence of a market suffering from terminal fatigue would have been apparent to anyone who tried to cash in on the last gasp of put and call options that were due to expire on Friday. We’ve been using this tactic ourselves with a weekly “Jackpot Bet” designed to take advantage of the enormous leverage in options that have shed nearly all of their time premium shortly before they die. Stripped bare for action, they can increase in value tenfold if the underlying stock exhibits just a little bit of Friday craziness. Unfortunately, Friday nuttiness has been nowhere in sight for weeks, requiring us to scramble just to break even on the relatively feeble moves that have occurred. Last week, for instance, a bullish play in Google caught our attention, and we bought calls with a 565 strike price to take advantage of a fall in the stock to 559 in the early going. At that point, a mere $6 rally in five hours was all it would have taken to push calls we’d bought for 0.30 into-the-money. Google can easily do that in mere minutes when it catches fire, and if it had happened this time, our bet would have tripled with each $1 move above 565. Alas, the stock spent the entire session unable to levitate itself above 565. Actually, it finally did pop above the “jackpot threshold,” but it happened literally at the final bell, when it was too late to reap the kind

Use these tips for day trading stocks with greater success [Day traders have been abandoning the game in droves because it supposedly has become too rigged to beat. In fact, the markets have always been rigged, and it’s never been an easy way to make a living. Yes, thinking machines programmed mostly by nerds who know little about the psychology of trading have added a new layer of complexity. But the nerds are hardly unbeatable. Below is the advice we gave traders in a column that originally appeared in the Sunday San Francisco Examiner.  It has been modified to suit the times, but the advice still applies. RA] The late John Scarne, legendary card manipulator and gaming wizard, used to tell a story about how he and his pal, heavyweight boxer Jim Braddock, walked into a crooked card game and won a pile of money. Knowing that they were being cheated put Scarne on his guard, and he lost no time taking countermeasures to ensure his and Braddock's great success that evening. Whenever it was Scarne's turn to deal he went to work, peeling useful cards from the bottom and even the middle of the deck.  At one point, in full view of all, he surreptitiously stacked the cards while shuffling them, allowing him to deal Braddock a hand that beat a tableful of exceptionally good hands. Scarne surely would have feasted if he'd lived long enough to day trade and play the stock market today, since the game has come to be increasingly dominated by thimble-riggers and keister bandits who would not think twice about bankrupting some widow or stealing from an orphan's college fund. With stocks pushed ever higher by a tide of virtual money from the central bank, Wall Street's wolves have set upon an unwary flock

These all-too-interesting times are threatening to mutate into global mayhem. Because the usual 500-word commentary cannot begin to cover it all, let me list just a few of the things that we should all find troubling domestically and abroad: • The subjugation of Iraq by jihadi madmen so deranged, cruel and violent that even al Qaeda considers them outcasts is about to radically reshape the geopolitical world. They now control territory from Aleppo in northwestern Syria to Fallujah in central Iraq and are fixing to extend their dominion – and a re-nascent Caliphate -- to Baghdad. We should wish Iranian troops well in killing as many of them as possible. • Whatever develops in Iraq, energy prices are poised to take a leap that could easily tip the developed world back into deepest, darkest recession. My technical forecast has been calling for $119-a-barrel crude, but that may prove to be just the booster stage of a much bigger rally. • Under the breathtakingly inept leadership of Barack Obama, whose competence never rose above the demands of neighborhood rabble-rouser, America’s withdrawal from the world’s trouble spots threatens to end the Pax Americana that deepened its roots, if only briefly, following the demolition of the Berlin Wall. • Question to the State Department, Western Europe, the neo-Nazi right and the American left: Do you still believe that Israel is the main cause of the world’s problems? For a dose of reality, read this prescient 1992 article by Angelo M. Codevilla in Middle East Quarterly. • Waiting in the wings to make things worse is Hillary Clinton, as sinister as Obama is inept. The faked smile that hides her take-no-prisoners ruthlessness reminds me of the murderously ambitious Angela Lansbury character in The Manchurian Candidate. • However the White House tries to spin the