International Investments Warning


Here is an international investments warning.

See below an international investment warning about the biggest rip off yet, that may now be on its way.  This scam perpetrated by the big banks could relieve small investors of trillions…yet be perfectly legal.  (See below.)

Then we’ll see how to stop and smell the flowers to combat this anyway… Ecuador flowers that is.  Like this…

ecuador-lilies

Yesterday’s message about Success Guidelines asked this question about international investments:

Money is becoming less and less reliable. After the recent recession… Wall Street crash, Madoff scandal… crash of AIG Insurance… GM bankruptcy and the need to bail our major US banks… who and what can we trust?

Should we trust our big banks?

Excerpts from a yahoo.news article entitled “BofA agrees to $33M SEC fine over Merrill bonuses” by Christopher S. Rugaber  suggest maybe the big banks are not really looking out for our best interests. The excerpt says:  Bank of America Corp. has agreed to pay a $33 million penalty to settle government charges that it misled investors about Merrill Lynch’s plans to pay bonuses to its executives, regulators said Monday.

In seeking approval to buy Merrill, Bank of America told investors that Merrill would not pay year-end bonuses without Bank of America’s consent. But the Securities and Exchange Commission said Bank of America had authorized New York-based Merrill to pay up to $5.8 billion in bonuses.

That rendered a statement Bank of America mailed to 283,000 shareholders of both companies about the Merrill deal “materially false and misleading,” the SEC said in a statement.

Bank of America agreed to pay $33 million to settle the charges without admitting or denying the allegations. The settlement is subject to court approval.

The article further states: Bank of America says “Bank of America believes that the settlement … represents a constructive conclusion to this issue,” company spokesman Scott Silvestri said in an e-mailed statement.”

I’ll bet BofA hopes this is a constructive conclusion.  The bank received $45 billion from the federal bank rescue program.  The employees got $5.8 billion in bonuses. The SEC gets $33 million. Everyone is happy.

Oh yeah… how about the BofA shareholders?  Chances are though that BofA will get away with this.  A $5.8 billion misrepresentation is small potatoes compared to the Madoff scam!

Yet regretfully three international investment warning signals have recently come together that lead me to believe an even bigger scam may be taking place… now.

This is a scam that will make the Madoff  Ponzi scheme pale by comparison.

This scam may take trillions from small investors.   Yet this biggest rip off of them all… to date… will be perfectly legal… and financed in part by Uncle Sam.

So I am sharing a really urgent international investment warning now.

The first international investments warning signal is one we looked at in our July 2009  international investing seminar.

Here is an excerpt from my multi currency portfolios site that explains this first international investments warning.

We reviewed the Dow’s previous 16 year down cycle ran from February 1966 through August 1982.

We saw that in the first 12 years of that period, 1966 to 1977, the Dow dropped 1% overall  in 135 months.

Then we compared the similar period in the current Dow downside which is from  1998 until May  2009. The Dow had also dropped 1% in 135 months.

Then we look at three charts comparing the Dow’s performance over various two year periods  to the period July 2007 to July 2009.

We viewed how the Dow appears to be entering the 12th year of a 15 to 17 year down cycle that began in 1998.  We compared the last two years of this cycle, with the equivalent period in the 1966 to 1982 bear cycle.

We saw an amazing 93% correlation between then and now.

The chart below from Moore Research compares the Dow from 1976 through 1978 with the same time to July 2009.  The Blue line is what happened in the equivalent period in the 1970s to now.

global-trends

Then we looked at what might happen in the next two years.  Ignore the black line which shows the Dow for the last two years. This black line is the Dow’s recent two year motion and is the same in all three charts here.  That motion should not correlate with any two years periods except the first above.

This suggests that in the next two years we’ll see a lot of sideways motion with some severe drops.

The next chart suggests that between 2011 and 2014 we’ll see even more severe drops. Again ignore the black line. The blue line is what history suggests the Dow might act.

dow-chart

Down… down… down… until late in the two year period when the bull finally begins.

Then the bull trend continues over the next two years.

dow-chart

According to our 35 + or –  year wave theory some great new innovation should come along around 2014 and ignite the next 15 to 17 year bull in 2013 or 14.  The steam won’t really pick up till about 2016… or even a bit later.

This will be good news for retiring boomers who manage not to be wiped out from the next half decade of sideways and downwards motion.

See more of this excerpt at International Investments Major Market Valuations August 2009

History and stock market cycles give us this first international investments warning.

The next international investments warning is in the form of the recent big bank profits.

July 19, 2009 CNNMoney.com says: Citigroup delivers surprise $4.3 billion profit.  NEW YORK (CNNMoney.com) — Citigroup surprised Wall Street Friday as the embattled banking giant reported a $4.3 billion profit in the second quarter.

July CBSNews.com says: Citi, Bank of America Join Profit Parade
Second Quarter Earnings of $3B and $2.42B, Respectively, Outpace Forecasts
Bank of America has joined other big banks this week in reporting a hefty second-quarter profit. Also, Citigroup earned $3 billion in the second quarter, a much stronger result than losses forecast by analysts. Bank of America’s profit of $2.42 billion, or 33 cents per share, beat Wall Street forecasts. Analysts had expected the bank to earn 28 cents per share.
The company, like Goldman Sachs Group Inc. and JPMorgan Chase & Co., said it had a handsome profit from its trading business. The company acquired Merrill Lynch & Co. this year.

CNNMoney.com says July 15 2009: Goldman Sachs scores big in latest quarter Wall Street firm earns $3.4 billion, or $4.93 a share helped by equity underwriting activity; results beat analysts’ estimates.

NYTimes.com says says July 17, 2009: JPMorgan’s Profit Soars Despite Downturn – l 17, 2009 … JPMorgan Chase posted a $2.7 billion quarterly profit on Thursday

Yet the banks are not lending!

The Wall Street Journal at WSJ.com says April 15, 2009: Bank Lending Keeps Dropping. Analysis of Treasury Data Paints Starker Picture Than Official Government. Lending at the biggest U.S. banks has fallen more sharply than realized, despite government efforts to pump billions of dollars into the financial sector.

According to a Wall Street Journal analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program.

The total dollar amount of new loans declined in three of the four months the government has reported this data. All but three of the 19 largest TARP recipients with comparable data originated fewer loans in February than they did at the time they received federal infusions.

The Journal’s analysis paints a starker picture of the lending environment than the monthly snapshots released by the government and is a reminder of the severity of the credit contraction. One reason for the disparity: The Treasury crunches the data in a way that some experts say understates the lending decline.

The Obama administration is scrambling to defuse a backlash surrounding the bank bailout.

One of the banks showing the biggest lending decline was J.P. Morgan Chase & Co. In October, the New York bank made or refinanced $61.2 billion in loans. That figure declined 35% to $39.7 billion in February.

So if banks are not lending money how are they making these billions of record profits?

Could it be they are making all the money through buying good value shares with hundreds of billions given to them by the government to  push up prices… so they are not good value?   If so, banks get to pay their staffs huge bonuses… and the bank’s get to look good, but…  Who will buy these inflated shares?

I have talked a lot with my advisers and the investment managers at Jyske.  All have expressed concern over rising share prices not supported by economic fundamentals.

This question who will buy the shares when they reach a bad value led me to the third international investments warning about small investors.

USA Today’s August 4, 2009 Money section article by John  Waggoner says: Stock markets may be roaring but mutual fund investors are snoring. The Dow Jones industrial average has soared 9,9% since June 30 and gains like that usually attract big inflows to stock funds.

Not this time. In fact; fund investors are far more interested in bonds than stocks.

Net purchases of stock funds were about $2.3 billion compared to the record of $55 billion in February 2,000.  Record inflows into stock funds usually mean the market is ready to drop.

Could it be that big US banks are taking money from the government… pushing the markets up to pull small investors back into the market so they’ll once again lose the rest of their savings and pension funds?

This is a warning that my gut suggests we dare not ignore.

There you have it three international investment warnings.  Cyclical history… a stagnant economy. Huge bank profits combined with decreased lending and the small investors with huge amounts of liquidity in bond funds… waiting on the sidelines to jump in when the market gets hot (and is ready to collapse).

If I were a short term trader I would be setting up narrow stop losses on my equities now.

I am not a trader.  I focus my time on my business and diversify my excess cash, matching my return expectations to my potential liquidity needs.

Good short term traders may make the most in the up and down environment I expect will begin shortly.

Long term investors should be okay as well… when they stick to good value.

Stock pickers looking for quick returns are likely, as per the norm, to get slaughtered… again.

The warning is… the whiplash motion may happen soon.

Yet we must smell the roses despite the slow economy and the wickedness and dishonesty in the markets.

Actually, smelling the lilies is better.

Ecuador roses do not have much aroma.  A recent article Ecuador Coffee & Rose Fragrance explains that the fragrance of roses attracts bugs so commercial rose growers cultivate rose so they do not have scent. The article also explains how to add a rose aroma…  However here is some good news.

Ecuador lilies have an incredible fragrance.  Yet since they are grown, cut and delivered before the blossoms open… the scent does not create a bug problem for the growers.

I ordered a box of 25 Ecuador lilies for Merri’s birthday last week.

They arrived and I placed them on our dining table, in a huge vase.  As you can see the blossoms had not opened on the first day.

international-investments

Also note that each stem has many blossoms… there are about 100. There were so many blossoms the vase would not hold them all.  I stuck the remainder in a pitcher and…

international-investments

put them upstairs at the foot of our bed.

international-investments

We are in the fifth day since delivery and many of the flowers have now opened. The aroma is intoxicating…downstairs… upstairs…even outside!

What a treat going to sleep gently lulled and then awakened by this glorious floral fragrance.

We’ll track Merri’s lilies by photo over the next two weeks… see how they open, look and last.

You can order Ecuador lilies and help Ecuador’s poor at the same time. See Fresh Ecuador Lilies.

Perhaps we can learn from these two focal points of this message.

As investors we have to always heed warnings.  We must beware of excess and take heed when events do not seem to make sense.  Alertness is required at all times. There are many who wish to rob us… albeit legally.

Yet as human beings we cannot be totally caught up in these material affairs.  Always take time to stop, relax and smell the roses… or lilies… or whatever.  Don’t let the tasks of commerce hide the beauty… the abundance… and the richness that live brings to us each and every day.

Gary

Join Merri me and Thomas Fischer of JGAM in North Carolina this October 9-11 and enroll in our emailed multi currency course free. Save $175. IBEZ North Carolina

Learn more about global investing, how to have an international business and early retirement in Ecuador.

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See the entire article BofA agrees to $33M SEC fine over Merrill bonuses

See the entire article Bank Lending Keeps Dropping


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