Investing in the Shadows

I cannot tell how or what they knew or even who they were. All I can write even now is that I knew. I imagined seeing shadows in the outer realm of my vision that were staring intently at me as if they were piercing my brain. They had focused their total attention and my thoughts, my memories, emotions, my whole being and history were clear to them.

First, I knew I was being followed. Someone seemed to know every move I made. I tried to throw them off track by taking the underground to places where I had never been. I would jump off one train unexpectedly and get onto another. I watched and made sure that no one could be following me.

I'm not experienced at this sort of things, but know I was not being followed. Yet when I reached my destination, I knew they were there, watching and waiting. But what were they waiting for? I never knew, nor did I even know who they really were. I could never see them straight on. All I could see were fleeting glimpses spotted out of the corner of my eye or their shadows in a mirror. When I looked they were always gone. But I knew they were there!

Excerpt from Chapter 6, page 34, The 65th Octave

See http://www.garyascott.com/65thoctave/

This novel was released long before the terrorist attacks but recognized and included in its themes even then that we as businessmen or investors rarely get a clear picture about what is going on in markets, government or the financial system.

Are markets manipulated and rigged? Do insiders and controllers in positions of power line their pockets at our expense? You bet and there is little we can do to stop this happening. But there are three ways we can take advantage of those who are trying to control us. These three answers are hidden in the shadows.

We need to keep an eye on shadow events because we probably never know all the plots that are hatched by others to take advantage of us. Even if we did know, what could we really do about them? Better to be cautious in the first place and rich than knowing after the fact and poor.

The first way to look into the murky side of things so we can spot trouble coming is by watching short interests. . We know someone made a fortune selling United and American Airlines short before the World Trade Center attack. A careful watch of short interests might have caught our eye if we had been looking for this. Reports, shortly after the crash, explained that short positions were nine times higher than normal for these two shares. Think how we could have taken advantage had this fact caught our attention before September 11. We could have warned the world (though I doubt anyone would have listened!) At least we could have defended our portfolios and shares.

To help eClub readers accomplish this in the future eClub advisor Larry Grossman has set up ashort interest link at his site You can go there to learn more about and observe short interests (link for users without a frames-compatible browser).

Another way to penetrate the gloom is to look for movement from suspected controllers. For example the report How to Take Advantage of the Controllers shows that Prince al-Waleed Bin Talal bin Abdelaziz al-Saud is a member of Saudi Royalty that is linked to four Mid East crises since 1970. Each crisis has created a stock market fortune for bin Talal!

Is he really a controller? I don't know, but four coincidences are enough to make it worthwhile watching what he does in the market. He will not disclose where he invests, but at times he has to provide us with a glimpse. For example, in September this year he increased his stake in Priceline.com a travel company to 5.4%. This forced his interest to be shown in regulatory filings. We can draw some inferences and get some investment ideas (shared at the end of this report) from this.

If he is an insider who is in the know, he would have been ready for the drop in travel caused by the September 11 attack. However if he gobbles up shares in travel businesses, we can guess that he believes that a respite after the attack will allow pent-up travel demands to unleash themselves.

Having the light of historical knowledge also helps us penetrate the murkier side of our investing world. Knowing what has happened in the past can help us understand when events seem out of kilter with the norm.

For example, the chart below (which shows the dollar adjusted movement of the Standard & Poor Index since 1900) was shared with my readers some years ago to alert them of the 1999 Internet bubble.

This graph shows how markets have fallen before each major war. See the way markets dropped steadily from about 1905 up to WWI. Observe the post war boom after 1918.

The fall in the 1930s preceded WWII and once again there was a boom that lasted until 1968 when WWIII (the Cold War fought by Ronal Regan and Margaret Thatcher versus the Evil Empire) led to the post war boom that ran all the way to 1999.

Now once again we are in a natural downward cycle in the market. If history proves correct we should see the market fall lower for some years before a real boom starts once again. Yes we may have a war now, but history suggests it will be little one (perhaps like Vietnam) not a big economic event that will get the market really cranking again.

Recently eClub advisor Charles Drace in New Zealand also warned of how the market is most likely headed down when he wrote:

"Don't forget that historically stock markets tend to go up for an average of 16 years and then go down for an average of 16 years. As we've had 18 years of up, and only a year and a half of down, buying shares now will likely only work for very short term rallies. See my most recent report which explains the historical nature of bull and bear markets and draws some fascinating connections. http://www.satori.cc/ As America, and within a few months the rest of the world, will be in recession by the beginning of the year, and as recessions are always the trigger for the second of the stock market to drop dramatically after Christmas, and for a long period."

Charles' report confirms my feelings that we have not yet seen the bottom of the market. Yet we can also see from the chart above that wars create short-term rallies in the market.

Here is where the shadows may hold a clue. Think what controllers might be doing after the 1999 boom. During the good times they were taking advantage in all sorts of ways. Suckers were coming in a dime a dozen, buying shares at ridiculous prices. Now in 2001 the worst was about to happen. Everyone was about to agree that the market was in a slide. After the 1999 boom, investors remained in denial for some time. They waited for the market to recover. Now that optimism was about over.

Now assume that someone like bin Tallal wanted to stretch out investors' interest in the market. Would he create a panic that pushed the market down quickly and so hard that it had to rebound? These bounces (often called a dead cat bounce) could suck investors back for awhile plus give the controller a chance to buy a batch of shares low before they would temporarily rebound.

Imagine the psychology that could be used here. Hit a target so travel would stop for awhile. Create short-term panic and buy up shares of travel companies cheap. Then let events settle down so travel and the markets rebound. Sell out one more time for a fortune.

How to Profit from the Shadows!

How can we cash in from these vague movements in the shadows that we might spot?

One way is to follow the same distortions the controllers do. Play their game. For example Jyske Bank recently sent me the following investment idea that fits perfectly into this scenario we have viewed.

"Gary, I have the following idea for you. Buy 6% Scandinavian Airlines Systems 20.06.2008. at a yield of approx 8,00%, which 387 basis points over the euro government curve. The bond is issued in Euro's. S.A.S is today rated at A-, We expect that it may be down graded to BBB, because of the problems in the sector, but the prices are currently on the level with a BB rated bond.

You can obtain further information on these bonds from the Bloomberg Report below."

You can get up to date information on this or other bonds from Thomas Fisher fischer@jyskebank.dk at the bank or log onto their web site at http://www.jbpb.com/

The logic here? Shares may not be the best place to invest because of the potential for long term loss. Equities may rebound in the short term, but history suggests that the long-term trend is still down. Here concerns over travel losses allow us to get an extra high yield (8%) on mid term bonds issued by a legitimate and well-established firm. There are risks to be sure, but neither travel nor Scandinavia are going away. This investment can give a good return for seven years at a time when (if the stock market remains weak) interest rates are low. Plus if there is a travel spurt, as the shadows may suggest, then the yield on these bonds could drop quickly and create an excellent short term capital gain!

Shadow watching by its nature is vague and hard to define. The clues you gain will never be clear. They play more to intuition than logic. But we live in a murky world and rarely is it safe to assume that what you see is what you get. Our logical decisions may seem well founded but with so much happening beneath the surface, the ephemeral nature of shadows may be of more value than we can guess.

I hope this report helps you spot more shadows and that this improves your global business and investing! I hope to see many of you in Orlando November 2, 3, 4! See http://www.garyascott.com/courses/

Gary