The Madoff Losers Did Not Watch the Basket

There is a market maxim that one should never put all their eggs in one basket, and another that you could put all your eggs in one basket as long as you watch the basket.

The Madoff losers did not watch the basket.

Many of our Advanced Mentoring clients study Bloomberg or Yahoo twice a month as they announce the change in shorts during the prior two weeks. We must be careful as we analyze this, as it can be misinterpreted with derivatives. When we see major institutional investors buying stock with increasing price volume it's a telling sign, IF there is no major news. When price precedes news someone knows something already, and it's time to be watchful for the shorts coming out of the closet.

Market conditions are extraordinary for three simple reasons:

1. The banks have been caught lying to us, and to themselves as they prospered, and now have illiquid assets that they are afraid will worsen. This is why when Paulson and Bushy gave them the money before, with no rules, they simply hoarded it. They are afraid to loan money as their "asset base" they know is horrible and will worsen. They want to stay liquid.

The idea of a bad bank to move these fake assets has merit.

2. Deflation and then inflation are real threats. The lowered price of oil shows deflationary tendencies. What is good for consumers here may really not be.

3. Any dollars Obama and team nationalize and put to work (roads, infrastructure) et al will take a huge increase in our debt, the Treasuries we print. They must hold up in value so the Communist Chinese can support us.

This is a sad fact.

Low interest rates are not bullish, but bearish, as they show the lack of demand for money. This is scary stuff. If deflation is truly real, we will not know it on time, as the facts will be historical in nature, and "retroactive".

But it is simple: "When there is demand for money, the price of money rises. When the demand lessens, the price of money declines. The Fed has slashed prices due to a decline in sales.

Interest rates on Treasuries, if they continue at .25%, show no demand for the USD. Investors lose money investing in a treasury at these rates, if there is any inflation.

Floyd believes we are experiencing inflation, deflation and stagflation at the same time.

And I believe bail out is critically necessary, as is nationalizing, and that the U.S. must make the Treasury bill a sound investment.

All of this leads to how the market is acting. And, it's like a yo yo. The market moved down at opening, missing a buy to our OTM put, to hit 7827 before bouncing several times near 8000. Day traders were able to make up to $2.00 per contract in quick trades around the market whipsaw, and we continue to hold this position.

Traders were also able to buy in to our OTM put at below prior day close, and could have sold for tight profits.

We'll list both as open positions, as whipsaw may continue, before upside. Study our Dow Projections carefully.