Ed Note: Two views on the Euro Bailout & the Market Response:

Markets Rally. Details to Follow…

by Bill Bonner of The Daily Reckoning

Stocks up 339 points on the Dow! Gold at $1,747! Oil over $90!

What set off yesterday’s big blitz to the upside? Two things…

….read more HERE

Euro Bailouts – The Good, The Bad & The Ugly

by Axel Merk of  Merk Funds

The markets appear euphoric about the ability for European policy makers to deliver on new promises. Low market expectations were met. We, too, have a positive takeaway, but only because of one detail of the grand plan; actually, let’s call it a “grand sketch,” as many details are still unknown.

….read the Good, The Bad & the Ugly HERE

Mark Leibovit, Timer’s Digest’s #1 Stock Market Timer of the year in 2011 so far & Timer Digest’s #1 US gold timer in 2011 takes a critical look at markets: Ed Note: The Following is just a small fraction of Mark’s Daily VRTrader Letter). Mark also produces

STOCKS – NEUTRAL

Though beating to a slightly different drummer, the stock market is attempting to mirror last year’s recovery following a summer swoon. If it does, we’re sooner or later going to exceed the May, 2011 highs (12,876 in the DJ and 1371 in the S&P). It is clear that the market’s rally has been (to put it politely) nudged along compliments of Ben Bernanke either through verbal ‘jawboning’ on his own, through his henchmen (male and female) or (more likely) direct intervention in the markets (again!). Fundamentally, there is little reason for this rally especially with the western world essentially bankrupt (both banks and nations) who are sinking further and further into debt, political uncertainty growing everywhere, and worrisome civil unrest. That said, I follow the markets cyclically and technically and

a low in September or October followed by a sharp year-end recovery is far from unprecedented. The big question is whether this rally is one heck of a bull trap or the makings of a sustainable advance through the U.S. election year. I will not even attempt to answer that question. Frankly, there is no way of knowing. My current feeling is that momentum is clearly on the side of the bulls and you don’t want to fight the tape until there is clear sign of a top. However, the fact the S&P 500 pretty much satisfied my expectations by entering the 1280-1300 target range is one reason to be cautious here and I’m not chasing the market. It’s far too spooky for me! I saved you from the big decline this summer and last summer by flashing ‘SELL’ signals and in that alone have earned my keep. Being a survivor in this game and protecting assets is more important than catching every move. I remain on a NEUTRAL signal for the market and, in hindsight, when I flipped from SELL to NEUTRAL back on October 4, I should have flipped to BUY! Short-term? A retracement back to the 1250s would not be out of the question in coming days and would represent a buying opportunity for traders. The huge surge on Thursday of over 70 S&P points intra-day (415 Dow Jones Industrial points) smacks of ‘painting the tape’ in my book. Huge point advances like these attract a lot of press attention and are often coincident with short-term market peaks. That said, I am not positioned in inverse ETFs or shorts here, though it is very tempting to do so. I am going to restrain myself due to ‘seasonal’ factors and try and buy the dips if offered unless volume turns uniformly negative. Bottom line: Don’t get caught up in the positive news ‘hogwash’. We are not being told the truth regarding the severity and depth of the problems. We are lied to regarding unemployment and inflation and there is no transparency at the Federal Reserve, an institution I strongly support being dissolved. As I said on Fox Business News, I am less concerned being invested in the stock market which has essentially gone nowhere for the past 10 years and more interested in the metals, especially physical metals which long-term provide you safe haven from a government gone wild.

GOLD – BULL

We are pretty much fully invested in the portfolio in my VR Gold Letter, so I hope gold (and other metals) can muster the strength to continue reaching higher and higher short-term. That said, having predicted a technical and possible ‘dead-cat’ bounce into the 1722-1768 range, I cannot be less than nervous here that this market has temporarily exhausted itself. Volume was quite positive a week ago, but after a multi-day advance we’re beginning to see volume slow creating some negative divergence. It may only be temporary in view of the usual seasonal strength this time of year. My suggestion is to wait and see if you see a pullback here in early to mid-November before adding to positions.

BONDS – NEUTRAL

Rates are slowly and steadily creeping higher here and it is becoming more and more evident that a top is in place in the bond market. Frankly, it appeared that the ‘bubble’ so many attributed to gold was instead occurring in bonds. I would not hold any form of U.S. bonds, less you run the risk of further deterioration in the U.S. Dollar and an ultimate devaluation which will strike like a 9/11 in your wallet.”

Mark Leibovit’s has been so successful this year alone that Timer’s Digest has him ranked as the #1 Stock Market Timer of the year in 2011 so far, an award he’s won in previous years. Mark has also done so well trading Gold it has just been announced that Mark is Timer Digest’s #1 US gold timer in 2011. Check out Mark’s  has a Special Offer HERE

Market Buzz – Greece Defaults on Debt but Labeling the Action a “Restructuring” Makes it Okay

Dominating the headlines near the end of the week was the announcement by The European Commission and European Central Bank (ECB) that they had struck a deal to get Greece back on track and avoid the ever dreaded ‘debt default’ (at least for now). The markets appeared to welcome the news with global indices rallying strongly on Thursday and maintaining those gains as we closed off the week. As part of the deal, private banks have been forced to agree to incur a 50% write-down on Greek debt, wiping approximately €100 billion off the country’s tab.

To us there was really very little doubt that a bandage solution would be applied to the Greece debt. But rather than become excited that officials have successfully ‘kicked the can down the road’ a little further, we are more focused on the actual long-term (multi decade) implementation of the austerity measures that will put Greece in a position whereby they will actually start paying down their debt as opposed to continue to run a deficit which just pushes their debt higher. It is however somewhat annoying to those who know better that the plan, as it has been laid out, can be referred to by anyone as a “restructuring.”

In debt analysis there is a term referred to as a recovery rate, which is the percentage of debt that can be recovered by the lender in the event that the debtor defaults. Referring to a March 2009 report issued by Moody’s (“Sovereign Default and Recovery Rates, 1983-2008”), the long-term historical average recovery rate for sovereign debt in default is indeed 50%. So considering that Greece’s creditors are now stuck with only 50% recovery of their loans to the tiny PIG nation, how could anyone legitimately call the latest deal anything more than what it really is – a Greek default? 

In our view, these bailout packages succeed in achieving little more than transferring responsibility from the irresponsible to the responsible (or at least slightly more responsible). For years Greece has lived and spent beyond its means, with the government supporting massive social programs (including retirement at age 50), permitting rampant tax evasion where only 5,000 people in a population of 11.3 million declare income over US$100,000 per year and borrowing aggressively to finance the deficit. The big fear is that a ‘disorderly default’ from Greece will cause a contagion throughout the financial system, but perhaps the greater long-term fear should be the contagion of unaccountability.

Ultimately we cannot just keep ‘kicking the can’ further and further down the road. Eventually someone will have to pay the bill and unfortunately it seems that it will not be the one who runs up the tab. Even now Greece’s projected budget deficit for 2011 is forecasted at 8.5% of GDP compared to the target set in the last bailout agreement of 7.6%. At US$485 billion, Greece’s debt is still just a speck compared to the combined debt of all the other overindulging, under-producing nations that will be standing in line for their handout (cough cough) – I mean bailout.

Looniversity – Of Tombstones and Graveyard Markets

With ghosts and ghoulish figures roaming the streets in celebration of all Hallows Eve, we thought it would be appropriate to define a couple of the creepier investment themes; tombstones and graveyards.

First, we start with tombstones; which ironically, in the financial world are created at the beginning of a stock’s life. Essentially, a tombstone is an advertisement written in heavy black ink surrounded by a black border issued by investment bankers before the public offering of a security. The tombstone gives “bare bones” details about the issue and lists, in order of importance, the underwriting groups involved in the deal.

On the other hand, a graveyard market seems far more aptly named. Essentially, it is used to describe the end of a prolonged bear market; when investors have just finished weathering a financial storm. Activity tends to slow considerably as the dead (long-time investors) can’t get out, and the living (new investors) aren’t in any hurry to get in (sound familiar?).

Put It To Us?

Q. As a contrarian, all this talk about “socially responsible investing” in recent years has got me thinking that, while it may be good for my conscience to invest this way, in terms of returns, it might be better to look at “sin stocks.” What do you think?

– Shirley Sterling; Montreal, Quebec

A. Well, we hate to say it, but you may be right. Industries that lure us with “naughty” temptations can offer a good place to park a portion of your portfolio. First of all, these companies provide relatively stable returns to investors, both in good times and bad. As the old saying goes, “What do you do to celebrate good times? Drink, smoke, gamble, and have sex.” And, what do you do during stressful and recessionary times? “Drink, smoke, gamble, and have sex.” The returns provided by the companies related to these activities are often less prone to the cyclical downturns of the economy.

So-called “sin stocks” are generally those companies which are involved in the gambling, alcohol, tobacco, sex, and defense industries. Outside of the numbers, your choice to invest in these stocks will come down to personal beliefs and preferences.

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Happy Days Are Here Again – right? It certainly won’t be today, or next week or even next month, but rest assured Europe’s woes are far from gone. And remember, I believe its been only  the opening act to an even bigger crisis to come here in the good old U.S.A. While I was short-term bullish going into this week, I began greatly lowering my exposure yesterday and plan on continuing to do so in the days and weeks ahead. I shall likely continue trading and buying into special situations but over time I anticipate being a net seller (This is in equities, not precious metals).