How about some Christmas Cheer?

It's an odd dichotomy what I do here. On one hand, I constantly present you with horrifying economic reality, and warn you of impending economic disaster. I complain about the talking heads, our politicians, and the global elite that have nothing better to do than to try and figure ways to control you. All in all, you'd think I'm some miserable nutcase, living in a bunker. But, nothing could be further from the truth. All in all, I'm a pretty happy go lucky sort, and I try and eek out all the enjoyment each day will bring. That's not even to mention the good fortune we've had in the market for the past year.

Because the market has put in such a remarkable run, it's not hard to find 401K's and IRA's that are up 40+% for the year. Ours is too. What's a bit harder to find however is a 401K that's up 40%, that wasn't down 40% last year. While many hundreds of thousands of people "lost their shirts" in 08 as the market crashed,we eeked out a 3.8% gain in our 401K for 08. Now for this year we're on track to end 09 with a gain of about 40%. Since we've never had a losing year, that little 401K has blossomed into something quite attractive over the past 12 years.  Then of course we have our trading account. I'm quite proud to say that it is up well over 100% this year. So, between the active trades, and actively managing our 401K, we are closing out 09 in spectacular fashion. Santa definitely came to town.

Part of our success is simply because we're pretty good at this game called market. But the other winning ingredient is that some of our closest friends are very good at it too. Trader Rob, our "ex hedge fund" buddy is incredibly sharp, and has a knack for finding tremendous plays.  Bryce of the "frozen North" is one of the best daytrading "dip buyers" I've ever met. Teddy "all or none" of Florida keeps me up to date in the silver pits, while Peter keeps me informed on high level activities via his participation in consulting for foreign Governments. All together it makes for awful good company, good information and ultimately good outcomes.

No, I'm not an ogre living in a cave. I get no delight in bringing you the really scary realities of our day. I simply do it because you all need to understand the truth to make good longer term decisions. It's the old computer adage of "garbage in - garbage out". Rearrange that to "good info in" and you get "good results out".  So, with that in mind, what's the advantage of me posting a particular type of news such as this? : 09:44 AM 10%+ unemployment is draining states' unemployment-compensation funds so fast that 40 state programs could go broke within two years, and will need $90B in loans to keep issuing benefit checks

The advantage so to speak is that you get a glimpse of reality. While TV pounds into your head how great things are, and how we are roaring higher in a "jobless recovery", that little snippet says 'we might have an improving market, but at the State level, we're going broke". See folks, that's the idea here. We need to you be informed about what's really going on so you can plan both investments and your day to day lifestyle on reality, not hype.  Think about this for a second. Let's assume you work in one of the social program areas in the State of California. While the pom pom wavers on TV are telling you how "robust" this recovery is, this is what's going on in reality land: Dec. 24 (Bloomberg) -- California Governor Arnold Schwarzenegger, anticipating a $21 billion state budget deficit, plans to ask President Barack Obama to ease mandates and minimums on social programs to save as much as $8 billion.  See, if Arnold is going to ask Obama to let him "ease" minimums on social programs, and you just happen to be employed in one of those programs, wouldn't it be neat if you knew that you might be looking at a cutback soon, versus believing the hype out of CNBC and the Government about how all is just so dandy? I think so. There's a pretty good old saying that goes "the truth will set you free" and that's how we feel. If you REALLY know what's going on, you can make good decisions and expect good outcomes. If you're led by the nose, by those with huge agenda's, you're simply going to end up as cannon fodder.

Here are two blurbs from a major news outlet that simply cannot both be true at the same time. Let me start with "Turbo Tax Tim Geithner, our Treasury Secretary : WASHINGTON (AP) - Treasury Secretary Timothy Geithner says he believes it's reasonable to expect "positive job growth" by spring and that people should have confidence about an improving economic climate. Okay, so Little Timmy, a man who just happens to be our Treasury Secretary, who's admitted he has some "tax problems" in the past, says employment will be growing in just a few short months and you should be confident in our improving economy. How on earth does that square  with this?: 12:00 PM While continuing claims dropped by 127K to under 5.1M, emergency unemployment compensation (for people who have exhausted regular benefits) rose by 142K to 4.4M, up from just 1.5M a year ago - a sign that people who have lost their jobs are having an especially hard time finding new ones. "Extrapolating out the cessation of job losses into job gains is, at this time, a stretch," Miller Tabak's Dan Greenhaus says

As you can see, there is absolutely NO WAY for both of these to be true. One of them has to be wrong. You can not have "job growth" in a short period of time, when job losses are still pounding away at us, the initial claims for unemployment keep hovering around half a million a week, and the people requiring emergency compensation rose from 1.5million to 4.4 million in just a year. It's impossible.

If you can understand that 99% of what you hear from Uncle Sam, and Wall street is simply designed to make you think you're the only one with a problem, all is well out there and all you have to do is spend every last penny you have, you have an advantage. that advantage of course is NOT spending your last dime, not acting carefree and not going into hock. Because as the wheels of our glorious train called America continue to peel off, you're going to want to save your powder. You're also going to want to be in the RIGHT MINDSET to short this market for all you're worth.

I have been in this business for some 15 years now, and to this day the idea of going short, or buying put options scares the hell out of people. I'd bet that a full 80% of the "general investors" out there simply do not go short. This is a terrible tragedy folks. Markets go  up, market's go down. If you are a "long only" person, you're missing out on just as much if not more opportunity for profits by only going long.
You NEED to fix that. You need to become comfortable with the idea of going short. Why? Because there's going to be a time coming in the not so distant future where fortunes are going to be made. And all of it will be via being "short".  So right this second you need to ask yourself   "am I comfy shorting stocks?"  "am I comfy buying puts?"  If the answer is no, you need to rectify that, and soon. Very soon.

Wall Street has scared people away from going short for years. Cramer the bumbling idiot on CNBC still does it. They tell you that the risk is unlimited and you have to "really know what your doing to avoid disaster". It's all a crock of , well you know. So first off, why don't they want you going short? Simple, they love taking your money, they don't like it when you take theirs. Second, they can buffalo you into thinking you need "them" to pull off such dangerous activity. It's all baloney folks. Shorting should be as natural to you as buying long.

What Wall Street doesn't like to tell you is that stocks fall much faster than they rise. They don't like telling you that you can get very very rich by playing the "dark side". Since most funds are "long only" and stocks only go up if people are buying long, they naturally want you to buy long so their stocks go up. It's really just that simple. If they hold 100K shares of XYZ, they want a million new people buying XYZ so that the price goes up. They don't want you toying with the idea of shorting the stock because XYZ could go down, and they have to post a loss on their ledgers and then some manager has to scream at them. They have to hear noise from the investors in the fund. None of that is very fun for them, so they tell you shorting is dangerous and you aren't smart enough to do it. Do not listen.

What is their argument for why it's so dangerous? Well the answer is simple, but first lets really quickly examine what a short is. A short sale simply means that if the stock goes DOWN you will make money. How does that work? Easy. When you sell a stock short, you simply "borrow it from your brokerage and sell it on the open market. Lets say you want to short 500 shares of XYZ. You look on your platform ( or call in) and ask if XYZ is shortable. If the brokerages "has" some XYZ in other client accounts they'll say yes. So, you simply borrow those 500 shares from the brokerage and sell them on the open market. It's all done electronically, you don't have to do anything what so ever. Let's suppose XYZ is 50 bucks a share. So, you place a "sell short" order for 500 shares of XYZ at market. In a matter of moments you will have sold XYZ. For selling it, your account will take in the proceeds. So, 500 shares at 50 dollars a share is 25000 dollars.

Now you sit and wait. XYZ slowly starts to fade. In a matter of a month, XYZ is now 40 dollars a share. You decide that it probably won't go lower, and you want to "cover your short". All you do at that point is "buy" 500 shares of XYZ at market. The moment you do, the brokerage will get back the 500 shares you borrowed from them and it's all a done deal. The transaction is finished. But look at what happened. You sold 500 shares at 50, and took in 25 grand. Then you bought 500 shares a month later to close out your short. But XYZ had fallen to 40 a share, so you only had to spend 20 grand to buy it back. The difference is yours to keep. That difference is 5000 dollars profit.

Okay, so why do they tell you it's so dangerous? It's stupid really but heres the thinking. If you buy a stock "Long", the worst it can do is go to zero. So, let's say you buy ABCD at 35 a share and the company implodes and goes out of business. You are out 35 dollars a share. Now suppose you short ABCD at 35 a share because you expect it to go to 25. But it doesnt go down, it goes to 45,then 55 then 95 then 205, and then to 605 and 1165, and on and on and on. "theoretically it could go up forever". Well Duh, yeah it could but would you still be in it when the trade went against you by 10 bucks? No, you'd cover your short, take your loss and move on JUST LIKE THEY'D TELL YOU TO DO IN A LONG SIDE TRADE GONE BAD.  it's really that simple folks. Just keep an eye on your losing trades, and keep your losses small. Do that, and shorting is just as safe as being long. Actually I think it's safer to be honest. The reality is that over a long enough period all stocks go to zero, not to infinity.

It's our opinion that there's going to be a tremendous shorting opportunity coming at us in 2010. I plan on making myself and our Insiders Club members very wealthy by using shorts and put options. If you have had hang ups over going short, get over them. If you think it's somehow "wrong" to short, you've simply drank their kool aid, it's not wrong, it's part of the process. stocks go up, they go down. You should profit from both sides of it.  With headlines like this: "The number of borrowers that fell behind on their mortgages - including the most creditworthy - rose in Q3 as the percentage of current and performing mortgages dropped for the sixth consecutive quarter, a regulatory report said. Those that fell behind on their prime mortgage payments more-than doubled to 3.6% from a year ago. Such troubles could mount as banks and thrifts remain unable to match modifications with the number of struggling borrowers who need help"  You dont' have to be a rocket scientist to know that things are actually getting worse not better, and one day the market will align itself with that reality. That means stocks will fall, and the people that get rich off it will be the ones that understand shorts and buying puts. Be one of those people, okay?

Moving to the market itself:

Wheeeee! We are having so much fun in this market it is embarrassing. We had figured that they'd do anything they could to keep this thing humming into the year end, and although we aren't loaded to the gills with stocks, the ones we have are really fun. So, they ran us sideways and up into Christmas, the next question is, what about New Years week? Wil the fun continue? My guess is that we'll be pretty flat, with certain individual stocks moving up on their own merits. But a wholesale sell off, is sort of off the table, because who's going to want to pay the tax penalty of selling, when they can sell in January if they want and push the tax burned out to 2011? Not many I'd think, so we should see them at least "hold us up" if not move us up even more.

It's no secret that we have a paid members area, and that's where we share our selections with our members. Yes we charge money for it, a lousy 159 bucks for a year. It's also no secret that I'd like to have as many subscribers as I can, that's the fun we get out of this "thing". But for today, I'd like to mention a freebie here for all of you to consider.

For weeks and weeks, AMAT has been playing around in the 12 - 14 area, but 14 was acting like a brick wall. It simply got repelled each time it got there. So, we told our subscribers that the next time this thing gets in gear, if it can get up and over that hump and hold it, AMAT could pop for a very nice run. With Thursday's close "at" 14.00, If this was to climb up and over 14.15, I'd consider that a pretty good buy in area, and AMAT could reward you. Take a look and see what you think.

We'll see you all Wed night for a short update, in the meantime, enjoy the rest of your weeken


PS..  If you'd like to see the exact stocks/options/metals and 401K moves we will be looking at for this week, please consider becoming a member of the "insiders club" located here: Click Here