Does the return of volatility herald the end of the trend?
There comes a moment in the life of each and every bubble when just enough doubt accrues in the hearts and minds of the herd… and the rising trend tips over into an inevitable downward spiral.
This moment is most always clearly identified… decades later, by historians who weren’t there and aging economists who claimed they knew it at the time, but somehow just couldn’t bring themselves to say it out loud. “Wouldn’t have been prudent, you know. Public confidence and all that.”
Today, as I sit to write to you, we are most certainly having a moment of doubt. Investors who have been pretending for weeks if not months that there was undiscovered value in U.S. stocks are now wondering if perhaps it was just some kind of shell game.
Why are Marcus Tibbs, Andy Holtz and Jack Hibbert all idiots?
Well, because they voluntarily gave up a combined 191% in gains… They chose not to follow the two simple instructions I sent them… and they ended up leaving thousands of prospective dollars on the table.
The thing is, I have another set of instructions here… ones that could easily hand intelligent folks -- who can actually follow them -- upwards of 700% in gains.
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Con Men and Their Willing Shills
Duh! Not only was it the worst sort of back-alley Three-Card Monte rip-off, but most any investor who bought in must face the fact they have been willing shills for the cons running the game.
Their shame is clearly demonstrated by their frequent bouts of panic.
Professional con men have nerves of steel. They can sit in front of a Senate panel and claim that they simply had no idea that the housing bonds they were shorting were valueless.
But the amateurs who participate in these fixed games – in the surety that they can unload on someone else before it all comes apart – are always shuffling their feet and looking over their shoulder for the cops.
An Amazing Streak
Take a gander at the past few days’ market action, and you’ll see exactly what I mean: On Tuesday, the Dow Jones Industrials logged in a new 52-week high. This was the eighth new high this year, and the 21st time we’ve set this sort of benchmark since last October.
This last new 52-week high came on the news that Scott Brown had most probably taken the Kennedy’s permanent Senate seat, the implication being that Brown’s vote would spike the pending healthcare bill.
By Wednesday, Brown’s victory was no longer theoretical, but rather, a done deal. How long he will hold the seat is another matter, as many GOPers are already pushing the admittedly handsome and charismatic young man to run for the presidency in 2012.
Be that as it may, now “fiscal prudence” was the watchword of the day. And the markets’ reaction to the idea that Washington’s crazy tax-and-spend binge might be coming to a halt?
Prudence Hurts
The U.S. dollar shot up – and stocks collapsed! Talk about your unintended consequences.
“Oh my God: If Washington stops printing money, how will all those poor AIG execs buy new mansions! Our whole damn Ponzi scheme will come undone! Call my broker and tell him to sell. Call my lawyer and tell him to start preparing a defense. And call my travel agent and order tickets to someplace that doesn’t extradite rich old white guys.”
Seriously, I don’t know if this is truly the end of the trend, or just a brief moment of panic as folks reawaken to the idea that this economy still has some major threats hanging over it.
As I sit to write to you, stocks ARE down, and volatility is UP, but neither have exceeded their trading ranges. In all probability, this is actually a rather nifty short-term buying opportunity.
Very short-term mind you.
We are not looking at a “September 2000” or “January 2008” moment here, where the markets begin a marked multi-year tumble. I think what we have seen is more akin to April of 2000, or June of 2007, when the realization that the whole damn deal was indeed irrational first began to dawn on folks.
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In the end, the guys who deal in decades may very well call this “The Moment.”
P.S. I know I promised last week to tell you what to buy as we move into the last phase of the markets’ long-term rally, but I really wanted to address this major short-term hiccough first. I will explore your longer-term positioning next week.
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