Free Money Alert--Bank of America Wants to Give You $120 annually to Open a Credit Card Account



[insert attention grabbing sentence ha ha] Sick of making payments to your credit cards company? Would you like to have a credit card company pay you $120 per year for paying your bills on time? This is not some generic and everyday promotional offer of earning $100 on your first $500 of purchases or a one time thing, it is $120 per paid to you every year? Still have your attention? I will tell you how to maximize this available deal so that it puts $120 in your pocket every year while improving your credit score.


Bank of America (BOA) has at what first looks like a to good to be true offer for individuals with good credit. Just by opening a new credit card with them and paying just one bill per month you receive $25 per quarter + $5 if you have another BOA account such as checking/savings/investment. No annual fee or charges related to the account. This seems like the perfect credit card arbitrage with no risk of losing money. Best of all it only takes for about 10 mins of your time.

Introducing the Better Balance Rewards card from Bank of America:

  • No Annual Fee Ever
  • 0% Introductory APR for first 12 billing cycles
  • 11.99% - 21.99% variable APR
  • Earn up to $100 per year for paying more than your minimum payment on time every month
  • Get an additional $5 bonus if you have at least one other qualifying account with us
  • Rewards are automatically credited to your card balance or deposited into your checking or savings account, whichever you prefer


    1. You Need Good/Excellent Credit to Qualify

    The offer is open to everyone 18yrs and older, however you need good credit. This usually means a FICO score of 720+ and no negatives on your account (i.e. collections, past due accounts, etc).

    2. Must Pay One Bill With Card Per Month

    In short, you cannot maintain a zero balance on the card to receive the bonus rewards. To earn rewards you must run at least one charge or pay 1 bill through the card per monthly cycle.
    3. Must Pay More than the Minimum Due on or Before Due Date
    This card is set up to reward people who pay their bills on time and pay more than the absolute minimum required. If you can do this, than this card is a good option for you.
    4. You Need Another Account With BOA For the $5 Quarterly Bonus
    For this feature, you need to have at least 1 open checking/savings/eligible retirement account with BOA. One requirement of a free checking account is that you have to maintain a $1500 minimum daily balance or have at least 1 monthly direct deposit of $250 or more to avoid monthly fees which negate the cash rewards. You can open a savings account for free as as long as you maintain a $300 daily minimum. Personally, if you are not a BOA customer, I would not bother for the extra $5 quarterly bonus. Just know that the maximum rewards per year will be reduced to $100. Still great!  
    5. Reward is Paid Quarterly
    So if 3 monthly charges and subsequent payments show up on your statements between Jan-Mar you will get the $25 +$5 sometime in April. For those without a second BOA account you still get $25.
    6. Have to Meet Requirements for Entire Quarter To Get Rewards
    This is the little tricky part which BOA intentionally leaves murky. Based on my reading of the Terms and Conditions it says that you "must have a payment due in each of the monthly cycles of the calendar quarter to be eligible for the quarterly cash reward".What this means is that if you get your card in Feb and use it in Feb and March you will not be eligible to get the $25 reward for the Jan-Mar quarter. You will be eligible for the next quarter's payment in July for the Apr-Jun period.
    1. Apply Online---usually takes under 2mins to fill out application and get an instant credit decision
    2. Set Up 1 Automatic Bill for at Least $30 per monthly cycle---It needs to be a small fixed amount bill that does not fluctuate much. You cannot simply charge $1 dollar on the card. BOA has restrictions that will disallow the rewards for very low balances.  So just to play it safe let's make it $30 or more.
    3. Set Up an Automatic Payment With BOA---never have to worry about paying on time or missing the due date. You can set this up online to debit the bill due directly from your checking account (does not have to be BOA checking).
    4. Always Pay Bill in Full---this means no high interest rate charges.
    5. Put the BOA card in the proverbial sock drawer and never use it again---We are only interested in the $120 yearly rewards, nothing more. There are other cards to be used for normal cash back rewards.
    6. More Credit, Lowers Utilization, Improves Credit Score
    One of the easiest ways to improve your FICO credit score (the one that most lenders use) is to have more credit available because it will lower your credit utilization metric, which carries a heavy waiting on your score. Also, having another credit card will give you some breathing room during an emergency should that occur, since you can take advantage of the grace period between when the card billing cycle closes and when you have to make payment (at least 25 days).   
    As always there is no free lunch in life. Here are a few things to consider before applying  
    1. BOA Will Hard Pull Your Credit Report
    While for most people this is not a major drawback, every hard pull will slightly lower your FICO credit score (about 5pts on average). So if you are about to buy a house or car, hold off on applying for the card until you complete these major transactions.
    2. BOA Can Change The Terms of This Deal
    In the small font fine print at the bottom under terms and conditions and in the card member agreement, BOA is allowed to change the terms of the card whenever they want without your approval. I know it is not fair, but after all you are dealing with a corporation here. This means that 3 yrs from now this rewards package may not be available. More incentive than ever to sign up today. 
    3. Do I really want a 2nd BOA Account for the $5 Quarterly Bonus?
    It is up to you. If you already have BOA checking or savings it is a no-brainer. If not, it may not be worth the extra hassle of maintaining a $1500 checking balance or monthly direct deposit. No problem you still get the $25 per quarter anyway equaling $100 per year.
    4. Zero Other Perks
    Outside of the possible $120 per year in cash rewards, there are no other reasons to use this card. You do not get 1% cash back or travel rewards like you do on some cards. So outside of using it to pay one monthly re-occurring bill, I would never use this card again.
    5. My Current Cashback Card is Better
    Yes, many cash back cards offer 1%, 2%, and sometimes 3% back. But what makes this offer superior is that you only need to make one small payment per month of $30. Spend $90 bucks a quarter with this card and you get $25. How much would you get back from any other card? .90 cents (for 1% back ), $1.80 (for 2%), etc. You can see that this is far more generous deal compared to other rewards program.  
    6. $120: Worth the Effort?
    To some people it may not be worth the effort and time to set this plan up. But let's consider how much time it takes to do this. I was able to apply an set up everything in under 5 mins (already BOA customer). So in essence, I earned $120 for 5 minutes of time. Not bad at all.
    Of all the credit card offers available this has to be one of the better ones considering you do not have to spend thousands of dollars per month to earn the rewards. Furthermore, this is not a one time intro deal or first year teaser special, but an opportunity to earn money every year for using the card to pay one ordinary bill per month.  This deal is even better if you are an existing BOA customer with a checking/savings/ retirement account because you get the $5 per quarter bonus (extra $20 a year). For those without an existing BOA account, the offer is $100 per year for doing nothing but make a charge or pay a bill once a month and pay in full. I like to think of this as a form of credit card arbitrage that puts money in your pocket with no risk.  



    The 100% Guaranteed Weight Loss Solution--Black Swan Insights Style



    Everywhere I go I see more and more creative weight loss solutions offered to more and more gullible fat Americans. Whether it is spot fat remover, supplements, books, Internet diet plans, they are all the same: THE WANT YOU TO PART WITH YOUR MONEY. Americans spend over 20 billion per year on weight loss products to no effect. We are still a fat and sloppy culture. Here is my advice to overweight Americans.

    100% Guaranteed Weight Loss Solution

    STOP EATING (So Much)---You are fat because you choose to be fat!This is the best advice for fat/overweight people. You don't need to buy any more stupid products or have surgical machines use lasers to zap away fat, just stop eating so much food. Since the average man needs about 2000 calories per day (less for women), reduce your caloric intake to between 1000-1200 calories per day period. Losing weight is very simple. Each pound of fat equals 3500 surplus calories. To reduce 1 lb of weight, you have to create a 3500 caloric deficit.


    1. Free--You don't have to pay a dime for this diet plan or product.

    2. Puts Money into Your Pocket---No more eating out at casual dining restaurants and fast food establishments saves hundreds of $$$ per month.

    3. Starts Immediately--Don't have to wait for the new weight loss product to arrive in the mail or go to any shop to buy. You can expect to lose 1-2 pounds per week. Yes, losing fat is not a fast process. If you want to lose 2 pounds per week you have to create a 7000 caloric deficit. Be aware of water weight. If you eat a salty meal you will gain water weight. So stay away from high salt foods. Limit sodium to no more than 1500mg.

    4. Improves Self-Control--Every human should have self-control over their own body. One of the easiest ways to show self-control is deciding on what to stuff in your mouth. Nobody forces you to eat that Big Mac and Cheese with fries and a shake.

    5. More Attractive--Regardless of your looks, healthy non-fat people are always more attractive at a basic primal/biological level. They demonstrate discipline, confidence, and concern for their health. Fat people reveal sloth, insecurity (eat because they are somehow unfulfilled in life), lack of control, and general disregard for their own health and appearance.


    1. Plan on consuming four meals per day spaced out 3-4 hours a part. This will keep you fuller during the day.

    2. Eat Protein and Fat--These two essential elements are what keep people satisfied and full for the day. Eating carbs is only temporarily filling. Problem is that you will be hungry soon after and want more empty carbs. Contrary to popular perception eating fat does not make you fat! It is calories stupid.

    3.Move Around More--The average American gets up everyday and drives to work, sits all day in a chair in front of a computer, drives home, and then crashes on the couch and eats and drinks until bedtime. Get your ass up and walk around. Get the blood moving and heart beating fast. Run in place for 1 min as hard as you can and rest 1 min. Do this 10-15 times. Jump Rope with a piece of rope or cord. Have a partner or a dog? Go on a walk at night. You do not have to do the same exercise everyday, just do something other than sit on the couch and watch TV.

    4. Take up a new hobby--Instead of food being your hobby of choice or eating purely out of boredom, find something new and exciting to challenge you. If you are married the obvious plan would be to extend your sex sessions. Average married couple has sex for 23 mins 2 times per week. A good goal would be 45mins 3 times a week. You will burn more calories while being stimulated at the same time. Not married or into sex. Learn a new skill such as painting, home improvements, scuba diving, outdoor/survival skills, hunting, target shooting, etc. Anything to keep you mind occupied and off of food.


    Americans don't want simple straightforward solutions. They want convoluted/new age/liberal explanations which tell them it is not their fault they are fat, or that fat is okay/fat acceptance or even sexy. Furthermore, they do not want to change any of their bad habits or admit that they are the only ones responsible for their predicament. Fine! Keep gorging on your favorite fat foods, die young, develop severe health problems, and forget the idea of getting a suitable mate in life.

    This plan takes one thing: Self-control. You cant fake it, buy it, or cheat your way through it. It is simply up to you to change yourself. No one or product will be able to do it for you.

    About Me: I am not a doctor or do I play one on TV. I am just someone who lost 39 pounds following this simple plan.



    My Advice to Altria Corp on Ecigs and More

    As many readers will know, I am a great aficionado of tobacco stocks and believe they have the single best business model of all-time. They sell an addictive product to loyal customers who literally cannot stop buying their product. Tobacco companies can raise prices every year with little effect on sales (adjusting for the structural decline of the business). And best of all, they pay out large and ever growing dividends to their shareholders. Owning Tobacco Stocks + dividend reinvesting = Long Term Wealth.

    Possible Concern of E-Cigs

    While traditional tobacco is a great business, new technological advancements such as ecigs have the potential to disrupt this dynamic. I worry that Altria (my largest shareholding) is not doing enough to keep up with the times and may fall behind. So I wrote a letter to Altria to give them a few ideas.


    1. Rethink the company's purpose and strategic vision

    Instead of Altria as simply a tobacco company, let's try Altria as a world leader in providing nicotine delivery devices to US adults. The emphasis is on providing US adults a wide range of nicotine delivery options ranging from traditional tobacco products such as cigarettes, cigars, and smokeless moist snuff to newer products like ecigs. With this change in vision, Altria will be able to research and develop new forms of delivering nicotine to adult consumers such as nasal snuff (convenient 4mg pellets that look like inhalers see for details ) or nicotine infused beverages.

    2. Improve and Expand Social Media Presence

    While traditional tobacco cannot be marketed through social media channels such as Facebook or Twitter, new ecigs can use social media. Lorillard has an active and very engaging Twitter page with 13K followers. Here all followers certify they are at least 18yrs old to join. This allows Lorillard a powerful marketing tool to directly engage with its valuable customers. As a result, Lorillard's Blu ecigs have over 13K followers and growing. Altria has so far been unable to establish a foothold in to social media. The current number of followers on Altria's Twitter page is 1759. This is a direct result of an inactive corporate account which only recites company press releases. This lack of a social media presence will hurt Altria's eventual roll out of MarkTen ecigs. The new generations of adults 18-21 spend more time on social media sites than traditional avenues available to advertisers like TV, radio, etc.

    3. Embrace Ecigs as a way to grow the adult market for nicotine.

    A traditional way to think of ecigs is to assume that it will cannibalize cigarette sales. While this will certainly occur, it does not have to be a net negative for Altria overall. With the proper marketing I believe that ecigs and other smokeless products could actually grow the US nicotine market (estimated at 44-46 million smokers). This is a potentially game changing technology that could increase the number of people who use nicotine and arrest the long-term decline in the tobacco industry. In 1965 40% of adults smoked cigarettes compared to 20.8% today. The only reason for the decline is due to health risks associated with smoking. If you can present to US adults a proposition which allows them to consume nicotine while not having to worry about the established health risks of smoking, than it is a win-win. Ecigs are able to reach out to new consumers who would normally never smoke cigarettes because of the negative health effects.

    4. Special Marketing for E-Cigarettes

    Unlike traditional tobacco products, Ecigs are not currently regulated by the US government or FDA. This has presented early entrants like Lorillard with the opportunity to market ecigs differently than most tobacco products. With the lack of regulatory guidance is opportunity. Lorillard sells its Blu ecigs directly online with a well-constructed website along with traditional retail channels. The website makes use of celebrity endorsements from well-known people such as Jenny McCarthy and online persona's such as "Bob" aka Mr. cool. Furthermore, Blu has a rewards program for purchasing ecigs and refill cartridges to encourage brand loyalty. Altria, meanwhile, has not managed to get a web store up and running for MarkTen yet. In fact, the Nu Mark website only contains general information about MarkTen. Altria needs to take advantage of the current regulatory uncertainty and actively market MarkTen similar to Lorillard. Simple convenience store displays are not going to enough. Your competitors are already utilizing TV ads to promote their products. They are trying to lock in as much market share of the ecig market as possible before regulatory restrictions ban the practice. One way Altria could roll out MarkTen would be to product launch on social media like Twitter and Facebook along with more traditional events. Give away some MarkTen's to age verified consumers and encourage them to review it and share with their friends. Best advertising is word of mouth especially when it comes to new technology.

    I will leave you with a story which shows the potential for Ecigs. I was in a DMV last month (always a fun experience), and a man next to me started smoking an ecig. Four people came up to him to inquiry what this new device was and whether he was smoking? He said no, it was all water vapor. People were amazed and enthralled with this new technology, and more importantly, no one asked him to stop or move outside! Social stigma of smoking gone! 


    Don't Believe the Hype: Apple is Not a Cheap Value Stock

    A quick blurb about Apple's earnings.

    Apple reported earnings last night which beat already lowered expectations. Little surprise. Under-promise over deliver as usual. However, guidance was very poor. That has not stopped the usual Apple groupies from proclaiming that Apple has become a value stock with a growing dividend and share buybacks. This is completely false.

    On the surface Apple appears to the layman cheap. Compared to 2013 earnings expectations, Apple trades at a 9 P/E and a forward P/E of 8.3. What more could a value investor want? The reason that Apple is trading at a low valuation because everyone expects earnings to decline in the future. This is a key aspect which most investors fail to realize. When a non-cyclical stock trades at a P/E of lower than 10, the market is expecting declining earnings--analysts just have not realized this yet. In fact the market is expecting a sharp decline of at least 20% compared to analyst's 49.00 in earnings expected for FY 2014. The concept that Apple is cheap is noting more than a stock market mirage created to suck in low-informed investors into a massive value trap. If anything, Apple is a short not a buy at $414 a share. Expect it to steadily decline over the next year as more and more investors realize that the growth will disappoint to the downside.

    And remember--those stock buybacks are nothing more than a waste of shareholder money. Buying back stock at inflated prices when earnings are declining is a recipe for disaster. I pity anyone owning Apple (e.g Greenlight Cap and about a billion other hedge funds). The Apple Titanic is sinking, better abandon ship before the whole thing sinks and there wont be enough lifeboats for everyone.

    Black Swan Insights.


    AP's Fake Terror Tweet: The Beginning of For-Profit Terrorism?

    Historically, most terrorism was committed for ideological reasons, but now a new form of terrorism may be emerging: for-profit terrorism.

    On April 23 2013 AP's widely followed Twitter account was hacked and falsely reported that an explosion had occurred at the White House injuring President Obama. Normally such a report would have little impact, but with 2 million followers, AP's tweet translated into real world consequences for US financial markets. Before the false tweet, US markets were enjoying a rally of about 130 points on the Dow and 14 points for the S&P 500. Within 3 minutes of the fake AP tweet, the S&P 500 had crashed 13 points with large gaps seen in many stocks. Zerohedge reports that during that time 260,000 S&P contracts traded with a notional value of $20.4 billion. A large amount of money was made and lost during this time, all because of a fake news report on a twitter account. While this instance was isolated and minuscule in the general course of the stock market, it may mark the beginning of a disturbing new trend where terror is used for financial gain.

    The rapid dissemination of information through mobile and social media is a double-edge sword. People are more connected to their friends, families, and employers despite living 1000's of miles apart in some cases. Information is no longer controlled by a top-down mainstream media hierarchy which was vetted by editors and producers before dissemination to the masses. Instead information can now be transmitted almost instantaneously be anyone with an Internet connection, bypassing traditional forms of media such as TV or radio which had controls to prevent false or unsubstantiated stories from breaking. This new form of unedited information has the same power to change the course of events as traditional mainstream media information. Malicious actors (whether state-sponsored or independent) could use this new technology to make money.

    Consider the following example. A man in Times Square starts shouting that the President has been shot and is dead. He runs around telling everyone that he has a source at the White House that told him this was true. What would be the effect of this false statement? Most likely nothing. Some by passers may get upset and call the police to report the deranged man for making threats against the president. The point being that no real world impact occurred. Most likely, the event will be considered a non-event and not covered by the media.

    Now consider another example. Hedge fund Alpha wants to make a quick buck in the stock market. Hedge Fund Alpha purchases the services of an accomplished hacker to break into the twitter account of AP and post a false report that "Terror in DC--the president shot and killed at public reception--- foreign terrorists thought responsible--Washington on lock down--more news coming". Knowing that this headline would cause the market to drop precipitously, Hedge Fund Alpha shorts a large amount of S&P 500 futures or buys puts. Within minutes, Hedge Fund Alpha has made millions of dollars and promptly closes its positions. After 10 minutes, information comes out that this was a false report and that AP's twitter account was hacked. The White House Press Secretary tweets that the president is fine and all is well in the West Wing. AP asks Twitter to suspend its twitter account in order to prevent further misinformation from occurring. The problem is that the damage has already occurred. Investors lost money as stocks plummeted, while Hedge Fund Alpha collected large profits. Keep in mind that this whole event happened in less than 10 minutes. What was the cost of this illegal hack operation for Hedge Fund Alpha? The answer is not much compared to the millions in potential profits. All the hedge fund had to do was to hire a hacker and not tell them what the hack attack was designed for. You could probably hire a computer hacker for a trivial amount (lets just say $50,000), provided they did not understand the goal of the operation.

    The above example illustrates how simple and cost-effective this fake terror story could be generated and disseminated to the world. While the story was quickly debunked as a false news item, it succeeded in its objective by creating a temporary panic in the stock market,  allowing nefarious operators to make some fast money. While this fake terror scenario was relatively benign (e.g. no one was physically hurt or injured), the incident raises an important point regarding terrorism: it can be very profitable.

    Now suppose Hedge Fund Alpha wants to go a step further and actually influence events by committing a low-scale attack against a specific company in order to profit from the events. In this scenario, the attack could be a cyberattack against a company which primarily relied on its website to make money (e.g., Google, etc). This is not without precedent. Many companies over the last few years have reported denial of service attacks against their websites. However, for the most part these attacks are done by disgruntled low level hackers who take down the site for a few hours at most. Sometimes they post explicit or incorrect images on the website, like seeing a naked woman when you go to Sure its embarrassing for the company, but does little to impact corporate profitability or stock price. Now imagine that a well financed organization with millions of dollars in capital engaged in a well coordinated and persistent attack which shut down Just when Amazon thinks it has restored the website, the hackers slip a malicious virus into Amazon's network which artificially lowers the price on every item to $1. These kind of well planned attacks continue for 6 days until Amazon finally regains full website functionality. A few days later Amazon announces that the hack attack also resulted in credit card information on millions of customers to be stolen. This attack would have cost Amazon 10's of millions of dollars of profit and hundreds of millions in revenue, along with a serious breach of public trust in the company. There is no question that the stock could decline during the whole incident, a positive for anyone betting against the company through short-selling or puts.

    While the above scenario is unlikely considering how large Amazon is and the thousands of computer technicians it undoubtedly employs, this is not the case for smaller companies who could not defend themselves against such an organized and persistent cyberattack. For smaller or weaker companies this attack could very well force them into bankruptcy. We have entered a new world where this type of scenario is possible.

    Black Swan Insights




    MACRO UPDATE: Buy, Sell or Hold?

    Well. I am finally back to the blog after a very long and pleasurable hiatus.

    I am going to begin publishing a weekly survey of the current macro environment with my various trading positions and predictions.

    1. S&P 500 Position: Neutral/with downside bias (e.g.would wait for a correction before buying stock).

    If somebody put a gun to my head and forced me to by a stock I would chose a consumer staple stock over cyclical. The best stocks on earth are the tobacco stocks like Altria (MO) and Lorillard (LO). They pay 5% dividends which increase over time. They have a captive customer who is physically and mentally compelled to purchase their product. Buy. Hold. Reinvest Dividends. Retire Rich.

    Furthermore, sentiment is too high as indicated by the NAAIM Manager Survey sentiment which currently stands at 85%. Anything over 80 indicates a top for the market.

    2. Gold & Silver Position: Buy/Accumulate

    Gold has corrected over the last few months and represents a good entry point. With the Fed promising to print money forever, why not own gold? I am happy that I get to buy gold on sale around $1580-1600. Furthermore, the large commercials have dramatically cut their short positions, indicating that they expect higher prices. HSBC noted that gold fundamentals remain positive because of "rising global liquidity as the likes of the Bank of Japan ramp up quantitative easing, rising inflation expectations, currency depreciation and geopolitical tensions."

    Furthermore, the Cyprus crisis is likely to keep a bid under gold writes UBS:

    "For now, the risk of immediate contagion to otherperipheral countries remains limited, but the Cyprus precedent certainly cannotbe shrugged off particularly if things deteriorate elsewhere...As people start to worry about the safety of their deposits, gold would become an attractive alternative and an escalation of these worries would prompt a return of fear-related physical buying."

    3. Oil Position: Sell/Short

    Too much oil and not enough places to put it sums up the oil market. The chart below shows the surplus amount of oil slushing around the US. US oil consumption is declining and production is growing. Not a good combination for Crude oil. Furthermore, speculators are long crude, which means it is likely to go down. Always fade the crowd my friends. It is not a guaranteed win, but puts the odds in your favor.

    And this trend of massive over-supply is expected to worsen: "According to early estimates from four analysts surveyed by Dow Jones Newswires, U.S. crude oil inventories rose by 1.1 million barrels in the week ended Friday"

    4. Treasuries Position: Neutral

    No reason to buy treasuries. The Fed is manipulating the market with its "QE till we all die" policy. Rates will remain low despite the improvement in the economy and higher inflation expectations. There is no bond bubble and it will not burst. The Fed will not allow this. If you are dumb enough to own Treasuries beware. The government is printing money to debase the dollar. You will always get your principal back with interest, but will likely lose substantial purchasing power due to inflation in the future.

    5. Residential Real Estate Position: BULLISH BULLISH BULLISH.

    If you can qualify for a 4% or less mortgage, this is the best time to buy a home. The Federal Reserve led by kamikaze Ben Bernanke has lowered mortgage rates to near all-time lows. If you buy a house, you are in essence betting on inflation which is exactly what the Fed is trying to engineer. This bet is going to pay off for you in a huge way in the future. You would have locked in a super low interest rate of 4% when historical inflation is 3%. This means that in real inflation adjusted terms, you are borrowing money for 1%. Great deal for consumers. Furthermore, with the illegally printing money, homes prices should increase over the next 1-5 years substantially (10-20%). If you put 10% down, a 10% increase doubles your investment.

    6. Trade for the Week Position:

     Buy Imperial Tobacco ( This is the ADR for Imperial Tobacco company which is a large multinational tobacco company with steady profits and addicted customers. Not a bad combination. The stock has strong support at $70.40. I expect a bounce to $73.50.

    Happy Trading Everyone!

    Black Swan Insights


    Buying GLD: A Golden Opportunity For Contrarian Investors

    Back from hiatus. As frequent readers will remember, gold remains a core part of my portfolio (since the beginning of QE madness from the FED). However, from time to time I will take a trading position in the yellow metal when opportunities present themselves. Well, that time is now upon us. I am buying GLD.


    Gold has been in a downtrend since reaching its high back in 2011 around $1913. Recent selling has been initiated on the (I believe) false assumption that QE 3 is off the table. Wrong! Another month of weak unemployment numbers will almost certainly force the Fed into more QE (maybe sterilized in some form) to force long term interest rates even more. QE=Money Printing=Dollar Debasement=Higher Nominal Asset Prices. No rocket science here. 

    However, the market has failed to realize that QE is back on the table. This case is especially true in Europe where the ECB will be forced into doing more to stop the bleeding. The European public does not want more austerity (outside of Germany). They want more government spending financed by money printing. ECB will initiate more QE or expand its current refinancing operations. 

    Sentiment on gold is extremely negative which from a contrarian perspective is positive. According to the Hulbert gold newsletter sentiment index (a collection of market timers) the crowd is now short gold-- Here is an excerpt, "Today, in contrast, it is at minus 14.8%, which means that the average gold timer is now allocating about a seventh of his gold-oriented portfolio to shorting the market."

    As usual these professional market timers are almost always wrong. They are bullish at the top of the market and bearish at the bottom. So I will be happy to buy when they are shorting.

    Obviously, gold could go lower, but the odds favor that we are approaching a major bottom in gold.

    Black Swan Insights


    Head and Shoulders Top on Silver Wheaton (SLW)

    My silver bug friends are going to hate me for this, but it looks like Silver Wheaton (SLW) is completing a massive 11 month head and shoulders top formation. If this pans out, the price target is around $15, which would suggest a steep 50% decline for the stock. See weekly chart below

    Along with a strong bearish technical pattern, SLW has weak fundamentals. The price of silver is falling with the whole commodity complex as the world starts to price in a collapse of the euro and a hard landing in China. Silver is now below its 200 day moving average and officially in a bear market (20% off its high). From a macro outlook, general market conditions do not favor a higher stock price for SLW. About the only positive you can say about SLW is that it is short-term oversold.

    FD: I am going to short SLW on Monday at the open. To hedge any possible loss on this trade, I am going to purchase the Oct 29 call option. I prefer this to a simple stop loss. Why? HFT manipulation has made stop losses very risky (alla May 6 flash crash).

    Update: Postion filled at 30.14 at the open.

    Black Swan Insights


    Scared To Death: Investment Manager Sentiment Plummets to March 2009 Levels

    Considering that the market has done nothing for the last few weeks, except bounce up and down in a very tight range, one would think that sentiment has cooled off from August's market crash. You would be wrong. The NAAIM sentiment survey released today shows that investment managers are practically on the ledge and ready to jump to their own deaths to escape this vicious market turmoil. Apparently, they just realized that their end of year bonus is not going to be filled with gold or jewels, but instead with a lump of coal thanks to their poor performance. NAAIM sentiment came in at 4.18, a level not seen since the March 2009 lows. This also means that investment managers are so depressed that they are almost completely net short (with leverage). It should be remembered that this is a contrary indicator. You generally make money by doing the exact opposite of these pigeons. Right now it is saying that we may be nearing an important low in the market. This is quite interesting because other sentiment indicators like the AAIII poll are not confirming excessive bearishness.

    One thing to keep in mind when trying to use this indicator for market timing. Back in March 2009 when the market was bottoming, the NAAIM survey held below 10 for three weeks. So it is not a perfect timing indicator, but certainly one worth following.

    3/4/2009      2.15
    3/11/2009    4.23
    3/18/2009    9.97

    Black Swan Insights


    Quick Update: Closing Sugar Short

    All good trades must come to and end as they say. The time has come for my Sugar short. I caught a nice 14% downside move that was pretty much straight down. It would be piggish of me to press the short any further. When you trade on leverage, you cannot risk a large oversold bounce (you never know if it is the beginning of a large move higher or just a technical bounce).

    So why did this trade work so well? Luck. When I shorted sugar the fundamentals were beginning to sour along with a negative technical backdrop. Furthermore, all soft commodities were weak during this period, which pressured sugar lower. In short, the general conditions favored lower sugar prices.

    I might consider shorting sugar again on a possible bounce higher.

    Related Articles

    Shorting Sugar
    Update on the Sugar Short

    Black Swan Insights