NEWSLETTERS & RECOMMENDATIONS - November 20, 2011

Dear Friends & Fellow Traders,

"This is where it gets serious," writes Peter Zeihan, VP of analysis at Stratford, a geopolitical research center, "This is not purely economics. This is about Germany's position in Europe and whether they control the institutions or not."

The financial stability of Europe has come down to one institution, the European Central Bank and its one mandate and who controls it. Germany knows what hyper-inflation is all about and has resisted letting the ECB take-up the role of lender of last resort as our Fed has. Yet, only the ECB has the firepower to save Europe. I'm betting Germany wins but realizes the ECB will have to print money.

Stocks fell on fears on a combination of new possible downgrades tied to European debt and a new found fear of our do nothing Congress. No one expects Congress to do anything. Yet they may surprise us. We'll see soon. Absolutely no attention was paid to this past week’s good economic news.

People are beginning to realize that many well-intentioned people come to Washington looking to fix government only to get caught up in the game. These newbies realize they can become rich beyond their dreams or have so much power they spend every waking hour doing and saying anything to continue in power. They are constantly running for office. Just look at Obama. He's not governing or leading our nation, he's been running for a second term since January. He'll leave office a whole lot richer than he came in.

I have one fear out there right now. I see funds being pulled out of many European Banks. I see European bonds being dumped by the billions. Trillions of worthless assets have to be dumped on the markets over the next 2-5 years at distressed prices to raise needed capital. The good news is that many of our own financial institutions are flush with funds looking to buy this truly depressed paper.

I therefore see the ECB coming in, maybe with the help of the IMF buying unlimited amounts of Euro debt and printing money until the cows come home to save Euroland. There will be an awful price to pay down the road. The one thing I know this crisis has taught me these last many months is that paper money will be worth less (maybe worthless) in the not too distant future.

Paulson, a very large hedge fund manager, has made this bet big time perhaps too early maybe since he has liquidated as much as 1/3 of his GLD positions to meet margin calls and redemptions. However, all his personal dollars remain in gold and has not be sold. I too may have been early as I was looking at January 2013 options. Remember, he was early with the Mortgage Crisis but netted billions later on. I truly believe his huge selling has hurt the gold markets short term. I recently read that worldwide Central Banks were large buyers of gold this past year.

Overall given the news day-to-day we live with maybe further margin selling the markets can trade lower in the short term to retest those October lows. On the other hand, there is so much cash out there looking for returns and investors are so bearish I find it very difficult for the market to breakdown very far. I'm a buyer.

Trade of the Week in Review
The markets pretty broke good support on Wednesday. That was one ugly day. Thursday morning before the markets opened I Alert Emailed subscribers to buy the 124 SPY puts under $1.00 and hedge as usual. The puts opened at $1.15 and we missed them in the Chat Room. So I sent another Alert Email suggesting we start near $1.05. Shortly the puts fell to $0.90. Everyone should have been long by then.

The S&Ps broke even larger support at 1225 shortly thereafter falling as low as the 40% buy of 10/4 low and then held just above the 50 DMA near 1204.The SPY puts hit a high of $2.93. That's a 3X return in a matter of hours! I send another Alert Email suggesting that if the S&Ps were not making lower lows by 3:30 to exit most of the puts but hold a few to go long any overnight weakness.

Thursday’s hedging was nothing to sneeze at either. You could have added another $4,000 to $5,000 more in profit per 10 option contracts to potentially the triple earned with the long puts!

The market rallied back more than 13 points into the close. We got lucky overnight as some news out of Euroland caused the S&Ps to sell off to 1209, near Thursday’s lows. We could have gotten long E-minis again to lock-in our short gains. Our markets promptly rallied back on some good economic reports close to the 1240 break down level where I Alert Emailed before the market opened to sell any long E-minis and hold the puts. That's almost another $2,000 hedged profit! The last of your puts could have been sold near $2.40.

So you made another $2,000 potential profit holding some puts overnight but on the other hand you could have lost $500-1,000 selling your puts Friday morning versus Thursday. See attached Thursday "C" chart, NET Weekly Money Chart 2011-11-18.

I will be out all next week for the holidays. The Chat Room will be open but there will be no notated charts and no Stan’s Blog next week either.

Have a great holiday because we have much to be thankful for.

My best goes out to each and every one of you. Have a Happy Thanksgiving. I will be back the following week.

Good trading,

Stan Moore
702.558.1814