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Saturday, May 2, 2009

Beware the Fickle Market

The Market can be Fickle

So we have watched the market rebound slightly and now head into the historical slowdown months of June – October. As you may remember I have long said that the small rebound we have experienced is a simple manipulation and not truly the beginnings of a bull run. I searched and researched to find any commentary about the incredibly coincidental Q1 profits at Citi=Bank, Wells Fargo etc… simply wanted to make sure that I was not becoming a conspiracy crackpot.

Well this week John Mauldin in his newsletter made some interesting comments:
Banks are not yet lending, and the past quarter's positive performance was mostly accounting gimmicks. Citigroup, for instance, said they made $1.6 billion. They did this by booking a one-time gain of $2.7 billion, because the value of Citigroup bonds have fallen (!), giving them the theoretical possibility of buying back their debt at a discount. And with consumer and credit card loans showing more weakness, Citi decided to REDUCE its loan loss reserves, allowing it to show another $1.3 billion in profit. And then there was the profit of $400 million from the new mark-to-market rules, which allowed them to produce a profit on "impaired assets." Without all these games, there would have been a loss of $2.8 billion.

Accounting gimmicks is a very apt analysis. As we learned with Enron talented accountants can make books and statements say anything they want. Just as the Fed can print money at will key accounting firms can create magnificent fiction. The real concern however is that your money is based upon non-fiction and paper gains do nothing for your future. Just ask those who were invested with Bernie Madoff if paper gains hold any true value.
There are many sound investments in the market place, yet more so then ever you need to focus on clear transparency and proper due diligence. You certainly cannot afford to invest money based upon the tip of the week, or the friend of a friend of a friend. Even when dealing with financial advisors you will need to ask the key questions to determine if they are simply making biased recommendations. Your financial health is more important than ever before as we are in an investment environment like never before. The money managers and investment advisors are seeking to regain their own losses. Your losses in many cases are a secondary concern. It is for these reasons that you need a non-biased totally objective 3rd party to review and identify your financial pathway.
Take a look at and find out how to ensure clear transparency, full disclosure and the due diligence necessary to make smart decisions with money.