War Room Briefing Tuesday, March 1

Claus,
Please answer these questions for your subscribers:
- It has been 2 years since the launch of this MDCP portfolio. Why do you continue to be on the wrong side of the markets and continue to lose money for your clients? No matter what stocks you recommend to buy or sell, we seem to take a beating. I have been with you for the full 2 years, and have done nothing but lose $$ by following your recommendations. Why should anyone listen to your technical analysis and advice? Please do what a man of pride and dignity would do and own up to your poor performance.
Thanks!

Well Claus it’s been nearly 2 years and we’re still losing money. Yet each war room comes with new predictions for the impending collapse of the financial system if we just wait a little longer. So each month the carrot dangled in front of MDCP subscribers (i.e. the promise to right the portfolio) is held just a little farther beyond our noses. So we continue to wait and languish in short positions while the market continues it’s inexhorable climb. What ever happened to making money in any market conditions? Does anybody recall early on when Martin actually congradulated Claus for not losing more money? I’d be willing to bet that Martin is not so enamored with Claus’ performance now.

More of the usual disappointing news in connection with one of the MDCP’s portfolio holdings, ZSL /ProShares UltraShort Silver. One Friday February 25′th ProShares announced a 1:4 reverse stock split meaning for every 4 shares of ZSL you currently own you’ll get 1 new share.
This reverse stock split in ZSL is not a good thing in this particular case. It is indeed essentially an stunning admission by ProShares that as an investment ZSL has been nothing but a loosing bet on the direction of silver.

This 1 new ZSL share for 4 old ZSL shares (that’s the ones we own, the old shares) means that now the MDCP’s newly adjusted cost basis for each share of ZSL is approximately $44.04 not the old figure of $11.01. Considering the newly adjusted price close on Friday of $31.83 the MDCP is currently sitting on a loss of $12.21 per share of ZSL or in percentage terms a loss of 27.72% !!!

Unfortunately for ZSLs’ equity holders as well as holders of any currency or commodity ETFs is that they usually fail to “do their homework” in the infamous words of Jim Cramer, before buying any investment. Why I point out ZSL here is because it is a commodity ETF and below in bold is subject to the following government mandated wording in its’ sales prospectus:

Commodity and Currency [ProShares] ETFs are not regulated under the Investment Company Act of 1940 and are NOT AFFORDED ITS’ PROTECTIONS. Investing in ETFs involves a substantial risk of loss.

Leveraged and inverse ProShares such a ZSL seek returns that are multiples or inverse multiples (e.g., 2x, -2x) of the return of an index or other benchmark (target) for a single day. Due to the compounding of daily returns, leveraged and inverse ProShares’ returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. Investors should monitor their holdings consistent with their strategies, as frequently as daily. For more on correlation, leverage and other risks, please read the ProShares prospectus.

Regrettably my prediction last week that despots like Mubarak, Ahmadinejad and Khadaffi would do more to raise the value of the MDCP’s portfolio [which consistently for the past two years has mis-timed nearly every single equity purchase and sale] than Claus has been able to achieve.

Although the blog entry I cited was published by the MDCP on Monday the 21′st of this month dated as written on Sunday Feb. 20′th. In actuality I began writing that particular blog entry late Friday evening the 18′th. Sadly, yet again, what seemed obvious to most had once more eluded the MDCP and its’ management. Respectfully, I say to you that I now believe that your inability to accurately time the overwhelming number portfolio moves may be a direct result of not incorporating the ‘new reality’ into your thinking as well as the monumental failure to accept the most basic of investment tennats, as those uniquely American expressions go: ‘Don’t fight the Fed.’, ‘ You’ll go broke long before the market will’, ‘Don’t fight the trend’ and my personal favorite ‘The trend is your friend’ as well as a host of other common sense axioms.

Claus, being an educated man and a professional money manager you more than most should have known very early on that quantitative easing, by its very nature when used as a tool in the manner Chairman Bernanke is using it for, would be extremely bullish for stocks. Over the past several years begining March 9, 2009 we have once again seen proven quite credibly the various positive and negitive implications and unintended consequences produced by quantitative easing and its artificially produced distortionary effects upon markets and prices in a positive way.

I therefore cannot understand the logic of positioning the porfolio predominately in inverse ETFs while during that same time frame the Federal Reserve Bank had been simultaneously engaged in quantitative easing, again a practice well known by Keynesian economists and its’ devotees to be generally very bullish for stocks. I dare say a practice equally as well known to adherents of the ‘Austrian School’ whose ‘hands off’ approach by governments, banks and others to the workings of a normally functioning free market and economic mechanisms informs us that any artificial or external practice or action that seeks to influence a market such as quantitative easing in hopes of producing a desired effect by artificially altering a free market’s natural course will result in eventual failure. What was your purpose in continuing to hold onto these inverse ETFs especially after Bernanke not only reiterated his intention to continue the practice of quantitative easing that he had already begun? Even more inexplicable was the addition of still more positions in inverse ETFs after FRB Chairman Bernanke and Treasury Secretary Geithner began speaking of QE2.

Chairman Bernanke by his own admission stated that he and former Secretary of the Treasury, Hank Paulson agreed in 2008 on employing the use of QE in conjunction with lower interest rates and TARP as their initial primary course of action in dealing with the growing global financial crisis. In early 2009 Ben Bernanke testifying before the US Senate Sub-Committee on Banking stated that the Federal Reserve Bank had already begun buying US debt instruments (quantitative easing / QE1). The information revealed by the Federal Reserve pertaining to its’ ongoing QE operation was not hidden from the public whatsoever. Indeed the Fed.’s actions were reported in and on the following sources: The Wall Street Journal (North American, Asian and European editions), Barrons, The New York Times, The International Financial Times, Investors Business Daily, The Financial Times of London, Morningstar, CNBC (North American, South American, Asian and European broadcast outlets), Bloomberg (North America, Asian and European broadcast outlets), Fox Business, The Associated Press (AP), the United Press International (UPI), ABC, NBC, CBS, MSNBC, CNN, CNN International, FOX, RT (Russia Today), Die Welt, the BBC, BBC World, even by China’s Xinhua News Agency and multiple times along with in depth situational coverage and analysis in Der Spiegel (The Mirror).

In the end it all boils down to this Claus, if you knew that quatatative easing was bullish for equity markets and that the Federal Reserve had been engaging in the practice of quantatative easing before and/or shortly after the MDCP came online why would we ‘load up’ on inverse ETFs? It was you that informed [taught] us that economic cycles and policies can and do frequently last for years. Giving you the benefit of the doubt and assuming that QE was instituted shortly after the MDCP began operations rather than pre-MDCP why then didn’t we rid the portfolio of the majority of inverse ETFs and go long? Wouldn’t that have been the most logical course of action knowing that QE in its’ initial stages is exceptionally bullish for equity markets then becomes bullish for commodities in its mid to latter stages but is a practice which has quite a long term negitive effect upon the value of the underlying fiat currency, in this case the US dollar?

Taking into consideration the fact that we bought gold in the eighth year of what is now the tenth year of a bull market in gold the mere fact that one of the two individual gold mining companies that the portfolio owns, Kinross Gold Corp. /KGC has a 15% loss! This despite the fact that gold is literally trading within several dollars of its all time high price. How can this type of investing be explained logically using common sense and time tested proven sound investment techniques?

I’d still be interested in hearing why after owning SEF and SH previously, with two losses in both positions why it was important to get back into them for a third time loss?

I would never expect anyone to be on the right side of every trade, but I thought risk management meant not letting losing trades turn into really big losers by using effective stops. Why do we ride the losers further and further down. I imagine at some point Claus will be right and the market will correct, but I wonder if we’ll recoup all the money we’ve lost. Didn’t Claus say he would sell his inverse positions when the S&P got to approximately 1256? What changed?

Claus Your portfolio record is in error with regard to ZSL holding . We have have 25-30% and not earned 177%. please correct!!

You may be right in the future but I’ll not be around to see it unless you advertise it on the free Uncommon Wisdom mailings. Fortunately I closed my short positions in the QQQQ and Russell 2000 many moons ago with very small loses and was stopped out of my ZSL holding using Larry Edelson’s stops. Maybe you should take a tutorial from him regarding TIMING. Worse $2500 dollars I have spent recently.

Regards,

Tom Ewing

In mid to late December, the markets broke above resistance by your 3%. At that time you said if this area holds, you would sell (or at least reduce) our inverse positions. Not only did this area hold, it was never really tested. I know your indicators are looking bearish but one has to obey what the market is telling you. I would like to understand why you didn’t follow what you said you would do when the market told you to do it. Thanks.

Hi Dan,
Just for clarification Claus stated that if the S&P 500 Index reached 1225 he would sell the portfolios’ positions in inverse ETFs. I have that statement filed along with Claus’ stated intention to buy additional positions in gold when gold underwent any price corrections/price pullbacks.
Gold’s price pulled back significantly during the following periods over the last two years:

March 2010
May 2010
July 2010
October 2010
November 2010
January 2011

In fact January 2011′s pullback in gold’s price took it down to levels that were last seen in October 2010. This constituted a significant pullback in the price of gold by any standard of measurement. Did we add any new positions in gold as Claus stated we would during this pullback? In short…… no. Incredibly we actually shorted silver only to watch it steadily rise toward $35/.oz while ZSL steadily lost 28% of its’ value.

Your line in the Sand.

Hi Claus, first let me observe that timing markets is extremely difficult. I can’t fault you for being a correct judge of fundamentals but yet failing to predict how the markets will play out and when. By their nature, they are irrational, but yet will behave according to fundamentals. Timing is the issue — no bashing of you here.

Now for the question (and the preamble, you can delete if you chose to answer this one in your webcast). What is your absolute “line in the sand.” You once said it was S&P at 1200. Do you still have a ‘line in the sand’ or are you holding out for a little more risk to the upside, having continued confidence in a crash that takes that 1200 number a bit higher?

Claus,

I am amazed at your lack of progress in the managed (??????????) portfolio. We have riden stocks up only to see the gains evaporate before selling. We have maintained inverse positions and stood by while the values evaporated. It looks to me as though we are in a non managed protfolio. We could have done just as well with a dart board.

How low will you let ZSL go before you decide that the previous correction in silver was all that we are to expect?

The ISM came in today at 71.2. This indicates the manufacturing sector is expanding. This usually is bullish for the market. Comments?

I chart Elliott Wave patterns:
In silver 5th wave of C either here or at apx 38.
Gold is much the same.
Both have a super high rates of bulls.

S&P, DJA, NASDAQ and other are over bullish (88%) and have finished 5 waves for 2?
Alterantive would be 1 with a huge wave 3 coming? Compared to 1982 there were only 18% bulls vs now 88%.
I doubt this alternative but that probably makes it in play.

T-bonds should go to at least 96, maybe higher then 3rd wave down and yields higher.

You do not need to make any comments. Just my thoughts.
Larry

My question is would be the following.

If Congress does cut spending to balance the BUDGET for 2012. No matter where the cuts come from, wont it be a disaster for the market?
If they change the tax code to the Fair Tax wont that also in the short term be a disaster for the market?

I also see Emerging markets beginning a new Bear. Should would buy EEV?

Sorry:

Your book is the Best book since “the Intelliget Investor”.
I have given away 10 copies+.
Thanks

In order to check to make sure I have not missed some trades due to surgery recovery—how do I access the Contrarian Portfolio?

You have spend NO time talking about the portfolio which has lagged the market for the last two years. Gold has gone up and up and we continue to lose money on Kinross. I am seriously considering canceling my subscribtion. Adding the subscription cost to the losses in the portfolio are creating a huge hole that I am not sure this service will ever dig out of.

i am a long term customer, who has lost millions following your advice.

now want to see what other non sense you have to offer.

How was that you completely missed the direction of SILVER!!!!!!!!! I sold out my SVM and SLM and bought thousands of shares of ZSL…..MY BAD following this bit of advise!!

How about a comment (realistic and direct instead of philosophical palaver). I understand and mostly believe the philosophy ..read the Global Debt Trap…but I want better timing and to make some $$.

Thanx, TE

Yes Claus, please do tell us how this portfolio is on the right tract taking into account the following two situational realities.

1. The MDCP’s performance versus the S&P 500 Index ( the MDCP’s performance measurement standard) stands at – 78% whereas the S&P500 Index stands at +70%

2. Our last trade ZSL has lost nearly 37% in three months or roughly a 10% plus loss each month since the portfolio purchased it. This was one of the “quick trades” that was going to assist in ‘righting the ship’ according to your reading of the precious metals markets.

Respectfully, could you please point out a single MDCP metric that suggests that this portfolio is on the right track to success? Explanation for the examples you might cite as proof demonstrating that the MDCP is on the “right course” to eventual success would naturally be most welcome.
Thank you, Claus

Total Invested $635,158.30
Cash $249,361.50
Total Portfolio Value $884,519.80
Total Return Since Inception -11.55%
S&P 500 Return Since Inception 65.70%
Contrarian Portfolio vs. S&P 500 -77.25%

Claus, Looks to me like we’re still headed the wrong direction. 11.55% (new low for the portfolio).
ZSL closing in on 36% loss. My question is as follows: wasn’t this position highly speculative? and if so – should not a protective stop been used. I personally used the one set by Larry and now am watching this move in the silver market with fascinated amusement.

Kevin calls Bingo @ 10:46 AM EST when ZSL hit an interday trading loss of -40.22%!

Sadly some things as so very predictable.

I just went through the Special Update and Portfolio review, and second email “answering all our questions”. I really want to apologize for asking Claus to take time to address individual positions, since he’s such a macro-economic – guy.
I found it all too be the same song, same verse.
The only thing that was surprising was:
1. That he didn’t recommend a doubling of our ZSL positions because silver is sooo overextended.
2. Glad he’s watching IShares 20+ Treas – TLT closely to soon “get out of this position”.
This is partilarly interesting since it is not in the portfolio – we own TBT – Proshares 20 yr bond.

But who’s got time for details when you are so full of macro.

Number of Holdings: 12
Total Invested……………………………………………… $628,734.02
Cash……………………………………………………………. $249,361.50
Total Portfolio Value…………………………………….. $878,095.52
Total Return Since Inception…………………………. -12.19% <——— A fresh new portfolio low point!
S&P 500 Return Since Inception……………………. +65.51% <——– Insurance against this?
Contrarian Portfolio vs. S&P 500……………………. -77.70%

Why has Eldorado Gold (EGO) gone from a portfolio gain of about 120% to its current gain of only 74% when the price of gold has recently been hitting new highs? That’s a loss in the gain of Eldorado Gold’s price of 46%! Shouldn’t that question have been addressed in the last episode of ‘War Room Theater’ as it represents a rather large loss of value? The same holds true with GDX and its gain as KGC (Kinross Gold Corp) is merrily heading its’ way toward a -20% loss