10:26 am - Market Report by Bill Wermine

Dear Traders,

We may be soon reaching an inflection point. Shanghai is trading at 35 times earnings while Shenzhen is at 45 times while both indexes are up over 90 % this year. Advise to take profits on your China Fund positions and move into gold.

These indexes are in an expanding bubble as sheep investors chase these indexes ever higher like sharks in a feeding frenzy. China markets are prone to sudden meltdowns- last week there was an 8 % drop at one point before recovering later in the week.

Should there be a savage 20 to 30 % correction in China this will pull down world stock markets including the Dow and to a minor extent the high flyers in the KLSE.

How do we preserve our capital in these dangerous times ?

Some talking heads with expensive suits on Bloomberg and CNBC say buy the US Dollar . These fellows are front running for their insider clients who are on the sell side. Remember any information that is free is suspect.

Unfortunately the Dollar Index is in liquidation mode having broken a major support @ 77 on course to a mutiyear low of 66. A few weeks ago I recommended you exit US Dollar currency positions- the advice still holds and buy gold and AUD . You may buy the GDX ETF fund or Am Precious Metals Fund.

George Bernard Shaw advised in 1928 " You have to choose between trusting the natural stability of gold and the honesty and intelligence of members of the government. I advise you, as long as the capitalist system lasts, to vote for gold, "he said.

This advice still stands.


Gold is propped up by ultra low interest rates around the world and massive amounts of money injections by central banks into the global money system.

Hedge funds such as Man are borrowing USD at interest rates close to zero and buying, the AUD at 3 % as well as commodities and stocks. This puts more pressure on the USD.

Do not be afraid of the KLSE corrections and shakeouts that are a natural act. They are the friend of the smart money as they allow ownership to transfer from sheep investors to market tigers. In my managed accounts am maintaining 20 %cash to exploit any shakeout. Will continue to hold our super blue chip dividend payers and Man AHL which is our port in the storm.

For those with Ameritade accounts you may buy the DBA - a grain comodities ETF fund. Soybeans have fallen over 30 % from the highs- and soybean stocks are historically low. With a weakening US dollar, there is limited downside but room on the upside.

This is a simple play- nothing complicated about buying corn, wheat, soybeans, palm oil, rice- no worry about a fraudulent balance sheet
and mulitmillion bonuses to crooked bankers. In fact futures contracts for grains on the CBOT are highly regulated, simple to understand and transparent unlike most other investments available to the investing public. This is also a hedge against currency volatility and stock market collapse.

Have a profitable week,
Bill