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Stress Test: How to Find the Safest Banks in the U.S. and Abroad

By Elliott Wave International

Stress test results for the biggest European banks were recently released, while the largest U.S. banks took their first stress tests in May 2009. But most people don’t really care how much stress their banks are under; they are more worried about their own stress levels. One thing that adds to personal stress is worrying about whether their deposits are in a safe place. Bob Prechter has encouraged people to find the safest banks for their money since he originally wrote his New York Times best-selling book, Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression in 2002. This excerpt explains why banks of all sizes are riskier than they used to be (think about portfolios stuffed with derivatives, emerging market debt and non-performing commercial loans). You can also get a list of the Top 100 Safest U.S. Banks — two banks per state — that was just updated in late June with the latest available data by joining Club EWI and receiving EWI’s Safe Banks report.

* * * * *
Excerpted from Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression, by Robert Prechter

Many major national and international banks around the world have huge portfolios of “emerging market” debt, mortgage debt, consumer debt and weak corporate debt. I cannot understand how a bank trusted with the custody of your money could ever even think of buying bonds issued by Russia or Argentina or any other unstable or spendthrift government. As At the Crest of the Tidal Wave put it in 1995, “Today’s emerging markets will soon be submerging markets.” That metamorphosis began two years later. The fact that banks and other investment companies can repeatedly ride such “investments” all the way down to write-offs is outrageous.

Many banks today also have a shockingly large exposure to leveraged derivatives such as futures, options and even more exotic instruments. The underlying value of assets represented by such financial derivatives at quite a few big banks is greater than the total value of all their deposits. The estimated representative value of all derivatives in the world today is $90 trillion, over half of which is held by U.S. banks. Many banks use derivatives to hedge against investment exposure, but that strategy works only if the speculator on the other side of the trade can pay off if he’s wrong.

Relying upon, or worse, speculating in, leveraged derivatives poses one of the greatest risks to banks that have succumbed to the lure. Leverage almost always causes massive losses eventually because of the psychological stress that owning them induces. You have already read of the tremendous debacles at Barings Bank, Long-Term [sic] Capital Management, Enron and other institutions due to speculating in leveraged derivatives. It is traditional to discount the representative value of derivatives because traders will presumably get out of losing positions well before they cost as much as what they represent. Well, maybe. It is at least as common a human reaction for speculators to double their bets when the market goes against a big position. At least, that’s what bankers might do with your money.

Today’s bank analysts assure us, as a headline from The Atlanta Journal-Constitution put it on December 29, 2001, that “Banks [Are] Well-Capitalized.” Banks today are indeed generally considered well capitalized compared to their situation in the 1980s. Unfortunately, that condition is mostly thanks to the great asset mania of the 1990s, which, as explained in Book One, is probably over. Much of the record amount of credit that banks have extended, such as that lent for productive enterprise or directly to strong governments, is relatively safe. Much of what has been lent to weak governments, real estate developers, government-sponsored enterprises, stock market speculators, venture capitalists, consumers (via credit cards and consumer-debt “investment” packages), and so on, is not. One expert advises, “The larger, more diversified banks at this point are the safer place to be.” That assertion will surely be severely tested in the coming depression.

There are five major conditions in place at many banks that pose a danger: (1) low liquidity levels, (2) dangerous exposure to leveraged derivatives, (3) the optimistic safety ratings of banks’ debt investments, (4) the inflated values of the property that borrowers have put up as collateral on loans and (5) the substantial size of the mortgages that their clients hold compared both to those property values and to the clients’ potential inability to pay under adverse circumstances. All of these conditions compound the risk to the banking system of deflation and depression.

Financial companies are enjoying big advances in the current stock market rally. Depositors today trust their banks more than they trust government or business in general. For example, a recent poll asked web surfers which among a list of seven types of institutions they would most trust to operate a secure identity service. Banks got nearly 50 percent of the vote. General bank trustworthiness is yet another faith that will be shattered in a depression.

Well before a worldwide depression dominates our daily lives, you will need to deposit your capital into safe institutions. I suggest using two or more to spread the risk even further. They must be far better than the ones that today are too optimistically deemed “liquid” and “safe” by both rating services and banking officials.

Deflation: How To Survive It

Important warnings about deflation from Robert Prechter.

By Elliott Wave International

Telegraph.go.uk, May 26: “US money supply plunges at 1930s pace… The M3 money supply in the U.S. is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.”

Deflation is suddenly in the news again. It’s a good moment to catch up on a few definitions, as well as strategies on how to beat this rare economic condition.

And who better to ask than EWI’s president Robert Prechter? He predicted the first wave of deflation in the 2007-2009 “credit crunch” and has written on this topic extensively.

We’ve put together a great free resource for our Club EWI members: a 63-page “Deflation Survival Guide eBook,” Prechter’s most important deflation essays. Enjoy this excerpt — and for details on how to read the eBook in full free, look below.

Following the Great Depression, the Fed and the U.S. government embarked on a program…both of increasing the creation of new money and credit and of fostering the confidence of lenders and borrowers so as to facilitate the expansion of credit. These policies both accommodated and encouraged the expansionary trend of the ’Teens and 1920s, which ended in bust, and the far larger expansionary trend that began in 1932 and which has accelerated over the past half-century. Other governments and central banks have followed similar policies. The International Monetary Fund, the World Bank and similar institutions, funded mostly by the U.S. taxpayer, have extended immense credit around the globe.

Their policies have supported nearly continuous worldwide inflation, particularly over the past thirty years. As a result, the global financial system is gorged with non-self-liquidating credit. Conventional economists excuse and praise this system under the erroneous belief that expanding money and credit promotes economic growth, which is terribly false. It appears to do so for a while, but in the long run, the swollen mass of debt collapses of its own weight, which is deflation, and destroys the economy. A devastated economy, moreover, encourages radical politics, which is even worse.

The value of credit that has been extended worldwide is unprecedented. Worse, most of this debt is the non-self-liquidating type. Much of it comprises loans to governments, investment loans for buying stock and real estate, and loans for everyday consumer items and services, none of which has any production tied to it. Even a lot of corporate debt is non-self-liquidating, since so much of corporate activity these days is related to finance rather than production.

Figure 11-5 is a stunning picture of the credit expansion of wave V of the 1920s (beginning the year that Congress authorized the Fed), which ended in a bust, and of wave V in the 1980s-1990s, which is even bigger.

…it has been the biggest credit expansion in history by a huge margin. Coextensively, not only is there a threat of deflation, but there is also the threat of the biggest deflation in history by a huge margin. …

The Federal Reserve Does NOT Control the Market

FREE eBook reveals why the Fed is powerless to change the economic course

By Elliott Wave International

As the world’s leading stock markets continue to play stomach-hockey with investors via one triple-digit turn after another, the mainstream community takes solace in this core belief: No matter how uncertain things become, the Federal Reserve can at any moment swoop in to set the economy right.

In reality — the Fed has no such power. This is the revelation of Elliott Wave International’s newest complimentary resource from Club EWI: the 35-page eBook titled “Understanding the Fed.” Including excerpts from the selected works of EWI President Robert Prechter — including his 2002 book “Conquer the Crash” and several past “Elliott Wave Theorist” publications — this riveting report exposes once and for all the most dangerous myths about the Federal Reserve.

Chapter 3 (of the 8-chapter anthology) attends to the “Potent Directors Fallacy” — i.e., the false notion that the central bank is in control of the U.S.’s money, market, and economy — and offers this “Conquer the Crash” insight:

“For recent examples of the failure of the idea of efficacious economic directors, just look around. Since Japan’s boom ended, its regulators have been using every presumed macroeconomic ‘tool’ to get the Land of the Sinking Sun rising again, as yet to no avail. The World Bank, the IMF, local central banks, and government officials were ‘wisely managing’ South East Asia’s boom until it collapsed spectacularly in 1997. In America, the Federal Reserve has lowered its discount rate from 6% to 1.25%, an unprecedented amount in such a short time… What will it do if the economy resumes its contraction; lower rates to zero?“

Note: The underlined sentence above was written in 2002. Today, that forecast has come to fruition after the Fed’s rate-slashing campaign since September 2008 has brought rates to the zero level.

Chapter 3 then goes on to explain WHY the Fed’s monetary policy failed to lift the hot-air balloon of the economy out of the violent credit and housing downdraft. Here, the eBook writes:

“The Fed’s ultimate goal is to influence public borrowing from banks. During economic contractions, banks become fearful. At such times, low Fed-influenced rates cannot overcome creditors’ disinclination to lend and/or customers’ unwillingness or inability to borrow. Thus, regardless of assertions to the contrary, the Fed’s purported ‘control’ of borrowing, lending, and interest rates ultimately depends upon an accommodating market psychology and cannot be set by decree.”

Once again, flash ahead to today and the disintegration of optimism and shift toward conservation can be seen in the following data from February 2010:

• Year-over-year bank credit was (negative) – 6.8% vs. 10% in 2007
• Loan availability to small businesses plunged to the lowest level since interest rate crisis of 1980, thus drying up a major means of debt repayment.
• The number of banks tightening their lending standards has soared, while consumer credit and tax revenue is plunging.
• And, residential and commercial mortgages are plunging, as more and more home/business owners are walking away from their leases.

In Bob Prechter’s own words: Once you can assimilate the truths contained in this eBook, “you will have knowledge of the banking system that one person in 10,000 has.”

Do you want to really understand the Fed? Then keep reading this free eBook, “Understanding the Fed”, as soon as you become a free member of Club EWI.

Prechter Describes The “Stunning Long-Term Elliott Wave Picture”

By Robert Folsom, Elliott Wave International

Please join me to consider a time in the stock market that lasted just under three years: 32 months, to be precise.

During this period a series of powerful rallies stand out clearly on a price chart. The shortest of these rallies was four weeks, the longest more than five months.

I can even list seven of these rally episodes, with the number of calendar days and percentage gains.

1.  152 days     +52%
2.  28 days       +11%
3.  77 days       +19%
4.  69 days       +27%
5.  31 days       +30%
6.  35 days       +39%
7.  28 days       +27%

Get Robert Prechter’s Latest Analysis — Click Here to Download His 10-Page Market Letter FREE
For a limited-time, you can download Robert Prechter’s April 2010 Elliott Wave Theorist, the first in a two-part series entitled “Deadly Bearish Big Picture,” for FREE! Click here to learn more and download your free Theorist.

This information obviously seems to paint a bullish picture: The stock market was in double-digit rally mode during 43% of the total calendar days in question.

But in fact, those rallies were the days when the bear was catching his breath. The market was the Dow Jones Industrials; the overall period was from November 1929 to July 1932. It devastated investors. The Dow lost 80% of its value. Yes, that includes the rallies listed above.

I said that these rallies stand out on a price chart, and indeed they do — it’s just that the declines stand out even more. There’s virtually no “sideways” action. Prices moved rapidly in one direction or the other.

You can see the chart for yourself in the first issue (April issue, page 4) of the two-part series Bob Prechter has published in The Elliott Wave Theorist. Part One was in April, “A Deadly Bearish Big Picture.” The final sentence of that issue said Part Two “will update the stunning long-term Elliott wave picture.”

Bob just published Part Two. It completes the “Big Picture” he has now delivered to subscribers.

The past doesn’t “define” the present or the future, but it sure does provide context. No analyst alive today understands this better than Bob Prechter.

Believe me when I say that the charts and analysis in this two-issue series are unique. The word “stunning” only begins to describe what you’ll read.

Get Robert Prechter’s Latest Analysis — Click Here to Download His 10-Page Market Letter FREE
For a limited-time, you can download Robert Prechter’s April 2010 Elliott Wave Theorist, the first in a two-part series entitled “Deadly Bearish Big Picture,” for FREE! Click here to learn more and download your free Theorist.

Raising The BAR: Bar Patterns & Trading Opportunities

How a 3-in-1 formation in cotton “triggered” the January selloff
April 17, 2010

By Nico Isaac

For Elliott Wave International’s chief commodity analyst Jeffrey Kennedy, the single most important thing for a trader to have is STYLE– and no, we’re not talking business casual versus sporty chic. Trading “style,” as in any of the following: top/bottom picker, strictly technical, cyclical, or pattern watcher.

Jeffrey himself is (and always has been) a “trend” trader, meaning: he uses the Wave Principle as his primary tool, with a few secondary means of select technical studies. Such as: Bar Patterns. And Jeffrey counts one bar pattern in particular as his favorite: the 3-in-1.

Here’s the gist: The 3-in-1 bar pattern occurs when the price range of the fourth bar (named, the “set-up” bar) engulfs the highs and lows of the last three bars. When prices penetrate above the high — or — below the low of the set-up bar, it often signals the resumption of the larger trend. Where this breach occurs is called the “trigger bar.” On this, the following diagram offers a clear illustration:

Now, how about a real world example of the 3-1 formation in the recent history of a major commodity market? Well, that’s where the picture below comes in. It’s a close-up of Cotton from the February 5, 2010 Daily Futures Junctures.

As you can see, a classic 3-in-1 bar pattern emerged in Cotton at the very start of the New Year. Within a few day the trigger bar closed below the low of the set-up bar, signaling the market’s return to the downside. Immediately after, cotton prices plunged in a powerful selloff to four-month lows.

February arrived, and with it the end of cotton’s decline. In the same chart you can see how Jeffrey used the Wave Principle to calculate a potential downside target for the market at 66.33. This area marked the point where Wave (5) equaled wave (1), a reliable for impulse patterns. Since then a winning streak in cotton has carried prices to new contract highs.

This example shows the power of a fully-equipped technical analysis “toolbox.” By using the Wave Principle with Bar Patterns, one has a solid, objective chance of anticipating the trend in volatile markets.

And in a 15-page report titled “How To Use Bar Patterns To Spot Trade Set-ups,” Jeffrey Kennedy identifies the top SIX Bar Patterns included in his personal repertoire. They are Double Inside Days, Arrows, Popguns, 3-in-1, Reverse 3-in-1, and Outside-Inside Reversal.

In this comprehensive collection, Jeffrey provides each pattern with a definition, illustrations of its form, lessons on its application and how to incorporate it into Elliott wave analysis, historical examples of its occurrence in major commodity markets, and ultimately — compelling proof of how it identified swift and sizable moves.

Best of all is, you can read the entire, 15-page report today at absolutely no cost. You read that right. The limited “How To Use Bar Patterns To Spot Trade Setups” is available with any free, Club EWI membership.

Elliott Wave International’s Understanding the Fed eBook is now available

Dear reader,

My friends at Elliott Wave International have just released a free 34-page eBook, Understanding the Fed. It’s the free report the Federal Reserve doesn’t want you to read!

This eye-opening free report, which represents more than 10 years of research by Robert Prechter, goes beyond the Fed’s history and government mandate; it digs into the Fed’s real motivations for being the United States’ “lender of last resort.” In this 34-page report, you’ll discover how the Fed’s actions, combined with public outrage, may ultimately lead to its demise, plus much more about its secret activities and how it affects your money.

Download your free copy of EWI’s Understanding the Fed eBook, here.

Warmest regards,
Alan
———-
About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

Free “end-of-day” Forex group coaching program

Dear Forex traders,

Here’s the scoop…

TOMORROW, on Monday, March 8th, 2010, the doors finally open to
35+ year market veteran Bill Poulos’s brand new “end-of-day”
Forex group coaching program.

As is par for the course with Bill’s releases, he’s limited the
number of new students he lets in to the program.

So to further help “weed out” the tire-kickers, Bill just
released a TON of extra Forex training materials that he put on
a special Member’s Website Preview for you.

Here are just a few of the goodies you’ll get on the preview
site, beginning TODAY:

** Preview access to his PIP FEEDER service where you can get
daily lists of the Forex pairs that have met his rigorous
trade alert criteria. In fact, these are Forex pairs that
have a high probability of entering into potentially
profitable positions any day now. He’ll eventually be
charging $197/mo for this service, but you can see a sneak
peek for a few days.

** The “Pip Vault”, which contains actual Forex trade example
“screen capture” videos, so you can see exactly how you
can trade in less then 20 minutes a night.

** Day-by-day “trade diaries” that show you the trading
decisions Bill has made each night on some really
great trades (you’ll also see a trade that’s not really going
anywhere yet, and how he manages that situation).

** Previews of the actual CD-ROMs that ship with the course so
you can see exactly the type of material that’s on them.

** and a TON more…

But don’t take my word for it. Go ahead and check it out now by
visiting the web page here now:

http://www.smartforextraining.com/y/?i=773362&u=1&l=f90

Your username is: readyto
Your password is: enroll

Good Trading!

p.s. This complimentary preview access will be expiring in a few
days, and likely taken offline, so I urge you to get in now
while you can if you have any interest learning how to
dramatically up your “pip potential” while saving hours a day at
the same time.

Get in here:

http://www.smartforextraining.com/y/?i=773362&u=1&l=f90

A trading system that doesn’t cost a dime

Hi,

Did you take the short quiz I blogged about the other day? How’d you do?

If not, here’s the link again.
http://www.netpicks.com/cmd.php?af=1004071&u=http://www.highvelocitymarketmaster.com/quiz/quiz.html

I have to admit, I missed one question.  Those “all of the above”
type questions can be tricky.

The nice thing is, even if you don’t ace the quiz you still have a
shot at winning an entire High Velocity Market Master system!
Just be sure you sign-up for the webinar
Wednesday February 17th at 12:00pm EST/ 9:00am PST/5:00pm GMT.

http://www.netpicks.com/cmd.php?af=1004071&u=http://www.highvelocitymarketmaster.com/surprise

The webinar will be action packed.  The guys over at the HVMM
headquarters have some BIG news to reveal…I got a little sneak
peak and trust me…you don’t want to miss this!

Happy Trading,
Alan

P.S.  If you’d like a hint of what to expect in the webinar, make
your way to the HVMM blog and catch a little sneak peak…

http://www.netpicks.com/cmd.php?af=1004071&u=http://www.highvelocitymarketmaster.com/blog/

Something to jump start your capital growth

Hey,

I know many of you were wondering about the High Velocity Market Master
because of the Capital Growth App, so I got you more details…

Here’s a quick video showing the HVMM work its magic on the futures market:

http://www.netpicks.com/cmd.php?af=1004071&u=http://www.highvelocitymarketmaster.com/blog/?p=382

Once you’ve watched that video, there is something else you must see.

Those crazy dudes at the HVMM headquarters love to give things away. They
gave you the Capital Growth App and now they’re moving on to even bigger
things. They’re actually challenging you to a quiz and giving away an
entire High Velocity Market Master course!

Just as the Capital Growth App is universal, so is the HVMM. It works on
any market and timeframe. Whether you are a day trader or swing trader
that trades forex, futures, stocks or options you’ll want to step-up to
this challenge.

Why participate in this little contest?

Well, for starters you get an entire trade system, training course, and
indicator suite all for no cost! (This is the same system that saw *28
straight positive sessions*). You’ll also get to test your trade knowledge
and assuming you ace the quiz you’ll get bragging rights too! ; )

To win a copy of the HVMM just take the short quiz, answer the 9 questions
and make sure you enter your email address at the end. As long as you
complete the quiz you’ll be entered to win, no matter what your final score
is.

Enter the contest now:

http://www.netpicks.com/cmd.php?af=1004071&u=http://www.highvelocitymarketmaster.com/quiz/quiz.html

The winner will be chosen and revealed on Wednesday, February 17th at
12:00pm EDT/ 9:00am PST/5:00pm GMT. You must be present to claim your
prize.

Don’t miss your name being called. Register for the webinar here:

http://www.netpicks.com/cmd.php?af=1004071&u=http://www.highvelocitymarketmaster.com/surprise

Best of luck!

Happy Trading,
Alan