MarketWatch featured an article with the intriguing title “Rescue the economy? Try the SEALS.” Here are some highlights:

President Barack Obama has put the wrong federal agency in charge of the rescue of the financial system. Instead of hiring Tim Geithner and the TARP, he should have hired the U.S. Navy and the SEALs.

Citigroup defended a recent loan promotion that didn’t disclose that the annual interest rate was 30%. The interest rates “compare competitively to similar offers in the market,” a Citigroup spokesman told the Journal. So this is like an offer you can’t refuse?

[My emphasis]

Liar loans, phony appraisals and kickbacks have been the mode of operation for the years leading up to the bursting of the real estate bubble. In order to really rescue the economy those, who led us into this mess, need to first be removed from their positions of power and replaced by management with competence and integrity.

That’s one issue but to me, there is much more at stake. While there has been much talk about outright fraud and deception in the banking and mortgage industry, I have yet to see anyone being brought to justice. Quite the contrary; you only read about the very few who have been let go on good terms, and they are happily sailing into the sunset with their golden parachutes.

This really concerns me, and I have asked myself on many occasions “has the American justice system failed?”

What’s your view?

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Choppy activity, but with an upward bias, pushed the major indexes to their 6th week of gains.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -3.50% thereby confirming the current bear market trend.



The international index now remains -5.84% below its own trend line, keeping us on the sidelines.



For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

Several readers have shared their experience in setting up a SimpleHedge as per my free e-book. The latest comment came from Foster, who wrote the following a few days ago:

I bought SH @75.68 on the Monday (March 23) following your signal. Then JSVAX following day (March 24) @8.25 and ARGFX also on March 24 @19.78. Total investment (about 10% of portfolio) split 50% SH and 25% each the long funds.

I’m now going to rebalance per your guidelines.

To better understand what he has done, I have applied my matrix to demonstrate his hedge:




[Click on chart to enlarge]

Foster was very aggressive with his fund selection ARGFX, which has a Beta of 1.32. While this fund will do well when the markets advance, it may decline faster as the markets retreat. At least that what theory tells us. Nevertheless, he has done extremely well during this short period of time and actually outperformed the S&P; 500, although he was well hedged against any adverse market moves.

Foster was kind enough to allow me to publish his experience, and I will track it in the future to observe the effect of different market conditions as time goes on. It is important for Foster to track his unrealized gains (right now at +4.99%) in order to apply his sell stop down the line.

If this current +4.99% was the highest unrealized gain so far, then his trailing stop loss would be 7% below that point, or at around -2%. If his high so far had been +6%, for example, his sell stop would be triggered if the hedge moves down to -1%.

This means that Foster’s aggressive move with his fund selections has put him in a position where he has very little downside risk. Nice job and thanks for sharing.

Retails sales were the bad boy yesterday as the March numbers came in surprisingly weak.

Economists had been looking for an increase. Hmm, let me see, we’ve had job losses of over 500k per month for the past 6 months or so, and economists expected retails sales to pick up? Who is supposed to be doing the buying?

Maybe it was that wishful thinking again, that the economy is about to turn the corner later on this year. Well, I would not hold my breath or make any bets on that to happen.

Goldman Sachs was in the news again by reporting shockingly strong results. As I said last Friday, whatever banks report does not give me the warm fuzzies. Apparently, I am not the only one:

One analyst chalked up the performance to funds Goldman received from American International Group Inc. after the insurance giant was bailed out by the government.

That said, Greenhaus noted the outcome is what the government was looking for when it gave AIG the original $85 billion in rescue funds. “They wanted that money to filter through the global banking system and help get capital to financial institutions that were in need,” the analyst commented.

[My emphasis]

There you have it. It’s a very fine line between record profits and no longer being a viable enterprise.

I am relieved to see that taxpayer money contributed to Goldman’s survival and shockingly strong results, which can only mean enhanced bonuses for those lucky enough to be at the helm at this time. Looks like cronyism is alive and well.

Things looked a bit shaky on Monday morning as traders pushed the ‘sell’ buttons after a long Holiday weekend and sent the Dow down some 120 points.

Give credit to the financial stocks as the major averages clawed back and ended near the flat line.

Much attention was focused on GM as to whether they are closer to bankruptcy than previously assumed. Apparently, the automobile industry task force has in no uncertain terms told GM to prepare for a June 1 BK filing, just in case they can’t reach an agreement with UAW and its bondholders. Seems to me the thumbscrews have been tightened, but it remains to be seen if there is any adverse market reaction if a bankruptcy filing indeed takes place.

Markets typically react to unforeseen events; this one could be classified as the worst kept secret. There is more talk to possibly split the automaker into a ‘good’ and ‘bad’ company, with the good one retaining the successful automobile brands and the bad one being sold off over the next few years.

Either way, there will be some impact on the forthcoming unemployment numbers as a bankruptcy would certainly guarantee masses of direct and indirect lay-offs. I am not sure if this impact will be strong enough to have an effect on the current market rebound and put into question the preferred view that an economic recovery is looming on the horizon.

Recently, reader G.H. mentioned that he had difficulties when setting up a hedge position (see my free e-book on the topic) using mutual funds on the long side and ETFs on the short side.

Here’s the issue. You enter your (long) positions for your selected mutual funds. The order will be filled at the end of the trading day. How about your short position? If you enter it early in the day, and the market rallies, you’ll end up with a loss for the short position before your hedge is set.

To minimize any adverse market moves, I have waited with my short order until about 20 minutes before the market close to execute it. As luck would have it, the market rallied into the close that day, and left my now filled hedge position with a negative -0.75%. In the past, this type of scenario has at times worked in my favor, and I ended up starting my hedge position with a small profit. So you never can be sure.

Is there a way to avoid this kind of uncertainty and start out a break even point? Yes, there is, and here’s how I solved this issue.

I checked with my custodian’s (Schwab) trading desk, and they confirmed that I can fill an ETF position at very last moment via an order called “market on close.” This has been around a long time, and I remember using it on occasion some 15 years ago.

Since online trading tools do not feature this type of order, Schwab informed me that I can call it in, and they will process it at no extra charge. From hereon forward, this will allow me to set up my hedge at ground zero with no slippage due to market behavior.

I am not sure which other custodians offer this feature, so be sure to check with yours and post your findings in the comment section so that others can share in your experience.