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QUARTERLY SMII |
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INSIGHT |
Q1 2014 |
UKRAINE & the PETRO$$ |
Global Shift in LNG Balance |
Vehicle: Gazprom (OGZPY)
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Q2 2014 |
RETAIL CRE |
Collapse in Select REITs |
Vehicle: S&P Retail SPDR (XRT)
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Q3 2014 |
WEAKENING LIQUIDITY "FLOWS" |
Central Bank Reactions |
Likely Scenarios - Still Too Early
Short Equities (Nasdaq / Russell 2000) ONLY if Death Cross Confirmations
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"BEST OF THE WEEK "
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MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - Aug. 10rd - Aug 16th, 2014 |
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Market Analytics |
TECHNICALS & MARKET ANALYTICS |
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CREDIT - Junk Bond Funds Just Experienced A 6-Sigma Event
Junk Bond Funds Just Experienced A 6-Sigma Event 08-12-14 BI
High-yield bond mutual funds saw outflows total an eye-popping $7.1 billion last week.
"HY flowmageddon," said Goldman Sachs' Charles Himmelberg in a research note we saw via @lebullmarche. "This is the largest HY outflow on record – a 6-sigma event when flows are scaled by mutual fund assets under management!"
Sigma is another way of saying standard deviation. And the greater the number of standard deviations, the more unlikely the event.
A 6-sigma event is extremely rare. If you want to put a number to it, think 1 in 500 million. According to Business Insider quant reporter Andy Kiersz, it's like flipping a coin 29 times in a row and getting heads each time. It's like rolling a die 11 times in a row and getting 6 each time.

"High-yield is less overvalued," said Doubleline Funds' Jeffrey Gundlach in a phone call with Business Insider on Friday.
Gundlach stopped short of saying high-yield looked attractive. Himmelberg didn't.
"Our confidence in the buying opportunity in the face of retail selling stems from our belief that credit fundamentals remain supportive, while valuations are now more attractive," Himmelberg said. "Unlike the muni market (where institutional liquidity providers are few), the corporate market has a deep bench of investors who are responsive to value. This is one reason we have long argued that dislocations caused by retail selling present more opportunity than risk."
"[T]he U.S. high yield house is not burning down," said UBS's Matthew Mish. "The real panic will come with a more severe downturn in credit and economic fundamentals, which will likely trigger an exodus from non-institutional and crossover/tourists from U.S. high yield. That moment is unlikely to be a 2014 event."

This is not to say the outflows and price declines will end anytime soon.
"Given the outstanding concerns around rate, credit, and liquidity risks, some will simply choose to exit early – the tack some investors are clearly embracing," Mish said. "How far it extends is anyone's guess, but the run continues and the negative headlines seem unlikely to abate over the near term."
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08-14-14 |
US ANAYLTICS
CREDIT
STUDIES |
ANALYTICS |
RISK-ON--OFF - High Yield CDS and ‘Risky’ Mentions in News Foreshadowed Equity Declines
It’s often said that if a mechanism for generating excess returns could be ex- pressed in terms of a process, someone would arbitrage it away.
However, the selloff that began on July 31 was well publicized as far as these things go. Many market protagonists ex- pressed concern well ahead of the selloff. A chart of the news word count “risky” along with the S&P 500 index shows this. Over the last year or more, spikes in mentions of the word in news articles are generally followed by declines in the S&P 500 index days later.

Additionally, the CDX HY index did a fine job of telegraphing the dip in the S&P 500 index — as it has on many other occasions. In fact, this very column featured the chart on July 30 before the onset of the fall.

Though these indicators do a poor job of predicting rallies, it’s worth noting Friday’s daily news word count of “risky” was 37, below its mean of 49 and far below its recent high on July 15 of about 200 . The high yield CDS index tightened 14 basis points, which was the amount it improved on for the week. The S&P 500, Dow Jones Industrial Average and Nas- daq indexes also finished in the green for the day and for the week. |
08-12-14 |
PATTERNS |
ANALYTICS |
PATTERNS - "Fiat Money" Supply Continues To Increase
"Fiat Money" Supply Continues To Increase
A measure of money supply in the economy called FMQ (fiat money quantity) continues to increase .. Alasdair Macleod: "Whichever way we look at FMQ, it continues to expand at a frightening pace ..There is little sign of any such contraction. We can conclude from short-term market interest rates that the U.S. economy is going nowhere fast, contrary to this week’s GDP estimate, and that demand for credit continues to come from essentially financial activities. But given that GDP estimates turn out to be far too optimistic, what if the US economy stalls or even slumps? .. No matter which way the FED attempts to spin this, the so called 'taper' they are attempting is having little to no effect on the money supply. The chart shows that the endless expansion of the money supply will continue on and the value of its hardest working citizens, the savers, will continue to diminish."
LINK HERE to the Commentary
LINK HERE to the definition of FMQ
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08-11-14 |
PATTERNS |
ANALYTICS |
PATTERNS - Longest Streak Of High-Yield Debt Outflows On Record
This Is The Longest Streak Of High-Yield Debt Outflows On Record
Zero Hedge reports highlights the growing trend of retail funds selling out of their high yield debt funds
.. emphasizes this will end badly: "U.S. corporates saw profit growth slow to almost zero last year and on an EBIT basis it has been flat for some time now. Earnings quality, rather than improving is actually deteriorating, as indicated by the increasing gap between official and pro-forma EPS numbers. As a consequence, following a long period of overspending and in the absence of a strong pick-up in demand, corporates will have to spend less and not more
.. Finally, as a consequence of such anemic growth, corporates have been gearing up their balance sheets in an effort to sustain EPS momentum via the continuing use of share buybacks. With markets up substantially in 2013 executing those share buybacks has become increasingly expensive. Little wonder companies have to borrow so much to continue executing them."
LINK HERE to the Commentary
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08-11-14 |
PATTERNS |
ANALYTICS |
PATTERNS - Destabilizing The Entire World Financial System
This Is Going To Destabilize The Entire World Financial System
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Comparison of indebtedness, 2007 vs. 2013 |
"Bond prices in practically all industrialized nations are near all-time highs. Never before have interest rates been this low on a global basis. If one examines these events more closely, it becomes clear that the underlying problems cannot be solved by global zero interest rate policy, but that the natural selection process of the market is instead being undermined
.. Interest rates are the heart, soul and life of the free enterprise system
.. This truth is however veiled and distorted at the moment. Governments, financial institutions, entrepreneurs and consumers that are acting in an uneconomic manner are thus kept artificially afloat. As a result, instead of them being punished for their errors, these errors are perpetuated. Protraction of this process of selection leads to a structural weakening of the economy, and a concomitant increase in the system's fragility
.. Declining interest rate levels make a gradual increase in public indebtedness possible, while the interest burden (as a share of government spending) does not grow
.. Without negative real interest rates, the steadily growing mountains of debt would long ago have ceased to be sustainable. Central banks are increasingly prisoners of the policy of over-indebtedness
.. Central banks and governments are currently trying to create an increase in prosperity out of nothing. Such a monetary perpetuum mobile would be quite desirable for humankind, however, historically such attempts have at best led to a brief sugar high followed by a major hangover.
Ronald-Peter Stoferle, Incrementum AG
LINK HERE to the Commentary
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08-11-14 |
PATTERNS |
ANALYTICS |
COMMODITY CORNER - HARD ASSETS |
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PORTFOLIO |
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COMMODITY CORNER - AGRI-COMPLEX |
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PORTFOLIO |
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SECURITY-SURVEILANCE COMPLEX |
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PORTFOLIO |
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THESIS |
2014 - GLOBALIZATION TRAP |
2014 |
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2013 - STATISM |
2013-1H
2013-2H |
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2012 - FINANCIAL REPRESSION |
2012
2013
2014 |
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FINANCIAL REPRESSION - The World's Foremost Legal Power on the $700T Derivative SWAPS Market
WHO BETTER TO RUN THE IMF?
4245 LAWYERS WRITING GLOBAL SWAPS AGREEMENTS &
ANTI-TRUST LITIGATION (FOR THE PERPETRATORS)

Lagarde joined Baker & McKenzie, a large Chicago-based international law firm, in 1981. She handled major antitrust and labor cases, was made partner after six years and was named head of the firm in Western Europe. She joined the executive committee in 1995 and was elected the company's first ever female Chairman in October 1999. In 2004, Lagarde became president of the global strategic committee.
Baker & McKenzie has overtaken DLA Piper to become the biggest law firm in the world by revenue, surpassing the $2.5bn barrier for the first time.
Bakers, which has a June 30 financial year-end, said revenues had risen 5 per cent to $2.54bn, while its equity partners took home $1.29m on average after profits per equity partner – a key metric of a law firm’s financial health known as PEP – rose 7 per cent over the past 12 months.
DLA Piper, which like most US-headquartered firms follows a calendar financial year, said this year its revenues for 2013 stood at $2.48bn and average PEP was $1.33m. It was hitherto the biggest firm in the world by revenue.
Bakers, which started in Chicago in 1949 and today has 4,245 lawyers in 76 offices around the world, said the past 12 months had been particularly strong for its banking and finance team, and its litigators and tax experts.
Like other large international law firms, Bakers is feeling the benefits of an uptick in mergers and acquisitions. The financial crisis had dried up the lucrative pipeline of advisory work on M&A and banking deals on which firms relied.
During the period Bakers advised Citic Metal, part of the Chinese consortium that bought Las Bambas copper project in Peru from Glencore for $5.85bn.
It also advised Deloitte and lenders on the $1.1bn receivership of London’s ‘Gherkin’ tower.
Bakers – whose alumni include Christine Lagarde, head of the International Monetary Fund – is known for its international footprint. It opened offices in markets including Myanmar in the last year.
“We have been passionately global since our founding 65 years ago, and that is reflected in our continued expansion into new markets,” said Eduardo Leite, chairman.
While Bakers will be pleased that its PEP is well above the $1m mark again – during the financial crisis it dipped to $992,000 – its equity ranks have thinned. It has 705 equity partners, down from 719 last year.
Other top-five global firms have higher PEPs – a statistic that is closely monitored by both a firm’s own lawyers and its rivals and recruiters – with Latham & Watkins’ equity partners on average taking home $2.49m a year, and the figure at Skadden Arps Slate Meagher & Flom standing at $2.73m.
Equity partners at London-headquartered magic circle firms, meanwhile, on average make at least £1.12m, which with a strong sterling pushes take-home pay near $2m, an important milestone in the competitive US recruitment market.
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08-13-14 |
THESIS |
FINANCIAL REPRESSION

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FINANCIAL REPRESSION - Saved the Banks!
FINANCIAL REPRESSION
SAVED THE BANKS

BUT DEYSTROYED THE US MIDDLE CLASS


FINANCIAL REPRESSION
Accelerated the Decline of America

AMERICA Now A Two Class Society
"Haves & Have Nots"

& Maybe More Concerning
A Culture of
"SOCIAL DEPENDENCY"

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08-13-14 |
THESIS |
FINANCIAL REPRESSION

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FINANCIAL REPRESSION - "Enhanced Prudential Standards"
©Reuters
AIG, which received a $182bn government bailout during the financial crisis, is now regarded in the same manner as the big US banks
In July 2013, AIG and GE Capital were the first non-banks classed as systemic risks by the Financial Stability Oversight Council, which was formed after the 2008 financial crisis and is made up of the heads of the US regulatory agencies. The designation comes with Fed oversight and tougher regulatory standards.
The scrutiny of AIG and GE Capital, which are overseen by the Federal Reserve, is a preview of what other non-banks may face if they are also designated as systemic risks to the financial system.
Financial companies that could be in the FSOC’s sights wondered how the Fed would regulate non-banks, and some assumed the agency would view them differently than the biggest banks it already oversees. The treatment of AIG and GE Capital shows they are being regarded in the same manner as JPMorgan, Citigroup and Bank of America, according to people familiar with the process.
- Life insurer MetLife is waiting to see if it will be designated this year, while its smaller rival
- Prudential Financial was deemed a systemic risk last September.
- LARGEST ASSET MANAGERS: On July 31, FSOC decided for now to lift the threat of systemic risk designations for the largest asset managers, but said it would focus on the industry’s products and activities.
- PRIVATE EQUITY & HEDGE FUNDS: The review of asset managers came after an FSOC-commissioned report on the industry, which also said it was reviewing private equity and hedge funds, prompting predictions that those sectors could be next on the council’s agenda.
Those companies can look to the experience of AIG, which received a $182bn government bailout amid the crisis, and GE Capital, which faced liquidity scares in 2008, to see what is in store for them. A handful of Fed officials now work at the companies alongside AIG and GE Capital employees, just as they do at the banks.
“AIG believes in strong regulatory oversight,” the company said. “AIG works closely with various regulators, including the Federal Reserve, and we believe that oversight of large financial firms, coupled with the state regulation to which insurers are already subject, can further strengthen the safety and security of the financial system and people’s confidence in it.”
Fed officials are also involving themselves in the kinds of decisions that company management or board directors usually make, including
- whether employees should be fired or disciplined, which has been surprising, according to some people familiar with the process.
- “The Fed is being very intrusive,” said one of these people. “It’s been much more intense than people expected.”
- Another person familiar with the process said the Fed did not make employment decisions, but it did assess operations of non-banks in a variety of ways, such as whether the company had an adequate audit department. Those reviews, which focus largely on risk management, internal controls and governance, could be interpreted as indirect suggestions to discipline or fire an employee, the person said.
“The Fed serves a critical role in ensuring the stability and soundness of the financial system,” GE Capital said. “We have great respect for their expertise and counsel. And working closely with them, we have strengthened the safety and resiliency of our business.”
The non-bank companies designated as systemic risk fall under “enhanced prudential standards”, which also apply to the largest banks, such as JPMorgan, so it should be expected that they are treated in a similar manner, the person added.
The pressure on AIG and GE Capital will only intensify when the companies have to participate in the Fed’s
- stress test and
- capital planning process,
... which have tripped up the largest banks, most recently Citi. The results will determine whether the companies can increase dividends or share buybacks.
There is still uncertainty surrounding one of the biggest concerns non-banks designated as systemic risks have – what capital standards the Fed will use in its oversight.
The Fed has insisted that the Dodd-Frank financial reform bill forced it to apply bank capital standards to non-banks.
In response, the Senate recently passed a bill that would give the Fed the room to apply capital standards that are tailored for the insurance industry, while House lawmakers have urged FSOC designations to be put on hold until the capital standards are resolved.
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08-12-14 |
THESIS |
FINANCIAL REPRESSION

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2011 - BEGGAR-THY-NEIGHBOR -- CURRENCY WARS |
2011
2012
2013
2014 |
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2010 - EXTEND & PRETEND |
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THEMES |
RETAIL CRE - WalMart Reduces Guidance - Again!

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08-16-14 |
RETAIL CRE |
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RETAIL CRE - 35,000Franchise Operators in Trouble


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08-16-14 |
RETAIL CRE |
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FLOWS -FRIDAY FLOWS |
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THEME |
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FLOWS: Liquidity, Credit and Debt
What’s Worrying The Fed? 07-31-14 Richard Duncan
Before I launch into this week’s topic, let me mention that at the bottom, you will find a link to a speech I made recently: How Capitalism Died & Where That Leaves Us. The production quality of this video is particularly good, so I hope you’ll watch it. But, before you do, let me tell you what the Fed’s worrying about these days.
Now that the Fed has announced that QE will end in October, the financial markets are very keen to know when it intends to begin increasing interest rates. This is a very sensitive subject, fraught with danger. When the Fed began increasing interest rates in 1994, it caused near panic in the bond market and a significant stock market selloff. So Janet Yellen and her colleagues on the Federal Open Market Committee, which sets interest rates, understand that they must weigh their words very carefully when discussing their intentions on this issue.
All they are saying at this stage is that “the current target range for the federal funds rate likely will be appropriate for a considerable period after the asset purchase program ends….” and “economic conditions may, for some time, warrant keeping the federal funds rate below levels that the Committee views as normal in the longer run.”
Decoded, that means they don’t plan to increase interest rates any time soon and that, even after they do begin, it is likely that rates will remain unusually low for a very long time.
The Fed is reluctant to even talk about raising interest rates because it understands that the economy remains very weak. While it is true that the unemployment rate has come down more quickly than anticipated (it is currently 6.1%), that headline number masks a great deal of weakness that still persists in the labor market. Nine and a half million people are unemployed and roughly that many more are underemployed or, in other words, working part-time jobs because that’s all they can get. Making matters worse, wages are stagnant. According to a recent Fed report, “Over the past five years, the various measures of nominal hourly compensation have increased roughly 2 percent per year, on average.” And that is before inflation. After inflation, wages have barely budged since 2009.
What’s really troubling the Fed, however, is a racking fear that the economy will start moving back into recession as soon as QE3 ends – just as it did after QE1 and QE2 came to an end. And, they are certainly right to be worried. The Fed has been driving economic growth by printing money and pushing up asset prices. That has worked, but asset prices are now overvalued and there’s a very real chance that they will slump again as soon as the Fed stops pumping new liquidity into the financial markets.
Therefore, like me, the Fed must consider any expectations concerning a near-term rise in interest rates as premature, if not entirely unrealistic. The economy has been very weak even with 0% interest rates and massive liquidity injections through Quantitative Easing. It is disturbing to imagine what would happen if interest rates actually started to rise.
OK, now, for a good overview of how we got into this mess and how things really stand, click on the following link to watch my speech:
http://www.richardduncaneconomics.com/watch-richard-duncans-speech-how-capitalism-died-where-that-leaves-us/

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08-15-14 |
FLOWS |
FLOWS

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SHADOW BANKING -LIQUIDITY / CREDIT ENGINE |
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THEME |
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CRACKUP BOOM - ASSET BUBBLE |
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THEME |
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ECHO BOOM - PERIPHERAL PROBLEM |
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THEME |
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PRODUCTIVITY PARADOX -NATURE OF WORK |
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THEME |
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STANDARD OF LIVING -EMPLOYMENT CRISIS |
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THEME |
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CORPORATOCRACY -CRONY CAPITALSIM |
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THEME |
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CORRUPTION & MALFEASANCE -MORAL DECAY - DESPERATION, SHORTAGES. |
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THEME |
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SOCIAL UNREST -INEQUALITY & A BROKEN SOCIAL CONTRACT |
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THEME |
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SECURITY-SURVEILLANCE COMPLEX -STATISM |
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THEME |
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GLOBAL FINANCIAL IMBALANCE - FRAGILITY, COMPLEXITY & INSTABILITY |
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THEME |
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CENTRAL PLANINNG -SHIFTING ECONOMIC POWER |
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THEME |
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CATALYSTS -FEAR & GREED |
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THEME |
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GENERAL INTEREST |
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TO TOP |

Tipping Points Life Cycle - Explained
Click on image to enlarge
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Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.
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Information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities.
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