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Patchouli-Laced Riots

Written By Christian DeHaemer

Posted October 3, 2011

Seven hundred people were arrested on the Brooklyn Bridge over the weekend.

They were marching as a protest against Wall Street.

Here at Wealth Daily, we’ve been waiting for the riots for some time…

I’ve been recommending readers of my Crisis and Opportunity newsletter buy up riot stocks: companies like Sturm, Ruger & Company (RGR) that went from $10 to $35 over the past 18 months in anticipation of chaos. I wouldn’t buy here, as it has gotten ahead of itself, but you get the picture.

Riots are coming.

Don’t get me wrong; I don’t blame the protesters one bit. I just wish they had started sooner.

Perhaps they were waiting for their unemployment to run out. Or perhaps they are members of the younger generation who never got a job to begin with.

Patchouli in the Streets

The numbers are dismal for the youth of today.

Unemployment for youngsters is at Great Depression levels, and the graduating class of 2011 has the most debt per student ever. The average grad is $22,900 in the hole.

At first, the protests were laughably small. But then one of New York’s finest blasted a protester with pepper spray and a video showed up on YouTube. Then there was a rumor that the band Radiohead was going to perform for the crowd. This swelled the ranks and made the march respectable. (The band never showed.)

Just Mad

The problem is that the protesters don’t seem to have an idea about what they are protesting. Their positions range from advocating anarchy to global warming to anti-racism.

What they should be upset about is the kleptocracy that has taken over Wall Street and Washington and rigged the game against the rest of us.

(Kleptocracy is Greek for “rule by thieves,” and is a form of political corruption that exists to increase the personal wealth and political power of the ruling class at the expense of the wider population.)

Spending the Debt

The government in collusion with many Wall Street firms created the housing bubble by printing money and loosening rules so that everyone could get a home.

Since housing prices started falling in 2007, the government has been printing money to jumpstart growth.

We’ve been saying for years here at Wealth Daily that you can’t spend your way out of a debt crisis. It was our position that the bank/GM/Freddie Mac bailouts would simply extend and deepen the problems. The wrong people were rewarded. The wrong people were punished.

Those people and institutions that should have been cut down by the swift sword of capitalism are still pretending that everything is ok. The banks are being paid off by the government — who pushes their debt on the rest of us.

Meanwhile, some people stopped paying their mortgage years ago and are still living for free.

To foreclose on a house means you must admit that you have a bad debt. And those who lent the money would rather not think about it.

My good friend Adam Lass has been digging into FDIC reports and has uncovered some startling facts about companies like Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C). (And by “startling” I mean they will scare the pants off you.)

He is already up 22% this week in Viral Investing after betting against the banks on Friday.

BAC is down 8.01% today and crossed below key support at $6; Citi is down 8.37%. This does not bode well for the market.

Ghosts of 2008

There is a lot of fear out there. Market uncertainty pervades.

This reminds me of a story from 1998. I remember one of those hoary old traders in the pits of Chicago…

sp500 oct 3

click charts to enlarge

He had a great nose. He could literately smell that mix of sweat and pheromones that constituted fear. And when he smelled that, he knew he’d have a winner by taking the opposite side of the trade.

It’s been a smelly quarter. The market went up and down, locked into a tight trend, breathlessly hung up on every Greek bailout and unemployment number…

The market moved a lot, but has gone nowhere for the past two months.

In a market like this, there is only one way to make money — and that’s by trading options.

One of Wealth Daily‘s very own, Ian Cooper has been making a lot of money for his readers over the last few months by doing just this.

Cooper has been trading the Volatility Index (VIX), or I should say the VIX’s Exchange Traded Fund (VXX). This is simply a fund that mirrors the VIX. It is easier tvxx oct 3o trade.

And as you can see, when the market bounces around like a fart in a mitten, the higher the VXX goes (see right).

Ian has made 55% in 9 days; 50% in 9 days; 132% in 6 days; and 102% in 2 days — all the while, the market is up 300 points one day and down 300 points the next.

Believe me, it’s a great feeling having some insurance like the VXX when the bottom falls out of the market…

Will the Fed announce QE4?
Will the unemployment number be bad?
Will the banks fail?
Will China blow up?
Has gold peaked?

Who cares?

Just as long as fears and uncertainty exist, the VXX will keep going up.

That’s all I have for today, dear reader.

Perhaps someone should tell those Wall Street protesters that Goldman Sachs is now in New Jersey at 200 West Street…

gs oct 3

Take the ferry and toss a few tomatoes at that tall building.

All the best,

Christian DeHaemer
Editor, Wealth Daily