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In the aftermath of the global financial crisis, the fact is that there are far too many strong financial institutions and armies of traders manipulating the financial markets. And that has relegated buy-and-hold investing - a hands-off strategy that for decades was a mainstay for retail investors - to the rubbish heap.
Today's investor has to employ a hands-on approach that uses so-called "capital waves" - the huge swaths of cash that flow from one market to another around the globe - to generate quick profits, says Money Morning Contributing Editor Shah Gilani, a former trader and hedge-fund manager whose trading service, the Capital Wave Forecast, has kicked off 2011 with 17 straight winners.
"Trading is the new normal," Gilani said in an interview. "Capital movement is the benchmark of normalcy."
Gilani recently sat down with Money Morning Executive Editor William Patalon III to discuss the recent successes of his trading service - and to give readers a glimpse of what's to come in the financial markets.
"There were several capital waves that ebbed and flowed in the first quarter that created opportunities for us," said Gilani. "There was money moving in and out of Treasuries, the euro, stocks, and commodities."
Identifying and understanding "capital waves" is the first step to unlocking massive amounts of wealth and not getting beached by Wall Street, according to Gilani. The second step is to avoid trying to fight the tides of investment capital that are swirling from market to market in the modern world. Instead, investors should ride their momentum to big-time gains.
What follows is a full transcript of Gilani's Money Morning interview. In it, he discusses the areas in which he's had success predicting profit-making opportunities this year, as well as his current investment prospects.
To read about what market strategies Gilani is using, please read on...
Pundits are talking about the "New Normal," a not-so-subtle hint at the sub-par growth that's expected from the U.S. economy.
Those pundits have picked the right book. But as far as investors are concerned they're reading from the wrong chapter. The "New Normal" isn't just about the economy. It's an epic story about not-so-great expectations - for the financial markets.
But take heart: Even during a period that seems to be this dark, investors need to remember that all is not lost. Even with the threats that seem to dominate, the world now offers a new investing horizon - filled with new opportunities. Instead of staring into the abyss of an unknown future, investors can profit handsomely by identifying the key capital waves and macro trends and then using that knowledge to rebuild their portfolios from the top down.
Before that portfolio overhaul can begin, however, investors need to understand the specific challenges that they face in today's global stock markets.
So is it finally time to shelve our fears of financial contagion, meaning the financial shocks that start with one nation or market and spark a conflagration that spreads through interdependent entities in plague-like fashion?
Definitely not. In fact, hang onto your hats: We have just entered the brave new world where a butterfly flapping its wings in China can fan a market fire on the other side of the world. There are more contagions to come. But because of forces known as "capital waves," the same heat that burns some investors can also generate substantial profits for those who understand how to position themselves.
What the report doesn't say is that banks - standing in the way of bank reform - don't want a simplified, standardized, and transparent securitization market, because that would revitalize free-market disciplines and undermine the control they exercise over the credit markets.
Right now, the stock market is discounting news about tight credit conditions. But analysts worry about an increasing disconnect between rallying stock prices and the hoped-for rebounds in consumer-driven growth and the U.S. housing market - both of which are struggling with a lack of access to credit. This disconnect is fostering fears of a stock-market correction.
Investors need to understand exactly what's at stake here. And they need to know how to protect themselves and - even more important - how to profit from the volatile-but-powerful capital waves that will result from this fundamental battle over our future.
In the midst of that chaos, Money Morning's Shah Gilani made five predictions, anticipating five looming "aftershocks" he said were certain to come true.
He was correct on all five counts - every prediction came true.
This wasn't the first time Gilani has made such bold predictions - and been proven right. In July 2008, for instance, when crude oil was trading at a record high of $145 a barrel, he predicted that the "black gold" was destined for a major fall - even though many pundits were calling for prices to spike as high as $200, $250, $300 and even $500 a barrel.
Once again, Gilani was right.
Gilani, a retired hedge-fund manger, Money Morning columnist and noted expert on the global credit crisis, has been able to do this time and again for one simple reason: He understands the power and profit potential of the global financial market's "capital waves."
"Capital waves create some of the biggest trading opportunities in the markets today," Gilani said in an interview last week. "Investors who are able to spot capital waves and identify their likely impact have a huge advantage over those who don't."
And the profit plays that loom are shaping up as the biggest and best, yet.
|- Michael R. Scott|
Answer: Thank you for pointing me to Robert Kuttner's October 2007 testimony (which readers can access by clicking here.)
How can banks and lending institutions take our money and then turn around and shut nearly everyone out - which simply prolongs this recession? Can anyone explain why the present administration and regulatory bodies are not forcing the banks to loan monies to qualified applicants?
At this rate, we will be dead soon. Without borrowing, we will die.
(Signed) Living in Costa Rica
For example, when you talk about the Obama administration's determination to keep interest rates low - this has consequences. What will those rates be in, say, a three-year to five-year time frame? What if the European countries keep having implosions like Greece - meaning that countries like Portugal, Spain and Italy follow suit?
In your opinion, will that eventually sink the euro, or does the Eurozone have to bail out those countries with a plan that's similar to the one that it is developing for Greece? What happens to other currencies in either of these scenarios?
Finally, is it your opinion that China is trying to curtail its growth to keep itself from overheating? Can Beijing successfully continue to do this - or will this blow up in China's face? If you look down the road, say, three to five years, what do you believe the consequences, if any, will be?
Again, Shah, this was a really informative article. I would love to hear your views on what you actually see playing out in each of these areas during the next few years.
Answer: Thank you for your kind words about the article and for taking the time to pose your questions - which are excellent ones, by the way. Let's take a look at them, one at a time...
As a rule, an increase in M&A activity is a bullish sign for both the economy and the stock market, says Money Morning Contributing Editor Shah Gilani, who tracks deals for his own advisory service, The Capital Wave Forecast. As far as capital waves go, this surge in cash-driven deals is one of the most powerful around, and will have substantial spillover effects.
The "forces" I was referring to are called "capital waves." Capital waves create some of the biggest trading opportunities in the markets today. Investors who are able to spot capital waves and identify their likely impact have a huge advantage over those who don't.
With oil, for instance, pundits were calling for new highs of $200, $250, $300 and even $500 a barrel. But behind the curtain, there was a major capital wave at play: I knew that oil was being pumped out of the ground like mad, and that shipping rates were exploding because oil was being stored in offshore, idled tankers. I knew that as little as $20 billion had been "re-allocated" out of the equity markets and into this new-asset-class investment for pension fund accounts.
As a speculative frenzy seemed to be enveloping the oil market, I called for oil prices to plummet - to more than a few looks of incredulity or outright guffaws.
When the secondary capital waves took hold, the speculative advance in oil prices first stalled - and then oil prices plunged as capital exited in another wave.
Don't feel bad if you missed this opportunity. That's the important thing to remember about capital waves - they're out there if you know where to look and how to interpret them. In fact, as good as this oil play was, I see even better opportunities ahead.