Vania Mentar

Contrarian Profits

2009-04-13T17:12:00.001-07:00

Contrarian Profits

The Sector Holds the Key to an Economic Turnaround

Posted: 13 Apr 2009 03:28 PM PDT

What sectors rise when the economy begins to emerge from an economic downturn? The answer may surprise you.

Source - http://www.onlineinvestingai.com

The chart above is of the economic investment cycle. The blue is the stock market and the yellow is the economy.

This chart shows us what we should already know, that the stock market is forward looking and typically bottoms or peaks out 6 months to a year after the economy.

More importantly, this chart also shows us that bull markets are formed on the back of a healthy financial and transportation sector.

In other words, to see if this is a sucker’s rally or not, we have to see the financial sector bottom out and move higher.

This makes sense. Money is the lifeblood of the economy. If banks aren’t lending it, then the economy can’t expand.

Today, the big question is whether banks are seeing a sustainable turnaround. Wells Fargo announced a $3.3 billion profit and Goldman Sachs made over $1 billion.

But the problem with banks isn’t their ability to make profits in a low interest-rate environment. The problem is the valuation of the mortgage-related assets these banks have on their balance sheet. Banks are basing their leverage on the value of these assets.

If these asset values decline, then banks must write those assets down and raise more funds or deleverage to meet capital requirements.

In other words, earnings or not, banks still have more to do in order to be considered “healthy”. That means this current rally should be one for the “suckers”

Golden Shorts In An Economic Winter

Posted: 13 Apr 2009 01:22 PM PDT

Avery Goodman at Seekingalpha.com asks the intriguing question, "Did the ECB Save COMEX from Gold Default?"

If I had been writing it, I would have titled it "Not All Of The People In The World Are Stupid!" with the subhead, "There are lots of smart people who are buying gold to capitalize on the sheer stupidity of governments abusing fiat currencies so that inflation in prices will soar as inflation in the money supply soars, until gold-owning people, giddy with greedy glee, will say, 'The Mogambo was right! Whee! This investing stuff is easy!'"

But I am not here to show off how good I am at coming up with boffo headlines with the subtle undertones so that they offer me a job, at a fabulous salary, to write headline gems like this one; this is about how "On Tuesday morning, gold derivatives dealers, who had sold short in the face of a fast rising gold price, faced a serious predicament. Some 27,000+ contracts, representing about 15% of the April COMEX gold futures contracts remained open" indicating that, as holders of those long gold contracts, they "demanded" delivery of the physical gold "by holding futures contracts past the expiration date."

The big problem belongs to the short-sellers of gold, who are finding, suddenly, that "long buyers were demanding in droves" – demanding physical gold bars, when, apparently, there were not enough.

Since I am confused as to what all of this means, Mr. Goodman correctly interprets the blank look on my face as puzzlement – if not outright befuddlement – and patiently explains that to keep things in perspective, history has shown that people investing in COMEX futures don't necessarily want physical gold, and that they are merely speculators, as, "In normal times, very few people do this. Only about 1% or less of gold contracts must be delivered. The lack of delivery demand allows the casino-like world of paper gold futures contracts to operate. Very few short sellers actually expect or intend to deliver real gold. They are, mostly, merely playing with paper" which is the basis of the alleged gold and silver scams, as GATA.org and Ted Butler have long exposed, which gets us talking about how corrupt regulators are these days, as everything is else corrupted these days, which is, of course, just what you would expect at the end of long monetary booms, which doesn't make it any more palatable.

But back to our story of the almost-default at COMEX… Fortunately, at the last minute, Deutsche Bank (NYSE:DB) delivered "a massive 850,000 ounces, or 8500 contracts worth of the yellow metal."

This is where I kind of lost interest, as this kind of thing is like blood in the water to sharks, who will soon be looking at the low price of gold and the complete lack of supply of bullion, and they will be hatching plots to squeeze this disparity and make a lot of money, and I was soon fantasizing about how my tiny little stash of gold will soar and everybody else who doesn't own gold will be busted out, now that the scam has been busted, and there will be people, like cute college coeds, who will be so desperate that they will say they are willing to do anything for money, and I will say, "Anything?" and then they will quickly affirm, "Anything!", and so I again ask, but with a rakishly raised eyebrow and licking my lips in a lascivious manner, "Anything?" and they gulp and say, but without their former enthusiasm, "Anything"… So you can see how I was distracted.

And anyway, somewhere along the line he admits that it is "circumstantial evidence" that Deutsche Bank was a major holder of short positions, or that "the gold used by Deutsche Bank to deliver and fulfill its COMEX obligations, came directly or indirectly, from the ECB", which gets back to the headline "Did the ECB Save COMEX from Gold Default?" that we were discussing previously.

All of this, of course, is fraudulently criminal in many, many ways, breaks a lot of regulations in those and other ways, and he calls for investigations and indictments and all of that stuff, which won't happen because the amount of corruption at the end of long monetary booms is so pandemic that it won't be allowed.

Now, before I go off ranting and raving about how another bunch of scumbags perpetrated another scam with compliance from government scumbags, let's concentrate on the important fact that not only are a bunch of guys buying gold and demanding delivery of the actual metal, but now increasing demand has swamped supply! Amazing!

In conclusion, let me say that if people don't buy gold, in spite of the overwhelming historical evidence to do so when the money supply is set to double (and then double again and again!), in spite of gold's gains for the last decade, in spite of the sight of people suddenly taking delivery of physical gold in unprecedented amounts, and in spite of me telling them right to their faces to buy gold, then there is something very, very wrong with them, which ought to give them something to think about as they are idly scratching around in the dirt looking for bugs to eat, because this economic mess caused by a Congress constantly deficit-spending and a Federal Reserve constantly creating the money for them to do so is going to get Really, Really Nasty (RRN), and I am scared for me and for them.

But I am not as scared when I have gold, so at least I have that going for me! Whee!

Source: Golden Shorts In An Economic Winter

Zombie Policy Reaffirmed

Posted: 13 Apr 2009 09:45 AM PDT

Treasury Secretary Tim Geithner is taking his sweet time to work out the details of TARP II. But for all the uncertainty surrounding his plans, we know one thing: Zombie banks will not be allowed to go under.

Geithner just reaffirmed this, though not in so many words, in an interview with Charlie Rose.

Asked about the possibility of letting a major bank fail, he said, "I'll say again, they play a critical role in our markets, in our financial system. We want to continue to make sure they play that role. Now, where they need temporary assistance through the government to get through that, we're going to make sure it comes with appropriately tough conditions so that they emerge stronger and that we're providing a level of conditions and accountability that's appropriate in this context."

Translation: They can continue screwing up indefinitely, and we'll still come to their rescue.

The "stress tests"? That's just a sham to make it look as if the banks are being held to some sort of standard.

Working from the same playbook, Fed chief Ben Bernanke said yesterday, "We have reiterated the U.S. government's determination to ensure that systemically important financial institutions continue to be able to meet their commitments." And if it that means the Fed has to buy up Treasuries (and print money for that purpose), so be it.

Consider yourself warned.

Consider also that the Zombie Policy isn't even achieving its stated aims. Weren't we promised that if the Fed and Treasury kept pumping money into these banks, the banks would lend more freely, and businesses could borrow more easily, and so businesses could create more jobs?

Well, not so much. "Banks that have received billions of federal dollars to encourage them to make loans — JPMorgan Chase & Co., Goldman Sachs Group, Citigroup Inc. and Bank of America Corp. — are lending money to Pfizer and Merck" so they can buy out Big Pharma competitors, according to the Los Angeles Times. The mergers could result in 35,000 jobs lost.

Source: Zombie Policy Reaffirmed

How Has The Market Changed Over The Last 60 Years?

Posted: 13 Apr 2009 09:15 AM PDT

Over the last few weeks, I have written several articles about asset allocation and how you can't just buy and hold anymore.

In fact, on Saturday April 4, I spoke at a conference in Orlando and the crux of my presentation was why buy and hold isn't the way to go anymore.

After my presentation, one of the attendees asked me why I felt buy and hold was dead. What has happened in the market that caused the long-held belief that buying and holding a stock or the market forever is not the way to invest?

Where do I start?

With the help of my colleague Christian Hill, we went back to 1950 and looked at the S&P 500 over the last six decades. Here are the returns per decade.

As I looked at these results, I started thinking about how different the market is now compared to the 1950s. How many people do you think were actively investing in the market in the '50s and '60s? Not too many I would guess. Maybe four or five million at best. People may have had money in pension plans and the like, but the funds were being managed by a professional investment manager.

In the '70s and '80s we saw tremendous growth in Individual Retirement Accounts and mutual funds. This made it easier for the average Joe to get involved in the market. In the '90s, we saw two things greatly impact investment growth- 401(k)s and the internet.

Look at how the '90s were the biggest growth decade for the S&P 500. Do you think that is a coincidence?

By 2005, there were 436,207 plans, 44.4 million participants and $2.4 trillion in assets in 401k plans. Do you think the growth in participants and growth in assets had anything to do with the tremendous growth in the market during the '90s? You bet it did.

Take a look at the 20-year periods.

Look at the tremendous growth in the last 20-year periods. I also decided to break it down into two periods, the first 30 years without 401(k) plans and the 20 years since 401(k) plans were introduced. From 1955-1985, the S&P went up 350%. This is an impressive number, but from 1985-2005, the S&P jumped 632%.

The second thing that happened in the '90s was the onslaught of the internet and internet brokerage firms. Instead of having to have an account with Merrill Lynch, Shearson or Paine Webber, individual investors could open an account with any number of online brokerages and pay one-tenth the commissions charged by the mainstream brokers.

I am not saying whether I think 401(k)s and online brokerage firms have been good for the overall market. But what I do know is that these two creations have had a profound impact on how you have to view the market.

They have created easier access to the market and created more involvement from more people. Unfortunately, they did not come with more education about the markets. This is why I think traditional views on investing have been changed forever.

God help us if the plan to allow self-directed Social Security ever comes to fruition.

Source: How Has The Market Changed Over The Last 60 Years?

Inflation, Retail, and Housing Reports; Earnings Go Full Bore

Posted: 13 Apr 2009 08:45 AM PDT

This promises to be a very busy week with a full calendar of economic reports and earnings announcements, so let's dive right in and highlight some of the more important ones.

Tuesday:
Economic Reports: PPI, Core PPI, Retail Sales.

Are we beginning to see inflation creep in? Those were my thoughts after the January and February reports showed increases in the PPI. But this month's reports are expected to stay flat. The Core PPI report which excludes food and energy costs is expected to post a slight increase. The figure has been increasing every month since January, but the increase is slowing every month. So with both these reports remaining relatively the same, inflation seems to be held in check at least for now.

Retail Sales for March are announced at 8:30 am, and somehow, someway, they are expected to show an increase versus February. I'm not sure where this jump is coming from, so I will be curious to see the data when it is released.

Earnings Announcements: CSX, GS, INTC, JNJ

Wednesday:
Economic Reports: CPI, Core CPI, Industrial Production, Fed Beige Book

Much of what I said above about the PPI reports applies to the CPI and Core CPI reports released today. Both are expected to show increases, but a smaller increase than the last few months. Inflation is still being held in check.

Industrial Production is unfortunately expected to show further declines. While this pace is also slowing, it is still not encouraging that we are still seeing a decline at all. Until factories get back to increased production, the economy is going to struggle.

While it does not come with an expected number, the Fed Beige Book still garners attention when it is released. It gathers insight from the twelve Fed regions relating to their individual outlooks on their region. This is combined to give an overall national outlook. Hopefully at least a few regions will begin to show some positive economic signs.

Earnings Announcements: ABT

Thursday:

Economic Reports: Building Permits, Housing Starts, Philadelphia Fed

Housing is back in the news on Thursday. March Building Permits are expected to show a slight increase, while Housing Starts in March are expected to show a much larger decline. After a few months of the market expecting increases and being disappointed for the most part, this month seems a lot more realistic. I expect both these reports to be in line with expectations.

The Philly Fed report also comes out Thursday, and it looks like the manufacturing sector is facing continued slowdowns. As I mentioned with the Industrial Production report, manufacturing needs to get going to help bolster the economy. It looks like that's not happening anytime soon, based on how far down this reading has slipped.

Earnings Announcements: BAX, GOOG, HOG, JPM

Friday:

Economic Reports: Michigan Sentiment

It looks like consumers are at least starting to feel better. While this reading would be encouraging if it holds true (consumers need to feel positive about things in order to spend money), we could still be a long way from a real turnaround.

Earnings Announcement: C, GE

Source: Inflation, Retail, and Housing Reports; Earnings Go Full Bore

Corning (NYSE:GLW): Stock of the Day

Posted: 13 Apr 2009 08:25 AM PDT

Consumer Electronics in the Dumper? Not in the TV Department… To no one's surprise, a Nielsen study completed last November found that Americans are watching more TV than ever before: 142 hours a month, up five hours from the previous year.

You can easily understand that, given the number of TV's here… more than one per person. In times of economic turmoil, people tend to stay home and hunker down in front of the "tube" instead of going out shopping… for things like TV's.

So it was a surprise to nearly everyone that February's LCD TV sales were 39% higher than the same period last year. This accomplishment is even more dramatic given it occurred right in the middle of the nastiest economic slowdown since the Great Depression.

And the blistering sales rise wasn't just in the U.S., according to consumer research NPD Group. Sales in Europe were up 49%, China sales more than doubled at 109%, and even recession-ravaged Japan had a gain of 30%.

It's all a great reversal of fortune for Corning (NYSE:GLW), the world's largest maker of glass panels for LCD screens. Its shares have nearly doubled since last November's lows, and the company now expects to report a first quarter profit.

Corning's fortunes are closely tied to the world's appetite for new LCD screens, as it supplies the glass for over 50% of them. Fully 90% of its net income now comes from LCD glass sales.

Even though overall sales of TV's are forecast to decline 4% this year, sales of LCD sets are expected to rise nearly 9%. The reason is major advances in manufacturing techniques have resulted in set prices dropping like a stone.

By some analyst's measures, Corning is already too expensive, trading at roughly 16 times 2009's earnings estimates and 13.7 times those for 2010.

But these guys are ignoring the China factor. You see, China has a new subsidy program that promotes a widespread adoption of consumer electronics, particularly in rural areas of the country. And LCD TV's are first on the list of things every Chinese wants to own.

Two of the biggest LCD panel makers in Taiwan – both Corning customers – are rapidly expanding their manufacturing capacity to meet the new demand driven by the Chinese subsidy program.

In a move to diversify its revenue stream, Corning is eyeing the possible purchase of the half of the Dow Corning venture it doesn't already own. That venture owns 63% of Hemlock Semiconductor, an important polysilicon supplier to the semiconductor and solar panel markets.

Investors who want increased exposure to China, consumer electronics, solar and semiconductors, might want to consider a few shares of Corning. It's shares could easily experience another double over the next several years, especially as the Chinese join the ranks of the TV watching world.

Source: Corning (NYSE:GLW): Stock of the Day

Emerging Markets: 180,000 New Investment Opportunities… A Day

Posted: 13 Apr 2009 08:08 AM PDT

Investors in the West have a poor track record when it comes to the world's emerging markets. In particular, they have a bad tendency to leave them just when they should love them. This is particularly true today.

Like equity markets everywhere, foreign exchanges in Latin America, Eastern Europe and Asia have taken quite a tumble over the last year and a half.

Yet this is not like the Mexican Peso Crisis of 1994 or the 1997 Asian Financial Crisis. Those downturns were brought on by poor government policies and financial mismanagement in these regions.

But these developing economies have since been rebuilt on sounder financial footing. Moreover, you'll notice that the recent worldwide sell off in equity markets was brought on by problems with U.S. real estate, mortgage securities and banks, not in developing markets themselves.

Still, in their rush to avoid risk many U.S. investors are leaving - or avoiding - these emerging markets at precisely the wrong time.

Yet the risk premium is much lower than it used to be. Most developing countries have already evolved from communism to democracy and from state-controlled economies to free-market ones. There are plenty of other good reasons to diversify into these markets, too.

Let's start with the big picture.

Emerging Markets - Covering 85% of the World's Population

While emerging nations cover 77% of the world's land area and represent 85% of the world's population, they currently produce only 23% of the world's gross domestic product.

That's changing…

There are now 3.8 billion "middle class" people in the world today. Thanks to emerging markets, that number will double over the next 20 years.

As The Wall Street Journal wrote last month:

"In the next 24 hours, approximately 180,000 people in developing countries will be moving from the countryside to cities such as Shanghai, Sao Paulo, Johannesburg. The same will happen tomorrow and every day thereafter for the next 30 years, the equivalent of creating one new New York City every two months, according to the United Nations. These men and women will need everything, electricity, water, food, health care, shelter, schools, computers and, of course, jobs. Many have the potential to improve not just their local environment but the world."

Some companies in the West - and, of course, many of those in developing markets themselves - are set to enjoy an extraordinary period of prosperity.

These new consumers will need dishwashers, microwaves, laptops, cell phones, automobiles, eyeglasses, credit cards, pharmaceuticals, insurance and every other product and service we already take for granted in the West.

Why bet on companies that may (or may not) create a new cancer drug or hit a new gold strike or develop a faster computer when you can bet on dead certainties: companies that are busy meeting the enormous untapped needs of billions of new middle class consumers.

January, for example, was the first month ever in which car sales in China topped U.S. car sales. And it may be that way for the rest of your life - and your children's lives.

Emerging Markets: Promising & Cheap

Right now the world's emerging markets are both exceptionally promising and extraordinarily cheap.

Moreover, a lot of these developing market stocks are denominated in currencies that are tied to the dollar. (So a stronger greenback like we've seen lately won't hurt them - or the dollar value of your securities.)

No wonder emerging markets manager Mark Mobius says he feels "like a kid in a candy shop."

The potential in these markets is greater than it has ever been before. Anyone who can count to 180,000 (a day) should understand exactly why.

Source: Emerging Markets: 180,000 New Investment Opportunities… A Day

Budget Deficit Triples!

Posted: 13 Apr 2009 08:00 AM PDT

Currencies rebound … Budget Deficit makes up for Trade data… China’s currency reserves continue to grow… High yielders are best performers… And Now… Today’s Pfennig!

The lack of volume on Friday didn’t yield any wild swings, and the currencies pared their losses from the day before (trade deficit plunges)… This morning, the currencies, led by the euro, are moving higher VS the dollar, but at this point it’s baby steps… The bias to sell dollars hangs over the currencies however… It seems to me that it’s very much like trying to hold a kid back from ripping open their Christmas presents… It sure seems inevitable, but when is the question… As I used to say in my presentations, imagine if you will a big old Ford rambling down an icy country road, and it begins to spin out of control… You know for sure that you’re heading toward that guard rail, and your Ford will make impact with that guard rail, it’s just a matter of time….

Well… Some water and time has passed under the bridge now and traders and investors are dipping their toes back into the risk waters again. The Mayo comments last week, really threw a spanner in the works for the risk takers… But, as I said, time has now passed, and the comments are in the rear view mirror now. With risk back on the menu, the high yielders are the first to get attention… And the Aussie dollar (A$) is soaring this morning, passing the 72-cent figure this morning… And the Brazilian real has really taken some HUGE strides recently… In fact, in the past 3 months… The real is up over 6% VS the dollar!

And do you know what currency is at the top of the heap with regard to performance VS the dollar this year? That’s right! It’s the real!

Speaking of high yielders… The South African rand, which I’ve always said is too volatile for my liking, is the best performer in the past 3 months… So… With the A$, real and rand all percolating… You can see that investors are growing tired of paltry yields, and looking to higher yielding countries. Of course, whenever the cold wet blanker of risk aversion is thrown over the markets, the risk takers head of the hills… But, for now they are taking on risk, and that spells Happy Times Are Here Again for the High Yielders…

Of course, I laugh out laugh (LOL) whenever I say “high yielder” as if they really have “high yield”… Compared to the majors like the U.S., U.K., Japan, Canada, and even the European Union, these “are” high yields!

OK… Did you read the news, this morning, when the paper landed in your yard? China’s currency reserves grew by 16% in the first QTR, VS a year ago… This puts China’s currency reserves at $1.9537 Trillion, at the end of March… Hmmm… Makes you wonder, why the rest of the world doesn’t treat China like E.F. Hutton, and listen to them when they complain about stuff, like the safety of its holdings… Yes, China has complained recently about the monetary policies the U.S. is using to keep the economy’s pulse pumping.

Speaking of the monetary policies being used… Friday, the Budget Deficit printed… And has, right now (which is before a ton of the spending is booked) tripled to $957 Billion! That’s in the first 6 months of the fiscal year… So… Let’s just say, we don’t spend any of the funds already allocated to revive the economy… That would put the annual deficit at almost $2 Trillion! And, then… Add in the spending already allocated… Remember, a couple of months ago, I told you that at first I calculated the deficit this year to be $2.5 Trillion, but then raised it to over $3 Trillion? Well, it sure appears that we as a country are well on the way to a $3 Trillion Budget Deficit this year, which should put our National Debt at around $14 Trillion dollars!

And… Of course that’s just a drop in the bucket, when you add in all the future payments we will owe on the endowments like Social Security, and Medicare… And, Oh, by the way, just where do those war expenses get booked? Is that the proverbial “off balance sheet item”? You bet it is folks…

Oh… I had better stop right there! I can get all geeked up whenever I begin talking about our deficits… I begin to wonder, no wait! I said I was going to stop! OK, onward and upward to something else! I’m going to step away for a minute, I’ll be right back…

OK, I’m back! I had to get up and walk around for a minute, that deficit talk just get right under my skin from the get-go! Then you add in the consumer debt, and you just go crazy! Yes, maybe Credit Card Debt is plunging, but Mortgage foreclosures are soaring, according to Reuters…

So… Gold, which has had a difficult time pushing back to $900, is up $5 this morning. I was checking the best returns this morning, year-to-date, and I noticed that Silver had pushed higher by over 9% so far this year… It’s out performing Gold, right now… The real winners this year, so far, are… Platinum and Palladium, up 32 and 27% respectively. WOW!

As I said at the top this morning, it’s Easter Monday, which means it’s a holiday in parts of the world, and that means we won’t be “fully staffed” in the markets again today… But the U.S. stock jockeys are back in the saddle, and that should add to the excitement of the day!

Well… Here in the U.S., the data cupboard is bare… But the remainder of the week, sees it get restocked daily! Tomorrow’s big report will be the Retail Sales for March, which given the indication of the BHI (Butler Household Index), should be a bit better than recent reports… Wednesday is Tax Day, and we’ll see the stupid CPI, and the TIC reports. Industrial Production and my fave, Capacity Utilization also prints on Wednesday. Thursday brings us a slew of data, of which the Weekly Initial Jobless Claims will be the most important. And we finish this week with the U. of Michigan Consumer Confidence report for this month.

So… With me dragging a bit, some countries on holiday, and no data today, I think I’ll head to the Big Finish… Will you join me?

Currencies today 4/13/09: A$ .7245, kiwi .5860, C$ .8165, euro 1.3210, sterling 1.4730, Swiss .8685, rand 9.0550, krone 6.6225, SEK 8.2240, forint 219.20, zloty 3.2910, koruna 20, yen 100.50, sing 1.5250, HKD 7.75, INR 49.87, China 6.8350, pesos 13.11, BRL 2.17, dollar index 85.44, Oil $50.84, Silver $12.51, and Gold… $887.40.

Source: Budget Deficit Triples!

Ocean Piracy: Fill Your Trading Account With Booty From The ‘Pirate Portfolio’

Posted: 13 Apr 2009 07:57 AM PDT

The saga on the high seas continued… As much of the world continued to monitor the story of the American cargo ship that was captured by Somali pirates and held its captain hostage, the increase in piracy has sparked a fascinating conversation.

It involves the use of innovative products that enable shippers to defend themselves from pirate attacks.

While it may not seem like a lucrative business, the uptick in high seas shenanagins over the past year or so threatens to become more prevalent if it's not addressed. And with millions of dollars worth of cargo traveling by sea every day, both the shipping industry and the companies whose cargo they're hauling hardly want to see the trend become a full-blown epidemic.

At the moment, however, only the Department of Defense and various small private companies are responsible for "mobility denial systems." Described as an "oil slick in a can," these weapons make it difficult for bandits to board (and remain on) a ship.

But there are a few major, publicly traded American companies that are combating this problem amid their other defense issues…

Take That, Jack Sparrow

First up, one of the world's largest defense companies, Lockheed Martin (NYSE: LMT). The firm has partnered with BAE Systems PLC. (Pink Sheets: BAESY) and Israeli weapons systems developer Rafael Armament Development Authority to develop "The Protector."

While it sounds like the hero of a 1980s action movie, The Protector Anti-Piracy Robot is an unmanned robot with a mounted 7.62mm machine gun. Originally designed to protect harbors, The Protector is capable of defending ships from attackers, while keeping the crew out of harm's way.

A more widely used form of anti-pirate defense is Long Range Acoustic Device (LRAD) systems, designed by American Technology Corporation (Nasdaq: ATCO).

Equipped with high-powered speaker systems, these devices can be used to issue ear-splitting beams of sound directly at the bandits, or provide verbal warnings (no word, though, as to whether, "Back, ye scurvy dogs!" is on the list of available commands).

Despite the fact that these systems are more common, keep in mind that ATCO is a tiny stock and can be illiquid.

Here are three other ways to play the piracy protection trend…

Three Ways To Play High Seas Banditry

The Defense Angle: You can't dip into many sectors or industries these days without finding the presence of General Electric (NYSE: GE).

The company's defense subsidiary, GE Security, offers various communications systems that are used to enhance ocean security.

The Insurance Angle: In addition to direct defense sector plays, there are also several insurers and reinsurers, which have an important maritime business and could face exposure if a ship is lost at sea. These include CNA Financial Corp. (NYSE: CNA), Marsh & McLennan Companies (NYSE: MMC) and Willis Group Holdings (NYSE: WSH).

The Cargo Angle: Consider commodity plays on cargo like oil. If oil cannot be shipped directly for fear of it being intercepted by pirates, it could drive up the price. A straightforward, more diverse (and thus less risky), cheaper and safer way to play this would be to buy an ETF like the U.S. Oil Fund ETF (NYSE: USO).

You could also consider timber companies like Plum Creek Timber (Nasdaq: PLUM). It's historically a solid market outperformer anyway, which isn't a bad investment to have in your portfolio at times like these.

Move With The Waves As This Maritime Trend Grows

For pirates, the lure of capturing easy booty from an unsecured ship in the middle of an ocean is an attractive proposition.

And while the current US-Somali standoff will eventually end (hopefully in peace), companies are realizing that there's a more pressing need to secure their cargo and crews while at sea.

In an economy where it's mighty difficult to make money at the moment, the prospect of losing cargo to pirates will force companies to pay for the security products and services that can protect their haul.

While the majority of the companies in the maritime security space are small and privately owned, if the piracy trend increases, you'll likely see more well established firms enter the market - especially those with long histories of securing government contracts, such as Lockheed and GE.

Hoping your longs go up and your shorts go down.

Source: Ocean Piracy: Fill Your Trading Account With Booty From The "Pirate Portfolio"

A ‘Rebubble’ Attempt

Posted: 13 Apr 2009 07:17 AM PDT

The rally is on! The Dow rose another 246 points last week. Enjoy it while it lasts…but keep those trailing stops tight. The "End of the Rally is Nigh," says Barron's.

Our old friend, Marc Faber, says he expects a 10% drop in the stock market before the rally resumes.

Maybe. This rally is going to end sometime. But it probably has a ways to go. There are still a lot of suckers who haven't been drawn in.

Another old friend, Rick Ackerman, thinks the problem with this rally is capitulation…or rather, the lack of it. There's been no capitulation, says he. And you can't have a real bottom without it. No capitulation, no bottom.

The news from the economy is bad and getting worse.

Credit card debt has just taken its biggest plunge in 32 years…maybe ever. Credit card balances fell at a 9.7% annual rate. And the number of open credit card accounts is going down too.

What happens when people can't pay down their loans?

"Mortgage delinquencies soar in the US," says a Reuters article. Remember, delinquencies are the beginning of the process. Then come foreclosures and auctions – all eventually driving housing prices down further.

And when property prices fall, so does the collateral behind the banks' and other financial institutions' assets. So, their troubles aren't over. The worst is still ahead of us, not behind us.

But despite the bad economic outlook, investors think the worst is past for the stock market. Markets look ahead, they say, beyond the immediate economic forecast. True, but they have an adorable habit of seeing only what they want to see.

"In January 2008, when the S&Ps were in the early stages of what was to become a devastating collapse," explains Rick Ackerman, "domestic equity mutual funds were worth about $6.5 trillion. Lo, a little more than a year later, in February 2009, we see that the value of these funds had fallen by about 48%, to $3.4 trillion. But guess what: Over that time, net redemptions totaled only 2%, or about $100 billion! What that means, explicitly, is that mutual fund investors have stuck with this bear market throughout the decline."

Investors didn't give up on stocks – despite the huge decline in stock market prices. What that means is that there's still a lot of selling to be done.

"This bear market will end," he continues, "like every other bear market in history, with a wholesale dumping of stocks at prices that will make current values seem exorbitant in comparison."

That's why you use trailing stops. You want to be sure that when the selling begins your stocks get sold first – long before most investors finally capitulate.

More news on how to play this bear market from Addison and The 5:

"If you're shorting stocks, this might be of use," writes Addison Wiggin. "Now that the easy targets are long gone (big banks, homebuilders, AIG) and the bear market rally is in full swing, short sellers are setting their sites on some more diverse organizations."

"Hmmm… pretty all over the board, eh?" Addison notes. "There's a mobile tech biz, several real estate players, home healthcare, a bank and a popular chain of sandwich shops. What's the connection?"

"Most of the stocks on this list," answers our resident short seller Dan Amoss, "are characterized by at least one of these three facets: Shorting the stock is a current fad, the company is using 'creative" accounting methods that traders think is fraudulent, or the company is a high risk for insolvency.

"Regardless, bulls beware… when you see short interest that high (as a % of outstanding shares), you rarely see sustainable short squeezes."

And back to Bill with more thoughts:

It's amazing how much credibility some people have. Seems almost infinite. No matter how bad their advice…or how little they understand…people still ask their opinions.

Or, to put it another way…it's amazing what most people will believe.

You'd think – after $50 trillion in losses – that people would be careful whom they listened to. Who would take Alan Greenspan's thoughts seriously, for example? Yet, the newspapers still report his remarks with a straight face.

And what about all the economists who claimed that since the "U.S. has the world's most flexible, dynamic economy" you couldn't go wrong buying U.S. stocks? And what about the market timers who urged investors to buy "bargains" when the Dow was only 10% below its peak? And how about the regulators – such as Tim Geithner – who completely missed the biggest Ponzi scheme of all time, taking place right under their noses? And the economists who thought derivative debt made the financial world safer by "distributing risk more widely?" And those, such as Hank Paulson, who thought the sub-prime crisis was "contained" at $100 billion in losses? (Current cost of the bailouts – $12.8 TRILLION!)

As our friend Nicholas Taleb says, it's as if these guys had wrecked a school bus – while they were driving drunk.

But instead of putting them in jail – they're given a new school bus to drive!

Kevin Phillips, author of Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism warned of a the pending explosion of a 25-year "multibubble."

The bubbles began in the 1980s, he says, when the financial sector accounted for 10 percent to 12 percent of the U.S. economy had grew to an "arguably crippling" 20 percent to 21 percent of GDP by the middle of this decade.

Who's to blame? Henry Paulson, he says…and Ben Bernanke…and Alan Greenspan.

The Reuters report: "Phillips calls Paulson a Wall Street insider who was looking out for his own, and Bernanke an academic misguidedly trying to refight the 1930s Great Depression. Together they formed the wrong team at the wrong time whose ad hoc approach threw away hundreds of billions of dollars and more than doubled the Fed's balance sheet, he says.

"What you're seeing Bernanke do is he's trying to create a bailout reflationary bubble, which he can't describe as a bubble, just as Greenspan couldn't describe the housing mortgage bubble as a bubble. What we're seeing by Bernanke is a covert attempt to rebubble," Phillips told Reuters.

Meanwhile, Nouriel Roubini – who's been mostly right about the crisis – says that [Jim] "Cramer is a buffoon."

"He was one of those who called six times in a row for this bear market rally to be a bull market rally and he got it wrong. And after all this mess and Jon Stewart he should just shut up because he has no shame…He's not a credible analyst. Every time it was a bear market rally he said it was the beginning of a bull and he got it wrong."

Roubini warned two years ago that the United States faced its worse recession in four decades. He points out that the current rally on Wall Street merely follows the pattern of other major downturns.

"Once people get the reality check than it's going to get ugly again," he says.

Finally, as promised in yesterday's issue: What can we learn from Argentina?

In the '30s, Argentina suffered along with the rest of the world. Until then, it was roughly as rich as Europe and rivaled America in some ways.

"As rich as an Argentine," was an expression in England. Marrying one's daughter to an Argentine planter was the dream of many down-at-the-heels English aristocrat.

But something went very wrong on the pampas. Instead of Franklin Roosevelt's New Deal, the Argentine's got a raw deal from Juan Peron. Both programs were frauds. Both made things worse. But Peron's program stuck. Americans soon came to their senses and forgot Roosevelt. Between Franklin Roosevelt and Barack Obama were Eisenhower Republicans and Carter Democrats. But Peronist politicians have dominated the Argentine political landscape since the '40s.

Every problem demands a government solution. And every Peronist solution makes things worse.

Source: A 'Rebubble' Attempt

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Contrarian Profits

2009-04-09T17:14:00.001-07:00

Contrarian Profits

And Then There’s This…Thursday, April 09th, 2009

Posted: 09 Apr 2009 01:54 PM PDT

Gold didn’t do much on Wednesday. It rallied a bit in the Far East and got sold off mid-morning in London. The low of the day [such as it was] came at the London p.m. gold fix at 10:00 a.m. Eastern time. The subsequent rally got capped shortly after the price punctured $890…and then proceeded to get sold off [on big volume] right into the Globex close at 5:15 in New York. Total estimated volume was 87,493 contracts…with a switch effect of 5,876.

Silver was similar. A vertical spike at 8:30 a.m. in New York got squashed…and the low of the day was also at the London p.m. gold fix. And, like gold, the subsequent rally got capped at 1:00 p.m. Eastern before getting sold off to almost unchanged. Nothing to see here folks…please move along.

Open interest changes for Tuesday’s Comex trading showed an increase of 1,653 contracts in gold o.i….now 344,929 contracts. In silver, o.i. fell 802 contracts to 93,101. All of this [fingers crossed] will be in tomorrow’s Commitment of Traders report.

For the first time that I’ve been reporting Comex gold and silver deliveries, there was not an ounce delivered in either metal yesterday. Nothing happened with GLD or SLV…or at the U.S. Mint. At the Comex-approved precious metals depositories, silver inventories finally rose a bit…but just a bit…208,635 ounces.

The usual N.Y. commentator had the following yesterday…”The European Central Bank’s weekly statement of condition marked up consolidated gold holdings with a new book value… €690.186/oz. compared with €621.542/oz. at the year end. One captive CB was reported to have sold €14 million last week, only 0.63 tonnes. The previous week’s net sale was 4.13 tonnes. Disappointingly for gold’s friends, there was no report of any CB buying. The 35.5 tonne sale by the ECB itself, announced last week, has yet to show up in these weekly statements. Usually it takes over a month.”

In other gold and silver news, the Central Fund of Canada’s underwriting agreement with CIBC is now complete. Of the $340 million offered…$210 million was taken. That’s a huge amount, even more than I was expecting. The closing should occur on or about April 16th. At that time we’ll find out how much gold and silver bullion they will have acquired. A back-of-the-envelope calculation based on $195 million in bullion purchased [at yesterday's prices] indicates about 130,000 ounces of gold and 6.5 million ounces of silver will be added to their stash.

Three stories today. The first is from chinadaily.com…China’s ‘official’ newspaper. It appears that China is more than serious about using their currency for international trade. The headline says it all…”Yuan trade settlement to start in five Chinese cities”…and the link is here.

The next story is filed from Johannesburg and is posted at fin24.com. It’s noteworthy in the fact that Philip Klapwijk, the chief cook and bottle washer over at Gold Field Mineral Services [GFMS], says that gold prices could “easily re-attain the $1,000 mark and may well push up towards, and perhaps even through, the $1,100 barrier in the coming months.” I’m not sure whether to be wildly bullish…or maybe I should phone my broker this morning and tell him to hit the bid on every stock I own! As you have probably already guessed…I’m not a big fan of GFMS. But we’ll find out in the fullness of time. The story is entitled “GFMS: Gold can reach $1,100″…and the link is here.

And lastly…Canada’s Business News Network yesterday devoted an hour to a program it called “Bear Attack”…which featured interviews with Sprott Asset Management CEO Eric Sprott, New York University economics professor Nouriel Roubini, Long Wave Analyst letter editor Ian Gordon, and financial adviser Meredith Whitney. Gold figured prominently in the discussion. The whole program is well worth watching. The program is broken up into two parts. The link to the second part is easy to find once you get to the first part…and the link for that is here.

The worst is over without a doubt. - James J. Davis, Secretary of Labor, 29 August 1930

As I’ve mentioned before, look out for the upcoming crash in the Commercial real estate market. In a story posted at The Wall Street Journal yesterday…”Commercial landlords continue to lose retail tenants at an accelerating pace, indicating that the industry’s troubles are worsening. The amount of occupied space in U.S. shopping centers and malls declined a net 8.7 million square feet in the first quarter of 2009, more than the total amount of space retailers gave back to landlords in all of 2008 and any other year in recent history.” And this is just the start.

On that cheery note, all of us here at Casey’s Daily Resource Plus would like to wish you a Happy Passover…and an equally Happy Easter.

Source: And Then There’s This…Thursday, April 09th, 2009

Resource Stock Roundup: Thursday, April 09th, 2009

Posted: 09 Apr 2009 01:19 PM PDT

The bulls made a valiant effort to fight off the surging bears during Wednesday trading on the Canadian markets. For the tale of the tape, the TSX Exchange added 1.64%, while the TSX Gold was essentially unchanged and the TSX Venture Exchange, Canada's largest junior exploration bourse, gave back 0.19% with the decliners beating out the advancers by a 350 to 327 margin on volume of 119 million shares traded.

Aurizon Mines (AMEX:AZK) inked a C$50 million bought deal financing comprising just over 9.7 million shares priced at C$5.15 each. The gold miner ended the day down C$0.51 at C$5.13.

Shares of Goldsource Mines continued to slump on the back of the last batch of drill results from the Border coal project in Saskatchewan. Goldsource fell C$0.15 to C$1.38.

Teck Cominco (NYSE:TCK) cashed in 5.6 million shares of Kinross Gold (NYSE:KGC) that it acquired in January on the sale of Teck’s sixty per cent interest in the Lobo Marte property in Chile. Teck got $18 per share for a cool $141 million. Teck ended the day up C$0.77 at C$8.74.

We may have bounced off the bottom but on a year over year comparison, the value of trades on the junior bourse is down 77.2 per cent, while the trading volumes are down 29.7 per cent. More importantly, equity financings are down 64.8 per cent over the first three months of 2009. We shall see what Thursday trading has in store.

Source: Resource Stock Roundup: Thursday, April 09th, 2009

Would You Be Interested in Earning a Steady 15% a Year?

Posted: 09 Apr 2009 12:47 PM PDT

Notes from the
Investment Underground

April 9, 2009
Palermo Viejo, Buenos Aires, Argentina

Why you should invest in pipeline companies… Wither Geither's stress test results? Congress vs the Treasury… Check out of USA Inc with these four BRIC EFTs… How to survive the "Great Money Famine of 2009"… Three questions for Barney Frank… Congressional panel: Liquidate banks, fire top execs… PPIP FLOP… Geithner's latest Orwellian manoeuvre… And more!

*** We've added a new section to Notes.

It's called "Must Reads" and it's basically a list of the day's must read articles on money-making and the markets. It's at the very bottom of the issue. Tell us what you think: info@contrarianprofits.com.
Don't be shy. We've got thick skins.

*** We love DailyWealth.
It's quite possibly the single best free source of contrarian money-making ideas out there (apart from Notes, of course).
Today, 12% Letter
editor Tom Dyson says
an easy way of making steady yield of up to 15% on your money a year. Tom reckons that if you like earning steady income, there's no better business right now than pipeline companies. This
is a list of pipeline stocks with yields as high as 15%. Thanks, Tom.

*** Sssshhh… Rumors persist that the reason the Treasury won't release its stress test results for banks
is that the department doesn't like what it found out and reckons Mr Market won't either. Or is it because releasing the results will reveal the stress tests for what they really are: an attempt at mass deception? Read more here.
(A mysterious leak has since appeared in the NYT. See below.)

*** It's also pretty damn obvious that Geithner's "legacy loans" program is going to be a flop.
And a big part of the reason for this is Congress's recent pressuring of the FASB to get rid of mark-to-market accounting rules. This
from Jack McHugh at The Big Picture:

Chalk up the lack of interest on both sides as unintended consequences numbers one and two for our newly seated Congress. Pressuring FASB into embracing "Miss Mark-to-Market" accounting will hurt PPIC supply, while It was the retroactive attack on the employees of AIG and other financial entities by our nation's elected officials that is likely crimping demand. A thank you note from Tim Geithner to the Democratic leadership in both chambers is unlikely to be forthcoming.

*** The U.S. is clearly on its way to becoming a banana republic.
Right now, the only thing saving it is the dollar's reserve currency status. One of the world's most successful investors realized this a long time ago and moved to China. One way to hedge against this outcome is to invest in BRIC nations (Brazil, Russia, India and China). Writing in Investor's Daily Edge, Ted Peroulakis reckons you can make "hefty profits" by investing in BRIC economies at current levels. Ted recommends four ETFs to cash in on these emerging markets.

EWZ

2) The best way to play Russia: Market Vectors Russia ETF (RSX). This Exchange Traded Fund holds a nice basket of Russian stocks and seeks to mirror the Russian stock market as measured by the DAX Global Russia+ Index.

3) The best way to play India: PowerShares India (PIN). This Exchange Traded Fund holds a nice basket of Indian stocks and seeks to mirror the Indian stock market measured by the Indus India index.

4) The best way to play China: iShares FTSE/Xinhua China 25 Index (FXI). This Exchange Traded Fund holds a nice basket of Chinese stocks and seeks to mirror the Chinese stock market measured by the FTSE/Xinhua China 25 index.

(To get more money-making ideas from Ted, follow this link.)

*** As millions suffer through the Great Money Famine of 2009
, my friend Martin Weiss of Weiss Research can give you access to the world's richest depression-proof market.

It's a market that…

1. Gives you the opportunity for substantial income and/or large capital gains no matter how ugly this recession becomes — and can keep the cash flowing to you long after the recovery arrives; literally for the rest of your life …

2. Lets you start with investments that sell for peanuts and than up the ante as you gain confidence …

3. Gives you the flexibility to spend less then a half-hour a day on this opportunity, and to take time off whenever you like …

4. Lets you do it anywhere — at your home, your office, on vacation — anywhere in the world, and …

5. Unlike a business opportunity, never requires you to hire a single employee, invest in inventory, spend a penny for marketing or any of the other expenses that cut into profits.

Weiss’s depression investing plan is a blend of currency ETFs, high-return currency CDs, and World Currency Options. You can get all the details here.

*** Barney Frank is a populist idiot.
Maybe this is too obvious a point to make, but we'll make it anyway. Frank's brilliant new idea is to take a pot shot at Moody's rating agency. He's displeased with the possibility that Moody's may downgrade U.S. municipalities. Frank says this action "would raise interest rates on cities and towns making it expensive to borrow funds for infrastructure developments." What's the people's champion gonna do about it? He's gonna rake Moody's over the coals at a Congress hearing, that's what.

*** Notes
has some questions for Frank.
Why didn't he have a problem with Moody's upgrading toxic assets during the boom? Doesn't he realize that dodgy ratings were a major cause of the current crisis? Does he intend to lean on other ratings agencies? Does he want Congress to control the ratings over other securities? Idiot.

*** Frank isn't the only politician fascinated by flying in the face of common sense.
Despite being told in simple terms by the Congressional Oversight Panel that firing top executives and liquidating insolvent banks may be a better way to solve the economic crisis, the Treasury continues down the path of creating zombie banks courtesy of the U.S. taxpayer. "All successful efforts to address bank crises have involved the combination of moving aside failed management and getting control of the process of valuing bank balance sheets," the panel, headed by Harvard Law School Professor Elizabeth Warren. (Hat tip to The Big Picture.
)

*** The government's shenanigans and incompetence will bring dire consequence.
Porter Stansberry of Stansberry & Associates puts it best in the most recent issue of the S&A Digest
(available only to subscribers of Stansberry & Associates
research):

Our leaders have grown arrogant. They’ve forgotten what made America great. They seem to believe God bestowed wealth upon our country. They’ve borrowed an unfathomable amount of money – confident they’ll be able to tax future generations of Americans. But in fact, the wealth of our country is almost completely owned by individuals. And right now, these individuals see nothing but endless decades of additional government deficits, rising taxes, and a paper currency that’s being destroyed. They see the free market system being corrupted. And most importantly, they see a nation that used to espouse the ideals of limited government and personal liberty heading down the road of a socialist experiment, led by an inexperienced, charismatic, and wildly popular leader. They know what’s coming. And so should you.

What do you
think? Send you comments to info@contrarianprofits.com.

*** My old man is in town today.
He's down here to see his grandson, among other things. Yesterday, we went to a local parrilla
(grill restaurant) around the corner from out new offices in the Palermo Viejo part of Buenos Aires. Dad thinks we may have been a little hasty here at Notes

yesterday in calling the end to the sucker's rally. This is what he had to say
on the subject in yesterday's Daily Reckoning:

Which makes us think that the rally is probably NOT over. It's too soon to hammer the bulls. Not enough of them yet. This market should rise more… in order to draw in more suckers.

You saw our guess yesterday. We're headed towards a Great Deception.

The bulls are deceived into believing we're in a new bull market. They'll be disappointed when this rally falls apart. They'll give up on stocks and sell the market down to the 5,000 level…or below.

The gold and commodities markets deceive the bears. They expect prices to go up as the feds put in more money. They'll be disappointed when gold sinks. You saw the big whack they gave gold on Monday. It went down hard. Yesterday, it recovered slightly – back up $10.

The big spenders will be disappointed too. They've got debt. And they're counting on consumer price inflation to lighten up those debts, making them easier to pay. Instead, deflation will make their debts heavier… weighing down so heavily on the debtors that many of them will be crushed by it.

*** Annoyingly, today's market action tips the argument is dad's favor.
At the time of writing, the Dow, the S&P 500 and the Nasdaq are all up between 2% and 3%. News that Wells Fargo's preliminary Q1 results were stronger than expected has boosted optimism. So has a handy leak
in the New York Times
that the 19 major banks will indeed pass the Treasury's stress tests.

*** We're fascinated by the timing of this leak… and its contents.
As we've been saying for weeks now at Notes

the prime mover in the markets right now is Uncle Sam. Here's how it works. The government announces some sort of positive announcement about its fight to 'fix' the economy, moving the markets higher. Then, after traders have time to digest the news, the markets move lower again (PPIP, Fed's quantitative easing initiative, the various bailout behemoths, etc.)

The NYT leak is no different in our view. When the real data comes out, expect it to be a lot worse than the convenient NYT leak makes it out to be. A couple of things stick out as significant:

1) The only 'source' quoted in the NYT article is "officials involved in the examinations." This story is a plant by the Treasury. Nothing more.

2) These two sentences also tell a story:

Regulators say all 19 banks undergoing the exams will pass them. Indeed, they say this is a test that a bank simply will not fail: if the examiners determine that a bank needs "exceptional assistance," the government, that is, taxpayers, will provide it.

We were under the impression that the stress test was to determine whether insolvent banks should be taken into a government-sponsored receivership and liquidated rather than sucking up more tax dollars by way of bailouts. But if even the regulators say this is a test that a bank simply won't fail, what is the point of them?

*** Geithner's stress tests are just another Orwellian smoke and mirrors manoeuvre from a dishonest Treasury department
– and by extension a dishonest administration (sorry, Obama supporters) – determined to subsidy banks with taxpayers' money.

*** This from William Black, a former senior bank regulator and S&L prosecutor,
courtesy of Naked Capitalism:
"There is no real purpose [of the stress test] other than to fool us. To make us chumps." Black says Geithner is now essentially saying: "If we lie and they believe us, all will be well."

*** The depressing reality is that the stress tests are reversed engineered nonsense
designed to provide cover for the Treasury's massive wealth transfer from you, the taxpayer, to failed banks.

Josh Rosner at Graham Fisher & Co (a guy who predicted the peak of the U.S. housing market and the likely contagion of structured securities into the real economy) says
there's not a single regulator in Washington that takes Geithner's test seriously. The trick is to make the stress test not terribly "stressed."

The underlying macro-economic assumptions of the stress test are not terribly "stressed". They are more probable than unlikely:

* 0.5% GDP growth in 2010, after -3.3% in 2009 is now looking quite realistic

* 10.3% unemployment rates in 2010, after 8.9% in 2009. We have estimated, if government stability plans fail, the rate will rise to 11% in 2010)

* 7% declines in home prices in 2010, 22% in 2009 (They are down 18.8% y/y and 27% since 2006 peak, we have estimated a 2011 trough. Long term trends in home prices suggest that we will revert close to the peak levels of the previous cycle)

Go figure…

*** With meager oil or gas resources of its own
- yet with a combined energy need of 27.7% of world supplies - Europe's at the mercy of petroleum powerhouse Russia…

But now, China's deep pockets are challenging Russia's deep reserves for control of Europe's energy supplies. And three strategically located petro-players will soon play a crucial role in European energy independence - or Chinese energy dominance…

Either way, you stand to gain as much as 183 times your money - if you're invested in these "target" companies before April 30th. Follow this link
to learn more.

*** From the mailbag…

Money Morning

Notes
comment:
It's widely understood, Steve, that the recent rise in gold prices is linked to the recent fall in stocks. It's hardly controversial. Investors sell gold when they think things are getting better. What part of that is "bogus"? Gold is a hedge against risk ("disaster insurance as commodities investor Rick Rule puts it). It may be common sense to you that when people are risk averse, they're risk averse to everything. But this isn't the case. As to us "newsletter guys" trying to sell subscriptions. You're right. We do sell subscriptions. That's what pays for all the free money-making you get. Of course, the subscriptions we sell make a lot of people a lot of money. Otherwise, there wouldn’t be a newsletter business. Not big on logic, are you Steve?

*** Quote of the day:
“Cramer is a buffoon. He was one of those who called six times in a row for this bear market rally to be a bull market rally and he got it wrong. After all this mess, and after Jon Stewart, he should just shut up because he has no shame.” New York University economics professor Nouriel Roubini.

Have a great weekend,

Will Bonner

Must reads:

Cramer vs Roubini: Another war of words for CNBC star (The Independent)
Obama wants taxpayers to bail out banks directly (NYT)
Elizabeth Warren introduces Congressional Oversight Panel's April report on the first six months of the TARP (YouTube)
At least ten states consider major tax hike… Better hope you don't live in one of them (WSJ)
Unemployment claims at 5.84 million – the all time record (Calculated Risk)
Interactive graph of the Fed's balance sheet (Real Time Economics)
Kass buys Berkshire (TheStreet)
Former regulator on why Geithner's stress test for banks is a "complete sham" (Clusterstock)

Nothing in this e-mail should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.
We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Protected by copyright laws of the United States and international treaties. This Newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Contrarian Profits
. P.O. Box 925, Frederick, MD 21705 USA

Base Metals Move Little

Posted: 09 Apr 2009 12:40 PM PDT

The base metals were mixed on Wednesday. Copper ran at $2 again, and again was turned away at $1.98 right around noon, after which it fell to finish at $1.9483/lb., down a quarter-cent.

Nickel was down in the pre-dawn hours but rallied through the rest of the day, closing at $4.8368/lb., up 5¼ cents. Zinc was sharply higher through most of the day, ending at its intraday high of $0.603/lb., up a penny. Aluminum was modestly higher, adding a quarter-cent to $0.652/lb., while lead was modestly lower, shedding a half-cent, to $0.5956/lb.

Copper continues to struggle to close over $2, carding a fractional loss yesterday after it fell short of what is proving a formidable barrier once again.

Analysts said the metal's run early in the day followed the stock market. "A little bit of buying has crept through on the back of the Dow," said James Roberts, of Sucden Financial in London. "The turnaround in prices is equity-driven."

But the upturn in the dollar likely put a lid on things.

"We expect the currency markets and technical signals to continue exerting a strong influence over short-term price direction," wrote analysts at Standard Bank.

Stockpile data was non-supportive, as inventories monitored by the LME rose by 2,300 metric tons yesterday, to 504,200 tons. But canceled warrants—metal earmarked for delivery—continued to soar, advancing to 59,825 tons yesterday, up from 27,675 tons a week earlier.

Inventories are still up by 48% this year, but with a lot of metal heading out for China, some see improvement ahead.

Analyst Judy Zhu was somewhat optimistic, writing that, "Data related to consumption of industrial commodities lead us to believe that the worst time for China's demand may have passed, though we still believe that an immediate, strong rebound is unlikely."

It's not only copper that's streaming toward China, either. As Platts wrote, "The wide spread between Chinese refined zinc prices and those quoted on the London Metal Exchange has led to an increase in zinc imports over the past three months, as local importers make huge profits."

While supplies are tight now, "Industry participants, however, expect zinc imports to slow down by mid-May, when the buying season ends. Zinc end-users in China, such as zinc alloy producers, usually buy materials between February and May every year once they are back from the Lunar New Year break end January," Platts wrote.

Source: Base Metals Move Little

Crude Inches Higher

Posted: 09 Apr 2009 12:07 PM PDT

In the energy market on Wednesday, oil rebounded slightly, with crude for May delivery closing at $49.38/barrel, up 23 cents. May reformulated gasoline dropped just over 2 cents, to $1.4396/gallon.

In its weekly inventory report, the Energy Information Administration said that crude supplies rose 1.7 million barrels in the week ended April 3, which was lower than analysts' expectations.

The EIA also reported that gasoline inventories rose 600,000 barrels while distillate stocks declined by 3.4 million barrels. Refineries operated at 81.8% capacity, up slightly from a week earlier.

"Crude stocks didn’t increase as much as anticipated but stocks remain well above the high end of the normal range," said James Williams, of WTRG Economics..

"On the consumption side the U.S. is using less of everything … The data is a clear indicator that the recession has changed consumer behavior," Williams added.

Source: Crude Inches Higher

Dollar/Euro Nearly Unchanged

Posted: 09 Apr 2009 11:32 AM PDT

In the currency market, the dollar was essentially unchanged against the euro. Late Wednesday, the euro was trading at $1.327 vs. $1.3267 on Tuesday.

The buck got a bit of a lift after the release of the minutes of the Federal Open Market Committee’s March 18 policy meeting.

The notes showed that members saw a worsening economic environment in mid-March, with all agreeing that "substantial additional purchases of longer-term assets … would be appropriate … Members agree that the monetary base was likely to grow significantly."

There was little debate in the FOMC on the question of buying longer-term Treasuries, with the major disagreement coming over how much to buy. Some members said the prospect of deflation argued for "very substantial purchases," while others said some of the heavy lifting could be accomplished by other Fed programs, particularly the new Term Asset-Backed Securities Loan Facility.

"What happened to a solid recovery in 2010? As it stands, the minutes provided ample justification for the Fed’s decision to engage aggressive quantitative easing," wrote Matthew Strauss, of RBC Capital Markets.

The euro was also harmed when the Irish government estimated that its budget deficit will soar to 10.8% of GDP this year, in spite of emergency budget plans to slash spending and increase taxes.

Source: Dollar/Euro Nearly Unchanged

Precious Metals Go Flat

Posted: 09 Apr 2009 11:05 AM PDT

Gold was up early in the overseas markets, fell off into mid-morning in New York, rallied back to peak at $890 just before the end of the Comex, then declined again through the Globex, finishing at $880.00/oz., down $1.10. Overnight, gold is slightly higher.

Platinum had a decent day, rising into the second hour in New York, before pulling back a little and trading sideways for the rest of the day, ending at $1175/oz., up $12. Overnight, platinum is sharply higher.

Silver traded all day between $12.20 and $12.40, zigging and zagging before closing with a slight gain at $12.26/oz., up 4 cents. Overnight, silver is little changed. (Click here for charts)

It was a very blah day for the precious metals as nothing much showed up to provide a sense of direction, with equities posting mild gains, oil bouncing back over $50, and the dollar static.

The reason why investors are buying gold, "fears of longer- term inflation and currency debasement, remain intact," wrote John Reade, the head UBS AG (NYSE:USB) metals strategist in London. Once gold prices have stabilized, "we expect bottom-fishers to begin the next cycle of investment."

But in the meantime, opposing forces are contending.

As Dan Norcini, writing on jsmineset.com, put it: "Gold is still caught in the tug of war between risk and risk aversion with traders unsure exactly how to trade it. Physical buying of gold from overseas, especially India, is strong below the $900 level but that is insufficient in and of itself to push prices higher. It can serve to put a floor under the market but to take gold higher, it is going to require strong investment interest. Interestingly enough, the reported holdings of the gold ETF, GLD, have remain fixed for some time now."

As far as silver goes, many are looking for it to break out at some point this year, and the key may lie in some New York warehouses.

As Norcini wrote: "Silver drawdowns out of the Comex continue on their torrid pace with another 2 million ounces coming out yesterday. Whoever is taking the silver out of the HSBC (NYSE:HBC) warehouses has managed to draw down stocks from near the 80 million ounce mark (registered category) in December of last year to yesterday's 63 million ounce mark. That is no small feat."

Norcini goes on to speculate, "I think it no coincidence that the reported holdings of the silver ETF, SLV, have also shown a reported increase since the first of this year of some 52 million ounces." If there is a connection, that would be most interesting.

Source: Precious Metals Go Flat

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Contrarian Profits

2009-04-08T17:48:00.001-07:00

Contrarian Profits

Wall Street’s New Bull Market: 7 Signs the Bear is Dead…

Posted: 08 Apr 2009 12:38 PM PDT

Believe it or not, but based on the classic Wall Street definitions, we're in a new bull market. As of last Friday, all three major market indices recovered more than 20% from their March 9 lows.

Of course, we've been here before. Or as Yogi Berra liked to say, "It's like déjà vu all over again."

Recall, back in November of 2008 the markets began an impressive run-up, hitting the 20% milestone, too. Then all hell broke loose.

As a result, not every market observer, myself included, is completely convinced by the recent move. But I will say this - seven notable differences exist between then and now, leading me to believe this very well could be the start of a new bull market.

There's hope for housing.

On Tuesday CNBC did a feature story on home sales in foreclosure central - California. In one suburb outside Stockton, where one out of every 67 homeowners received a foreclosure notice last month, new home inventories miraculously plummeted from 130 to just 17. One builder went from four sales in five months to nine sales in one month. Tax incentives definitely played a rule. Nevertheless, the trend jives with the latest overall market data.

Recall, new homes sales jumped an unexpected 4.7% in February. It also lends credence to newsletter guru Dennis Gartman's latest prognostication that "we're going to have a shortage of housing in the not too distant future."

Another positive - lumber prices, a leading indicator for the housing market, rebounded roughly 30% in the last three weeks. (The housing market accounts for two thirds of lumber consumption.) Add it all up, and this data is hardly overwhelming. But it's certainly less bad (see # 3 below to understand why).

Takeover rumors are moving stocks again.

In a clear sign of optimism and normalcy, takeover rumors are once again returning to the market. And, more importantly, they're moving stocks and spurning heavy call options buying. For proof, look at the recent moves in Black & Decker (NYSE: BDK), Textron (NYSE: TXT), Allergan (NYSE: AGN) and Illumina (Nasdaq: ILMN), to name a few.

From bad to less bad.

Home sales. Durable goods orders. The ISM Manufacturing Index. These are just a handful of the economic data points that have gone from bad to less bad in recent weeks. At the same time, financial companies are beginning to wean themselves off of their government handout dependency.

Five banks announced they returned money given to them under the TARP program. And the TED Spread - a key indicator of perceived credit risk in the economy - is back below 100 basis points (bps) after peaking last October at 464 bps. (Keep in mind, the historical average TED spread is 30 basis points, so there's still a ways to go.)

No halitosis.

The November rally that faltered was led by defensive stocks and lacked breadth. In other words, a large portion of the market did not come along for the ride. However, this go-round we're witnessing widespread strength, particularly in financials, commodity related companies and semiconductors, suggesting the move is sustainable.

Volatility is dropping.

Right about the time we accepted one-hour 400 point swings as normal, their prevalence dropped off considerably. Look no further than the CBOE Volatility Index (VIX). After peaking at 89.53 last October, it's back down to more reasonable level around 40. More simply put, the expected market vulatility has been cut in half.

The market's always out front.

Countless studies prove the market is the best leading indicator, rallying three to seven months before the economy bottoms. That doesn't mean we're immune to head fakes. The classic example comes from the last "severe" recession from 1973 to 1975, when stocks rallied in early 1974, only to stumble again.

But talk about history repeating itself. We experienced the same false rally late last year.

Just like in 1975, when the Dow rallied 36.2% in the three months before the recession finally ended, the recent market move could be the real deal, too.

Bears out proselytizing bullishness.

In a clear sign of a market bottom, the most bearish investors in recent times found, well, bullishness. This includes Jeremy Grantham, who hated stocks for the past decade; Bill Fleckenstein, who shut down his 13-year-uld bearish fund to go long stocks; Steve Leuthuld, whose Grizzly Short Fund rose 74% in 2008; and Whitney Tilson, another one of the most bearish fund managers in recent years.

Don't be quick to discard their change of heart and bullish comments as mere bloviations. These guys are the real deal, having predicted the downturn well in advance… and profited from it handsomely.

If this bull market is legit, I've already tuld you which small cap companies will perform best here and here.

Turns out they're already leading the charge, outpacing large caps by a full six percentage points since the March 9 lows, based on the Russell indices.

If you haven't positioned your portfulio accordingly, take heed. This could be your last chance.

Source: Wall Street's New Bull Market: 7 Signs the Bear is Dead…

Earnings Season: How to Prepare for Price Swings & React Accordingly

Posted: 08 Apr 2009 12:29 PM PDT

Tuesday afternoon's closing bell on Wall Street didn't just signal the end of the trading day. It also rang in the start of first-quarter earnings season.

Alcoa (NYSE: AA) had the ominous and unenviable task of being the first of the Dow Industrials to step up to the plate. And like a tubby first baseman who's spent the winter off-season shoveling down junk food, Alcoa swung and missed. Badly.

Already waddling around with debts of more than $10.5 billion, America's largest aluminum producer reported further loss of half a billion dollars for the quarter (59 cents per share), as sales plunged by 41%. As a sign of how hard the recession has bitten the company, it compared to net income of $303 million (37 cents per share) in Q1 2008. It was the company's first consecutive quarterly losses since March 1994.

The news wasn't a surprise. As the recession squashes aluminum demand, prices have plummeted around 50% over the past year. At current levels, 70% of the aluminum industry is unprofitable, according to Svein Richard Brandtzaeg, CEO of Europe's second-largest aluminum producer, Norsk Hydro.

And with Alcoa projecting a further 7% drop this year, it's already laid off 13,500 workers and slashed production by 20% since mid 2008. Just last week, it announced that it will shut down half its out output (120,000 tons worth) at a factory in New York.

So is Alcoa's news a sign of things to come this earnings season?

The Current Earnings Season In Context

Let's set this earnings season in context…

It comes amid a sudden, surprising shift in investor sentiment. Out with the fear and panic that gripped the stock market during its winter of discontent. In with a frenetic four-week bout of buying to relieve oversold conditions. Here's why…

The Federal Reserve pumped $1.1 trillion into the credit markets.
The G20 nations agreed a $1 trillion deal last week and a tripling of lending by the International Monetary Fund to emerging nations.
The Financial Accounting Standards Board changed mark-to-market accounting rules, which should limit bank losses and boost lending.

Or perhaps Wall Street just has a case of Seasonal Affective Disorder as spring got underway.

Either way, when stocks are oversold, it doesn't take much good news to trigger a rally. But here's why you should keep that champagne on ice…

The rally that has catapulted stocks 25% higher is dangerous, as it comes amid a bear market - often known for producing sharp, surprising rallies that can fool investors. Remember, this rally lifted stocks from 12-year lows and estimates suggest the economy shrank by 4.5% during the last quarter.

And against that backdrop, we've got a short-term downward catalyst in the mix…

Earnings season.

Watch For The Earnings Season Domino Effect

As we've seen so often over the past few months, investors have very little tolerance for bad news.

So brace yourself for an earnings season that will see S&P 500 companies' profits slide 37%, according to Thomson Reuters. That would mark the seventh straight quarterly decline.

And if you're looking to play sector trends, keep in mind that Alcoa's dismal report could trigger a domino effect of poor earnings in industries that use heavy amounts of aluminum. For example, construction, manufacturing, and transportation industries like autos and aviation.

2 Tips To Combat Earnings Season

Here are a couple of other earnings season tips…

Earnings season is a notoriously difficult time to trade. Volatile price swings higher or lower are much more prevalent as companies release their quarterly reports and the market reacts to the news en masse.

And with the economy in recession, there's a higher chance of bad macroeconomic data (poor unemployment news, for example) adding to the danger. Whether they occur post-market or pre-market, because these price swings are tough to predict, it's essential that you're prepared in advance, as it's too late once the action is in progress.

Here are a couple of steps you can take to mitigate the risk…

Position Size: Ensure that your portfolio is position-sized prudently. Don't invest too much in one or two positions. Ideally, you should invest a similar dollar amount in each position and put no more than 1% or 2% into each position.
Use Stop-Losses: You should be doing this anyway, but it's particularly important during earnings season, as they protect you from a shock.

No matter which way your stocks move after earnings are released, the move will either be for valid, specific reasons, or a market overreaction (imagine that!) Make sure you know and understand them.

For example, a huge corporate loss, drug failure, or SEC investigation will hammer a stock. But even when the news is good - such as a big profit, takeover announcement, or strong future guidance - a stock can decline as investors take profits.

Earnings reports are usually short-term catalyst events. But it's a time when the "herd mentality" can rule - especially when investors are more nervous than usual. Stocks can get rewarded or punished unfairly, so be prepared for price swings and react accordingly, whether that's cutting your losses or locking in gains.

Martin Denholm

Source: Earnings Season: How to Prepare for Price Swings & React Accordingly

Why Wall Street is Missing the U.S. Housing Recovery

Posted: 08 Apr 2009 12:15 PM PDT

Wall Street created the U.S. housing bubble and now it’s missing the real estate rebound. And Andrew Waite understands why.

Waite is the publisher of the Personal Real Estate Investor, a glossy magazine that focuses on investors who buy houses or condos to manage for income or to fix up and sell for a profit. But he’s not some industry cheerleader whose statements are nothing but spin.

He’s a true expert on the U.S. housing sector who goes out of his way to “educate” journalists about the true state of the American housing market, and who criticizes most of the “indicators” in use as useless and irrelevant. Plus, as a onetime Wall Street venture-capitalist who subsequently joined Silicon Valley’s Sand Hill Road private equity crowd, Waite really understands how the Wall Street investment game is played - and, in the case of the U.S. housing market, the missteps Wall Street made and why.

“Wall Street analysts and economists do not understand the housing industry,” Waite told Money Morning in a recent interview. “While stocks and bonds are relatively simple to analyze, housing is anything but. Unlike stocks, housing is a non-tradable asset.”

But through the creation of mortgage-backed securities, Wall Street tried to transform housing into a tradable asset. That lack of understanding set the stage for the housing bubble. And it’s the same miscalculation that is keeping the big-money crowd from understanding that the housing market may have already bottomed - and may well be on its way back up.

Let’s look at both miscues.

Building a Bubble

Stocks and bonds are “tradable assets.” They trade on central exchanges - in a very efficient manner - and play well into the kind of mathematical averaging that paves the way for all sorts of indices (the Standard & Poor’s 500 Index), and sub-indices (the Dow Jones Transportation Index).

That’s not the case with housing, which is very granular in nature - meaning how housing does in one neighborhood differs greatly from how it does in another. Housing is a “non-traded” asset because it is hard to trade - and when it does trade does so in a highly inefficient market.

As Waite says, housing is referred to as “real” property for a reason: Unlike stocks or bonds, which are paper representations of the underlying asset, housing is the asset itself. People live in houses, and most don’t buy them as investments - they buy them to live in. The typical house is owned for five to seven years, and only about 5% of the U.S. housing stock turns over in a single year. In a “normal” period - by that, I mean a stretch that’s not artificially souped up by the unrealistically loose credit that led up to the subprime-mortgage debacle - prices escalate perhaps 3% to 4% annually. And there aren’t the whipsaw pricing patterns that we see with stocks.

Even so, as part of its mission to transform housing into a tradable asset, Wall Street designed a reporting system that, true to form, was badly flawed, Waite says. The measures applied to the market - sample size, methodology, and statistical presentation - work well for assets that are dynamically traded, as stocks are. But they don’t work for housing:

Stocks are analyzed by looking at the underlying company’s fundamentals, meaning the conclusions reached are very much tied to the specific earnings power of that firm.
Housing, by comparison, is analyzed make “illogical” generalizations about the market that fail to reflect reality.
Stocks are analyzed in a forward-looking fashion, being all about earnings projections and expectations.
Housing analysis ends up being backward looking (45 days to 180 days), meaning the conclusions that are reached are likely outdated by the time we see them.
Housing ends up being treated like a commodity, with “five-star” neighborhoods (where sales are brisk and the asking price is now being exceeded as prospective purchasers bid the values up in hopes of landing the house) being “averaged in” with “disastrous” one-star neighborhoods.

Says Waite: “Housing indexes and statistics emanating from Wall Street take a cynical view of housing … and they misrepresent the actual value of housing by ignoring the critically obvious point - most housing purchases are 'buy, occupy and hold’,” and aren’t a speculative play aimed at short-term profits.

By misfiring so badly, Wall Street established an environment in which housing prices were expected to escalate at better-than-their-historical norms, fanning the speculative flames. The easy credit made available by the mortgage-backed debt market only made matters worse. Banks made loans, and Wall Street bundled those loans into an asset-backed security - giving the banks back the cash that they could then use to make their next round of loans. Because the loans were “averaged” out, the resultant securities were given the highest credit ratings by the ratings agencies - which was more than the securities deserved.

It was a recipe for disaster - or, at least, for a bubble.

Wall Street never saw it coming.

Anatomy of a Rebound

Wall Street has also failed to understand the dynamics of a housing market recovery - which is already in the works, Waite says.

And he should know. The portion of the real estate market that Waite’s magazine caters to - the real estate investor - is significant. In fact, a groundbreaking study commissioned by the magazine, and conducted by real-estate researcher REALTrends Inc., in concert with Harris Interactive, found that real estate investors account for 22% to 28% of all home sales (existing and new) each year - a total of 1.5 million to 1.64 million houses each year. That’s a big piece of a $300 billion industry, so it provides a very solid sample.

According to Waite, the housing market bottomed last year. But that bottoming takes place in stages. Housing values continue to decline. But values can’t bottom, solidify, and then head north until sales volumes increase, Waite says.

“First you get volume, and then you get valuations,” Waite says.

And it doesn’t get better across the board all at once: Sales will improve in a “predictable sequence” that start with the very best neighborhoods, work their way down to the really good neighborhoods, and finally reach the plain old good developments.

As noted, Waite says the very best neighborhoods are already seeing strongly improved sales, with actual bidding battles taking place as prospective buyers willingly pay more than the asking price in order to land the choicest properties.

As those markets sell out, and the credit spigots open, demand will move from the very best neighborhoods down to the “pretty good” residential properties, Waite says.

Three reports released over the course of three straight days the last week of March seem to support Waite’s view.

Sales of new homes rose 4.7% in February - the first increase in seven months, the U.S. Commerce Department reported March 26. The day before that report came out a government gauge of home prices posted its first gain in almost a year. And the third of that “hat trick” of upbeat reports issued that same week said that sales of previously owned homes - the biggest share of the market - also increased in February.

The plunge in housing prices is also starting to have an effect. In a second report issued March 26, the California Association of Realtors said that existing-home sales in the state were up 83% in February from the previous year. The reason: The median home price was down roughly 40%, which is helping shrink inventories to about a six months’ supply from 15 months in 2008.

If Waite’s theory is correct, as sales of new and existing homes pick up on a month-to-month basis, prices will follow.

But true to form, Wall Street is demanding proof.

The data “have allayed some fears that the housing market would continue to freefall,” Omair Sharif, an economist with RBS Greenwich Capital, told The Wall Street Journal. “But it’s way too early to say if we’ve hit bottom.”

But Waite fervently believes that bottom has already been hit and that it’s all uphill - over the long haul - from here.

“Wall Street would have you believe that putting money into a house is as sophisticated as putting money in a mattress,” he said. “But as it continues to prove, nothing could be further from the truth.”

[Editor's Note: Money Morning Investment Director Keith Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, making uncertainty the norm and creating a whole set of new rules that will quickly determine who wins and who loses in today's global investing markets. Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as "The Golden Age of Wealth Creation ." His key discovery: Despite the gloom, investors may well be facing the greatest profit opportunity of their lifetimes.

In his newly launched Geiger Indexinvesting service, developed after more than a decade of work, Fitz-Gerald has amassed a winning streak of nine-straight profitable picks. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index .]

Source: Why Wall Street is Missing the U.S. Housing Recovery

GM Fights for Survival, Prepares for Bankruptcy

Posted: 08 Apr 2009 11:42 AM PDT

General Motors Corp. (GM) will meet with the U.S. Treasury department's automotive task force as soon as this week to work on a plan to return the automaker to viability. But while company executives assert that bankruptcy is far from inevitable GM is accelerating preparations for a court filing.

In its Feb. 17 presentation to the Treasury, GM proposed shrinking its debt 40% from $62 billion to $33.5 billion by modifying obligations to a union-retiree health fund, shedding 47,000 jobs, and persuading bondholders to accept less in an equity swap.

Now that the Treasury has rejected those proposals as too little too late, GM must find a way to come up with new cost-cutting efforts by slashing the debt even further and cutting more jobs in 2009.

The company will collect input from board meetings and the Treasury's auto task force to create a framework for new discussions this week, sources familiar with the plans told Bloomberg News.

One measure of the company's future performance which might be acceptable to the government would be to trim expenses so it can break even when U.S. vehicle sales are as low as 10 million to 10.5 million units, John F. Smith, GM's group vice president for product planning told reporters last week.

The automaker had previously stated an industry-wide rate of 11.5 million to 12 million cars and light trucks as its break-even target. By comparison, March deliveries declined for the 17th consecutive month to an annual rate of 9.86 million vehicles.

GM announced recently it would save about $1.1 billion when 7,000 union workers retire early or take buyouts this year and a new UAW agreement kicks in that cuts benefits and streamlines factory work rules.

The U.S. auto industry has cut 400,000 jobs over the past year and lost billions of dollars. After receiving $13.4 billion last year, GM has requested an additional $16 billion from the government to keep operating. Chrysler LLC has also asked for a new round of funding.

Appearing on NBC News' "Meet the Press,' Chief Executive Officer Fritz Henderson denied that bankruptcy was inevitable, but said the company was speeding up preparations for a possible court filing in case it is unable to meet the government's requirements.

"Our preference is to do it outside of a bankruptcy process, but it would only be prudent to make sure that we're planning for if we need to resort to that, that we can move and we can move fast,' said Henderson

Under the terms of a court-supervised bankruptcy, GM would form a new company focused on its best assets, Bloomberg reported, citing people who asked not to be named because the details of GM's preparations aren't public.

That process might include a so-called 363 sale, a reference to a section of the Chapter 11 bankruptcy code that could create a new company from the assets and brands of GM, increasing the company's survival chances.

But that's not likely to help assuage bankruptcy fears in Michigan, where GM and the other big automakers have their headquarters and most significant operations.

There is "tremendous pain in our state" because of layoffs and financial losses in the auto industry, Senator Debbie Stabenow (D-MI) told Reuters.

"I do not support bankruptcy as the first, second or third option," Stabenow said, adding that bankruptcy could shift pensions for GM retirees to the federal government.

GM Fights for Survival, Prepares for Bankruptcy

Global Investment News Briefs Wednesday, April 8, 2009

Posted: 08 Apr 2009 07:20 AM PDT

RBS Will Eliminate up to 9,000 Jobs; Mortgage Delinquencies Rise 7%; Rio Rebuffs Asia Steelmakers Discount Demands; Retail Sales Dive Sans Wal-Mart; Moody's: More Than Half of Latin American Companies At Risk; CEO Confidence Hits Record Low; MGM in Talks to Refinance Debt; Audi Sales Fall in March

Royal Bank of Scotland plc (ADR:RBS) said it may eliminate as many as 9,000 additional jobs to curb costs and repay $3.7 billion in government bailout money over the next three years. The bank said the actual number of losses may be "significantly lower" because of efforts to shift employees to new positions, Bloomberg reported.
The number of delinquent mortgages rose 7% in February, with 39.8% of subprime borrowers at least 30 days behind on their mortgage payments, Dann Adams, president of U.S. Information Systems for Equifax Inc, told Reuters. "I'm trying to find optimism in these numbers, but I'm pretty hard pressed to do that," Adams said.
After contract negotiations stalled, Rio Tinto Group PLC (ADR:RTP) offered Asian steelmakers a 20% discount on its iron ore, well below the 40% to 50% discount Chinese steelmakers demanded, four executives close to the deal told Bloomberg. Some Chinese mills already rejected the offer from Rio, the world's second-largest iron ore producer.
Retailers are expected to post a 0.3% drop in same-store sales in March. Excluding Wal-Mart Stores Inc. (WMT), that figure would be a 4.7% drop, according to Thomson Reuters data. "We don't see any signs of significant improvement with the exception of a continued full-fledged flight to value retailers," said Craig Johnson, president of Customer Growth Partners, a retail research firm.
The number of Latin American companies whose ratings have negative outlooks or are under review for a downgrade has jumped to 23% from 10% in September and more than half have "high exposure to funding risk," Moody's Investors Service reported yesterday (Tuesday). The region's companies are struggling to refinance debt as the financial crisis reduces access to credit and slowing economic growth crimps earnings, according to Moody's, Bloomberg reported.
A survey of U.S. chief executives released yesterday (Tuesday) showed two-thirds plan additional layoffs and expect sales to decline in the next six months as their confidence in the economy continues to fall, Reuters reported. The Business Roundtable's quarterly CEO Economic Outlook Index fell to negative 5 - the first negative reading in the survey's six-year history - and down from a fourth-quarter reading of 16.5. A reading below 50 means CEOs expect contraction rather than growth.
Private equity firm Colony Capital LLC is in talks with MGM Mirage (MGM) to help refinance the casino company's debt, two people with knowledge of the discussions told Bloomberg. Colony may invest as much as $750 million in corporate debt secured by a lien on one or more of MGM Mirage's casinos, the anonymous sources said. An investment in CityCenter, MGM Mirage's unfinished Las Vegas Strip project with Dubai World, is unlikely.
Worldwide sales at Audi fell 10.7% in March from a year ago, but the German carmaker managed to increase sales in China, Reuters reported Monday. Audi, a Volkswagen AG (OTC:VLKAY) unit, sold 90,400 cars worldwide in March as sales fell 12.9% in Western Europe but rose 6.6% in China. "The trend is positive: Our monthly results have been continually improving since January," said Peter Schwarzenbauer, the manager in charge of marketing and sales at Audi.

Source: Global Investment News Briefs Wednesday, April 8, 2009

Consumers Are Still Playing Defense

Posted: 08 Apr 2009 07:00 AM PDT

Consumers are feeling poorer, saving more and spending less. With the exception of refinancing their homes, they're also borrowing less.

Total American consumer debt stands at $2.564 trillion. It had gone down three months in a row before expanding by $1.8 billion in January.

The consumer credit report comes out today and demand for credit is expected to resume its fall. Total debt is expected to decline by $1.5 billion in February.

Consumers are certainly feeling the pinch. Equifax reported last month that…

Total personal bankruptcy filings rose 25 percent in January from a year ago
Almost 40 percent of homeowners with subprime credit scores of 619 or lower were 30 days or more behind on their loans
The number of credit cards fell by 30 million since the July 2008 peak to 408 million in January.
18.8 percent more auto loans were 60 days behind on their payments compared to the January before.

Despite all these headwinds, a small uptick in big ticket orders recently may indicate that lower interest rates on mortgage loans are loosening up consumers' wallets.

I'm looking for the February consumer credit report to beat expectations. But consumers aren't out of the woods. As long as home prices continue to decline and the economy continues to lose over 600,000 jobs a month, consumers will be reluctant to spend on credit.

Source: Consumers Are Still Playing Defense

Needing To Break The Pattern

Posted: 08 Apr 2009 06:21 AM PDT

Currencies try to rally… Stevens hints at no more cuts… Japan posts a deficit! Gold… To buy on the dips?
And Now… Today’s Pfennig!

OK, front and center this morning, the currencies tried to rally almost all day yesterday, only to find themselves weaker on the day at day’s end, due to the drop in stocks (risk assets) I said a month or so ago that I hoped the currencies would break their tie with stocks, which wasn’t the normal way these two asset classes are priced. I said that, because I was convinced that stocks were simply going through the motions of a bear market rally, and would turn south at some time… Of course, the time could be now, as U.S. Corporations begin announcing earnings for the 1st QTR 2009… If the first Corporation to announce is any indication of the earnings season we’re about to venture through, then you had better run for the hills! Alcoa reported a 59-cent per share loss, which was worse than projected at 56-cents…

So… For now, currencies are lock-step in tune with stocks, which as I said isn’t the norm… But, it what’s happening now…

Yesterday, I told you that the Reserve Bank of Australia (RBA) had cut rates 25 BPS, and the A$ was recovering from the blow of a rate cut, but one that wasn’t as big as traders thought… Well, there was more news from the RBA, and their Gov. Mr. Stevens, who said that “the recession in Australia is much milder than those in Europe and the U.S.” Hmmm, I think he was preparing to leave the rate cut table, don’t you? To me, that’s Central Bank parlance for “This is it, no more rate cuts!” Which, if it’s the case, the A$ should begin to see some real activity…

And… The news from China continues to point to their stimulus working and that economy pulling out of the doldrums faster than the rest of the world. (see what happens when you deal from a position of strength?) Of course that remains to be seen… But like I said, I read at least one story a day about how China’s economic activity is stirring… So… Let’s just play along with those thoughts for a minute… What does that mean for Australia? It would mean that happy days are here again, The skies above are clear again. So let’s sing a song of cheer again. Happy days are here again. Or least something like that… Why you may ask? It all has to do with the need that China has for raw materials, which in the past they received the majority of those needed from Australia… So, now, you can see the tie-in, eh?

Oh… But… If currencies don’t break this trading pattern with stocks, we won’t have any Happy Days in Australia or any other country for that matter, except Japan, which is a counter trade these days…

OK… And now for Mr. Mayo… Yesterday, I told you all about this bank analyst from Caylon Securities, and how he threw a cat among the pigeons with his call that bank losses will exceed those in the depression… The Risk takers headed for the hills, and the safe haven flows into Treasuries were once again the trade du jour… Well… Ty Keough was the first to tell me yesterday that Jim Cramer was pointing out all of Mr. Mayo’s past errors… That’s good, I’ll leave all that to Jim Cramer, because… I’m not here to bash Mr. Mayo… What I’m here to question is why the markets were so moved by the statements of one man? Oh well… I carry on, despite the markets’ indiscretions!

I watched two videos yesterday of interviews with currency analysts, of which both said they believed the dollar’s rally was just about to reach an end… Hmmm… They didn’t say why they thought that, but they said it…

Japan posted a very interesting number last night… Japan’s Current Account Surplus shrunk 56% in Feb. In January of this year, Japan posted their first deficit in 13 years… Interesting, eh? Exports have plunged… But, with the weakness in the Japanese domestic economy, I would suspect that imports too will plunge soon, thus leveling this out…

Yesterday I talked about Ireland and their problems briefly… Well, this morning there’s a story regarding Ireland and what they are attempting to do to cut this problem off at the pass. Finance Minister, Lenihan is mirroring the tactics Sweden took in the 1990’s when their financial system teetered on the cliff of disaster. That’s a good thing in my book… I talked about the “Nordic way to deal with financial disaster” months ago… I’ve never cared for the way we are going about dealing with this here in the U.S. and preferred the Nordic way of dealing with “bad banks”…

If you would allow me to go off on a tangent here… (if not skip to the next paragraph!) But, why did Paulson, and now Geithner, along with Bernanke believe that throwing Billions / Trillions of dollars at this problem was the correct thing to do? I mean, we got into this mess because there was too much money in the system and it wasn’t regulated… So… The answer is to throw even more money at this problem? I just don’t get it, folks! I have a cartoon that I cut out of the paper a month ago, that just cracks me up… It has a character watching TV… And from the TV you see this quote… “And as President, I can assure you… That the ERA of tax cuts and wasteful spending is over”… And in the next box/ quote… “Get ready for the ERA of NO Tax Cuts, and REALLY Wasteful Spending”… That just about tells it all, eh?

Remember what I told you on Monday about what Richard Russell had to say when he was asked what he would do now… He simply stated… “nothing”… “I would let the bear markets run their course”

I saw this in the WSJ this morning… “The Treasury Department plans to extend the Troubled Asset Relief Program to certain eligible life insurers. Several life insurers have been burdened lately by capital constraints amid ailing markets.”

Oh great! The Treasury Dept. is bound and determined to spend all the TARP money even if it goes toward things / companies that it wasn’t created for! Records show that there is about $130 Billion left to spend… Come on Mr. Treasury Sec. this isn’t a re-run of the movie Brewster’s Millions! (you might recall that movie, as Richard Pryor inherited a million dollars, but had to spend it all to receive it, or something like that….)

Gold held onto those gains I talked about yesterday morning, and has added another $5.25 this morning… The shiny metal is back to $887… A reader asked me yesterday about Gold dipping below $900… Hmmm… It’s my feeling that buying Gold on the dips is a good practice… But then, who’s to say that Gold doesn’t fall even further before turning around? I don’t think anyone would bet against that happening… My point is, if you can buy it cheaper today than you could yesterday or last week it’s a bargain! If it falls further… It’s an even better bargain!

The euro has been gaining ground since I turned on the screens this morning, rising from 1.32 to 1.3255 as I type my fat fingers to the bone! You know… Eventually, the chickens will come home to roost on all the debt and money supply and treasury issuance and failed corporations and the depression in the U.S. and when they do… One would have to think that the dollar will get punished severely… And I mean severely! But all that remains to be seen… The best thing to do though is to give your investment portfolio a hedge… And make certain that you don’t have all “dollar denominated” asset classes / investments! A diversification that does NOT require a 100% move out of the dollar! Currencies and metals are asset classes just like stocks, bonds, mutual funds… Add them to your portfolio and reduce the overall risk of that portfolio!

Not much in the data cupboard today… The FOMC meeting minutes from March 17-18, when the Fed announced that they were buying Treasuries, thus monetizing the debt… It will be interesting to see what led to that decision, or who came up with that idea… The Treasury has another auction to get through the system today, this time of 3-year notes. The yield on those notes will probably be around 1.25%… Ooooohhhhh, where do I sign up? NOT!

Currencies today 4/8/09: A$ .71, kiwi .5760, C$ .81, euro 1.3255, sterling 1.4710, Swiss .8725, rand 9.20, krone 6.72, SEK 8.22, forint 223.80, zloty 3.3850, koruna 20.06, yen 100, sing 1.5150, HKD 7.75, INR 50.19, China 6.8470, pesos 13.52, BRL 2.2150, dollar index 85.30, Oil $47.78, Silver $12.29, and Gold… $885

Source: Needing To Break The Pattern

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Contrarian Profits

2009-04-06T17:29:00.001-07:00

Contrarian Profits

Geithner Is LYING… This Investigation into Banks Is Proof

Posted: 06 Apr 2009 12:57 PM PDT

Notes from the
Investment Underground

San Telmo, Buenos Aires, Argentina

April 6, 2009

Why the economy is still heading for a cliff… All the king's horses and all the king's men can't put the banks back together again… The madness of Sheila Bair… The government lies over banks are paper thin… Infighting at the Treasury… Why Citi's CEO should go… Banks plunge… "Fake dividend" strategy exposed… Can mark-to-model save them? Selling OTM calls against your financial stocks… What happened on March 9… And more!

*** You're reading this newsletter because you don't believe the cheerleaders in Washington and in the mainstream press. You know it's safer to know the truth about the economy than to believe the hype and the lies and the false optimism. You know that real money-making ideas can't be found on CNN and on Cramer's "Mad Money." You have an inkling that there's something crooked about the trillions of tax dollars the government has handed to failed banks, failed insurers and failed automakers. But do you know how deep the rabbit hole really goes?

*** Zero Hedge has put together one of the best investigative pieces on banks' bad loans that we've seen to date. And the information they've dug up means that no matter how many trillions of dollars more in debt the U.S. takes on to 'fix' the zombie banks, there is nothing at this point that can be done to change the final outcome. Let us explain.

*** The crux of the matter is that Treasury Secretary Geithner would have you believe that his "legacy loan" program is fair and equitable at a sale price of roughly 80-90 cents on the dollar for banks' illiquid loans (toxic assets). But this is fantasy land stuff, just as it's fantasy land stuff for the major banks to be marking their toxic assets in the 90+ region. According to data put together recently by Goldman Sachs, the average carrying value of commercial mortgage loans – you know, the ones about to implode with a deafening bang anytime soon – is 95%! This is clearly no where even close to where these loans would clear in the market.

*** Now, according to FDIC head Sheila Bair, the reason for this disconnect is the lack of available credit for financing the purchase of these loans in the market (not, by implication, the underlying performance of the loans themselves). "Difficult market conditions have complicated efforts to sell these troubled assets because potential buyers have not had access to financing," is how she put it recently. The logic being that you ratchet up leverage by way tax dollars – the essence of the PPIP – and the problem of illiquidity will vanish. Or so goes the story…

*** The reality is very different. And serious kudos to Zero Hedge for digging this up. In reality, in its own commercial loan auctions, the FDIC is offloading these same toxic assets 49.3% discount, or a 50.7% clearing price. This from ZH:

The results: 43 commercial loan auctions, of which 39 were for exclusively performing (so not non-performing, or lower quality auctions, and by implication free cash generating), consisting of 331 total loans, representing $206 million in face value, ended up clearing for a $103 million price, a 49.3% discount, or a 50.7% clearing price! That’s right, the FDIC itself clears performing commercial loans at 50 cents on the dollar on average in its own regulated, orderly auctions. One would assume the chairman of the very agency that conducts these loan auctions would be aware of them and would at least reference or mention these results in her numerous public appearances.

Let us repeat that for those too stupefied by the government's lies to grasp it all at once. Commercial loans are clearing in the FDIC's own auctions for 50 cents on the dollar. But banks have marked these loans to an average of 95 cents on the dollar. And the government is looking you in the eyes and telling you that an equitable transaction price for these loans – using your tax dollars as a guarantee – is somewhere in the region of 80 to 90 cents on the dollar. And this from a president who promised "change." This seems like business as usual to us.

*** Incidentally, the bank responsible for buying up these loans from the FDIC (at a clearing price of 59%) is Beal Bank, which is headed up by prolific poker player Andy Beal. Beal doesn't think much of Geithner's PPIP. The problem, of course, is price. Beal echoes what we've been saying for weeks here at Notes: the nation's banks are insolvent when you mark their dodgy loans at fair-market prices. This again from ZH:

He thinks the government is going to be “disappointed” by its various programs to revive lending. He says Treasury Secretary Timothy Geithner’s new plan to guarantee loans to buyers of toxic assets won’t lead to many sales because the problem isn’t liquidity but price. They are not low enough. Half the country’s banks – 4,000 in all – would be bust, he says, if they marked their loans to what the loans would fetch in an auction. He says banks are fooling themselves by refusing to mark busted assets down.

“Banks are on a prayer mission that somehow prices will come back and they won’t have to face reality,” Beal says. And that reality, according to Beal, is going to get a lot worse. “Unemployment is going over 10%, commercial real estate hasn’t even begun collapsing and corporate credit defaults are just getting started,” he says. His prediction: depression, without bread lines this time, thanks to the government safety net, but with equal cost to society.

*** As Felix Salmon points out on his Reuters blog, one of the major obstacles to sensible policy decisions from Washington, and the Treasury in particular, is good old-fashioned infighting.

It's worth remembering that all of this infighting came at the end of a famously disciplined administration which had had the best part of eight years to sort out any glitches and get everybody pulling in the same direction. Today, by contrast, most senior Treasury positions are still unfilled, the White House has a great deal of interest in the minutiae of economic policy, thanks to the presence there of Larry Summers and others, and in general Obama likes to encourage debate — which is another word for disagreement.

The lesson here, I think, is not to place too much faith in Treasury. No matter who's in charge, there will always be a multitude of institutional constraints which prevent it from (a) putting in place what it considers to be the ideal policy, and (b) executing efficiently any policy which is put in place. And anything which goes for Treasury, of course, gets multiplied by an order of magnitude if you start looking at any efforts to achieve multilateral coordination.

*** Some decisions are being made at the Treasury, however. Today, Tim Geithner lets us know that he will oust the CEO's of any institutions that need "exceptional" government assistance. On CBS's "Face the Nation," Geithner said:

If in the future, banks need exceptional assistance in order to get through this, then we will make sure that assistance comes. Again, not just to protect taxpayers but to make sure this is the kind of restructuring necessary to make them stronger. And where that requires a change in the management of the board, we will do that.

Let's dig in a little bit and see what he really means.

If in the future, banks need exceptional assistance in order to get through this…

Notes comment: Now that all the rules have been changed and worst might be over with…

… then we will make sure that assistance comes. Again, not just to protect taxpayers but to make sure this is the kind of restructuring necessary to make them stronger.

Notes comment: It's not always about protecting taxpayers, you know, now that over $12 trillion is on the line…

And where that requires a change in the management of the board, we will do that.

Notes comment: The government has already dismissed the CEOs of GM, Fannie Mae, Freddie Mac and AIG.

But isn't the $300 billion promised to backstop Citigroup losses… plus the $52 billion injected into them (on two separate occasions)… plus the massive ownership stake the federal government took in the bank all considered "exceptional" government assistance?

Sure it is. But the government didn't jettison Citi's CEO because it wasn't politically necessary.

There was a lot of controversy surrounding Freddie and Fannie. Congressional testimonies a few years ago showed that they were insolvent institutions. And ones that lobbied Congress extensively.

So the government fired the CEOs to cover for Congress.

Then there's AIG, the first insurer to be taken over. That certainly caused uproar. Yet even more unpopular then an AIG takeover has to be taking over GM. Back in November – before a price tag was even set – only 38% of Americans supported a GM bailout.

So the government kicked out GM's CEO. But if Tim Geithner is serious about his proposed mission, there is no CEO as incompetent as the one leading Citigroup.

The biggest bailout so far deserves a change at the top. Don't you think? Let us know your thoughts by writing in to info@contrarianprofits.com

*** My friend Andrew Gordon’s “fake dividened” strategy allows you to profit from the lies of crooked CEOs. He just banked 148.5% using this method. And he’s been right over 90% of the time. One “faker” has now surfaced. On April 21, this company could hand you profits of 118%. Get the full story here.

*** The Dow is off 1.52%, the S&P 500 is off 1.83% and the Nasdaq is off 2.31% at the time of writing. Banks are leading the tumble, after veteran analyst Mike Mayo of Calyon Securities advised selling bank stocks. Mayo cited increased loan losses and doubts over the government's ability to resolve them. This from Bloomberg:

"While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class," Mayo wrote in a report today. "New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average."

Sound familiar?

*** The S&P 500 Financials Index is down 3.4%, the biggest decline among ten industry groups. The index includes 80 banks, insurers and investment firms. It is still 55% above its March 6 low. Here at Notes, we see banks sinking back toward this low as traders come to their senses about the state of banks' loan books and the widening cracks and inconsistencies in Geithner's PPIP become apparent. Watch this space.

*** There’s one stock that is almost certain to crash on April 30. And if you get in now you could triple your money when the stock goes bust. The company has a new prostate cancer vaccine that the FDA will not approve. Bet against this drug and you could triple your money or more on April 30, when the company announces the outcome of the trial. Brian Hunt of Stansberry & Associates has all the details about this unique situation.

*** Tom Dyson says the bulls are wrong about stocks. In today's Growth Stock Wire Tom says the S&P 500 "has the appearance of health… But when we look below the skin, there’s no multi-month breakout developing. The volume looks sickly, and the momentum is erratic and jerky." Tom, one of our favorite underground investors, says investors should "forget stocks for now…" He reckons commodities are a much healthier prospect.

*** The one ace in the hole for the government and the banks is the FASB's recent decision to relax mark-to-market accounting rules. As Karim Rahemtulla argues in The Smart Profits Report, "it could save the U.S. Government and taxpayers a few hundred billion dollars." That's because it may reduce the need for expensive programs like the PPIP by allowing banks to mark their toxic assets to model. This determined by the quality of the paper and the expected income by the time the paper matures. Last Friday, Karim recommended selling out-of-the-money (OTM) call options against your financial stocks.

Today's mark-to-market news, along with volatility, means you'll get more premium for your options. Take advantage of that.

I'm not saying that if you own Wells Fargo at $15.50 today that you should sell the $17.50 calls. Rather, you could sell $30 or $35 calls - because even those calls are paying a pretty fat premium.

And take the January 2010 $40 call options… which imply that the price will fully double in eight months - and will pay you $1.40 per contract today. That's the equivalent of collecting a fat 10% dividend!

Good trading,

Chris Hunter

P.S. You're regular notes editor, Will Bonner, is trying to sort out his residency visa for Argentina. Chris Hunter is a former investigative journalist from Dublin, Ireland, who turned his snooping skills on the financial world when the subprime crisis broke. He currently works as a market analyst for Crisis Strategy Alert and is co-editor of Notes from the Investment Underground. He lives and works in Buenos Aires, Argentina.

P.P.S. A major announcement from the Obama White House on the morning of March 9 made science once again a national priority. Obama lifted the ban on federal funding for key research. And one man has Obama’s ear on the most critical market story of the next decade. Agora Financial’s technology expert, Patrick Cox, will share the details of this historic opportunity with only 113 lucky readers. You can read his full report on this urgent story here.

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Contrarian Profits

2009-04-03T17:34:00.001-07:00

Contrarian Profits

Have Oil Prices Bottomed?

Posted: 03 Apr 2009 08:59 AM PDT

Oil is a hot topic. Even when I was five my mother always moaned about how much gas prices had gone up. Before I got my first car, I was already an expert at locating the cheapest gas stations. So I felt particularly betrayed that oil prices didn’t move down much further like I predicted they would here. But listen, I don’t like losing. So when I realized was wrong, I decided to look at a chart of the Light Crude Oil Contracts ($WTIC) and see what it told me.

A number of technically bullish things have happened over the past 30 days that has turned me into a fully fledged oil bull.

First of all, oil has been making higher highs and higher lows since bottoming in late December.

Second, oil has rallied above its 50 day moving average and since then that average has acted as support.

Third, just a few weeks ago the 20 day moving average crossed above the 50 day moving average. This is known as a bullish cross.

Lastly, the fact that both the RSI and Slow Stochastic have turned up after hitting 50 suggests the underlying trend is strengthening.

Listen if you’re buying for the long-term, this is a sweet spot to buy it at. If you’re a short-term technical trader, this is still a sweet spot to enter into.

If oil keeps rallying then I don’t expect any headwinds untill the $70 mark. By that time, the 200 day moving average should also be around there (marking a huge resistance point)

How To Play Today’s Mark-To-Market Accounting News

Posted: 03 Apr 2009 08:04 AM PDT

While the Financial Accounting Standards Board (FASB) couldn't possibly compete with the G20 summit in terms of headline-grabbing power, the organization did join with the world's top leaders in breaking some good news that fueled the stock market's fire.

Nothing as groundbreaking as the G20, but more a clarification of its position and verbalization of some important changes to mark-to-market accounting (MMA).

Let's see why this news is so significant and how it contributed to the stock market's rally - as we predicted here a couple of months ago…

Mark-To-Market Accounting: What It Means

In case you're unfamiliar with the "mark-to-market" term, here's what it means:

Mark-to-market is an accounting concept that says you should mark the assets on your books according to what the market price is for them today.

It doesn't sound like a very revolutionary idea until you dig into it a little deeper. Because in order to determine a fair price for something, there has to be a market for it. When a market does not exist due to lack of demand, supply, or fear, prices do not reflect the long-term reality, but rather a short-term occurrence that may or may not last.

For banks, this is a big deal because their massive mortgage-backed asset portfolios are mark-to-market, based on the last sale, rather than what the mortgages will ultimately pay. For example, if the last sale at 22 cents on the dollar, then that's where they have to mark their assets. At such low levels, the banks must then post more collateral to meet margin requirements (they call it the leverage ratio), resulting in a weaker balance sheet and write-offs against income.

So what if there is no market? Does that mean your asset is worthless?

The Rule Change That Could Save Billions

Theoretically, the answer to the question above is "yes." But practically speaking, it's a no. The middle ground, which was announced today, is a "mark-to-model" system, whereby fair value is determined by the quality of the paper and the expected income by the time the paper matures.

And it could save the U.S. Government and taxpayers a few hundred billion dollars.

Because financial companies like banks can reduce the capital allocated to margin and improve their capital ratios, bank stocks like Wells Fargo (NYSE: WFC), Bank of America (NYSE: BAC), JP Morgan (NYSE: JPM) and Citigroup (NYSE: C) took off. All four made double-digit percentage moves at the open.

Exciting news, right? But hold on to your enthusiasm for a minute…

The Panic Party

It's not that MMA didn't offer some leeway to the financials that were affected by this rule. But interpreted in its strictest form, it became some type of Wahabi interpretation of the Koran: Way out there.

Let me explain further…

Back in the fall, when there was no market for many of the mortgage assets held by banks, investors, analysts and short sellers questioned the value of these assets. The banks could have (and should have) just ignored it and marked the assets to what they believed they were worth, based on their grade and discounted cash flow.

But they took a different route - by far the worst of the two. They overreacted and bowed to the pressure of marking their assets, most of which are paying (and will continue to pay) until maturity at levels reflecting fire-sale prices.

I guess they figured that since everyone else was panicking, why not join the party?

But here's why they shouldn't have jumped off the with all the other lemmings…

The High Leverage-High Loss, Lose-Lose Situation

When banks mark assets to the market, they also have to mark their capital requirements to meet minimum standards for leverage. So if the asset is worth 100% of its face value, and the leverage at the time was 30-to-1, things would be fine.

But if that asset was marked down by 80%, all of a sudden that leverage would balloon, leaving the bank with one of two options…

Either increase capital to reduce the leverage, or go out of business by selling those assets at fire-sale prices.

Across the financial spectrum, both happened. Some banks went under (WAMU and IndyMac) because the weight of the increased leverage was too much to bear, while others had to raise capital or take it from the government.

However, some simply pocketed the money and decided not to lend it to stimulate borrowing. Instead, they used it to bolster capital requirements, which contributed to this "credit crunch."

Irresponsible Merrill + Sluggish Accountants = Widespread Panic

What should have happened is this: Banks mark to a model that showed a higher value - something that the FASB allowed.

Basically, they would have had to mark their assets held to maturity on their books, using reasonable assumptions. They probably would have, except for one problem…

Last fall, Merrill Lynch sold a huge portfolio of its mortgage-backed securities at 22 cents on the dollar - a decision that caused widespread panic because that's what established the market. While the banks did not mark to that price, investors made the assumption that the price was set and banks should adhere to it.

We all know what happened next. Stocks got punished, banks panicked, and the vicious circle of capital raising, dilution, government intervention, and market sell-offs began in earnest.

Had the FASB come out that day and said what it did today - that it supports taking the mark-to-model route, despite what the market was saying - we could have avoided a lot of bloodshed.

Course, that would require accountants making quick decisions - something they're not exactly renowned for.

Maybe we'd still have seen some abuses of the rule. And perhaps it will be abused now, as I'm sure a lot of assets will be marked up. But overall, banks will now have the luxury of determining fair market value in the absence of an orderly market.

And more importantly, they can reduce the capital required to back these loans, taking pressure off their balance sheets.

So what should we do about it?

The Investment Strategy You Should Use On Bank Stocks Now

Just as it was a good time to sell put options on these shares over the past few weeks, it might be just as good now to sell call options.

And I see this as an opportunity to sell out-of-the-money (OTM) call options against your financial stocks.

Today's mark-to-market news, along with volatility, means you'll get more premium for your options. Take advantage of that.

I'm not saying that if you own Wells Fargo at $15.50 today that you should sell the $17.50 calls. Rather, you could sell $30 or $35 calls - because even those calls are paying a pretty fat premium.

To which I have to say, "Ain't volatility sweet?"

Source: How To Play Today's Mark-To-Market Accounting News

Global Investment News Briefs Friday, April 3, 2009

Posted: 03 Apr 2009 05:12 AM PDT

February Factory Orders Turn Positive; Fixed Mortgages at Record Low; GM Seeks Gov't Money For Hybrids; Chile: Copper Prices Heading North; IBM Lowers Bid for Sun; Oil Surges 9% on Dollar Weakness

U.S. factory orders rose in February, reversing six months of consecutive declines, the Commerce Department said. New factory orders rose 1.8% in February after dropping a revised 3.5% in January, Reuters reported.

The 30-year fixed-mortgage rate dropped to 4.78%, a 30-year low, as the U.S. Federal Reserve increases its purchases of mortgage-backed bonds, Bloomberg reported. "Lower rates will help increase demand for homes. We need to see stronger demand for homes to help end the housing correction," Celia Chen, senior director at Moody's Economy.com told Bloomberg.

Seeking funding to develop three new hybrid vehicles, General Motors Corp. (GM) asked the U.S. Treasury for a low-interest $2.6 billion loan, Reuters reported. If received, the loans would help the company develops two spinoffs from its all-electric Chevrolet Volt.

Copper's December price of $1.25 a pound is "in the past," said Chile's Mining Minister Santiago Gonzalez. December's price was a four-year low, a result of tapering demand from China. Now, "China is buying large amounts of copper," Gonzalez said to Bloomberg. "That's part of copper's recovery."

International Business Machines Corp. (IBM) cut its offer for Sun Microsystems Inc. (JAVA) to $9 from $10 per share, The Wall Street Journal reported. Sun has agreed to accept a lower price in return for stronger commitments from IBM that it will complete the deal even if it faces intense regulatory scrutiny, according to The Journal.

Oil prices surged nearly 9% yesterday (Thursday), as light, sweet crude for May delivery rose $4.25 to settle at $52.64 a barrel on the New York Mercantile Exchange. Natural gas for May delivery added 8.7 cents to settle at $3.782 per 1,000 cubic feet.

Source: Global Investment News Briefs Friday, April 3, 2009

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Contrarian Profits

2009-04-02T17:16:00.001-07:00

Contrarian Profits

And Then There’s This…Thursday, Wednesday, April 1st, 2009

Posted: 01 Apr 2009 03:06 PM PDT

Gold didn’t do much of anything in the Far East or Europe on Tuesday morning. There was a smallish rally at the Comex open that got stopped dead in its tracks at 8:30 Eastern. Gold had $10 carved off its price by the time the bottom was in…shortly before London closed for the day. It managed to regain that loss by the time Comex trading was over…but lost half of it by the time electronic trading on the Globex was through at 5:15 p.m. in New York.

But the real down-side action was in silver. Once again, there was no price activity worth mentioning until the Comex open…and, like gold, the budding rally got clipped at exactly 8:30a.m….and by the time the smoke had cleared, the silver price had touched $12.60…a 90 cent decline [-6.8%] from its 8:30 a.m. peak of $13.30. Half of that loss occurred in less than 20 minutes…between 10:30 and 10:50 a.m. New York time. Free market forces at work, you ask? Not bloody likely. But when it was all said and done, silver was only down a dime from Monday’s close.

click to enlarge

JPM (NYSE:JPM) and HSBC (NYSE:HBC) were successful in blasting well through both the 50-day and 200-day moving averages in silver…so every leveraged spec Comex long that had been placed since the big take-down to under $12 on March 18th…got blown out of their positions.

In Monday’s rather crazy trading session, gold open interest rose 905 contracts to 372,104…and silver o.i. fell 232 contracts to 92,922. Silver’s open interest numbers for yesterday’s trading should be interesting when they show up on the CME’s website tomorrow. Yesterday was also the cut-off for Friday’s Commitment of Traders report. Hopefully all of Tuesday’s activity will be in it.

The usual N.Y. commentator had the following yesterday…”The European Central Bank’s weekly statement of condition indicates that ‘gold and gold receivables’ fell €82 million last week: 4.15 tonnes at the present book value. This ‘reflected’ the sale of gold by one ‘Eurosystem central bank…and the purchase of gold by another‘. This is the third time in four weeks that this form of language has been used. It is quite distinct from what is said when a coin program is underway: it looks very much as if a CB has broken ranks and is buying for foreign exchange reserve purposes. This could be an important precedent. [Last week, two CBs were reported to have sold 0.65 tonnes in total.]”

In other gold/silver news, I see that there were no gold imports into India in March either. Yesterday was first notice day for delivery into the April gold contract. A total of 8,867 contracts were delivered, with Deutsche Bank (NYSE:DB) delivering 8,500 of them. The big acceptors/stoppers were Bank of Nova Scotia (NYSE:BNS)[2,841] and JPMorgan [3,512]. There were 131 silver contracts delivered. There were no updates at the U.S. Mint…and there was nothing added to either the GLD or the SLV. Comex-approved silver warehouse stocks showed a minor decline.

Four stories today. The first was provided once again by Craig McCarty and was in yesterday’s Financial Times out of London. The headline reads…”OECD predicts 10% jobless rate for 2010″…”One in 10 workers in advanced economies will be without a job next year, ‘practically with no exceptions’, the head of the Organisation for Economic Co-operation and Development said on Monday.” The link is here.

The story is courtesy of the Toronto Globe and Mail. The headline reads…”Chevez promotes ‘petro-currency’ over dollar”…”Venezuelan President Hugo Chavez tried Tuesday to court Arab support for another swipe at America as its economy stumbles: a proposal for a new, oil-backed currency to challenge the global prominence of the dollar.” The link is here.

In a story that showed up on Bloomberg yesterday, the headline read “Calderon Says Mexico Prepared to take IMF Credit Line”…”The peso strengthened on the comments, which eased concern that foreign reserves will dwindle. Activating the credit line makes the funds available and doesn't imply plans to draw on it immediately, a Mexican government official said.” Once again I thank Craig McCarty for the story…and the link is here.

In his second commentary in as many days, silver market analyst Ted Butler replies to U.S. Commodity Futures Trading Commission member Bart Chilton about whether CFTC reports can be relied upon to demonstrate market manipulation. Butler argues that Chilton simply defaults when he suggests that overwhelmingly concentrated short positions on the Comex may be hedged by long positions in private markets elsewhere. For it is the Comex that sets the price, Butler writes, excessive concentration there is just that, that’s the only market the CFTC can regulate directly, and so it should do its duty. Butler’s commentary is headlined “All Talk, No Action”…and you can find it linked here.

American industry has reached a point where a break in New York stock prices does not necessarily mean a national depression. - Associated Press…December 28, 1929

click to enlarge

I’ve noticed in several news stories that a lot of people think the G-20 meeting in London will be a bust or a waste of time…or both. I heartily agree. The problems the world faces now are totally impossible to solve. They can’t print enough or spend enough…and if they do, we’ll have hyperinflation in spades. It’s my bet [as I've said before] that somewhere in the future…and maybe the not-to-distant future…the world’s economic, financial and monetary system will collapse in a smouldering ruin. I haven’t changed my mind on that one bit.

See you on Thursday.

Source: And Then There’s This…Thursday, Wednesday, April 1st, 2009

Resource Stock Roundup: Wednesday, April 1st, 2009

Posted: 01 Apr 2009 02:23 PM PDT

After a couple of sessions of selling, the Canadian Markets rebounded across the board during Tuesday trading. For the tale of the tape, the TSX Exchange added 1.44%, while the TSX Gold Index tacked on 1.2% and the TSX Venture Exchange, Canada's largest junior exploration bourse, rallied 1.23% with the advancers beating out the decliners by a 426 to 343 margin on volume of 146 million shares traded.

Paramount Energy Trust went shopping and agreed to buy Profound Energy in a friendly cash-and-stock deal valued at $112.9 million. Paramount ended the day down C$0.10 at C$3.09, while Profound added C$0.54 to close at C$1.19.

Meanwhile, Capital Gold has left Gammon Gold (NYSE:GRS) standing at the altar. The board of directors of Capital Gold have decided not to sign a definitive merger agreement and are walking away. Capital ended the day down C$0.05 at C$0.70, while Gammon added C$0.20 at C$8.16.

Forsys Metals is continuing to try to get its C$7 per share takeover offer from George Forrest International Afrique SPRL completed, but so far no definitive deal on the agreement has been reached. Forsys ended the day down C$0.84 at C$4 even.

Capstone Mining tabled 2008 earnings of $131.8 million or $1.46 per share on sales of 42 million pounds of copper, 2 million pounds of zinc, 24,344 ounces of gold and 132,465 ounces of silver. Capstone ended the day up C$0.03 at C$1.67.

Shareholders of NEMI Northern Energy & Mining voted 2 to 1 to elect concerned shareholder Michael Cooney and his slate of nominees as NEMI’s new board of directors at the company’s annual and special general meeting. NEMI ended the day up C$0.04 at C$0.36.

The schizophrenic nature of the market is continuing and for those quick and nimble some profits are probably being made. Those with a buy and hold strategy are treading water at best. We will see what Wednesday trading has in store.

Source: Resource Stock Roundup: Wednesday, April 1st, 2009

Industrial Metals Get A Pop

Posted: 01 Apr 2009 01:49 PM PDT

The base metals were all in positive territory on Tuesday. Except for a mid-morning lull, copper advanced from the pre-dawn hours straight through the day, barely coming off its intraday highs late to finish at $1.8167/lb., up more than 8 1/3 cents.

Nickel was down until around noon, when it went vertical, to close at $4.3484/lb., up almost 11 cents. Zinc had a lot of ups and downs, but ended in the green at $0.5856/lb., up a penny. Aluminum was listless, adding just a tenth of a cent, to $0.6143/lb., while lead had a good day, adding just over a penny, to $0.572/lb.

Copper led the industrial metals higher, concurrently turning in a quarterly gain of 30%, its biggest percentage rise since the second quarter of 2006, as traders responded brightly to the weakening dollar and rising equities.

"We're getting a bounce in copper and the rest of the metals today based on the weaker dollar," said Matthew Zeman, of LaSalle Futures Group in Chicago. "We could see copper continue to move higher if the dollar stays at weaker levels."

In addition to the dollar and equities, Zeman added that he saw "copper buoyed by quarter-end positioning … and a positive tone at the 8th annual CRU World Copper Conference and CESCO Week."

But he warned that the "market is likely in for a test of the $2.00 level … There is a floor under copper prices right now and it does have the potential to move a little higher, … [but] we're going to need to see a real rebound in the economy before we can go much higher than $2."

On the supply front, copper inventories monitored by the LME fell below the 500,000 metric ton mark yesterday, shedding 1,775 tons, to settle at 499,625.

Joining in the optimists' choir was Jose Pablo Arellano, CEO of Chile's state-owned Codelco, the world's biggest copper producer. U.S. copper demand may have reached bottom, Arellano said yesterday, citing unspecific signs that declining consumption will be arrested by growth-inducing government spending.

The market may also have been affected by word that Grupo Mexico will close down its giant Cananea copper mine due to damage to the facility caused by a 20-month strike. The company is said to be seeking a ruling from a labor tribunal that would allow it to fire the striking workers at the mine following the closure, but there was no indication as to when the mine might reopen.

Source: Industrial Metals Get A Pop

Oil Rebounds

Posted: 01 Apr 2009 01:04 PM PDT

In the energy market on Tuesday, oil rallied, with crude for May delivery closing at $49.66/barrel, up $1.05. May reformulated gasoline debuted as front-month contract at $1.40/gallon.

"The rally in the crude oil market is stemming from market influences outside the energy arena," said Burton Schlichter, of New World Trading. "Strength in the equity market and the weakness in the dollar are dragging the crude oil market higher."

Analysts at Commerzbank concurred, writing that oil’s recent gain "was largely driven by the financial markets and sentiment, based on hopes that demand would pick up again later on in the year … From a short-term perspective, though, the fundamentals remain difficult, meaning that oil prices were vulnerable to setbacks as witnessed right now."

If only supply/demand fundamentals are considered, says James Williams of WTRG Economics, oil should be trading below $35 a barrel.

Source: Oil Rebounds

Dollar Weakens

Posted: 01 Apr 2009 12:12 PM PDT

In the currency market, the dollar backed off against the euro. Late Tuesday, the euro was trading at $1.3249 vs. $1.3185 on Monday.

Analysts said the buck was pressured by light position-squaring ahead of this week's G-20 nations meeting.

However, the dollar’s outlook "remains one of strength and stability against the majors, despite the ongoing deluge of negative U.S. economic data," said Michael Woolfolk, of the Bank of New York Mellon (NYSE:BK).

The latest iteration of that negative data came yesterday in the form of Standard & Poor's Case-Shiller 20-city home price index, which fell a record 2.8% in January. Prices are down 29% from the peak in mid-2006, and have fallen to September 2003 levels.

"There are very few bright spots that one can see in the data," understated David Blitzer, chairman of the index committee at S&P.

Economists for (NYSE:BAC) Bank of America’s Merrill Lynch concurred, writing that, "Looking ahead, depressed demand, tight credit, rising default rates and excess inventories will continue to lead prices lower … We estimate that an additional 10%-15% in downside is still in store."

Separately, the Conference Board said its index of consumer confidence inched up to 26 in March, from an upwardly revised 25.3 in February. But it still came in under economists' expectations for a reading of 28.

Source: Dollar Weakens

Precious Metals Mixed

Posted: 01 Apr 2009 11:41 AM PDT

Except for a very brief dip below $915 in the late morning, gold was stuck fast between there and $925 all day, finally finishing an uninspiring day at $918.00/oz., up $2.20. Overnight, gold is trending higher.

Platinum peaked in Hong Kong at $1130, declined into an $1115-1125 range, and stayed there for the rest of the day, ending at $1125/oz., up $12. Overnight, platinum has been flat.

Silver noodled along little changed until the second hour in New York, when it bumped up about 15 cents, to $13.25, but then it hit an abrupt and savage waterfall decline that shoved it all the way down to $12.60, after which it was able to cut some but not all of its losses, as it clawed back to a close at $12.97/oz., still down 9 cents. Overnight, silver is little changed. (Click here for charts)

In the real world, it was a mixed day for the precious metals, as gold and platinum eked out gains but silver was whacked on the head like poor Wile E. Coyote. Gold fanciers surely hoped for a better result as the dollar weakened and oil staged a bit of a comeback, but it was not to be.

What to make of silver. It continues to struggle in the face of enormous physical demand from investors. The U.S. Mint has released its quarterly figures, and in 1Q09 it stamped out a staggering 7,157,000 1 oz. Eagles. Folks, that is a lot. It took 222.6 metric tons of silver to make that many coins. In the past, there have been whole years in which the mint didn't produce as many.

Here's the odd thing. Despite this massive infusion of Eagles into the market, they're still hard to find. Demand remains so high that dealers, such as our own Kitco, are charging an average of around 35% over spot for the things. And expect shipment delays, Kitco warns on its own website.

On eBay (NASDAQ:EBAY), our purest free market trading platform, the situation is even more frantic, with buyers willing to pay, in some instances, more than 50% over spot to land a roll of 20 Eagles.

That's no joke. So what on earth is going on here? Obviously, the paper-controlled Comex silver price is completely out of synch with the action on the ground. If you can afford it, the smart move would seem to be to buy a silver contract on the Comex (5,000 ounces) and stand for delivery.

Source: Precious Metals Mixed

Obama Won’t Let GM Go Bust… Here’s Why

Posted: 31 Mar 2009 01:09 PM PDT

Notes from the
Investment Underground

Tuesday, March 31, 2009
Recoleta, Buenos Aires, Argentina 
Team Obama talks bankruptcy… But he doesn't really mean it… Politics continue to drive the economy… The most ruinous CEO in history… Deutsche Bank: This crisis is "far from over"… Bailouts reach $10.5 trillion and counting… Gold is where the smart money is right now… Money supply increases… And more!  
*** Is Team Obama finally coming to its senses? 
 Instead of keeping the fatally wounded U.S. auto industry on a drip feed of tax dollars, Obama is considering allowing GM and Chrysler to enter bankruptcy. 
A headline in the WSJ
  reads "U.S. Threatens Bankruptcy for GM, Chrysler." How backwards has the U.S. economy become when bankruptcy for a failed company is seen as government intervention? In a functioning economy companies go into bankruptcy when they fail. It's just a pity that Team Obama had to pour billions of tax dollars into these zombies before considering letting the market do its work. 
*** As reported here yesterday, it's likely that all the talk
  of bankruptcy is designed to force GM bondholders into taking a significant haircut. About 80% of GM's $28 billion in outstanding debt is held by large institutional investors and hedge funds. Ironically, the bankruptcy courts may be the best option for bondholders. If the government gets its way it will reduce GM's debt by two-thirds. 
*** Once again political considerations are driving the economic agenda.
  GM's biggest problem is its labor costs. But taking on the United Auto Workers union is not something the current administration is keen to do… hence the squeeze on bondholders. Here at Notes
  
 we'd like to see the bondholders call the administration's bluff. The reality is the unions have more to lose than the bondholders should the matter be decided by a bankruptcy judge.
*** Besides, it just isn't very Obama-like to let failed companies go to the wall,
  especially not ones that employ hundreds of thousands of traditionally Democrat-leaning workers and union members. Pay close attention to two key parts of Obama's speech about saving the auto industry.
In the following segment, Obama talks tough…
And we cannot make the survival of our auto industry dependent on an unending flow of tax dollars. These companies - and this industry - must ultimately stand on their own, not as wards of the state.
And here, again…
And so today, I am announcing that my administration will offer GM and Chrysler a limited period of time to work with creditors, unions, and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars; a period during which they must produce plans that would give the American people confidence in their long-term prospects for success.
But here's the kicker. And here's what Obama really has in mind…
What we are asking is difficult. It will require hard choices by companies. It will require unions and workers who have already made painful concessions to make even more. It will require creditors to recognize that they cannot hold out for the prospect of endless government bailouts. Only then can we ask American taxpayers who have already put up so much of their hard-earned money to once more invest in a revitalized auto industry. But I am confident that if we are each willing to do our part, then this restructuring, as painful as it will be in the short-term, will mark not an end, but a new beginning for a great American industry; an auto industry that is once more out-competing the world; a 21st century auto industry that is creating new jobs, unleashing new prosperity, and manufacturing the fuel-efficient cars and trucks that will carry us toward an energy independent future. I am absolutely committed to working with Congress and the auto companies to meet one goal: the United States of America will lead the world in building the next generation of clean cars.
Looks like what Obama is really asking is for workers and bondholders to play ball, not the natural end to two miserable corporate failures. Expect the bailout express to continue, as soon as the pres "okays" the new restructuring plans and extracts what he wants from bondholders.
*** What Team Obama doesn't get is companies fail for a reason.
  Maybe they're badly managed. Maybe they concede too much ground to unions. Maybe they make products that people don't want to buy. 
According to Russ Roberts at Café Hayek, the United Auto Workers (UAW) union now has about 190,000 members. In 1979, the heyday of the U.S. auto industry, the UAW had 1.9 million members. This changed because U.S. auto makers got caught napping by the Japanese. That's how capitalism works: the fittest survive and productivity innovations clear away the dead wood. Stand in the way of this process and you get zombie companies – ones that can only stand up thanks to government support. 
And that's if you're lucky. If you're unlucky you get the likes of Fannie Mae and Freddie Mac – entities that cause massive disturbances in the markets and trigger the kind of disastrous economic collapse we are seeing now.
Roberts points out that given that estimates of the total bailout to the auto industry are in the region of $130 billion they total $684,000 for each of the 190,000 UAW members. 
*** We apologize to readers for all the talk of politics in recent Notes
  issues. 
 We give two hoots here about whether it's the Republicans or the Democrats who are ripping off the taxpayer and spending America into oblivion. Our aim here is to help you achieve financial freedom by bringing you the best money-making ideas and investment intelligence from non-mainstream sources. Unfortunately, politics is now the dominant force in our economy. And right now, investors who fail to grasp this will get badly burned.
*** As my dad pointed out
  recently in the Daily Reckoning,
  there's really only one game in town,
  to stick the losses of corporate America onto someone who doesn't deserve them, i.e., you dear reader, the hard-schlepping U.S. taxpayer.
*** Whatever your thoughts on the rights and wrongs of the government's bailouts of GM, you have to hand it to recently ousted CEO Rick Wagoner. Wagoner has got to be the most ruinous CEO of any company in history. Since he took over the helm of GM, the company has lost somewhere in the region of $90 billion, or roughly $30 million a day!
*** Despite his utterly calamitous stewardship of GM, Wagoner will walk away with a $20 million retirement package,
  according to a report
  on ABC News. Another reason to root for GM bankruptcy over further "zombiefication" by the government is that under a bankruptcy only $1 million of Wagoner's $20 million retirement package would be guaranteed.
*** There are more dire (and common sense) predictions about the future of the global economy, 
 this time from the suits at Deutsche Bank. Yesterday, we brought to your attention this
  excellent forecast from Baseline Scenario. It predicts no recovery on the horizon and that, worldwide, 2010 will be "flat" relative to 2009. The Deutsche forecast
  isn't far off. According to the bank's chief risk officer, Hugo Banziger, the crisis in the global financial markets is "far from over." Banziger also pointed out that credit spreads are higher than before Lehman Brothers collapsed, signaling that the crisis has a ways to run yet. 
*** And if you think Geithner's latest shell game,
  the PPIP, means the end of the pain for financials, ask yourself why banking holding company credit-default swap (CDS) spreads are at new highs.
  (The higher the spread on CDSs the higher the chance the market believes there is for a default by a company the CDS is issued against.)  
 
*** U.S. stocks are rallying again today after yesterday's sell-off.
  Confused? We are. Jeff Clark is bullish… for now. In today's Growth Stock Wire 
 Jeff says
  stocks are now in an "intermediate-term uptrend." He also says that a coming breakdown in the VIX – the market's "fear" index – could be good news for equities.
*** Whether you're a stock market bear or bull comes down to whether
  you believe the torrent of nasty economic data has been priced into stock values. We're skeptical it has. According to a report
  on Bloomberg today, "home prices in 20 U.S. cities fell 19 percent in January from a year earlier, the fastest drop on record." 
Crucially, the drop in the S&P/Case-Shiller index's
  was more than forecast. If the data coming out of the housing market is far
  worse
  than the horrible data the market expects, how can it be priced into stocks? We resolutely keep our Sucker's Rally Alert flag unfurled.
*** Despite the $10.5 trillion committed to bailing out the economy and the $2.5 trillion already spent,
  banks aren't lending, earnings aren't improving, people aren't spending, unemployment is rising, the housing market is tanking and some of America's most iconic businesses look likely to go to the wall. Investing in stocks at a time like this is risky business, although the rewards could be high. Caveat emptor.
*** For a great breakdown of the government bailout fiasco so far, click 
 here
   
*** There is no clear trend in stocks right now
  . It seems to us that the majority of the recent action in stocks is being generated purely by technical analysis. The fundamental trend in gold, on the other hand, is blindingly obvious. Governments of the world's major economies are monetizing debt at unprecedented rates. This inflates the money supply and, historically, is highly bullish for commodities in general and gold in particular. 
Some of the world's smartest money managers are buying into gold in a big
  way – guys like John A Paulson, Jean-Marie Eveillard and David Einhorn. This article
  by Money Morning has all the details.
*** Exactly how much new money has been added to the money supply?
  It's always difficult to give an exact answer, thanks to the various opaque measurements of money supply (broadly speaking, the total amount of money in the economy). But one of our favourite underground investors, Martin Hutchinson, writing for Prudent Bear says
  in the U.S., "Broad money supply, whether measured by M2 or the St. Louis Fed’s MZM, has risen at annual rate of 17% in the six through March 16, before the start this week of the Fed’s potentially hyper-inflationary purchase of $300 billion of Treasury bonds over the next six months."
*** The Environmental Protection Agency (EPA) has declared carbon — "greenhouse gases" — a threat to human or environmental health,
  paving the way for it to regulate carbon emissions the same way it regulates air pollution under the Clean Air Act of 1970.
This is huge. It could give this one agency sweeping control over "transportation, manufacturing costs and how utilities generate power," according to the New York Times.  
When the EPA made its announcement on Friday March 20, no one noticed. It was buried in an obscure spot on the White House website on Monday, March 23.
The details are still a secret. But the meaning is unmistakable. "It is going to set the stage for the first-ever national limits on global warming pollution," says Frank O’Donnell of the environmental group Clean Air Watch.
Now it’s up to the White House to follow through with a formal declaration. It could very well come by Thursday, April 2, because it’s the second anniversary of a historic Supreme Court ruling that ordered the EPA to decide whether carbon is a form of pollution.
Then again, the Obama administration could make its move any time before then now that the EPA’s decision is public. That’s why it’s critical to move on this now.
One power generation method, which resource expert Byron King calls "Sonoma Grizzly Power," is perfectly positioned to capitalize on these ‘green’ power mandates. Early investors could enjoy 661% gains. 
Follow this link
  to read the full report about "Sonoma Grizzly Power."
*** My friend Brian Hunt says that there is a short window of opportunity
  to get in on a unique gold distortion that I told you about last week. 
The distortion has to do with gold prospect generators. Prospect generators buy gold-rich land. Then they prove there is gold underneath it to get big mining companies such as Newmont Mining, Barrick and GoldCorp to buy an interest. 
One of the biggest prospect generators, Almaden Minerals, just shot up 23% after trading sideways for the last few months. The window of opportunity on this "distortion" is closing. This report
  has all the details.
Until tomorrow,
Will Bonner

 

 

Golden Opportunities and Your Options

Posted: 31 Mar 2009 11:19 AM PDT

Our experts have cranked it up to high gear and have dug into some of the most controversial topics Investment U has covered recently. Like investing in gold.

Gold has been an incredibly hot topic over the past few months. On one side, it looks cheap from an inflationary perspective, and on the other, overpriced. Our own Louis Basenese even suggesting that we should consider shorting gold. The debate has ranged on our message boards pro and con…

But regardless of its short-term movement, we recommend holding 5% of any portfolio in precious metals - like gold. So what is the best way to accomplish this? We found a number of ways to do just that.

The Best Ways for Investing in Gold

Rick Rule, Chairman of Global Resource Investments, makes a compelling argument that gold isn't a commodity in as much as it's insurance. "Gold is disaster insurance. You shouldn't want it to go up. Would you want to be paid in life insurance, home insurance, or auto insurance proceeds? That would mean you want to die, have your house burn down, or get seriously injured!"

Rick finds the notion that some people actually want gold to rise to $2,500 an ounce extremely distasteful. He believes the only thing gold has going for it right now is its volatility. It's why he owns gold stocks.

There's a few other ways for investors to own gold…

Physical Gold: Rick holds his physical gold in a bank safe deposit box. His is located at his half-year residence of Canada in the bank of Nova Scotia.
Paper Gold: The SPDR Gold Trust ETF (NYSE: GLD) is a good option for investors who need liquidity with their gold assets. You can buy and sell this ETF like any stock on the market. Which also means you can sell it short, if you believe it will fall.
Gold Coins: Gold coins are an easy way to own gold in your portfolio. Unfortunately, because of the demand, you'll be paying a hefty premium to purchase them. This was discussed a little in our Panel Discussion, and we'll have more for you on that dialogue tomorrow.
Gold Futures: Gold futures may be an excellent option for some. However, he stays out of gold futures because he believes it's too volatile. Rick believes silver futures are even worse, like gold futures on steroids.
Gold Stocks: Gold producers trade between 1.7 and 2 times the net present value of their cash flows they could generate. It's called the warrant on the gold price. Basically the market has assigned a large "growth" premium to a mining business - where the business gets smaller every day. There's less and less gold to mine.

It also means that if gold went to $1,200 or $1,500, the cash flow these producers could generate would increase exponentially. However, this also works in the opposite direction. It's why gold stocks are so volatile.

The second problem is that the gold industry as a whole has become greatly inefficient. Since the 1970s, when Nixon broke down the Bretton Woods monetary system to pay for the Vietnam War, gold prices have fluctuated from speculation from its controlled price of $35 to well over $800.

Rick explains it another reason why things are wacky with gold stocks. In a word, leverage. Imagine a $300 per ounce gold market where an inefficient producer mines gold at a cost of $320. That's a negative 6% margin. If gold goes to $400 or above, there's an infinite increase in profit, and better efficiencies on increases in price.

So ironically, Wall Street has wanted to see leverage in gold stocks to increase efficiency and make it easier to post stellar profits on gold rallies. It's this leverage that's also increased the risks and the volatility.

We had a considerable amount of interest in "profit generators" from Rick's talk yesterday. People asked for more. So I talked with a few of the other experts to get their suggestions:

Out of Eurasian Minerals investment director, Scott Close suggested Esperanza Silver Corporation (CVE: EPZ).
Then Patrick Moodie of Rimfire Minerals was kind enough to recommend a few more: Riverside Resources Inc. (CVE: RRI), Almaden Minerals Ltd. (NYSE: AAU) and Cornerstone Capital Resources (CVE: CGP).

The Truth About Options

Karim Rahemtulla, Investment Director for Mt. Vernon Research, emphasizes that options have become much more popular because they are a tool to enhance returns. They are not just a way to go long or short. They are a way to use less money, protect, go long, OR go short.

Karim never thought he would see companies like GE fall into the single digits, and sees tremendous opportunity around him, "You can look at this market as a way to set yourself up for high profits, yet, with a degree of safety."

LEAPs allow you to put very little of your capital at risk. These are long-term options, which are known as calls in shorter maturities. They let you go long - profit from increases in stocks - while putting only 15% to 20% of your capital on the line.

Then you get one, two, or three years of time to work on your side. In fact, there was one stock Karim suggested attendees look at (specifically, its 2011 LEAP) for that exact reason. Our audio recordings will have all the details. You can find out more, here.

He really emphasized that it's easy to get confused with the complexity of options. It's unfortunate, but it can be solved by focusing on a few simple option strategies:

Covered Calls - allow investors to receive a premium on the stock you own. When you sell a call you give someone the right to buy your stock at a specified price, called the strike price. If the cost of the stock never goes above that price, you keep the premium they paid you and you don't have to sell.
Long Puts and Calls - Here you can use options to control fast moving stocks for a fraction of what it would cost to buy them outright. By buying a call, you have the right to purchase that stock at its strike price for a long time horizon. By buying a put, you have the right to sell at a particular price.
LEAPs - These are long calls with extremely long times to expiration. This allows you to control the stock for a fraction of the cost of outright purchase. You can also do these in your retirement account.
Put Selling - Here you sell an out of the money put on a stock that you don't expect to weaken. If the stock doesn't drop you keep the premium you take in.

Karim wrapped up with the three best strategies to use for the market right now: selling calls, selling puts and LEAPs.

Put Options: Getting Paid to Buy Your Favorite Stocks

Lee Lowell, from The Instant Money Trader, explained why so many investors on the sidelines are looking at put options as a way to buy back into this market.

The advantage of selling put options is that you get paid up front in cash from the put option buyer, which obligates you to potentially buy these quality stocks at below their current market prices.

There is a margin requirement involved. But it's significantly less than what it would cost to buy the stock outright. And the total risks involved are no more than what it would take to purchase the stock outright.

Lee recommends selling put options that are either $5 or $10 out of the money that have three months until in expiration. There were three stocks in particular he recommended for this strategy right now: General Electric (NYSE: GE), Microsoft (Nasdaq: MSFT) and Intel (Nasdaq: INTC).

Racing Away…

Time has just been flying by over the past few days. Good people, great food and phenomenal market intelligence. We've hardly had time to catch our breath, so to speak. And just as I was thinking that, I ran into Keith Fitz-Gerald, Investment Director for Money Map Press.

Or more correctly, he ran by me. It seemed he was trying to catch a ride on one of the cigar racing boats in the harbor that I've been telling you about. As he stopped I asked him a little about the "Geiger Index" I'd heard so much about.

Apparently, it's an algorithm he's developed to monitor the market's movements. It tips him off before big moves happen. I didn't even have time to get more information out of him before he trotted off in search of cigar racing glory.

I didn't have the heart to tell him the gusting winds we were receiving had cancelled most of the races. I will have my Editor in Chief, Alexander Wissel, send you some more information on The Geiger Index in the next day or so.

In many ways, this conference couldn't have come at a more important point: With our new President, the markets recent plunge, the global upheaval and domestic economic disarray. As our last day closes out, the impression I get from many is that they're more confident in what to expect based off of what they've heard over the past week.

And they aren't the only ones. Even as an accredited finance professor, I've greatly expanded my knowledge this week.

Stay tuned for my wrap-up tomorrow, where in addition to touching on some of the biggest ideas and strategies from this week, I'll give you an earful of the heated conversations from our panel discussions - which included green energy and gold coins…

Source: "Golden Opportunities and Your Options"

Natural Gas: Another Chance to Profit As This Commodity Takes a Tumble

Posted: 31 Mar 2009 11:09 AM PDT

While history has shown us that there shouldn't be much correlation between the stock and commodity markets, the current inter-connectedness between the two at the moment is still very evident. We're still seeing large, intra-day and intra-week price swings, most of it coming on the heels of stock market moves.

So much for history.

It makes more sense to focus on the present - and that means taking what the market gives us. With commodities, that's a hearty dose of volatility…

Another Chance To Go Long On Natural Gas

The natural gas market giveth and then taketh away.

We've been bullish on the natural gas market since the price hit a long-term support level near the $4.500 per MMbtu mark a few months back. Since making a new low price of $3.740 (based on the May 2009 futures contract) on March 18, the futures blasted higher by 1,000 ticks and reached a high of $4.750.

But with a surprise Energy Information Administration report last Thursday, which showed a much larger buildup of underground natural gas supplies, the market has sunk right back to its lows of $3.750 per MMBtu.

Although we're a little disappointed with the current state of this market, we continue to like natural gas for the very long-term - particularly as hurricane season creeps closer and the risk of damage to natural gas operations in the Gulf heightens.

If you're thinking of initiating bullish trades, you can do it through the natural gas futures options market on the NYMEX, or on the market's main ETF - the United States Natural Gas Fund (NYSE: UNG).

A Wide Range For Crude Ahead

Crude oil continues to swing in large ranges.

The May futures contract just hit a near-term high of $54.66 per barrel - a significant jump from its low of just under $40 last month. But with a bout of profit-taking in the mix, the contract's 20-day moving average has moved to support near $49 per barrel.

Depending on the mood of the market, we could see oil hold at this level and head higher again. If it doesn't hold, though, we could see a drop back down to $40 very quickly.

Regardless, our near-term trading range for oil continues to fall between $30 and $60 a barrel.

Metals Pause For Breath… But Get Ready For The Next Move Higher

With gold and silver having recently tagged highs ($1,000 per ounce for gold and $14.50 per ounce for silver), both have taken a bit of a breather and retraced some of their gains.

This kind of profit-taking is perfectly normal - and is actually a good thing, as it gives the markets a chance to consolidate in preparation for the next leg higher. We still believe this will happen.

For gold: We don't see the front-month futures contract (June) trading much below $870 per ounce after the current pullback is over.

For silver: We shouldn't see a price much below $12 an ounce for the May contract.

With the stock markets still unsteady, many investors are sticking with metals as part of a diversified portfolio.

Aside from using limited-risk option strategies to play gold and silver futures options on the COMEX market, you can buy outright shares of the ETFs that track the price performance of gold and silver - the SPDR Gold Trust (NYSE: GLD) and iShares Silver Trust (NYSE: SLV) respectively. You can also play options on these ETFs.

Could Winds Whip OJ Into A Bullish Frenzy?

Keep an eye on the orange juice market. It's definitely bounced off its yearly lows near $.65 per pound and has trended higher to its current price of $.77 per pound.

Orange juice is a market that heats up towards the late spring/early summer - and is then on full "hurricane watch" from June until November. We'll continue to post the monthly chart of orange juice as a reference point of where it's been before - and could potentially go again.

That's all for this edition. Catch you next time.

Source: Natural Gas: Another Chance to Profit As This Commodity Takes a Tumble

Investing in the Biotech Sector: 5 Elements To Consider

Posted: 31 Mar 2009 10:52 AM PDT

When Arena Pharmaceuticals (Nasdaq: ARNA) released positive Phase III data on its obesity drug, Lorcaserin, many people expected shares to take off. After all, the company's press release on Monday confirmed that the drug had proven to be safe and effective.

Why I Did Not Recommend Arena Pharmaceuticals

But in a classic example of just how volatile and unpredictable the biotech sector can be, the stock slumped 28% instead. While the news was good on the surface, the problem was that Lorcaserin didn't help patients lose 5% more of their body weight than placebo. The 5% figure is a guideline that the FDA uses for approvability - and investors punished the stock for not meeting that requirement.

Let's dig into the story and apply the lessons from it to investing in the biotech sector…

Investing in the Biotech Sector Is Not Easy

Investing in the biotech sector is not easy.

In fact, I'd argue that it requires more due diligence than just about any other sector, simply because of its unpredictable nature and that the science sometimes can't match people's hopes for a drug. And when there's a lot of buzz around an important drug that tackles obesity - one of America's leading healthcare problems - it can exacerbate the fallout.

Even the very best investors in the biotech space have had stocks blow up on them after bad clinical trial data. It's part of the business. As I've said here before, when you try to capture the potential enormous gains that biotech has to offer, you take on some extra risk.

With Arena Pharmaceuticals, that risk outweighed the reward - and I outlined my reasons why at the Investment U Conference in St. Petersburg, Florida just this past weekend.

How to Find Winners In The Biotech Boom

As I explained in my workshop, "How To Find Winners In The Biotech Boom," there were a few things about Arena's story that I found risky…

Competition: Whenever possible, I like biotech companies with drugs/devices that face little or no competition. But several other companies, including Vivus (Nasdaq: VVUS) and Orexigen Therapeutics (Nasdaq: OREX), have obesity drugs that are in late-stage development. So even if Lorcaserin was effective and Arena had "first mover" advantage, it would likely face competition in the near future.
Results: In Phase II trials, Vivus' and Orexigen's data was stronger than Arena's. Moreover, Vivus has already shown effectiveness in one Phase III trial. Results from two more are expected this summer.
The Fen-Phen Issue: In 1997, popular weight-loss drug fen-phen was withdrawn amid reports that its caused heart valve disease. So when Lorcaserin was described as the chemical cousin to the drug, the relationship didn't sit well with me.

In short, the possible safety issue and the potential for better drugs to enter the market soon meant the reward wasn't high enough to justify taking on the substantial risk.

And when we're talking about biotech, avoiding unnecessary risk is critical. You can be sure that if I decide to take on additional risk, you can be sure that the potential reward will be very significant.

Investing in the Biotech Sector: A 5-Step Stock-Picking Method

Before investing in the biotech sector, I use a five-step stock-picking method. Here's how I pick healthcare and biotech stocks…

When I select companies for my healthcare service, Access, I rely on my F.I.R.S.T. research methodology, which focuses on Financials, Interviews, Research, Safety, and Timing.

I spend a tremendous amount of time separating the companies and stories that merely make interesting reading from those that go one step further and make solid investments.

Many of the companies I recommend are well under-the-radar. Don't expect to hear them being pumped on CNBC, Internet message boards, or in the mainstream financial press (yet).

Most of them are in what I call the "gathering period" - when influential investors, insiders, and sector specialists are accumulating substantial positions ahead of breakthrough news and/or product announcements.

While these catalysts often lead to short-term share price gains, more importantly, they set the stage for substantial moves higher over the intermediate and longer-term.

Don't get me wrong… Arena was an appealing story. But there are lots of exciting stories in the biotech sector. And the company failed on a couple of major issues.

When investing in biotech, understand that blowups happen. But also know that it's a sector capable of producing gains of 10,000% or more. Just ask the investors who bought Amgen (Nasdaq: AMGN), Celgene (Nasdaq: CELG) and Biogen Idec (Nasdaq: BIIB).

Even in this crummy market, Access subscribers are sitting on current gains of 97% (on a position initiated in October) and 23% (in just one month). You just have to know where to look.

Hoping your longs go up and your shorts go down.

Source: Investing in the Biotech Sector: 5 Elements To Consider

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Contrarian Profits

2009-03-29T11:16:00.001-07:00

Contrarian Profits

Three Dollar Threats, Two Energy Trends, One Interesting Chart and More!

Posted: 27 Mar 2009 03:43 PM PDT

First Russia, then China, now U.N.? Powers of the world move to ditch the dollar …Puru Saxena on why the Fed secretly wants inflation… the more the better…The 5 examines the future of energy… from deep-water drilling to "polywell fusion"… Another government biz on the verge of collapse… one that will affect us all… Plus, some good housing news, maybe… home prices retreat to historic range

“A new global reserve system," a panel of United Nations economists declared yesterday, "could contribute to global stability, economic strength and global equity."

We begin with this today not because the U.N. is saying anything revolutionary, but because the global chorus to ditch the dollar is quickly becoming deafening. The Kremlin last week, China's central bank earlier this week, Tim Geithner yesterday and now this… a U.N. panel led by an American no less.

There is “a growing consensus that there are problems with the dollar reserve system," said Joseph Stiglitz, a Nobel economics laureate and leader of the U.N. panel. The current system is "relatively volatile, deflationary, unstable and [had] inequity associated with it.

“Developing countries are lending the United States trillions dollars at almost zero interest rates when they have huge needs themselves,” Stiglitz said. “It’s indicative of the nature of the problem. It’s a net transfer, in a sense, to the United States, a form of foreign aid.”
“The discussion about a new [global reserve] currency is absolutely legitimate," added Dominique Strauss-Kahn, head of the IMF. The IMF would likely be tapped to create such a common reserve… its "Special Drawing Rights" could berth a currency based on a basket of worldy monies. Strauss-Kahn said such a discussion could come to a head "in the coming months."
So how does the U.S. Congress cope with this development? Heh, typical…

Rep. Michele Bachmann introduced a resolution yesterday that "would bar the dollar from being replaced by any foreign currency." You can read it for yourself, here.

We're not sure if Bachmann simply doesn't understand the issue — that foreign governments are proposing a new RESERVE currency and not suggesting the U.S. abandon the dollar — or if she really thinks she can legislate the decisions of foreign nations. But either way, better to write the bill first and ask questions later.

Bachmann: Embarrassing Minnesotans everywhere

"The Federal Reserve wants to debase the U.S. dollar," writes Puru Saxena in the latest Daily Reckoning. "The total debt in the United States now exceeds $60 trillion, and its economy is around $14 trillion. So the United States is already bankrupt, and the only way it can ever hope to repay this gigantic sum is through monetary inflation and debasement.

"Allow me to explain:

"Suppose your grandparents borrowed $100,000 from their friends roughly 50 years ago. Back then, $100,000 was a lot of money, and the chances of your grandparents ever repaying this loan were slim at best. However, thanks to monetary inflation and the debasement of the U.S. dollar, today, $100,000 isn’t a very large sum of money. Therefore, your grandparents would find it much easier to repay their debt.

"Turning to the present situation, the United States owes its creditors a gigantic amount of money and a debt so large that it can never hope to repay it in today’s dollars. So the United States has two options:

a. Default or bankruptcy
b. Monetary inflation

"Given the fact that the United States is still the world’s largest economy, owns the world’s reserve currency and has a democratically elected government, I think we can pretty much rule out the possibility of sovereign default. Therefore, you can bet your bottom dollar that the United States will try its best to inflate its way out of trouble. Remember, politicians borrow money when it buys them a loaf of bread and they repay it when the same money is worth only a slice of bread!"
Never mind the news above, the dollar is actually booming today. The eurozone unleashed two worse-than-expected data points this morning, causing a rush into the greenback. The British pound got shellacked after the U.K. government revised its fourth-quarter GDP down to a 1.6% contraction. And the euro is looking no more stable. Its member nations saw a 34% plunge in industrial orders during January. According to the EU statistics office today, that's the biggest monthly decline on the books.

Thus, the dollar, despite all its faults, is the currency du jour. The dollar index soared about a point and a half this morning, to just over 85.
The U.S. stock market enjoyed a nice rally yesterday. Traders had some respectable reasons to dive into yesterday's market… like better-than-expected earnings from consumer brands like Best Buy, Snapple and Dr Pepper. Plus, the U.S. Treasury's latest auction — $24 billion in 7-year notes — was met with more typical demand, soothing fears brought about Wednesday.

The Dow and S&P 500 climbed 2.3% while the Nasdaq soared 3.8%. That actually puts the Nasdaq at break-even for the year. Hooray!
Thus, we're seeing some profit taking today. Most indexes are up about 20% in the last three weeks alone — reason enough for a decent sell-off. As we write, the Dow and S&P are down over 1%.
"Polywell fusion technology could be the biggest monkey wrench in the history of markets," writes our technology adviser Patrick Cox. If you're unfamiliar (we certainly were), fusion is often tagged as one potential "fuel of the future." Instead of splitting atoms, like the nuclear fission we use today, it fuses them.

"Polywell," explains Patrick, "is a different approach to fusion energy that's generating huge buzz in tech circles. If, as proponents claim, commercial polywell fusion is only four or five years away, it would be the biggest monkey wrench in the history of markets. It would be both good and bad, however.

"It promises energy so cheap as to be virtually free. Some scientists believe that power would be driven down to 1% or less of its current cost. Even if it were 5% or 10%, though, the impact would be staggering.

"The economic roots of global poverty would disappear. Within a decade, desalinized water, food, transportation and most physical goods would plummet in price. The Third World would achieve a higher standard of living than the First World enjoys today. The First World would have options that are almost inconceivable. Whole sectors would collapse, but new ones would rise and more than compensate for the lost equity values."

It almost goes without saying: This technology still has many hurdles to clear. "But he chance that polywell is what the scientists say it is, however, requires that we watch this very, very closely," says Patrick.
Commodities are retreating today, along with stocks. Gold is backing down after a nice run-up to $945 yesterday. As we write, the spot price is around $925.

Ditto with oil. Crude rose back up to recent highs of $54 a barrel yesterday, but has since been sold down to $52.
"The world’s oil exploration and production is migrating offshore into deep water," notes Byron King. "There are a lot fewer onshore opportunities now than there used to be. It’s fair to say that the biggest onshore oil and gas prospects are either already drilled (hey, North America has been drilled like a pin cushion), or locked up for political and environmental reasons.

"Thus, exploration has moved offshore. The shallow coastal areas have been good bets over the past few decades, yielding immense volumes of oil and natural gas. In the U.S., oil companies have been drilling in the shallow waters of the Gulf of Mexico since the 1940s. They even drilled offshore Southern California in the 1960s. But those shallow offshore prospects are pretty much drilled by now, or they’re off-limits due to environmental restrictions. So the industry is moving further offshore into deep water, defined as more than 1,000 feet.

"Today, deep water is a key focus of the international majors. The energy industry has new geological models and better geophysical technology and data. There have been vast improvements in signal processing and data crunching. And we are living through a time of absolutely revolutionary advances in drilling capability. What used to be just trackless, wave-tossed ocean is now prime oil patch real estate. It follows that today we are seeing phenomenal success rates for exploration, with super-high output wells.

"I strongly believe that a lot more deep-water holes are going to get drilled. There’s almost no doubt about it. The world’s deep-water rig fleet is destined to grow dramatically in the next few years, despite the worldwide recession. From 213 rigs afloat in 2008, the construction and commissioning schedule forecast is for well over 300 rigs available by 2012. Most of these new vessels and platforms are fifth generation, designed for deep water and harsh conditions. The drawings are complete, the keels are laid, the steel is being welded. These new ships will cut water."

If you seek to profit from the latest and greatest energy trends, Byron is your man. We're currently offering 50% off his elite Energy & Scarcity Investor… if you're in the market, now's the time to check it out. Do so, here.
The U.S. Postal Service is in deep trouble.

"We are facing losses of historic proportion," Postmaster General John Potter said yesterday. "Our situation is critical."

Indeed, the USPS is almost guaranteed to run out of money this year. The government-sponsored postmen lost $2.8 billion last year and this year — with mail volume expected to drop by as much as 15 billion pieces — the group's losses will be "much larger," says The Associated Press.

Plans are already in place to increase rates in May, and the USPS is mulling other options — like reducing mail delivery to five days a week, closing offices and/or cutting retiree health benefits. And if gas prices pop? Fugghetaboutit… the USPS claims that every cent up in gas prices "costs the post office $8 million," reports the AP
401(k)s and 403(b)s beware… 29% of employers plan to reduce or eliminate contributions toward “defined-contribution retirement plans” for their employees, says a survey released this week by Spectrem Group, a business consulting group.
On the housing front, a ray of hope. According to this chart, the precipitous fall in home prices might start to ease up soon.

The current crisis has finally wiped out the bubble in home prices. Adjusted for inflation, the median price of a single-family home has plunged 33% from its 2005 high. Now at pre-mania levels, an average of $165,000, home prices have a reason to at least slow down their rapid decay.

Ouch… sorry if you bought your home during the height of the housing boom in the 1979. The median, inflation adjusted return over the last 30 years is negative 1.6%.
"I am opposed to giving green cards for housing market stability," writes a reader in response to yesterday's 5, "but not for xenophobic reasons. Instead, for reasons that I thought The 5 would extol. The whole idea is just another scheme devised to keep the market from expressing itself by letting prices fall to equilibrium, where prudent people can buy them at sensible prices. Why do you want to subsidize the market with foreign money? It's too complicated, will have unintended consequences and penalizes prudent Americans who would like to buy a house at sensible prices."
"I’ll chime in," writes another in a similar fold, "regarding Richard LeFrak and Gary Shilling's recent editorial. I think their idea stinks. I may be different than most of your readers, but I don’t want to arrest the housing crash. I want lower house prices. I want to be able to buy a house for $85,000. I’m sure a lot of other people would too."
"Not all foreign home buyers would be looking for a job," writes the last. "There are also those looking to start a business elsewhere but find it difficult to open a business in the U.S. The prospect of higher corporate taxes, liability issues, higher personal income taxes, etc., certainly don't make it more enticing. There are only 65,000 slots for an H-1 visa, and in both 2007 and 2008, they ran out of them within minutes of opening the applications (usually, midnight, April 1). Immigration ended up doing a lottery.

"So what's, say, a Microsoft to do? It opened up a shop in Vancouver. Focusing on the job an American loses to a foreigner doesn't cover all the ancillary benefits of having a company grow (more sales, more services required — hey: more taxes paid!). I know because I tried to get an H-1 for the company I founded in the U.S. and got tired of spending money on lawyers and may just take my business to a duty-free zone in Panama, instead."

ource: Three Dollar Threats, Two Energy Trends, One Interesting Chart and More!

Born Biddable

Posted: 27 Mar 2009 03:35 PM PDT

Mr. Timothy Geithner was the man who was on watch when the ship ran aground. His job, as head of the Federal Reserve Bank of New York, was to keep an eye on Wall Street. Now, he's come forward with a new $1 trillion plan to get the boat back on the water.

He should have left it to the ship-breakers. We almost feel sorry for him; Sisyphus had it easier. But Sisyphus was doing honest work. Besides, when Geithner's tour of duty is finished, the public will pay for his jackass bamboozles for decades, while he moves on to a cushy job at Goldman Sachs…or maybe AIG itself, if it is still in business.

Of course, we are out of harmony with mainstream opinion; but we are always out of harmony. When the USS Bubble was steaming along we fretted and warned: it was too heavily laden with debt; it was off course; the captain and his mates were all morons. Then, when it washed up, we switched to a more cheerful song, with the sound of blowtorches cutting her up…and the furnaces melting her down…as background music. Finally, capitalism was doing its job and happily whistling our tune.

But now that we are jolly, the rest of the world is full of doom and gloom. Thomas L. Friedman, writing in the New York Times, tells us that we have a "once in a century financial crisis on our hands…" We can't let capitalism do her work, he says; we have to get this wreck out of the mud and back on the cruise circuit!

So far, America's efforts to borrow its way out of debt have not gone well. The scum gets dredged up from the bottom on Wall Street. But when it is dumped onto the ship, the whole thing just sinks lower. Henry Paulson began the digging with his TARP program in September of last year. Then came TALF. Not to mention various trillion-dollar salvage operations from the Fed. How much do all these rescue efforts cost? The last number we saw – in Barron's – was $14 trillion.

Last week, Mr. Ben Bernanke announced to the whole world that he was doing the sort of thing that people used to be ashamed of. Instead of dredging out the mud, he was going to blow hot air into the rusty hull. And on Wednesday, he began following in the footsteps of pioneers at the Bank of England, the Bank of Japan, and most importantly, the Bank of Zimbabwe. Buying U.S. Treasury debt directly, he will add trillions to the U.S. money supply. Last year, before Lehman Brothers dove in the water and never came up; the entire monetary base of the United States of America measured $850 billion. With so much gas being pumped, it will soon rise to 5 times that amount – or more than $4 trillion.

Daily Reckoning readers may be having as hard a time keeping up with the bailouts as we are. Here, we attempt a simplification:

America still sinks under the weight of more than twice as much debt as usual. The collateral behind that debt has lost about 20% of its value – or about $10 trillion. Normally, those losses should be born by the capitalists – the reckless lenders and investors who extended loans to people who couldn't pay them back. But all of the bailouts have one thing in common: they aim to shift the losses from the people who deserve them to the people who don't…from the culpable to the gullible. Which is why they are so popular. After such a remarkable excursion, many are those who deserve to lose money – from those who bought doublewide trailers they couldn't afford…to those who lent them the money…to those who securitized the debt and passed it out all over town. That's why the biggest problem confronting the salvage workers has been to find some other group of innocents dumb enough and rich enough to pay the bills.

Mr. Bernanke's focused on shifting the burden onto dollar holders worldwide – notably the Chinese – by inflating the currency. But the Bank of China is also America's biggest creditor and has threatened to get upset if the dollar loses too much value. Besides, inflation is no sure thing. As James Ferguson points out, Japan has been trying to incite inflation for many years – with no success.

Until now, Geithner and his boss targeted the taxpayers. Private losses became public losses…as toxic assets were bought up, or backed up, by the government. But when the public got a look at what the bailouts actually paid for – million dollar bonuses, for example – it was outraged. The mob called for Geithner's head; the stingers themselves got stung.

This latest plan has a fairer sound to it, but it is a bigger fraud. "The solution depends on getting private money funds to team up with the government to buy up toxic assets" wrote Mr. Friedman, anticipating the Geithner plan by only a few hours and the truth by an eternity. "The president's comprehensive plan to remove the toxic assets from our ailing banks…is the key to our economic recovery…" he continued.

Geithner has invited investors up to the trough. His plan leaves the government with 90% of the risk; investors will quickly figure out how to get 100% of the profits. The latest estimate tells us that all this salvage work will add $9.5 trillion to the U.S. national debt over the next 10 years. At the current rate, it would still take 20 years to pay it off, even if every dime of savings of every American were applied to the task. Necessarily, the debt sludge will be dumped on the next generation – who don't vote…and won't notice the smell for years.

Source: Born Biddable

Silver and Gold

Posted: 27 Mar 2009 03:01 PM PDT

What this leading indicator for gold is telling us right now… Five specific precious metal plays for you to consider…Three gov't mandates that could force you to make $63,359 and more…

A few days ago, billionaire hedge-fund manager, John Paulson, spent $1.28 billion to buy a piece of AngloGold Ashanti (AU: NYSE), the large South African gold miner. Paulson paid $32 a share for an 11.3% stake in the company. The following day, Fed Chairman Ben Bernanke delivered the shocking news that the U.S. Federal Reserve would buy up to $1.2 trillion of U.S. Treasury debt. And just like that, the price of gold soared, as did the price of AngloGold – handing Paulson a prompt $240 million profit.

But we're guessing Paulson will hang around for awhile longer. We're guessing the savvy investor is looking for a double on this investment, at least.

"Apparently, Mr. Paulson sees a solid-gold opportunity," observes Byron King, the man who urged the subscribers of Outstanding Investment to buy AngloGold three weeks before Paulson made his high-profile purchase. "And Paulson, you may know, has pretty good eyesight, investment-wise. He's the hedge-fund manager who made $10 billion in 2007 and 2008 betting that the subprime mortgage market would implode.

"Mr. Paulson's purchase of AngloGold Ashanti is, in essence, a $1.3 billion bet that the U.S. government is pursuing a long-term policy to debase the dollar," Byron continues. "Seems like a winning bet to us."

AngloGold is not Paulson's only wager on the yellow metal. He also owns 4.1% of Kinross Gold. Likewise, David Einhorn, the hedge fund manager famous for predicting the demise of Lehman Bros., is accumulating gold-focused investments (as we reported in the February 23, 2009 edition of the Rude Awakening, "Buy Gold…We Really Mean it This Time.")

"Dollar debasement will doubtless trigger inflation," Byron insists. "Over time, this will cause a flight from paper currencies to gold. I've already predicted gold at $3,000 within 30 months. I've heard other gold analysts forecasting gold at $4,500 within three years. So there's a lot of room on the up-side."

It's true; the bullish case for gold has rarely seemed more compelling. But every investor has cause to wonder whether the bullish case for gold is also timely. Sure, gold could soar to $3,000 an ounce. But will it drop to $600 an ounce first…and stay there a while?

No one knows the answer, of course. Not even Byron King, an experienced geologist and student of financial history. Nor does John Paulson, a guy who knows how to make a few billion dollars by betting against the crowd. Nor does David Einhorn, an investor with an eye for profiting from adversity. But we're inclined to trust the instincts of all three gentlemen. We are also inclined to trust the "instincts" of the market itself.

Six times during the last six years, gold stocks charged out ahead of gold bullion, signaling an imminent gold rally. Veteran observers of the gold market understand that major rallies usually BEGIN with gold stocks; not with the metal itself.

The chart above illustrates this phenomenon. In August of 2007, gold stocks advanced nearly 20% in three weeks, while the gold price barely budged. But during the next three months, gold soared from $650 an ounce to a new 17-year high of $825 an ounce.

A similar divergence has unfolded during the last few trading days. Gold stocks have jumped 30% - or double the gain of the S&P 500 Index – while gold, itself, has advanced only 4%.

Are gold stocks – like Lassie – trying to tell us something? We aren't certain. But if we understand what the gold market is trying to say, either Timmy fell into a well or Ben Bernanke has incited the greatest inflationary episode in America since the 1970s.

Source: Silver and Gold

And Then There’s This…Friday, March 27th, 2009

Posted: 27 Mar 2009 02:38 PM PDT

Gold did practically nothing from the time Globex trading opened in the Far East on Thursday morning, until noon in London [7:00 a.m. in New York]. From there, and until about a half hour after the Comex open, gold tacked on about $12 in two quick spikes.

However, what little gains there were, evaporated by the close of New York electronic trading at 5:15 p.m. yesterday afternoon.

click to enlarge

Silver didn’t show much activity until 3:00 p.m. in Hong Kong yesterday afternoon. From there, it was an eleven-hour battle for it to add about 35 cents to the price…with the peak coming during lunch time in New York. From there it got sold off hard…and in the next four hours all these gains disappeared as well. One might have thought that there was some sort of prize for the traders from JPMorgan (NYSE:JPM) et al, for getting the Thursday closing prices in gold and silver as close as they could to the closing price on Wednesday.

click to enlarge

Yesterday was options expiry on the Comex for the April contract…and I believe that today is options expiry in the Over-the-Counter [OTC] market. That’s one of the reasons that volume has been so heavy this week, as traders are rolling their positions out of the April contract into June, in order to avoid having to take delivery. We will find out how many gold contracts are standing for delivery in April, when first notice day rolls around next Tuesday…March 31st…the last day of the month.

The boyz didn’t get the gold price down very much into this options expiry date. A lot of options expired in the money…and if these option holders wish, they can now convert their options into futures contracts and stand for delivery. It will be very interesting to see how many contracts will be in that position come Tuesday morning.

Today is also the last delivery day of the month for silver in the March contract. As of this writing, there are still about 180 contracts left to deliver…900,000 ounces. There were 99 contracts delivered yesterday…with the big issuer being Prudential Bache [98]…and there were eight different stoppers…each taking a little chunk.

Open interest changes for Wednesday’s big day were as follows. Gold o.i. rose 3,028 contracts…which is not a lot considering the volume and the price action. Silver o.i. actually fell 88 contracts. Upon checking the March 25th price swings [red line] on the silver graph above, I suppose anything was possible. Unfortunately, none of this activity will be in today’s Commitment of Traders report. We’ll have to wait until the COT report on April 3rd for that.

In other gold and silver news, I’ve already covered Thursday’s deliveries in silver. There were only a handful of contracts delivered in gold…and there might be a small handful delivered today as well. No changes in the U.S. Mint’s gold and silver eagles numbers. The Comex silver warehouse stocks were not updated for Thursday. There were no additions to GLD yesterday, but some of the huge amount of silver that’s owed to the SLV put in an appearance. The total added yesterday was 116.49 tonnes [3,745,000 ounces troy]…bringing the new record-high total up to 8,296.93 tonnes of silver. According to an e-mail I received from Gene Arensberg…”SLV has now exceeded the amount of silver foreseen in the Custodian Agreement with JPMorgan Chase, London. It currently holds 266,752,671.5 ounces. The custodian agreement was for up to 264,550,265 ounces. As of today, SLV has not filed either an amendment of the current custodian agreement or announced a new custodian or sub-custodian.” Gene was also kind enough to provide an updated graph of the current holdings of the SLV ETF since its inception. I thank him for that…and the associated commentary.

click to enlarge

And lastly, from the usual N.Y. Commentator, comes this bit of news…”Giving no particular reason, The Gartman Letter added a ‘unit’ of gold this morning, explicitly not hedging into the Euro, as its other two units are. Those familiar with the well-informed character of TGL would not have been surprised to see a serious effort to rally gold on the N.Y. open. Most would have been impressed though, by the fury of the selling response: estimated volume was 105,902 lots by 10 a.m., as efforts were underway to reverse the gain.” [Which they subsequently accomplished. - Ed]

Today’s first story is from the Financial Times in London. The headline reads: “Swiss banks ban top executive travel”…”because of fears they will be detained as part of a global crackdown on bank secrecy.” This short article is well worth the read, and I urge you to do so. I thank Craig McCarty for sending it to me. The link is here.

The next story was also sent to me by Craig McCarty. It’s a Bloomberg piece with the headline “Brown ‘Terribly Fragile’ After Bond Auction Flops”. “The notion that Brown is leading us to the promised land is laughable. He cannot get to grips with how other people see this country now, as the sick man of Europe,” said Ruth Lea, economic adviser to the Arbuthnot Banking Group Plc (LON:ARBB) in Solihull, England. The link is here.

In keeping with the last story, here is an incredible youtube.com video of the European Parliament speech by Daniel Hannan…Conservative MEP for the South East of England…and author of The Plan: Twelve Months to Renew Britain. He absolutely rips Brown a new one right in front of his peers…just destroys the guy. He and Ron Paul would be soul mates. There has to be a way for him to deliver the same speech to Obama et al! I thank Steven Talsness for sending it to me. It’s worth the listen….trust me! The link is here.

Today’s last offering comes from the website of National Public Radio. The name Frank Partnoy may not mean a lot to you…but it speaks volumes to me. “In his 1997 book FIASCO: Blood in the Water on Wall Street, Partnoy detailed how derivatives — financial instruments whose value is determined by another security — were being used and abused by big financial firms. Partnoy used his experiences as a derivatives trader at Morgan Stanley (NYSE:MS) to give the book an insider’s perspective.” If you really want to know how this derivatives disaster finally brought down Wall Street and the financial system, this is the article to read. I read the book when it first came out, so when the crash happened, it was no surprise to me. This is a long read…but well worth your time…and I thank Ted Butler for sending it to me. It’s entitled “Frank Partnoy: Derivative Dangers”…and the link is here.

The intervention we are seeing in the markets right now is blatant and strong — apparently hoping to convince J.Q. Public that the train is leaving the station. There is a strong and concerted effort by the Fed, the administration and their cooperatives to paint this tape higher and higher, without any pull back. - Dennis Slothower, Stealth Stock Daily…explicity citing Wednesday’s last-hour rescue rally at 3:00 p.m.

click to enlarge

Talking about the Dow’s Wednesday ‘last-hour rescue rally at 3:00 p.m.’…how about the Dow’s Thursday ‘last-hour rescue rally’ at precisely the same time!!! As for gold and silver…with options expiry out of the way…who the hell knows. Something seems to be afoot…but with the U.S. government up to its neck in market management these days…it’s anyone’s guess. And…if I said for sure one way or another…then I’d be guessing too.

Have a great weekend…and all of us at Casey’s Daily Resource Plus look forward to seeing you here on Saturday.

Source: And Then There’s This…Friday, March 27th, 2009

Resource Stock Roundup:Friday, March 27th, 2009

Posted: 27 Mar 2009 01:59 PM PDT

Investors were in a joyous mood during Thursday trading on the Canadian markets as the bulls trampled the bears in all sectors. For the tale of the tape, the TSX Exchange added 2.25%, while the TSX Gold Index rallied 0.5% and the TSX Venture Exchange, Canada's largest junior exploration bourse, surged 2.63% with the advancers swamping the decliners by a 446 to 317 margin on volume of 189 million shares traded.

Franco Nevada posted a fourth quarter profit of $15.4 million or $0.15 per share on revenues of $42.5 million. The royalty company tabled earnings of $40.3 million or $0.41 per share on revenues of $151 million for 2008. Franco closed out the day down C$0.74 at C$28.25.

Shares of Northern Freegold Resources closed unchanged at C$0.57 despite reporting results of up to 142 grams gold per tonne over 0.73 metres from the Nucleus zone on its Freegold Mountain project in the Yukon.

It was a good day for shareholders of Formation Capital as the junior reported that its partner of the Virgin River project in northern Saskatchewan, Cameco, cut 7.62 per cent U308 over 17.8 metres. Formation closed up C$0.045 to C$0.24.

A stock to watch is Buffalo Resources. The oil and gas producer announced that a committee has been formed to unlock value through strategic alternatives. Estimated net asset value is pegged at C$3.14 per fully diluted share. Buffalo ended the day up C$0.095 at C$0.46.

The recent market mania seems to be a tad over done and a correction appears well overdue. We will see what Friday trading has in store.

Source: Resource Stock Roundup:Friday, March 27th, 2009

Base Metals All Move Higher

Posted: 27 Mar 2009 01:21 PM PDT

The base metals were all in positive territory on Thursday. Copper gained from the pre-dawn hours to mid-morning, then held on, to finish just off its intraday highs at $1.8285/lb., up nearly 6 cents.

Nickel came well off its intraday highs, but held in the green, closing at $4.3318/lb., up 7¾ cents. Zinc pushed higher all day, ending at $0.5937/lb., up almost 3 cents. Aluminum had a strong day, adding a penny and a half, to $0.6408/lb., while lead had another good day, tacking on more than a penny, to $0.5911/lb.

Copper led the sector higher, jumping the most in a week on speculation that demand from China will pick up.

"The stimulus plan in China seems to be working, and that's going to be positive for demand," said Michael K. Smith, of T&K Futures & Options in Port St. Lucie, Florida. "I'm pretty bullish on copper."

China, the world's third-largest economy, seems to be showing some signs of recovery, and the "rapid decline in growth has been curbed," says People's Bank of China Governor Zhou Xiaochuan.

There was also some carry-over of positive feeling from the better-than-expected numbers on durable goods orders and new home sales released on Wednesday.

Smith added that, "A lot of people had really low expectations for the economy … There was all of this talk of things looking like a depression. The reality is that things aren't that bad. This is starting to be reflected in copper."

And mega-miner Rio Tinto (NYSE:RTP) chipped in, saying it expects metal prices to rise in the second half of this year, helped by China’s economic stimulus package, which will boost infrastructure spending.

Still, Japan’s demand for copper wire and cables is expected to sink to its lowest level in 34 years in the next business year, with no end in sight because of a deepening demand decline in the world’s No. 4 consumer.

"There’s concern in the industry as we cannot tell when we will hit bottom," said Kazuhiko Ohashi, chairman of the Japanese Electric Wire and Cable Makers’ Association.

Source: Base Metals All Move Higher

Oil Moves Higher

Posted: 27 Mar 2009 12:42 PM PDT

In the energy market on Thursday, the price of oil rose, with crude for May delivery closing at $54.35/barrel, up $1.58. April reformulated gasoline gained 3.16 cents, to $1.5311/gallon.

Traders actually celebrated the 6.3% drop in GDP, because it wasn't as bad as the 6.7% decline forecast by economists.

"Things are terrible but not as bad as feared," said Phil Flynn, of Alaron Trading. "Oil is on a manic macroeconomic journey. Just focus on the hope that the economy won’t go into total meltdown."

Despite the pickup in price, many were predicting that Wednesday's inventory figures argue for a bear market going forward.

"The inventories report is a reminder that we still have too much oil in stockpiles," said James Williams, of WTRG Economics. "It could add pressure on prices across the board in the following sessions."

Source: Oil Moves Higher

Dollar Stable

Posted: 27 Mar 2009 12:07 PM PDT

In the currency market, the dollar gained slightly on the euro. Late Thursday, the euro was trading at $1.352 vs. $1.358 on Wednesday.

Thursday brought some grim economic numbers.

As Marketwatch wrote: "Now that the books are closed on the fourth quarter’s performance, it’s fair to say that the final three months of 2008 will go down as the worst quarter for the U.S. economy since the 1930s."

The Commerce Department reported revised fourth quarter GDP figures yesterday, showing that output fell at a 6.3% annualized rate. That's the biggest drop since 1982 and the third worst gross domestic product figure in the past 50 years."

In addition, real gross domestic income fell even faster than GDP, sinking at a 7.6% annual pace in the quarter, the worst showing since 1980 and the second worst in the past 50 years.

Underscoring those dismal numbers, the Labor Department released jobless claims data. For the week ended March 21, first-time claims for benefits rose 8,000 to 652,000, or 78% higher than the same period in 2008.

The number of people collecting state unemployment benefits also reached another new record, jumping 122,000 to a seasonally adjusted 5.56 million.

Source: Dollar Stable

Inverse ETFs: How To Profit From The Bear Market Trap

Posted: 27 Mar 2009 11:57 AM PDT

Naturally, most investors are hoping that the current stock market rally will hold and we'll embark on another bull run. But what if it doesn't?

After all, this could easily just be a bear market rally. And bull markets rarely begin with a bear market rally and head straight higher.

Beware The Bear Market Trap

It makes sense to hedge against a renewed decline. Here's why smart investors are doing so using inverse ETFs. Read on to find out what they are, how they work, and why you should consider adding one or two to your portfolio in order to protect it…

ETFs: A Safer, More Effective Way To Short The Market

Just a few years ago, investors who wanted to profit from a market/stock downturn had to borrow shares from their broker to short the asset in question. But today, betting against banks, small-cap stocks, or even entire market averages, is just one convenient ticker symbol away.

You can short the market by using an inverse exchange-traded fund (ETF).

And while I'm generally an investor who subscribes to the fact that stocks ultimately rise and produce solid, long-term gains, there are certain times when using inverse ETFs can be very appealing - particularly in the current market environment.

Exchange Traded Funds: A Brief Overview

Before we talk about the hedging advantages of inverse ETFs, let's quickly review what ETFs are, and how they work…

Exchange-traded funds are securities that closely resemble index funds, but are more flexible because you can buy and sell them during the day, just like common stocks.
ETFs give investors a convenient way to purchase a broad basket of securities in a single transaction, offering the convenience of a stock along with the diversification of a mutual fund.
From a humble start in the early 1990s, the ETF industry has exploded, particularly over the past several years. There are now over 700 ETFs, with $450 billion in assets.

And the advantages? ETFs boast several major ones over mutual funds and common stocks…

Better diversification
More flexibility
Lower costs
More liquidity
Tax efficiency

Going Short The Smart Way With Inverse ETFs

Inverse ETFs (or short ETFs) are designed to move in the opposite direction of an underlying index. That means you profit when the benchmark tanks. The lower the underlying asset goes, the higher these funds advance.

Perfect for a bear market like this one.

Think of inverse ETFs as a type of insurance policy for your portfolio. Investing a modest amount in one of them can be a useful way to hedge against market declines, or protect your profits in certain asset classes.

And when an index or stock heads south (as we've seen many do with a vengeance recently), an inverse fund can help soften the blow - and in some cases, even generate enormous profits.

For example, on September 30, 2008, four days before the Dow went below 10,000, I sent a special newsflash to my ETF Authority readers identifying 14 securities that could skyrocket as the market heads south.

*Source: Bloomberg. Total returns from 9/30/08 - 3/5/09

As you can see, most of the inverse ETF have done exactly what they were designed to do in this rough market. And it doesn't stop there…

Double Your Money with Inverse ETFs

Some ETFs can even return double the inverse of the underlying security. For example, if you buy shares of the ProShares UltraShort S&P 500 (NYSE: SDS) and the S&P 500 declines by 5%, SDS gains 10%. (Keep in mind that these funds compound daily, so if you invest for longer, the returns won't line up exactly).

So how are these ultra-short funds able to double the inverse performance of indexes? Simple… by using leverage. The math doesn't always work out exactly, but you can usually expect it to return double the inverse within a reasonable range.

The trade-off, however, is that these funds can be incredibly volatile - and if you're wrong, you lose twice as much. So only consider going ultra-short if you have the stomach for it.

Why You Haven't Missed Out on Short ETFs…

You may think you've missed the boat on short ETFs… but think again.

With the market coming off depressing lows, the current rally may simply be a "dead cat bounce" (which have been known to soar), as the market attempts to form a new bottom.

With this in mind, you may want to consider adding an inverse fund or two to help smooth out some of this unprecedented market volatility.

Good Investing!

Nathan Slaughter

Source: Inverse ETFs: How To Profit From The Bear Market Trap

Gold, Silver Little Changed

Posted: 27 Mar 2009 11:24 AM PDT

Gold was flat until just before the New York open on Thursday, popped about $10 from there, but then gave it back before trading rangebound for the rest of the day, finishing at $934.20/oz., up 40 cents. Overnight, gold has fallen off.

Platinum prolonged its recent bust-out to the upside, pushing as high as $1160 early in New York, then declined through the Comex and went flat on the Globex, ending at $1142/oz., up $21. Overnight, platinum is trending lower.

Silver pushed higher from Hong Kong through to the noon hour but eased gently from there, closing at $13.52/oz., up a penny. Overnight, silver is sharply lower. (Click here for charts)

It was another very lackluster day for the precious metals, except for platinum, which is generating a good bit of buying interest and yesterday touched a six-month high.

"Some people may think that perhaps the car industry will start to pick up," said Greg McKinnell, a precious-metals trader at London-based Johnson Matthey. "With the economic stimulus package at the moment there's some confidence in the market."

Nevertheless, "it's very hard to say with any real conviction that this is the start of the upturn," McKinnell added. "There's no real change with the fundamentals."

China is also a factor.

"Platinum jewelry demand in China is very strong at the moment," wrote John Reade, UBS AG's head metals strategist in London. He said the relatively small price difference between gold and platinum is "proving very attractive to manufacturers, retailers and consumers."

Regarding gold, "Overall conditions still appear to favor a push toward higher values over the course of at least the next week," said Kitco's Jon Nadler. "The expected economic recovery is currently not being given high odds until sometime in 2010."

"The dollar is still under some pressure," said Stephen Platt, of Archer Financial Services in Chicago. "There's growing concern that the U.S. monetary base is expanding. That's helping foster renewed buying interest in gold."

But Tom Hartmann, of AltaVest Worldwide Trading in Mission Viejo, California, cautioned that, "What's holding gold back is that there's no apparent inflation yet. Until that happens, gold is just going to hang around."

Source: Gold, Silver Little Changed

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Contrarian Profits

2009-03-25T17:23:00.001-07:00

Contrarian Profits

Buy China Now: Making Money There Will Be Too Easy

Posted: 25 Mar 2009 10:25 AM PDT

China will lead the world out of this economic slow down and the money to be made is beyond your wildest dreams.

Three reasons why they will explode out of this worldwide slow down; they have no debt and a three trillion dollar surplus, six-percent growth is considered a recession, and most importantly, a government that puts China first.

One more thing, the Fed just bought up a huge amount of our debt to guarantee the three trillion dollars the Chinese hold will be worth enough to keep them from selling it.

Of course, our Fed said the purpose was to assist homebuyers by lowering interest rates. But what really happened was that we just paid a huge ransom to the Chinese to keep the price of our bonds propped up.

With this move, the Chinese just graduated from emerging economy status to key player in the world. When we have to prop up our bond prices to keep the Chinese from selling them, they have arrived.

Don't let this news get you upset, get even. Let's make some money on them!

First idea, China Life Insurance Company, symbol LFC.

It is essentially a monopoly that is fully backed by the totalitarian regime in China, and it is protected from competition by the government. It has a 50% market share and has only developed about 10% of its potential.

Earnings this year are around $1.39 and are expected to grow to about $2.14 in 2010. The stock price is around $50 now and has been as high as $69 in the last 12 months.

You have to love monopolies!

Next idea, China Mobile Limited, symbol CHL.

This company has more mobile phone subscribers than we have people in the U.S., 470 million. It grew its subscriber base by 6,000,000 just last month. It has no debt, is swimming in cash and is expected to add 7,000,000 new subscribers per year going forward.

The stock is around $43 now, down from $90 in the last 12 months, with a 3.7% dividend.

Mobile demand in China is insane. Mobile technology has allowed them to develop an entire communication system nationwide with virtually no infrastructure costs. The future is unlimited for this company.

Don't feel like a stock play, try an ETF, FXI. It has a few non-performers in its portfolio, but it is currently selling for about $28 and has a 12-month high of almost $55. That's a lot of upside potential for an ETF with a 3.1% dividend.

The key to a successful China strategy is the inevitability of the play. Patience will be rewarded, but don't get antsy if it doesn't fly off the charts in the next six months. Give this a three to five year time horizon and you won't be disappointed.

Don't tread water in the U.S. market for five years to see any appreciable growth. Hit the road and get in on this far eastern money monster.

Source: Buy China Now: Making Money There Will Be Too Easy

Is The Porch Light On In The Housing Market?

Posted: 25 Mar 2009 10:21 AM PDT

Has the housing market hit an absolute bottom yet? Perhaps, but probably not. But there are at least indications however that things could start turning around.

Last week, the February Housing Starts report handily beat estimates. While this may only be a temporary spurt, it was a positive surprise. The growth was primarily focused in the Northeastern states, but again, any increase in this dismal sector is a positive.

On Monday, I surmised that the Existing Home Sales report for February would beat estimates when announced, and sure enough it did. Foreclosures are driving down prices to the point that the market is now 'affordable' again to first-time buyers.

This past weekend I spoke with my father. He is a realtor in Ann Arbor, Michigan, and he mentioned something that is being overlooked, the first-time homebuyer tax credit. This year the rebate doesn't have to be re-paid, and is worth up to $8,000. The company he works for feels this will be a significant driver of sales this year, as homes are finally affordable again to those priced out a few years ago, and the tax credit makes purchasing all the more appealing.

Something else I thought about too: with the moratorium on foreclosures and the Obama administration's never-ending search for a solution, we may see the number of foreclosures slow significantly. This means less inventory, a slowing in the price declines, and eventually, an up-tick in prices.

Combine all of this with mortgage rates that are the lowest since WWII (albeit difficult to qualify for) and we may be starting to see the light at the end of the tunnel.

Source: Is The Porch Light On In The Housing Market?

The Three Ways China May Deal With Growing U.S. Debt

Posted: 25 Mar 2009 09:57 AM PDT

Although there's a veritable laundry list of obstacles that could blunt the U.S. government's ongoing economic turnaround efforts, its single-biggest challenge may come from its single-biggest creditor - China.

When China announced a new array of stimulus measures earlier this month, this very important plan was overshadowed by China Premier Wen Jiabao's concerns about the United States' quickly growing debt load.

"We have lent a huge amount of money to the United States," Premier Wen said. "Of course we are concerned about the safety of our assets. To be honest, I am definitely a little bit worried. I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China's assets."

China has cause to be concerned: As of December, the most recent figures available, China held $727.4 billion in Treasuries - about 26% more than the $578 billion in U.S. government securities the Asian giant held at the end of 2007. More than half of China's nearly $2 trillion in foreign currency reserves are tied up in U.S. Treasuries and notes issued by other affiliated agencies of the U.S. government - including beleaguered mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE).

However, the value of U.S. Treasuries has dropped steadily since the government began selling record amounts of debt to finance its economic stimulus packages. Investors have lost an average of 2.7% in 2009, according to Merrill Lynch & Co. Inc.'s U.S. Treasury Master Index.

China's leaders "are worried about forever-rising deficits, which may devalue Treasuries by pushing interest rates higher," JP Morgan & Co. (JPM) analyst Frank Gong told The Associated Press. "Inside China there has been a lot of debate about whether they should continue to buy Treasuries."

And as the U.S. debt soars as the government works to halt the worst financial crisis since the Great Depression, China's concerns about this country's growing deficits - and its creditworthiness - are escalating in kind.

Depending upon how it did so, were China to stop buying U.S. debt - or even worse, to start dumping it - the economic fallout could be widespread, and perhaps even catastrophic:

The U.S. dollar would drop 15%-20%.
U.S. stocks would get hammered.
Inflation would spike and interest rates on Treasuries would jump into the 8% range.
And the economy would end up flat on its back - where it would stay, with no rebound on the horizon.

Detailing the Deficit

During the first five months of the 2009 fiscal year, which began Oct.1, the U.S. budget deficit hit a record $764.5 billion. Last month, President Obama outlined a $3.94 trillion budget plan that would take the deficit to $1.75 trillion by the time the fiscal year ends Sept. 30. The plan then calls for a $1.17 trillion deficit for fiscal 2010.

As currently projected, the U.S. budget deficit is forecast to run at about 12% of gross domestic product (GDP) - even worse than the perennially anemic Japan, where the deficit is running at 11%. And the debt picture is certain to get worse.

The Treasury Department has the government's printing presses running overtime just to finance the $787 billion stimulus passed by Congress earlier this year. And in order to pay for all the stimulus, bailout and fix-it plans that are being put in place to arrest the U.S. economic decline, the U.S. government is assuming a murderous amount of debt: Over the next decade, the Congressional Budget Office projects that the White House budget will run $9.3 trillion in deficits.

That's $2.3 trillion more than the Obama administration had forecast. But even the CBO projection could prove way too low: It assumes that the U.S. economy - after declining 1.5% this year - will turn around an advance at a racy 4.1% clip in both 2010 and 2011, a forecast that seems far too rosy, given the depths that the U.S. economy appears to have reached.

And that brings us to China.

Enter the (Red) Dragon

During the past several years, government-operated "sovereign-wealth funds" (SWFs) from virtually every major economic powerhouse around the world had been on a global shopping spree, buying up assets and bidding up prices as they did so.

China was no exception.

So when worldwide financial-asset prices began to slide - and then to nosedive - China abandoned many of its riskier holdings, choosing to boost its stockpile of U.S. Treasury securities. That underscores one marketplace truism: Despite Premier Wen's reservations, the market for U.S. debt is the only market large enough, liquid enough, and stable enough to accommodate China's large-scale investments.

That's forced China to engage in a kind of global investor activism - although, so far, most of that activism has been aimed at one country: The United States.

About one-fifth of China's currency reserves were tied up in Fannie and Freddie debt last fall when the two mortgage firms were placed under government conservatorship, The Washington Post reported.

In fact, as Money Morning detailed back in September as part of its ongoing investigation of the bailout of the U.S. banking system, that U.S. government decision to take control of Fannie and Freddie was driven not by worries about the fading U.S. housing market, but by concerns that foreign central banks in China, Japan, Europe, the Middle East and Russia might stop buying our bonds.

China clearly made its risk concerns known at that time, adding to the sense of urgency U.S. officials felt to make a move. Today, as U.S. debt continues to mount at an obscene rate, financial and economic risks also escalate. This could lead to a spike in inflation and interest rates - a double-whammy that could cause any recovery that's under way to sputter and stall. That duo of higher inflation and interest rates could also hammer bond values, including the Treasuries held in such large quantities by China. So it's no wonder the risk concerns China articulated back at the time of the Fannie and Freddie takeovers go double or triple now.

Indeed, when Premier Wen unveiled the spending measures earlier this month, he made the point of saying that China should seek to "fend off risks" by further diversifying its reserves.

"We have already adopted a guiding management policy of diversifying our foreign exchange reserves, and at present our foreign exchange reserves are safe overall," Wen said. "Our first principle in managing foreign currency is averting risk. We have always adhered to the principles of foreign currency security, liquidity and maintaining value, and implemented a strategy of diversification."

When it comes to U.S. government debt, that strategy will take one of three forms, and will have the following potential effects:

1. Quietly threatening to stop purchasing (or even threatening to "dump") U.S. Treasuries, a form of "back-channel" communications that can generate results (just look at how China forced the U.S. government to place Fannie and Freddie in conservatorship). Because this is back channel, it stays out of the marketplace, so long as the U.S. government finds some ways to appease Chinese investors by somehow reducing risk.

2. Quietly slowing or stopping its purchases of U.S. government debt. If China does this effectively and systematically, the fact that it's cutting back on purchases doesn't surface until the plan is executed. If China is able to pull this off - and it faces long odds to do so - the fact that it's cutting back on U.S. debt doesn't roil the markets too badly, especially if it doesn't leak out until after the fact.

3. Publicly dumping U.S. debt. Self-explanatory in nature - and also the most unlikely, if it wants to maintain its "friendly" status with the United States - this is the worst-case scenario, and is the one that ends up with the dollar and the stock market getting stomped. If China chooses this route, it's also essentially cutting off its nose to spite its face. The reason: By publicly dumping U.S. debt, the Treasury market will also take a beating - meaning China's remaining U.S. debt holdings would take a haircut of 20% to 30%.

The Marketplace Realities

International demand for long-term U.S. financial assets actually fell in January, reflecting China's smallest net purchase since May, Bloomberg reported.

International investors sold a net $8.4 billion in U.S. corporate debt in January, the report showed. Net foreign purchases of Treasury notes and bonds were a net $10.7 billion in for the month, after purchases of $15 billion a month earlier.

Few analysts believe China will abandon its Treasury holdings altogether, as that would hammer the dollar, hurt the value of its debt holdings and ruin its political relationship with the United States.

Besides, it's becoming increasingly clear that Beijing wants a voice in Washington.

Yu Yongding, a former advisor to the Bank of China said last month that China should seek guarantees from the U.S. government that its holdings won't be diminished by "reckless policies."

Premier Wen echoed that request last week when he called on the United States to "honor its promises and guarantee the safety of China's assets."

"I think what they're trying to say right now is, 'Don't take any steps that would impair our ability to access your market,'" Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, told The Post. "The Chinese are starting to flex their muscles, they are becoming more powerful commercially and economically, and they want us to know it."

The very possibility that China and other foreign countries would stop buying U.S. bonds already was enough to prompt the U.S. government to take control of foundering mortgage giants Fannie Mae and Freddie Mac.

Source: The Three Ways China May Deal With Growing U.S. Debt

Two Ways To Make Money From Market Volatility

Posted: 25 Mar 2009 09:52 AM PDT

The stock market is a volatile, unforgiving beast. Now more than ever. The current rally aside, it's eating many investors' portfolios alive - and may well do so again in the near future. The question is, though… has this hurt you or actually helped you?

You may be surprised to learn that you can actually harness market volatility and make it work for you, not against you, allowing you to recoup losses and even make money.

Do you know how to do it?

The truth is… the stock market hates volatility. And suffice it to say that investors also loath the daily swings that can take their portfolios down 10% one week and back up again the week after. That's if they even have the will to stay invested, of course.

But there is a select group of investors who relish market volatility. They thrive on it. And they see big swings in stock prices as an opportunity to make money. Big money. Today, I'll show you how to become one of them…

Simple-to-Execute Option Investment Strategies

Okay, hang onto your hat… both investment strategies involve the use of options.

No, not the scary, complex ones. The simple-to-execute options that can actually prove extremely valuable in any market - but particularly one like this.

Buying options is easy enough.

When you buy calls, you're simply betting that a stock will rise.
When you buy puts, you think the stock will fall.

But this is no different than placing a short-term bet on the direction of a stock or index - something that is very tough to do consistently. And because of volatility, you will overpay each time you buy an option.

A better way to play the options market is to understand what happens when you sell options. This is the "other side" of the trade - the infinitely more profitable side of volatility and a more consistent way to make money from the stock market.

Profit From Market Volatility #1: Using Covered Calls

Market volatility is so rampant today because investors are uncertain about the direction of stocks in the short-term. No surprise there.

But with daily double-digit swings and volatility so high, the price for buying options has shot through the roof.

That's bad news for suckers, but excellent news for us.

That's because the first way to profit from market volatility is to sell calls against stocks that you own or that you want to buy. When you sell an option, you get a lot more money. In fact, you get the money upfront and it's yours to keep, no matter what happens.

I'll give you an example of this volatility at work…

Last month, Wells Fargo (NYSE: WFC) traded between $9 and $20. For a bank stock, that $11 range is very wide (of course, we all know why that happened). By comparison, the stock traded between $29 and $34 - a $5 range in February 2008.

In percentage terms, the numbers are much more revealing. In February 2008, WFC traded with swings of less than 20%. But last month, those swings rocketed to more than 100%.

Simply put, this means the cost for WFC options with a strike price at-the-money (at or near the current price) on any given day last month was between 3 and 4 times the price at the same time last year.

So let's say that WFC was trading at $10. The $10 option this year with a one-month expiration would have cost you over $2.50. Last year, a corresponding at-the-money option with a one-month expiration would have cost less than $1.

So the lesson here would have been to buy WFC shares and then sell call options against them to reduce your cost and protect your downside.

That's one way to beat market volatility. Here's another…

Profit From Market Volatility #2: Selling Put Options

What if you could make an investment where you could choose the price you want to pay for a stock and don't have to pay for the shares unless the price falls to that level?

Oh, and also get paid money upfront, just for trying?

That's the essence of selling put options.

When you sell a put option, you receive the cash from the sale in your trading account immediately. In return, you're then obligated to buy the shares if they fall to your strike price at or before expiration.

Let's look at an example of how market volatility and put selling are a marriage made in stock market heaven…

Let's say that Microsoft (Nasdaq: MSFT) is trading at $15 - a ridiculously low level for a cash-rich, debt-free company.

Because MSFT is moving with such volatility, the price for buying call options or put options is extraordinarily high. Forget that. You decide that you'd like to own MSFT at $12.50 - a price not seen since 1997 when the company was one-quarter the size it is today, with much less cash on the books. At $12.50, you'd own MSFT at 3x cash and 5x earnings - an outstanding bargain in any market.

Here's what you'd do…

Sell the MSFT $12.50 put options for $1. If you sold 10 contracts, you'd be "paid" $1,000 immediately because 10 multiplied by 100 (the options multiplier, because one contract is made up of 100 shares) is $1,000.
You'd then be obligated to buy MSFT at $12.50 if it closed below that level. So be careful not to sell more contracts of shares that you can afford to buy.
Your ultimate cost would be $11.50 per share (accounting for the $1 option premium) - a full $6.50 below current levels.
If MSFT does not close below $12.50, you'd keep the cash - basically getting paid for trying to own MSFT at your price.

Once again the volatility of MSFT is 47 - more than double its historical volatility. And that volatility results in massive option premiums - which you receive as the seller.

Embrace Market Volatility… Don't Fear It

Equipped with the right investment strategy, you don't have to fear market volatility. In fact, volatility can be your best friend in the current market - and is the key to making money like the pros do.

Remember, for every loser in the market, there is also a winner. And in this market, the winners are those who have figured out how to use market volatility, not be abused by it.

Source: Two Ways To Make Money From Market Volatility

Have You Prepared for the 15-Year Depression?

Posted: 25 Mar 2009 09:33 AM PDT

Notes from the
Investment Underground

Tuesday, March 24, 2009
Recoleta, Buenos Aires, Argentina
The 15-year depression is coming… Drink yourself to death! Martin Weiss's deflationary outlook… A sucker's rally with legs… Protecting your wealth from inflation… Jeff Clark: the S&P will go below 600… The truth behind China's dollar holdings… Big government gets bigger… And more!   
*** "This is the big one," says Republican Congressman Ron Paul,
  who yesterday said the depression will last 15 years. It makes a nice change from all the hooting and wailing about a bottom being in for stocks. 
"The U.S. government just won't allow the correction the economy needs," says
  Paul, citing the mini-depression of 1921, which lasted just a year. This was because insolvent companies were allowed to fail. "No one remembers that one. They'll remember this one, because it will last 15 years."
Paul also warns that the dollar, U.S. Treasuries and U.S. stocks will all leave investors in the ditch eventually.
"People will start to abandon the dollar as current and past economic policies create a steep rise in interest rates," says Paul, a follower of the Austrian School
  of economics. "If you are in Treasuries, you will need to be watchful and nimble to time your escape."
And the "last place you want to be is in the stock market," he says. "It may not bottom out for 10 years – just look at Japan."
Paul reckons the upshot of all the Japanese-style government intervention will be an "inflation depression." 
*** My old man, over at the 
 Daily Reckoning,
  thinks Paul is right.  
In the old days, "panics" and "depressions" ended fairly quickly… at least unemployment tended to be short-term. There were no elaborate social welfare systems then. No unemployment compensation. 
No food stamps or "independence" cards. People had to make do.
So, when a depression hit, wages fell quickly and people got back to work. They earned less, but the whole economy would adjust, with lower prices for everything.
There were no bailouts and no stimulus plans, either. Mistakes were corrected relatively quickly. Businesses went broke. Men were "ruined" and had to drink themselves to death.
Now, things are better. If their businesses go broke, they can go on almost as if nothing had happened… as long as they owe money to the right people. Heck, they might even get a bonus.
*** Martin Weiss, head of Weiss Research has a different outlook.
  He sees a "deflationary depression" ahead. Weiss says that the $13 trillion or so the government has lent, spent or committed to reinflating the economy just about covers the $13 trillion or so lost in U.S. household wealth. The problem for Weiss is that only a fraction of the government spending has actually reached the economy. Weiss, like Paul and my dad, says we need to "bite the bullet," "accept a loss for a loss" and "declare a bankrupt company bankrupt." Follow this link
  to watch Weiss interviewed by MarketWatch.
*** We're reminded of the following piece of wisdom
  from Woody Allen: "More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly."
*** Mr. Market obviously wasn't paying much attention
  . Traders pushed the S&P 500 up 7% yesterday. They also added nearly 500 points to the Dow – the ninth day of gains in ten sessions.
*** 
 "
  It may be a sucker's rally… but it may have legs
  "
  ,
  says Crisis Strategy Alert's 
 senior investment analyst, Charles Delvalle. This from an email Charles sent last night:  
The Dow broke above 7,500 yesterday and is making a charge to 8,000. With the markets overbought, I expect to see some profit taking around 8,000.  
I don't expect that this rally is done, though. As I've said before, the market is riding higher on the back of the financials. If the financials have good news come out in the next two weeks (regarding mark-to-market rules and Geithner's new Treasury plan), the banks should push higher, taking the Dow Jones along for the ride.
*** "It seems the public is afraid it has missed the bottom," 
 says super trader Jeff Clark in today's Growth Stock Wire.
  "Stocks are running up, and folks who sold in a panic a few weeks ago are desperate to jump back on board." According to Jeff, they shouldn't be…
Stocks are in a long-term bear market. Nothing that has happened over the past two weeks changes that. While the bear has shredded much of the market’s value already, there’s more damage to come. In fact, I expect the S&P 500 will trade below 600 before the beast is ready to hibernate.
But stocks don’t go down in a straight line forever. Bear markets typically unfold in three distinct down legs separated by two strong intermediate-term rallies. The bear market from 2001-2003 provides a good example of this. 
 
The bear market that started in November 2007 has given us just one strong down leg. And we’re just now experiencing the first strong intermediate-term rally. If history is any sort of a guide, then we have a couple more down legs to endure. 
*** Ron Paul's bust in U.S. Treasuries may be closer than you think.
  According to BCA Research:  
China currently has about 64% of its foreign reserves in U.S. assets, a level that has declined gradually from as high as 84% in 2003. The majority of Chinese holdings of U.S. assets are risk free and long-term in nature, but there has been a clear trend in China’s reserve holdings that shows a persistent increase in exposure to risky assets and non-U.S. assets over the past five years.
*** More trouble for the dollar will come at the upcoming G20 meeting in April.
  China and Russia plan to talk about abandoning the buck as a reserve currency and moving towards a basket of currencies instead. According to Zhou Xiaochuan, the governor of China's central bank:  
The frequency and increasing intensity of financial crises following the collapse of the Bretton Woods system suggests the costs of such a system to the world may have exceeded its benefits. The price is becoming increasingly higher, not only for the users, but also for the issuers of the reserve currencies. Although crisis may not necessarily be an intended result of the issuing authorities, it is an inevitable outcome of the institutional flaws.
*** Whatever your view on the long-term outlook
  – whether we face an inflationary or deflationary depression or an imminent recovery – it's clear that the markets are now taking a bigger cue from government announcements rather than fundamentals. This
  from Jim Stanton at the Smart Profits Report.  
Last week, the Federal Reserve announced that it will buy $1.2 trillion worth of government bonds, which will then be pumped into the U.S. economy.
It wasn't just stocks that loved the news. Commodities did, too. A lot! For example, gold prices shot $70 higher from Wednesday's low. And most other dollar-denominated commodities were higher by the end of the week, alongside foreign currencies.
Hot on the heels of that strategy, the government revealed its own trillion-dollar move [...]. The "Public-Private Investment Program" will buy $1 trillion worth of so-called "toxic assets" in order to shore up U.S. banks' sagging balance sheets.
Stocks may love all this trillion-dollar bailout news - in the short-term. But over the longer-term, most analysts agree that we'll see something else rise soon: Inflation. Hardly surprising, with the U.S. mint continuing to run the presses at a rapid clip.
If we do indeed see that result, it means one thing: The value of the U.S. dollar has nowhere to go but down. And that will consequently force commodity prices higher.
Take a look at the daily chart of the PowerShares DB Commodity Index Tracking Fund
  ( NYSE:DBC
  )…  
***
  The federal government's influence is not just growing over the stock market…
  it's growing over the entire U.S. economy. Over 13% of America's GDP will be consumed by government this year, with the official budget deficit projection at somewhere in the region of $1.8 trillion.  
*** The weight of Obama's spending programs could bankrupt USA Inc. 
 As Addison Wiggin pointed out in yesterday's 5 Min. Forecast,
  some up on Capitol Hill are getting weak-kneed at the prospect of spiraling budget deficits under Obama.   
"
  The practical implications of this is bankruptcy for the United States," Sen. Judd Gregg said over the weekend in response to the CBO estimates. "There’s no other way around it. If we maintain the proposals which are in this budget over the 10-year period that this budget covers, this country will go bankrupt. People will not buy our debt; our dollar will become devalued." 
(Wise words. But as Addison points out, Senator Gregg supported TARP 1.0 at a screening of Addison's recent documentary about the danger of rising national debt in the America, I.O.U.S.A.)
*** For what it's worth, here at Notes,
  we favor the inflationary over the deflationary outlook.
  Weiss may be correct that the $13 trillion the government has committed to 'fixing' the economy hasn't filtered through yet. But what makes him think the government, and the Federal Reserve, is going to stop there? Besides, the "reinflation" approach does nothing to cure the underlying problems that have dogged the U.S. economy over the last 20 years or so: namely the overreliance on consumer spending and debt. Real and sustainable wealth is only achieved through real savings and investments in productive assets. Embracing debt and propping up failed businesses won't work.
*** Who cares what we think. What do you say? Send your feedback to info@contrarianprofits.com
  . 
*** Before I sign off, I’d like to introduce you to Shah Gilani, one of the all-time experts on the current financial crisis.
In the past six weeks, more than two million people have read Shah’s analysis of the crisis. More than 400 financial sites have syndicated his ideas. And his solutions to the crisis have even been sent to Hank Paulson and Ben Bernanke…
His analysis of the coming aftershocks below is key reading for anyone trying to make sense - and any kind of money - from this deepening situation. I urge you to give it a read…  
Until tomorrow, 
Will Bonner 

 

 

With Russia’s Economy in a Deep Freeze, Is Medvedev Gearing Up to Give Putin Das Boot?

Posted: 25 Mar 2009 09:00 AM PDT

With Russia's economy in shambles, President Dmitry Medvedev has been distancing himself from his predecessor and friend of 20 years, Prime Minister Vladimir Putin. In doing so, Medvedev has fueled speculation that the former-KGB agent's days in Moscow may be numbered.

Russia has been hit with a triple-whammy since the beginning of the global financial crisis: Falling oil prices, a lack of demand for exports, and a pandemic of capital flight.

Even before the crisis reached its zenith, rattled investors were pulling their money out of Russia. Capital outflows totaled $21 billion in the two weeks ended Aug. 22 - the two weeks following Russia's Aug. 8 invasion of Georgia - according to Goldman Sachs Group Inc. (GS).

Of course, even more money found legs out of the country late last year as the financial crisis intensified. Deputy Prime Minister and Finance Minister Alexei Kudrin told a meeting at the Federal Tax Service that net capital flight stood at around $130 billion in 2008. Addressing the service earlier Kudrin said that some $200 billion had been taken out of Russia from October 2008 through to late January 2009.

An additional $80 billion in capital could flee the country this year, said Russia's Economy Minister Elvira Nabiullina. The external debt of Russian companies widened drastically from $175 billion to $500 billion in 2008, and interest would have to be paid this year, according to Nabiullina.

Meanwhile, a drastic decline in oil prices has put a kink in the country's most vital economic lifeline. After hitting a record high of more than $147 a barrel last year, Russia watched the value of its lifeblood dip below $40 a barrel. At one point, crude had lost an astonishing 80% of its value, forcing the government to rethink last year's budget outlays.

The new 2009 budget estimates that oil will average $41 a barrel, versus $95 a barrel in the original. Government revenue will tumble 39% to $195 billion (6.7 trillion rubles), while spending will rise 7% to $282 billion (9.7 trillion rubles).

However, Minister Kudrin estimates that Russia's budget deficit may exceed 8% in 2009.

"This may happen if we do not distribute budget spending differently or change the structure," he said.

Kudrin indicated that the government would be forced to "make a number of tough decisions regarding budget spending," as the revenue of the federal budget for 2010-2011 would be 33% lower than in 2009, according to his estimation.

And even if the price of oil holds on to the gains it has made in recent weeks, Russia's gross domestic product is set for a significant contraction.

"GDP will fall, even if oil prices climb not to $41 per barrel, but $44, $50, or $55," Kudrin said.

In light of the challenges facing the economy, even the 6.6% GDP growth forecast for 2020 is "too optimistic," he added.

Russia's economy shrank 7.3% year-over-year in February, a slight improvement from January's 8.8% decline.

Russia's MICEX stock index and the ruble have taken their lumps as a result of the economy's downward trend. But while both the Russia's currency and stocks have shown some signs of life, unemployment continues to soar and shows no sign of abating.

Russia's total number of unemployed jumped 20.6% year-over-year in February to over 6.4 million people, or 8.5% of the economically active population, according to the Federal State Statistics Service. That represents a 4.9% increase from January 2009.

The rising level unemployment and bleak outlook for Russia's economy have stirred rumors of social unrest that have grown increasingly audible, even in the nation's repressed mainstream media. And some analysts and officials believe the former president and current prime minister Putin could be the scapegoat for Russian oligarchs eager to maintain their influence, as well as Putin's handpicked successor Dmitry Medvedev

The Growing Putin-Medvedev Rift

Gleb Pavlovsky, a pro-Kremlin political scientist and adviser, said earlier this month that the economic crisis poses a growing threat to both Putin and Medvedev, whom he suggested could also be swept away in an uprising financed by Russia's oligarchs. Pavlovsky warned of a "remake" of the 1991 street protests that helped bring down the Soviet Union, and the 2004 Orange Revolution in Ukraine.

"The transition of the [economic] crisis into the political arena has already begun happening," Pavlovsky wrote in Russia's Moskovski Komsomolets. "The sources of social protest should be sought in the corridors of power."

With so much at stake, tensions at the Kremlin are beginning to rise and even the 20-year relationship between Putin and Medvedev, his 43-year-old protégé might crumble.

Over the past few months, Medvedev has struck a far less aggressive, less nationalistic tone than the ex-KGB agent. Medvedev has scaled back a bill to expand the definition of treason and resurrected a dormant human rights council. He's also taken a more lenient stance towards protests and free speech.

On March 15, Russian protestors held a sanctioned, peaceful march in Vladivostok, the very same city where just months earlier they had been beaten and arrested for similar actions. And in his monthly television addresses, Medvedev has also acknowledged that unemployment in Russia is actually closer to 6 million than the 2 million officially reported.

Medevedev is also building his own political powerbase, which consists of mainly of economic liberals - the archrivals of the siloviki, the military security officials grouped around Putin.

The Kremlin announced in February that it was establishing an advisory group to address the current financial crisis. The group, called the "Golden 100″ will eventually grow to 1,000 and ultimately supplant many holdovers from Putin's administration.

"Medvedev is building his own power base, up to a certain point," Alexander Khramchikhin, a senior researcher at the Institute for Political and Military Analysis told TIME.

What's more is that both Medvedev and his team of liberal economists have both in recent weeks ramped up their rhetoric against Putin and his old guard.

Igor Yurgens, director of the Institute of Contemporary Development, a new thinktank created by Medvedev, has criticized Putin for restricting freedom of the press and stressed that "the most honest and independent opinions on Russia's problems are coming from the liberal wing, rather than from the so-called statist patriots."

Even Medvedev himself has taken some thinly veiled shots at Putin, saying at a recent meeting with economic officials that criticized Putin's response to the financial crisis as "unacceptably slow" and said that instead of action on promised reforms there had been only "talking and talking."

"Medvedev has got the whiff of power in his nose and he likes it," Mikhail Delyagin, an analyst and former government adviser on economic policy, told the The Guardian. "He's given tacit approval for his administration to engage in an information war with Putin's apparatus."

Critics continue to allege that Medvedev still has nowhere near enough political muscle to take on Russia's iron politician, but there is also evidence that Medvedev's popularity is growing and that Putin is past his political peak.

According to a February 2009 national survey, 73% of those polled said they trust Medvedev, a substantial increase from 56% in 2006. Putin continues to enjoy popularity among the public as well, but his political capital seems to be deteriorating along with the economy.

"Putin used to act as an arbiter standing above the two main clans - the siloviki and the rational economists," Dmitry Oreshkin, a leading political analyst, told the The Guardian. "Now he's been dragged down into the fight and he's under fire from both sides. The siloviki say he's a weakling incapable of imposing his will and showing the economists their place, while the economists in turn are consolidating around Medvedev."

Putin is also falling out of favor with Russia's powerful aristocracy. Russia's top 10 billionaires alone lost an estimated $150 billion last year, according to the The Guardian.

"It is very conspiratorial," Vladimir Milov, former deputy energy minister and a leader of the Russia's Solidarnost political group, told the Financial Times. "But, for the first time, they are putting the question that perhaps Putin should go, to prevent him from pulling everyone else to the bottom."

How Might Medvedev Pull the Trigger?

If Putin does go, many believe Medvedev will be the one to show him to the door. One of the many policy changes arranged by Medvedev in recent months has been an orchestrated crackdown on political corruption that dates back to May 2008.

Medvedev's new anti-corruption measures prohibit conflicts of interest, require government officials to report income and property, and further mandate coworkers to report any noncompliance.

Now, analysts are beginning to wonder whether some of these new laws, shepherded through parliament last December by Medvedev himself, will be his weapon of choice in ousting Putin.

According to Foreign Policy, Stanislav Belkovsky, a Russian political analyst and insider, gave sensational interviews in November 2007 to Die Welt and The Guardian, stating that Putin was worth approximately $40 billion. Belkovsky said Putin was the beneficial owner of 37% of Surgutneftegaz OAO ($18 billion), 4.5% of Gazprom OAO (OTC: OGZPY) ($13 billion), and half of a Swiss-based oil-trading company Gunvor ($10 billion), run by a former St. Petersburg KGB agent. If true, Putin would not only be one of the richest people in the world, but one of the most corrupt.

As Foreign Policy points out, it was Putin who, after being transferred temporary presidential responsibilities a decade ago, sealed his fate as a modern-day tsar by granting former-President Boris Yeltsin and his family lifelong immunity from criminal prosecution, administrative sanction, arrest, detention, and interrogation.

Should the economy continue to falter, it's possible that Medvedev could end up offering Putin the same deal.

Source: With Russia's Economy in a Deep Freeze, Is Medvedev Gearing Up to Give Putin Das Boot?

Global Investment News Briefs Wednesday, March 25, 2009

Posted: 25 Mar 2009 08:02 AM PDT

Geithner Calls For Regulatory Reform; Fed President Sees 2009 Rebound; Bank of China Posts 59% 4Q Profit Drop; Goldman Plans to Repay TARP money quickly; U.K. Inflation up 3.2% in February; Major Exchanges Want New Curbs on Short-Selling; Lloyd's Says Insurance Rates to Rise; Copper Prices Take Breather After Rising 30% on China Demand; Mexico's Inflation Holds Up Rate Cut

Treasury Secretary Timothy Geithner said the U.S. regulatory system must impose constraints on companies using risky strategies that could cause them to collapse, posing danger to the financial system. In prepared testimony for the House Financial Services Committee, Geithner said rules must be in place to keep companies from causing "grave damage" to the economy, citing the failure to rein in excesses at American International Group Inc. (AIG) and other companies.

Chicago Federal Reserve President Charles Evans said the U.S. economy should start growing by the end of the 2009 and that unemployment will begin reversing course in 2010, Reuters reported. Evans also said regulation will be closely studied after the crisis is over.

The Bank of China posted a 59% drop in fourth-quarter profit, taking losses from U.S. mortgage investment write-downs and higher bad-loan provisions. "People knew Bank of China would underperform peers in 2008 because of the investment loss, but we are still surprised by how much it missed the estimate," Liu Yinghua, a Shenzhen-based analyst at Ping An Securities Ltd. who plans to maintain her "neutral" rating on the stock, told Bloomberg. "There's a silver lining though: it has a clean slate to start in 2009."

Goldman Sachs Group, Inc. (GS) said it plans to quickly pay back the $10 billion in TARP money it was given last October, an unnamed company source told The New York Times. Goldman was the largest recipient of TARP money and is paying a 5% interest to taxpayers for it.

Inflation in the United Kingdom unexpectedly rose 3.2% in February from the year earlier. Food prices rose despite recession, but Bank of England Governor Mervyn King said the increase will likely be followed by a "sharp decline," Bloomberg reported.

The New York Stock Exchange, the Nasdaq Stock Market and BATS Exchange want regulators to adopt a "modified uptick rule" to curb abusive short selling. The top three U.S. exchanges said in a joint letter yesterday (Tuesday) to SEC Chairwoman Mary Schapiro, that the old uptick rule — which was removed in 2007-likely wouldn't work in today's fast-moving markets, Reuters reported. Instead, they are pushing for a new rule that would only allow shorting at a price above the highest available bid. The old rule allowed short sales anytime the last sale price was higher than the previous price.

Lloyd's of London Banking Group Plc (ADR:LYG), the world's biggest insurance market, said insurers are poised to raise prices in 2009, as declining investment yields on U.S. Treasuries pressure results. Clients with windstorm damages, owners of airplanes and bank executives can expect to see higher rates as insurance companies were squeezed last year by the costliest hurricane season since 2005 and declines in the value of bonds held to back policies."There will be a move in rates to make sure that underwriting in 2009 is profitable so that insurers have the funds to pay claims,"Chief Executive Officer Richard Ward, told Bloomberg in an interview yesterday (Tuesday).

Copper futures ended lower yesterday (Tuesday) amid profit-taking from a rally that has seen prices climb more than 30% this year and hit their highest levels since early November. On Monday, data showed China's implied copper demand surged almost 44% in February from January on the back of record high imports, fueled by both commercial and strategic stockpiling, Reuters reported. Copper for May delivery shed 3.5 cents, or 1.9%, to close at $1.806 a pound in trading on the New York Mercantile Exchange's COMEX.

Mexico's inflation rate slowed in early March, after consumer prices rose 6.25% in the 12 months through mid-February, the central bank said yesterday (Tuesday). The government has frozen or trimmed some energy prices, including electricity rates, since January to shield households and businesses from the global economic slowdown. The government is hoping reducing inflation will give the central bank more room to cut interest rates in order to boost the flagging economy, Reuters reported.

Source: Global Investment News Briefs Wednesday, March 25, 2009

The Irresistible Pull of Irrational Behavior

Posted: 25 Mar 2009 07:06 AM PDT

As you may have figured out, these Taipan Daily missives are (usually) written the day before. That way they can hit your inbox in time for a read with the morning coffee.

With the old “drinking from the fire hose” routine being extra intense as of late, and Tuesday being a rare travel day for yours truly, I haven’t had time to digest the finer points and nuances of Tim Geithner’s new bank plan just yet. I’ve got my stack of stuff printed out, though, and should have a proper state of fulmination worked up by Friday.

Here’s my quick take: Clearly the market liked the plan, based on Monday’s action – or maybe the market just liked ANY semblance of a plan – and just as clearly a number of commentators did not. Paul Krugman hated it, for example. So did the guy over at LOLFed.

And by the way, speaking of Tim Geithner – how come he hasn’t picked up a nickname yet? Ben Bernanke has “Gentle Ben” and “Helicopter Ben”… Hank Paulson had “Hammerin’ Hank”… even the Prez has “Barackstar” and “No Drama Obama.” I keep thinking of Timmy from South Park (Timmay!), but that’s probably not appropriate given the recent news flow.

Probably the most surprising comment, as relating to the Geithner bank plan, came from John Authers over at the Financial Times. I like John Authers – by and large he tends to be sharp and clearly knows his stuff.

And that’s why this comment from Authers at the end of a recent “Short View” video segment made me sit up and take notice:

If this plan works as hoped, then it’s quite probable we’ve seen the bottom of the whole bear market. If it doesn’t, then we probably haven’t.

Yowza. When you think about it, that’s quite a statement.

And by the way, if you ever wondered what the bears leaving town might look like, now we have a mental image (courtesy of www.englishrussia.com):

to the airport, comrade!

Since putting a bear in the back of a taxicab might strike you as slightly irrational behavior, this feels like a good segue point into today’s main topic.

Swaying to the Beat

I recently finished a wonderful little book called, Sway: The Irresistible Pull of Irrational Behavior, by the brothers Ori and Ram Brafman.

The inside jacket flap promises that Sway will “change the way you think about the way you think,” and in some regards it does just that.

The jacket goes on to summarize:

Drawing on cutting edge research from the fields of social psychology, behavioral economics, and organizational behavior, Sway reveals the many dynamic forces that influence our personal business lives, including loss aversion (our tendency to go to great lengths to avoid perceived losses), the diagnosis bias (our inability to reevaluate our initial diagnosis of a person or a situation), and the “chameleon effect” (our tendency to take on characteristics that have been arbitrarily assigned to us.

For all that, it’s actually quite a breezy little book. The contents do deliver on all that is described above, but it comes in the form of stories and anecdotes written in plain English. I found the whole thing very light and engaging – almost like an extended Vanity Fair article turned into a book.

Pants-Wearing Monkeys?

As a trader and an investor, I have always been fascinated by the human condition – in particular, the reasons why people think and do odd, perplexing, and sometimes flat-out dumb things.

Over the years, too, I have been on a quest to find out the “why” behind a true statement from one of the greatest traders of all time, Jesse Livermore, who observed: “A speculator must fight a lot of expensive enemies within himself.”

This is undoubtedly true. But how come? (Good news: the fight is winnable, but it takes time.)

Thanks to this deal, you have the chance to collect lump sum payouts… every month… for as long as you’d like.

There are no qualifiers… payouts are legally mandated… and it’s all thanks to a $160 billion mega-deal put into motion by the U.S. government

In fact, it’s how Terry Winstead out of San Jose, California, collected $257,700 in just 10 months.

Some, like blogger and money manager Barry Ritholtz, think we are all just a bunch of “pants-wearing monkeys” (himself included). Others simply shrug and accept that deep irrationality in certain areas is just part and parcel of the human condition.

But the reason I found Sway so engaging a read is because the Brafman brothers do a very good job, again, of explaining the “why” behind some of the oddball things humans do.

Or to put it another way, randomly irrational behavior is not all that interesting because there’s very little you can learn from it. But if certain surface-level irrational actions actually make logical sense as phenomena once you dig down to the roots – i.e. if there are underlying patterns and reasons as to why people act as they do – then those patterns and reasons are probably well worth finding out.

Further Down the Rabbit Hole

If you’re a fan of this type of thing – human psychology, behavioral economics and what not – then I think you would enjoy Sway. As I say, it’s a relatively light, fast, breezy read, with a lot of funny stories and some fascinating anecdotes too.

Going deeper: If you consider yourself a budding connoisseur of the rational (or should I say irrational) mind, you can also take things further with a book that is less fun, but perhaps even more enlightening: Influence: The Psychology of Persuasion by Dr. Robert Cialdini.

Here is an excerpt from an Amazon review of “Influence” I penned many years ago:

[In his book Influence: The Psychology of Persuasion] Professor Cialdini takes a refreshing look at the frailties of the human mind, and his conclusions are a reminder of how damningly automatic a human response can be.

He illustrates how the behavioral / cultural conditioning we receive from birth, designed to make us functioning members of an orderly society, also creates exploitable weaknesses within our psychological frameworks.

These weaknesses are compelling (and permanent) because the patterns are so ingrained; we can’t short-circuit them without short-circuiting beneficial social behavior patterns also….

As a trader, I bought this book to hone my understanding of human psychology and various influences on the decision making process, in the hope that Cialdini would shed a light on the complex emotional processes that lead to buying and selling. He surely did.

And for the Truly Hardcore…

If you’ve already read Influence, and you think Sway sounds like just another Malcolm Gladwell-style coffee-table-slash-beach-read book – which it kind of is, not that there’s anything wrong with that – then maybe you’re a candidate for the really hardcore stuff.

If so, you might want to check out Psychology of Intelligence Analysis by Richards J. Heuer Jr.

This one is available on Amazon.com, but you can also get it free from the CIA.

Do I mean that CIA, as in, the Central Intelligence Agency? Yep… apparently it’s required reading for analysts (or was at one time). The CIA keeps a free copy of the book online here. Obviously there’s nothing breezy or easy about this one, so be forewarned.

If you pull any good insights from these tomes, or have some good “brain food” selections of your own to share – or, heck, if you just know a good nickname for poor ol’ Tim Geithner – let me know: justice@taipandaily.com.

Source: The Irresistible Pull of Irrational Behavior

Blockbuster Teams with TiVo Go Global to Escape Extinction

Posted: 25 Mar 2009 07:00 AM PDT

Facing near extinction at the hands of Netflix, Inc. (NFLX) and increasingly popular pay-per-view movies, Blockbuster Inc. (BBI) announced that it would team with on-demand television powerhouse Tivo Inc. (TIVO) to sell and rent movies via digital video recorders (DVRs).

According to the deal, TiVo users will be able to rent Blockbuster's 10,000 titles for $1.99 and $3.99, and purchase movies for between $14.99 and $19.99. Blockbuster will also sell Tivo DVRs in its stores and on its Web site.

The move shows Blockbuster is starting to understand what Netflix and Amazon.com Inc. (AMZN) have all along: It's cheaper and more profitable to chase the customer instead of building stores and waiting for the customer to walk in during business hours.

It's also the second time Netflix beat them to the punch. Its top rival began renting films on TiVo last year and has developed streaming video on its Web site and through Microsoft Corp.'s (MSFT) Xbox 360 video game console.

This time - unlike Netflix - Blockbuster's TiVo offerings will be available a few weeks after they arrive in rental stores, but before they reach pay-per-view audiences.

"You will see us in a large number of other devices going forward," Kevin Lewis, senior vice president of digital entertainment at Blockbuster, said.

Lewis added that the company also plans to sell its movies via Apple Inc's (AAPL) products.

"We need to be in the normal places that consumers want to watch movies," he said.

Shareholders Happy… For Now

More than ever, Blockbuster needs a better business model - and fast. Last quarter, the movie-rental chain posted a net loss of $359.8 million, or $1.89 per diluted share, while taking a $435 million non-cash charge "for the impairment of goodwill and other long-lived assets."

Blockbuster's shares dipped as low as 13 cents early this month when a report surfaced that the company hired Kirkland & Ellis LLP to advise a possible bankruptcy filing.

Chief Executive Officer Jim Keyes didn't refute the report outright, but rather misdirected it, saying that bankruptcy is "not our objective," Bloomberg reported.

"We have retained expertise both on the legal side and the investment-banking side to very aggressively pursue our refinancing alternatives," Keyes said.

Keys said he has support from his investors, including Mark Wattles, founder of rival Hollywood Entertainment Corp., who took a 5.7% equity stake in Blockbuster as a sign of his confidence in the industry and Blockbuster's financial stability.

"I was pleased to find he is a strong believer in our industry," Keyes said. "We didn't have any strategic discussions. He just emphasized his confidence in the direction of the company."

But there's one shareholder who demands that his actions and opinions about the company's direction be watched: Billionaire Carl Icahn, who owns an 8.7% stake in Blockbuster, making him the company's largest shareholder.

Icahn famously, and successfully, led the charge to dethrone Yahoo! Inc. (YHOO) co-founder Jerry Yang from his job as the company's Chief Executive Officer. Icahn - upset with Yang's performance - threatened to seek control of the board and resuscitate takeover talks with Microsoft.

Icahn ultimately won the battle, with Yang stepping down and Yahoo selecting Carol Bartz, chairwoman of Autodesk Inc. (ADSK), as his replacement a few months later.

Icahn did not get his ultimate wish, however, as Microsoft did not succeed in taking the company over.

Source: Blockbuster Teams with TiVo Go Global to Escape Extinction

When Bernanke Says All Is Well, It’s Time to Duck and Cover

Posted: 24 Mar 2009 04:30 PM PDT

"We've averted" the risk of a depression, Federal Reserve Chairman Ben Bernanke said this week. "Now the problem is to get the thing working properly again."

Appearing on CBS network's 60 Minutes, Bernanke told correspondent Scott Pelley that concerted efforts by the government likely averted a depression similar to the 1930s. He also stated the nation's largest banks are solvent and that he doesn't expect any of them to fail; and that the U.S. recession will come to an end "probably this year."

Is this finally the light at the end of the tunnel for the U.S. economy?

We don't want to appear as perpetual gloom-and-doomers, but fact is, when Bernanke tries to predict the future, he's usually wrong.

Prediction: The subprime mess is grave but largely contained, Bernanke reassured the Federal Reserve Bank of Chicago in a speech on March 15, 2007.

While rising delinquencies and foreclosures will continue to weigh heavily on the housing market, it will not cripple the U.S. economy, he said. "Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited."

Reality: The median price of a home sold in the U.S. fell to $170,300 in January 2009, down 26% from a year and a half earlier, according to the National Association of Realtors. This housing crash has spread pain more widely than any before it. Home prices fell about 30% during the Great Depression, according to calculations by Yale University economist Robert Shiller. But back then, the nation was less concentrated in urban centers, and much fewer Americans owned homes.

Other housing downturns in recent decades have been regional; this one is national. Prices in the fourth quarter of 2008 fell in nearly 90% of the top 150 metro areas, according to the Realtors group. And 5.4 million homeowners, about 12%, were in foreclosure or behind on mortgage payments at the end of last year. The Federal Reserve now estimates home prices could fall 18%-29% more by the end of 2010.

Prediction: "I expect there will be some failures" of smaller banks, said Bernanke in February 2008. "Among the largest banks, the capital ratios remain good and I don't anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.

Reality: IndyMac Bank failed in July 2008, with $32 billion in assets. Washington Mutual failed in September 2008, the largest bank failure in history with $307 billion in assets. Wachovia was sold to Wells Fargo in October 2008, amid concerns about its financial health, and Citigroup still scrambles to raise cash from both the government and private sources.

Fortunately for Bernanke, and unlike us at Casey Research, he doesn't make a living by being right about the future. If he did, we strongly suspect that by this time, he would find himself without subscribers.
Thus, it is a mystery to us why the mainstream media still seem to eagerly soak up his every word, much like a devout Catholic would absorb a papal ex cathedra proclamation. But until the last American has woken up to Bernanke's fallibility, that likely won't change.

In the meantime, we recommend using the Fed chair's economic outlooks as a contrarian indicator – if he says the market looks good, run for cover as fast as you can.
***
Bernanke may be wrong more often than not and still keep his job – we at Casey Research cannot afford that luxury. Our subscribers depend on us researching, correctly analyzing, and predicting market currents and emerging trends… which also includes the movements and changing policy decisions of Big Politics.
Our fresh-off-the-presses, FREE special report Obama's Newer Deal, Part 2 tells you all about the president's Stimulus Plan, its impact on and implications for your personal life and finances. Don't miss it – click here now!

Source: When Bernanke Says All Is Well, It's Time to Duck and Cover

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