Daily Profit : BAC

The Worst Acquisition in History

Ian Wyatt — Fri, 08 Jul 2011 19:28:00 GMT

It's good to know the financial markets, and the government's legions of economists and statisticians, have a sense of humor.

No sooner do I say that the economic "soft patch" we've been experiencing may be ending (based on UK and German manufacturing data), the jobs number comes in absolutely awful.

Ironically enough, I received this email from a Daily Profit reader John M:

I truly hope that you are correct that the soft patch is over. Unfortunately in my little world, I do not think that is the case.

I am in textile sales, where I bring in containers of fabric from China & Pakistan. I also have a number of garment programs (primarily to the Industrial Uniform market ) along with a towel business (shop towels, bar mop towels etc.) Today cotton had fallen some 12 pts ending in the $1.36 lb range. not bad considering it was @ $2.17 lb 3-4 months ago. This recent drop in cotton is because retailers and Uniform manufacturers are canceling orders or just plain not ordering.

I am not an economist, just a salesmen. Over the last thirty years I can tell you that when the Industrial Uniform manufacturers slow down they are the leading scout party, giving us fair warning, we are heading toward another recession. Time will tell, and I hope you are right and I'm totally all wet.

Take care of yourself, I enjoy your insight.

I will admit, I never considered uniform rentals as a leading indicator, but I like it. I would say that fewer orders for uniforms might certainly have foretold today's weak jobs number.

I would also like to point out that I said the "soft patch" may be improving, not over. In my opinion, the U.S. economy will be in a `soft patch" for at least the next 12 months and probably longer.

But of course, let's not confuse weak growth with a weak stock market. The rally we've enjoyed since June 27 has been broad-based. It looks like it's for real, despite today's employment numbers.

While I'm on the subject of reader mail in response to yesterday's letter, here's one from Gary M.:

I read your letters and research reports and find them very helpful in navigating this market and my investment portfolio........In this last report you talked about the banks and specifically CitiGroup (C).......

How would you play that investment.........options or the equity and WHEN????

Would you buy the CALL options and also buy the PUTS as a hedge?

I must start my answer by acknowledging that, since I don't anything about Gary's risk tolerance, there's no way I can recommend an option position over an equity position in Citigroup (NYSE:C).

Options contracts expire, and so it's hard to classify them as an investment. I have no problem with people who want to trade options. It goes without saying that timing is very important.

You could opt for LEAPs, which are options dated a year out. That will certainly give you time, and also reduce the price volatility.

But for investment purposes (or trading purposes), somewhere around $40 looks ideal on the chart (there's a big gap up from $40.15 on June 28).

Warren Buffett is saying that housing recovery will begin within 12 months, and that will push the unemployment rate down to 6%. He's also saying that he sees no double-dip of recession on the horizon.

I almost feel sorry for Bank of America (NYSE:BAC) Brian Moynihan. He's having to clean the mess of what could go down as the single worst acquisition in stock market history. Of course, I'm talking about the Countrywide purchase that former CEO Ken Lewis championed.

Sure Countrywide was a cheap purchase, at $4 billion. Or so it seemed at the time. I'm not going to do the math, but it's clear that Countrywide has cost much, much more.

If anyone can think of a worse acquisition, drop me line. This little contest could be fun.

Selling on Friday…

Ian Wyatt — Tue, 01 Feb 2011 23:50:00 GMT

The correction we’ve been monitoring certainly picked up some steam on Friday. The rioting in Egypt gave investors an easy excuse to drive stocks sharply lower. And there should be no surprise that tech stocks and the Nasdaq bore the brunt of the selling.

Tech stocks were strong momentum trades in the last couple of months of 2010 and the first weeks of 2011. Then earnings seasons started. I can’t say that earnings expectations were too high – many of the top tech stocks, like Apple (Nasdaq:AAPL), IBM (NYSE:IBM), Intel (Nasdaq:INTC) and Qualcomm (Nasdaq:QCOM) beat expectations and offered solid guidance going forward.

Even the second tier of tech stocks like F5 Networks (Nasdaq:FFIV), VMWare (NYSE:VMW) and Salesforce.com (NYSE:CRM) reported decent numbers. But many of these stocks sold off after earnings. In fact, some of the declines were significant, like that of F5 Networks.

But all in all, we haven’t seen the kind of seriously weak earnings that would justify a complete revaluation of the Nasdaq. Rather, it seems to me, earnings have been almost a pre-ordained profit-taking catalyst, regardless of quality.

It would seem logical that the selling would be much worse if earnings were missing, or even coming in just in-line. But the majority of tech earnings have been good.

*****Of course, bank earnings haven’t been so hot, especially from Citi (NYSE:C) and Bank of America (NYSE:BAC). And Ford (NYSE:F) laid an egg last week, too.

So the question remains: does this correction have legs, or is it just a needed respite from the buying frenzy that started in late August? In other words, are stocks being revalued? Or is this just some profit-taking?

*****The Wall Street Journal shows the trailing 12-month P/E for the Nasdaq based on reported earnings is 12.7. The forward number based on earnings estimates is 16.

For the S&P 500, the current P/E is 18 and the forward number is 13.5.

Neither of these numbers suggests that stocks are overvalued. While we could easily argue that stocks may even be undervalued based on P/E ratios, we are probable safest saying stocks are fairly valued.

And unless we can make the case that there’s a reason that earnings will stagnate or decline, the fundamental case for a more serious correction is not terribly compelling.

*****Now that approximately 50% of the S&P 500 has reported 4Q earnings, The Wall Street Journal is out with some early stats. 4Q 2010 earnings are up 32% over 4Q 2009. Overall, year over year profit growth for all of 2010 was 51%, the third largest since 1998.

It will take a bit longer to get a feel for what earnings growth in 2011 will look like. But I haven’t seen any major warnings for this year yet.

*****So getting back to the correction issue, it could well be that we will see weakness in certain sectors, but not the overall stock market. First and foremost, I’m questioning the growth that we will see in the financial sector this year. And the reason has more to do with regulations than the strength of the economy.

Simply restricting the banks’ trading and fees will hamper profitability, even while the economy at large continues to grow. We also may see the same in earnings from manufacturing stocks as commodity prices remain strong.

*****In the final analysis, inflation may well be the strongest catalyst for stock prices in the year ahead. We’ve seen more countries discuss inflation as a catalyst for higher interest rates. And while I don’t believe that inflation will be exported to the U.S. from India, or China, or Brazil, there is certainly potential for inflation to become a concern here in the U.S. due to our own imbalances.

And I’ll say now, if inflation picks up to the point that it appears the Fed will have to act, that’s when a correction will get serious.

As always, we will have our eyes open…

Uneven U.S. Recovery

Ian Wyatt — Thu, 30 Dec 2010 18:43:00 GMT

Even Bloomberg does it sometimes. Bloomberg is my favorite financial website. The global perspective is very helpful, and the writers tend to avoid hype and speculation.

But every now and then, even Bloomberg will pen one of those headlines that make my skin crawl. Today’s was: Dollar Trades Near 6-Week Low on Signs U.S. Recovery Is Uneven.

What’s wrong with that? Well mainly, there aren’t many surprises coming from the U.S. economy right now. I suppose you could call yesterday’s weak consumer confidence number a surprise. After all, spending has been very strong through the holiday season.

But consumer confidence is a notoriously fickle number, and it’s not like stocks took a nosedive after it was announced.

*****Currencies don’t trade in a vacuum. They trade based on relative value compared to other currencies. In other words, if you want to buy Japanese yen, you usually have to sell whatever currency you have to make the conversion.

So if the U.S. dollar is weak, it’s usually a good idea to see what else is going on in the world, rather than assume the dollar is trading on U.S. data alone.

The New Zealand and Australian dollars were stronger in overnight trading. Taiwan may raise interest rates, so its currency was higher. Even Sweden’s krona was up on positive trade balance news.

But the big catalyst for the U.S. dollar may still be the Chinese yuan. China raised interest rates on Christmas Day. Good. They needed to. China also needs to let the yuan revalue.

And while there is no force that can compel China to revalue the yuan, traders are speculating that another yuan revaluation will be part of China’s anti-inflation actions.

There’s no doubt that a stronger yuan would mean a weaker dollar. And for once, that dollar weakness would be the result of market forces instead of Fed policy.

*****Let’s also not forget that Fed policy is inflationary for China, due to the currency peg. Some have speculated that Fed policy is, in part, designed to pressure China on its currency.

*****Allstate (NYSE:ALL) has joined the ranks of those suing Bank of America/Countrywide for selling toxic mortgage backed securities. Goldman Sachs, Blackrock and even the New York Fed are also suing to get their money back.

To me, this is beyond absurd. These companies, and even Bank of America itself, went gaga to buy these securities because of the yield. To now attempt to claim fraud and get money back is nothing more than finger-pointing. We’ve all suffered from the real estate crash. And it follows that we must also accept the consequences and move on.

*****Yesterday, I discussed the possibility that a correction for stock prices may be looming as we head into 2011. But I want to emphasize that we have yet to see any signs that a reversal is coming.

Stock valuations remain reasonable, and economic data has been steadily improving.

Stocks must correct at some point. But if you’re focused on quality stocks with strong fundamentals, then any correction should be viewed as a buying opportunity.

Greenspan's Biggest Mistake Still Haunts Us

Ian Wyatt — Thu, 17 Dec 2009 19:26:00 GMT

Your Daily Profit

December 17, 2009

*****Removing All Doubt

*****Financial Alchemy

*****Oil and the U.S. dollar

Fellow Investor,

Toward the end of his tenure, some started to wonder if former Fed Chief Alan Greenspan was a fool (after all, he left rates too low for too long and never came to grips with the fact that a real estate bubble was inflating on his watch).

Once again, Greenspan has opened his mouth and removed all doubt.

In a recent interview with Bloomberg, Greenspan said that the stock market rally that started in March has reduced the need for additional economic stimulus.

In particular, he's quoted as saying:

"When stock prices go up, the market value of common stock or of equity in banks and other financial institutions rises...And the market value of liabilities is importantly affected by the size of the equity market value cushion on banks' balance sheets."

One of Greenspan's biggest mistakes was focusing on stock prices as a measure of economic health. They are not. Stock prices are a measure of corporate earnings health. And that may have little to do with the economy as a whole. And the example of banks and other financial institutions is a perfect case in point.

Citigroup (NYSE:C) and Bank of America (NYSE:BAC) have not seen their balance sheets improve because of any strength in the economy. Rather, accounting rule changes have allowed banks to re-value toxic assets and, in some cases, turn paper losses into balance sheet profits.

Financial alchemy (otherwise known as accounting rule changes and government guarantees) turned non-existent P/E ratios (because there was no "E" or earnings) into attractive valuations. So as the banks became wards of the state, of course the stocks rose.

And what did the banks do when their stock prices rose? Why, they announced massive secondary offerings at sweetheart prices to raise money and pay back government loans. None of the TARP repayments have come from actual earnings. The banks have simply used artificially inflated stock prices to dump stock on the market, dilute shareholder value and raise their cushion against losses that still exist on the balance sheet.

And Greenspan feels this is a sign of a healthier economy...

*****Of course, we must acknowledge that the economy is a little healthier. But what health the economy has achieved is a direct result of stimulus efforts.

The big question for Greenspan should be: is the average American family better off today? With the unemployment rate running at 10% and 6.5 million jobs simply vanished, I'd say the answer is an unequivocal "NO". Americans may be less afraid that the economy is collapsing, but that's not the same thing as health.

Alan Greenspan should be ashamed of himself for suggesting that higher stock prices are helping American households. But how many of those Americans who have lost their homes feel better off? And what of the millions who can't find work? Are they better off because stock prices are up?

*****Let's not forget that it wasn't the average American household that led this country into the worst financial disaster since the Great Depression. It was Greenspan, Wall Street CEO's, predatory mortgage companies, under-funded regulatory agencies, and a culture of de-regulation in Congress.

But it's the American people that have lost the most. Ken Lewis still draws a good salary at Bank of America. AIG's current CEO Robert Benmosche is reportedly threatening to quit because he'll only make $10.5 million this year. And Alan Greenspan makes six-figures to give a speech.

I know I've ranted about all this before. And I'm not happy about the amount of debt the government is taking on. But before we let Greenspan tell us that we don't need more economic stimulus because stocks prices are doing the job, let's see if we can't get some stimulus in place that will actually encourage companies to hire more workers.

Until tomorrow,

Ian Wyatt

Editor
Daily Profit

U.S. Mint Suspends Gold Coin Sales

Ian Wyatt — Fri, 09 Oct 2009 15:57:00 GMT

Your Daily Profit

October 9, 2009

*****Crisis of Confidence

*****The U.S. Mint to Profit from Gold

*****Reader Mail

Fellow Investor,

It was another good day for stocks, as expected. Surprisingly good earnings from Alcoa (NYSE:AA), along with better than expected initial jobless claims gave investors the confidence to bid stock prices higher.

We’re seeing a fundamental condition for economic recovery play out – confidence. I’ve said it before – an economic system is, at its heart, a belief system. For there to be growth, Americans must believe the U.S. dollar has value, we must be confident that contracts will be honored, we must believe our money is safe in banks, we cannot doubt that we will have jobs to provide for our families.

The financial crisis shook our faith in the U.S. banking system. Rumors of insolvency at Bear Stearns sparked a run on the investment bank that made the rumors real. The same thing happened at Lehman, but the shockwaves echoed around the world. The financial crisis was a crisis of confidence.

Now, that’s not to say that the sudden skepticism of our banks was misplaced. Using obscene leverage, derivative alchemy and making some really dumb decisions, America’s banks pushed themselves right to the brink. And in some cases, right over the cliff.

*****The U.S. government rightly understood its job was to restore confidence to the American people. And that’s been the focus of most stimulus actions. The government had to make it clear that our money, our jobs and our economy are safe.

So we’ve had TARP, TALF, Cash for Clunkers and 1^st Time Homebuyers Credits. Accounting rules for banks (Clunker Stocks, as I like to call them) have been re-written so they could go from insolvent to profitable. Now, the government is considering tax credits for companies that hire new employees. (Note: not an original idea, several European governments have done this or a hybrid where they give cash to companies that scale back employee hours rather than firing them, with mixed results and potential long-term negative consequences for the job market.)

*****It’s working. Confidence has been restored. And the subsequent rise in equity valuations has helped struggling companies – especially banks – sell stock, raise money, and actually become stronger.

So long as the government is intent in underwriting risk, the Cash for Clunker Stock rally will roll on.

Of course, there are limits. Unemployment is a drag, so we won’t be seeing Dow 14,000 in the next 12 months. But I believe Dow 10,500 is coming soon.

*****Speaking of beliefs, the relationship between gold and inflation is a good example. There’s nothing specific to gold that makes it a “value store.” But when investors worry about inflation, they buy gold. It could be diamonds, rubies or baseball cards for that matter.

Gold has been running because inflation is a distinct possibility as global economic growth returns. It’s a self-fulfilling prophecy. And one the government is helping along.

Two days ago, the U.S. Mint said it was suspending production of gold coins, specifically the American Eagle proof and uncirculated series, because demand was very strong. The Mint already owns the gold it presses into coins. We can presume its cost basis is far lower than current prices. Gold coin sales is a for-profit operation by the U.S. Mint.

So what do we make of the suspension of gold coin sales? Clearly, the U.S. Mint thinks it will make more off the coins in the future as gold prices continue to rise than it can by selling them now.

The U.S government gave the “all-clear” sign for Clunker Stocks. AIG (NYSE:AIG) has run from a March low of $6.67 to current prices around $44. Bank of America has moved from $2.53 a share to current prices around $17.

Now that the government is giving the “all-clear” sign for gold, how will it run? I’ve got some great gold stocks waiting for you in a Special Report called Gold Rush 2010: 3 Gold Stocks for Gold Over $1,000. Click HERE to get your copy.

*****I got a couple good questions from Daily Profit readers I’d like to share. Bob writes: It looks like you should have sold CHNG (China Natural Gas) when it hit $14 plus since it seems to ignore NG (natural gas) price increases but falls on NG drops... what do you think about CHNG?

China Natural Gas (Nasdaq:CHNG) is a stock in the SmallCapInvestor PRO portfolio. I recommended it at $6.14 a share after the company said in a 10-K that it would be moving onto the Nasdaq.

I love undervalued Chinese stocks, especially ones that are directly tied to industrial activity in China. They are about as “no-brainer” as it gets.

China Natural Gas currently trades around $13 a share. It just got an upgrade today. China Natural Gas does seem to ignore the price of natural gas in its trading pattern. That’s because it’s a Chinese stocks first – it trades as the Chinese stock market trades.

As for selling the last time it hit $14, I have to say I’m glad I didn’t. I expect much more upside for the stock, say to around $18. And I’ve made the mistake of selling an energy stock too soon. I recommended selling Gulfport Energy (Nasdaq:GPOR) at $6.04 for a 141% profit when I though oil was topping out back in June. Wrong. Oil didn’t fall and Gulfport is currently trading around $8.50 a share.

141% was sweet. But 240% would have been sweeter.

SmallCapInvestor PRO members have a 117% gain on China Natural Gas. I think we’ll be up 193% by the time we sell, which will be better.

*****Dave asked a great question about oil prices after last weeks’ drop: Because the oil prices have held up during these last two down day corrections do you think that when the stocks go back up that oil would increase its price as well? Please advise [sic] your thoughts.

It would seem that oil is tracking stocks closely. Stocks tend to rise when oil prices rise. And they both tend to move on economic expectations. But oil also has a life of its own. It has traded between $66 and $73 for months now. It seems like that range will not be broken, no matter how much oil is in storage, or how weak the demand forecasts become.

This is certainly due to the fact that oil traders know it’s simply a matter of when, not if. Demand will return, and oil prices will move higher. So there’s a natural floor for prices.

But that doesn’t explain why oil doesn’t break above the established range when stock prices move higher. After all, the S&P 500 is spitting distance from new highs, and oil is stagnant around $70.

Here again, I would say it’s simply a matter of when, not if. Oil hasn’t broken higher because demand is still relatively weak. That will change and oil will break out of its range to the upside.

Oil is also trading in concert with the U.S. dollar. And the dollar has been bouncing off of support levels lately. That’s helping keep oil prices range bound.

That’s it for today, have a great weekend,

Ian Wyatt

Editor

Daily Profit

P.S. I mentioned SmallCapInvestor PRO earlier without telling you more. Sorry. CLICK here to find out more about my small cap service and my new report on the 10 small caps to own for 2010. In just 5 weeks after picking them up, we’re already seeing double digit returns, and we’re tracking for triple digits in 2010. Use this link to find out how to get your hands on my new report and load up on these powerhouse small caps.

Third Quarter Stars with a Whimper

Ian Wyatt — Fri, 02 Oct 2009 17:06:00 GMT

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Your Daily Profit

October 2, 2009

*****Third Quarter Starts with Whimper

*****Oil Steady

Fellow Investor,

I bet we can all think of a better way to kick off the 4^th quarter than a big 200 point drop for the Dow Industrials. We’ve all heard the bears declare the end is near for the Cash for Clunker Stock Rally. So, is this the end?

Looking around at the Clunker stocks, we they outperformed on the downside yesterday. Bank of America (NYSE:BAC) lost 4%, Citigroup (NYSE:C) dropped 6% and AIG (NYSE:AIG) fell 7%. Wells Fargo (NYSE:WFC) was down 5%.

CIT Group (NYSE:CIT) was hammered for 45% on Wednesday after it said bankruptcy is still a possibility for the troubled company.

Overall, the banking sector, as measured by the Financial Sector ETF (XLF), fell 4.6%. And the UltraShort Financials Inverse ETF rallied nearly 10% since Wednesday’s close.

Of course, we might expect financials to bear the brunt of any selling. What about some of the other measures of economic health…like oil?

*****As measured by the US Oil Fund ETF (USO), oil prices have remained steady. Oil prices rallied from $66 earlier in the week. The fact that oil is still hovering around $70 a barrel as yesterday’s sell-off raises questions about the strength of economic recovery is a positive sign.

Oil is one of the purest indicators for investor sentiment of what’s to come for the US economy. We know inventory is rising, we know demand is down, and still prices for oil remain strong. Part of that strength is the weak US dollar for sure. But without expectations for rising demand based on a recovering economy, $70 a barrel simply doesn’t make sense.

So until oil makes a determined drop lower, I can only consider the current weakness in stocks as a correction, a dip that will eventually be a buying opportunity. It’s prudent to wait and see what oil does before entering any new positions, and we’ll monitor oil closely here in Daily Profit.

*****New jobless claims hit 263,000 in September. Analysts were expecting the number to be 180,000. That’s a pretty big miss and it’s edging the unemployment to 9.8%, ever closer to double-digits. (I thought the Administration declared the recession over earlier this summer. Maybe they need to consult the numbers.)

America now has 15 million citizens on the unemployment list. And of course, we know that understates the true number because it excludes those whose unemployment benefits have run out, people who have simply stopped looking and people who are underemployed with part-time work that pays less than what they could potentially earn. In fact, it’s been mentioned that the true un- and underemployment rate is more like 16% or 17%, no the “official” 9.7% advanced by Washington bureaucrats.

*****Gold has gotten back on investors’ radar as prices have climbed toward $1,000 an ounce. We are currently seeing some strength in the US dollar as traders are moving money out of risky assets like stocks and into the safe haven of Treasury bills. Of course, the strength in the dollar is pressuring gold prices. But since any strength in the US dollar is likely to be temporary, this may be a good entry point for select gold mining stocks.

I just recommended a gold stock to my Top Stock Insights readers. It just raised $150 million to develop some under-explored property in Brazil that’s got great potential for producing gold. You can get the details on this gold stock, plus 2 others we’re closely monitoring for the right pricing, in the Special Report Gold Rush 2010: 3 Gold Stocks for Gold Over $1,000. You can get your copy HERE.

Ian Wyatt

Editor

Daily Profit

Oil, China, and Cash for Clunker Stocks

Ian Wyatt — Thu, 10 Sep 2009 15:24:00 GMT

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Your Daily Profit

September 10, 2009

*****Oil, China and Cash for Clunker Stocks

*****A Solid Stock

*****My Book!

Fellow Investor,

As if right on cue, the International Energy Agency (IEA) raised its forecast for oil demand again yesterday.

“Oil demand in U.S., China and other Asia [countries] appears to be running stronger than preliminary estimates suggested,” the IEA said in its report.

The IEA’s new estimate increases daily use by 450,000 barrels. Of course, that means demand growth estimates for 2010 are lower, but that’s because we now have a higher baseline.

*****At the same time, China said that it’s too early to reel in its stimulus plans. That likely throws a bit of a monkey wrench into the bears’ plans for an imminent meltdown in China. It should be clear that so long as governments are intent on supporting their economies that there will be no implosions.

It’s when governments start to remove support that danger exists. And that appears to be a ways off.

On that note, one of the Chinese stocks in the SmallCapInvestor Pro portfolio made a 22% move higher last Thursday. The move was accompanied by a massive surge in volume that marked a new 52-week high. There’s no doubt in my mind that this is mutual fund buying.

It’s likely that the price will back off a bit while the buyer takes a breather. But there’s little doubt the buyer will be back once the price dips a little. For more on the Chinese stocks we’re holding click HERE.

*****China pumped $1.1 trillion in new loans into its economy in the first half of 2009. That’s prompted Bank of China vice president Zhu Min to say “The potential risk is that a lot of liquidity goes to the asset market…o you see asset bubbles in commodities, stocks and real estate, not only in China, but everywhere.”

And Chinese Academy of Social Science economist Liu Yuhui adds that “There’s no way for the real economy to absorb so much liquidity…[p]olicymakers in China and around the world are well aware of the harm that could do, but they are unwilling to sacrifice short-term growth and wean the economy from addiction to the stimulus policies.”

Of course, this is exactly the point. Corporate balance sheets had to be improved to get credit flowing, businesses spending and lending and financial markets stabilized. The easiest way, perhaps the only way, to do that quickly is by pumping liquidity and raising stock prices.

Insurance companies are in better shape and are able to meet annuity payments, for instance, because their investments are worth more. Bank of America (NYSE:BAC) and Citigroup (NYSE:C) have been able to pay back some TARP money because they could sell stock at higher prices.

Liquidity is the life-blood of the Cash for Clunker Stocks Rally. Don’t expect an end to either anytime soon.

*****Of course, not all stocks that are rallying are Clunkers. Glass-maker Corning (NYSE:GLW) just raised its revenue estimates for the current quarter. Of course, this comes after Corning had lowered revenue forecasts due to earthquake-related delays at its manufacturing facility in Japan.

But don’t ignore the fact that Corning was one of the small number of companies that significantly beat revenue estimates for the second quarter.

Corning looks like it has built a nice base around $15 a share. It’s a cash cow, throwing off $1.78 billion in cash flow on $5 billion in revenues. With a forward P/E of 10 and PEG ratio just over 1, I’d say its come some upside coming.

*****Monday is almost here! That’s the day my first book The Small Cap Investor: Secrets to Winning Big with Small Cap Stocks. Of course, I wouldn’t let this momentous event pass without a Special Offer to my loyal Daily Profit readers. I’ll fill you in on the details Monday…

*****As always, please send your questions and comments to editorial@247investor.com.

Until tomorrow,

Ian Wyatt

Editor

Daily Profit

Meredith Whitney Upgrades Goldman While Geithner Assures Arabs Our Money is Good

Ian Wyatt — Mon, 13 Jul 2009 14:40:00 GMT

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Your Daily Profit

July 13, 2009

*****Strong Dollar Propaganda

*****Earnings and Economic Data

*****Blueprint for Profits

Fellow Investor,

A few weeks ago, Treasury Secretary Geithner had to go to China to assure our largest creditor that their investment in the U.S. dollar was safe. Now he’s off to Saudi Arabia and United Arab Emirates for another round of “strong dollar” propaganda.

Of course, it’s not an easy task to convince foreign governments that the U.S. wants a strong dollar when interest rates are at zero and we’re selling tens of billions in Treasury bills virtually every week. You may recall Geithner’s assurances elicited laughter from a group of Chinese college students when he made the strong dollar pledge there.

If college students know the score, you can bet everyone else does, too. But Treasury auctions have been met with plenty of demand, and that’s a good thing.

*****Fed Chief Bernanke is expected to reveal to Congress just how he plans to reverse his stimulative monetary policy next week. The Fed has expanded the money supply by about $1 trillion, cut rates to zero and doubled the assets on its balance sheet.

In normal times, this would be highly inflationary. But these aren’t normal times. Were it not for the Fed’s action, the U.S. economy would be broken even more than it already is.

Now, normal times will return. And how the Fed plans to reel in liquidity when the economy starts to grow again is critical. The potential for runaway inflation is real, and the Fed will have to be just as diligent at fighting inflation as it was fighting deflation.

*****Goldman Sachs (NYSE:GS) received an upgrade from the very same banking analyst that predicted collapse of mortgage-backed securities, Meredith Whitney.

Upgrading Goldman is easy. The bank is practically a subsidiary of the U.S. government. But the timing is interesting, given that Goldman reports earnings before the bell tomorrow.

And speaking of earnings, this is a big week for some important companies. In addition to Goldman, we get Intel (Nasdaq:INTC) after the bell tomorrow. Thursday, we’ll hear from JP Morgan (NYSE:JPM), Google (Nasdaq:GOOG) and IBM (NYSE:IBM). Then Friday, we get General Electric (NYSE:GE), Bank of America (NYSE:BAC).

Tech and financials – the anchors for the U.S. economy will be reporting this week. Investors will be watching these early earnings reports closely. Much of the rally of the past few months can be attributed to investors’ faith in companies meeting Q2 earnings, even if expectations were substantially lowered. Any bad news from these bellwether companies and the market could turn. We’ll be watching closely.

*****As if earnings weren’t enough, there’s a full slate of economic data coming out this week, too. Tuesday, it’s the Producer Price Index (PPI) along with retail sales and business inventories.

Wednesday, we get the Consumer Price Index (CPI), the Empire Manufacturing Survey from New York state, capacity utilization, industrial production, crude inventories and the minutes from the last FOMC meeting.

Thursday, it’s initial unemployment claims and the Philadelphia Fed.

And finally, on Friday, we get building permits and housing starts for June.

Whew! That’s going to be a lot of data to review.

*****On January 15, my Top Stock Insights advisory service released its Predictions 2009 special issue. This issue was our blueprint for profits with mid- and large-cap stocks as we headed into the new year.

In that issue, I outlined the case for oil, gold, commodities and biotech/healthcare stocks. And we took 51% profits on an oil stock, 25% on a gold stock, another 25% on a commodity stock and we’re still holding three biotech/healthcare double-digit winners in the portfolio.

In other words, our expectations for the year led my readers to some nice gains this year, and there’s more to come...

Now, I’m all set to release an update to that special Predictions issue that will get us through the rest of this year with more solid gains. It comes out on Wednesday, and if you’d like to get my blueprint for profits for the rest of 2009, please click here. Or go to topstockinsights.com.

*****Also, if you missed TradeMaster Daily Stock Alerts technical analyst Jason Cimpl’s weekly video chart analysis, here’s that link again.

*****As always, send me your comments, your questions and your jokes to editorial@247investor.com.

Ian Wyatt

Editor

Daily Profit

Price Target Increase for BAC Doesn't Mean You Should Buy Banks

Ian Wyatt — Wed, 17 Jun 2009 15:48:00 GMT

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Your Daily Profit

June 17, 2009

*****Bank Upgrades and Downgrades

*****In Your Face, Russia

*****Newsletter Advisors Wednesday

Fellow Investor,

On Monday, an influential bank analyst raised his price target for Bank of America (NYSE:BAC) to $19. That implies a 40% jump for BAC. Curiously, this particular analyst didn’t cite any improvements to the business or strength in the bank’s balance sheet. Rather, he based his analysis on improving investor sentiment.

I don’t know about you, but I’m not running out and buying a stock – especially a bank stock – just because investors feel better. No, I’m going to need to see actual evidence that conditions for banks are improving before I wade into those murky waters.

So far, the improvements we’ve seen in bank fundamentals have been based on accounting changes and government stimulus for the housing market. These measures don’t fix the problem; they simply make the symptoms look better.

*****To underscore this point, S&P just cut its ratings on 22 banks because of the potential for further weakening in the sector. The S&P analyst had this to say:

"We believe the banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions…Financial institutions are now shedding balance sheet risk and altering funding profiles and strategies for the marketplace's new reality. Such a transition period justifies lower ratings as industry players implement changes."

Bank of America was not among the banks whose outlook was cut by S&P. And I don’t care. So long as the sector is weak and the economy is struggling I’m not going anywhere near banks stocks, improved investor sentiment or not.

*****I know Cold War politics are long over, and that Russia and the U.S. are no longer vying for supremacy, but I still can’t help thinking “In your face, Russia” when I read that dollar denominated bonds sold by Russia, China and Brazil performed far better than bonds denominated in those countries own currency.

Russian and Brazilian bonds lost money. China’s yuan denominated bonds posted small gains. In every case, dollar denominated bonds made money.

It should be obvious that the BRIC countries (Brazil, Russia, India and China) demand that the world’s reserve currency should be manipulated to weaken the influence of the dollar is pure politickin’. Or in the words of a currency strategist quoted by Bloomberg, “It’s not up to politicians to determine which currency will be the world reserve currency…In the end the market decides it.”

In this case, it should be apparent that the market has spoken.

*****So I won’t buy their debt, but I will buy Chinese stocks. Yesterday, SmallCapInvestor PRO added another Chinese stock to the portfolio. China’s one of the few countries in the world that’s posting any growth. And investors should absolutely own some Chinese stocks right now. If you want to find out what we’re holding in SmallCapInvestor PRO just click HERE.

*****As always, please write and share your thoughts and comments: editorial@247investor.com. I’ll talk to you tomorrow.

*****Today is Newsletter Advisors Wednesday; please enjoy the following interview with Eric Dickson from Recon Trade Alert.

Ian Wyatt

Editor

Daily Profit

This edition of NewsletterAdvisors.com Weekly interview features Eric Dickson, Senior Analyst and the Editor In Chief of Trinity Investment Research (www.trinityinvestmentresearch.com). Trinity Investment Research is a financial research company focusing on contrarian investments and emerging equity opportunities. Prior to coming to Trinity Research Eric was an investment advisor. He now runs Trinity’s most successful trading service, Recon Trade Alert.

I recently sat down with Eric to ask about his market expectations and where investors might want to look to put their money.

Q: Once some sense of normalcy resumes in the financial world, which sector(s) will lead us out of the bear market and why?

A: I think with the new administration spending so much money some of the best places to be in will be those receiving up to billions in government subsidies. Places like Biotech, healthcare, infrastructure, technology and anything ‘green’.

One area I’m focusing on with particular interest is electricity grids. The technology is know as ‘smart grid,’ which essentially is an intelligent electricity grid that has the potential to save local economies millions of dollars in prevention of blackouts and brownouts, lower energy costs and can accept any type of alternative energy… giving it the momentum of the ‘green train’.

What the smart grid can do it upgrade the antiquated system we use today with the Internet. Consumers will be able to see how much electricity they’re using as they’re using it (as opposed to waiting for the bill), allowing them to conserve during ‘peak’ hours. With its positive impact on the environment and the overall system, it’s a win-win in my book.

The federal government has already set aside up to $32 billion to upgrade the nation’s grids. What makes this special is I’ve discovered a public company that is rolling out the first citywide test. And if this one particular company I’m tracking is successful then we expect to see them increase their bottom line significantly.

Q: This has certainly been a challenging time for investment advisory services. What types of investments have you recommending to your readers this year?

A: The goal is to always keep them ahead of the news and investing in the action. With such a volatile environment the last nine months, I’m concentrating on investments for the short-term. I think now, more than ever, it’s imperative you hedge yourself on both sides because investor opinion is so tepid right now; it can really have adverse effect if you’re not careful.

That is why for the most part, I’ve been studying and recommending ETFs (Exchange Traded Funds) and their counterparts, inverse/short ETFs.

I like these investments for their simplicity and liquidity. You wake up, look at Asia and Europe, you see the futures and you can get a pretty good idea of how the markets will open. Looking at this from a macro standpoint, I don’t have to worry if Wal-Mart is going to have a good day or if Microsoft will stumble. With an ETF you can track the Dow, or any index, commodity or sector.

But that’s a day-to-day call. Right now I would suggest looking into commodity based ETFs, like oil. With the dollar resilient and oil and gas prices running wild, this volatility creates a lot of room to make money. The key is to be liquid and to hedge.

Q: What areas of the market do you perceive as most safe today?

A: I don’t look at certain sectors or industry groups and think, “is this a safe or speculative bet?”… more along the lines of, “can I make money here!?”

At the beginning of the year, when the ‘you know what’ hit the fan, I was recommending to my readers to get into inverse ETFs, like I mentioned a second ago, and they did very well.

The idea I have about investing is you’ve got to stay liquid. Don’t tie your money up in the long-term when the markets are under such duress. Find unique companies that have the cash reserves and growth strategy to survive this downturn and pick them up cheap, or invest in an ETF that is broad based.

So safe, is not a word I like to use. I think volatility is more of my friend… as long as you play it correctly. Safe to me, right now, is boring. If you want safety, my brother is an institutional bond trader; I’ll give you his number… I’m quite the opposite.

I think you’ve always got to be aggressive. Doesn’t matter what industry or sector, find the right investment and play it correctly. I try to lock in gains as quickly as possible and get out. Like Bud Fox (Charlie Sheen) said in the movie Wall Street, “You once told me, don't get emotional about stocks. Don't! The bid is 16 1/2 and going down. As your broker, I advise you to take it.”

Q: You mentioned your position as the Senior Analyst for Recon Trade Alert, Trinity’s most successful trading service- what is Recon all about?

A: Recon Trade Alert is an advanced small cap trading service that loves volatility. My motto is, “the intel you need, when you need it.” My passion has always been small and micro cap stocks. There is nothing quiet as exciting as high growth opportunities, and it’s from this group of smaller capitalization companies that nearly all the big gains in the market come.

The way I run the service is simple and aggressive. I use my Wall Street contacts, chat with venture capitalists, and even call up the companies to get the word on what’s moving. You see with small caps, the volume can often be very light and even stagnate, that’s why there is room to pillage… but not too much--this is why I keep tight stop losses and price points.

The bottom line is I isolate positions that I think will have significant volume growth in a short time frame and look to get in and out of the position as quickly as possible. I set the upside price target around 20-25% and a stop loss around 15-20%. If the position hits the upside, I move the stop loss up to that point and then I set the second sell point at a price I think obtainable in the coming days to weeks.

Q: Finally, are you a bullish or bearish on the market this summer?

A: As I mentioned earlier, I’m neither. Money is trading hands every second of every day and you don’t have to buck a trend to be on the successful side of the equation. Take each day for what it’s worth and make the most prudent decision for that given day. Look, with the new administration spending money like their playing monopoly at ‘family night,’ I think that the long-term stability is just not there.

I’m a capitalist and believe that private businesses are effective. Now, that’s not to say I’m not taking advantage of the billions in subsidies the government is dolling out, just look at the smart grid, a perfect example of government influence, but one that has the ability to add shareholder value.

I just think trying to buy our way out of this mess is short-term fix to a long-term problem. American business has always been a world leader and that’s because we let the strong eat the weak (sorry for not sugar coating it)… but I’m all for letting the market correct itself, like it always has.

So the short answer to your question; I’m a capitalist, I’m all about making money in any market, any direction.

Thanks Eric for spending some time today to share your investment thoughts with our Daily Profit readers.

Subscribers to Eric’s investment service, Recon Trade Alert, have done very well this year: Eric’s lead them on 17 trades with 15 winners and an average gain per trade of 56%. Not many investment experts can say that.

If you want to learn more about Recon Trade Alert, follow this link.

The Forgotten Toxic Asset Plan Re-Emerges: Mark Your Calendar

Ian Wyatt — Wed, 20 May 2009 17:31:00 GMT

Your Daily Profit

May 20, 2009

*****The Forgotten PPIP

*****Geithner’s Dilemma

*****Profit Opportunities

Fellow investor,

I was starting to think that Treasury Secretary Tim Geithner was secretly hoping that everyone had forgotten about his plan to remove toxic assets from bank balance sheets. But now he’s out saying the Public-Private Investment Program (PPIP) should start in about six weeks. (Go ahead and mark your calendar now, in pencil, of course.)

As you know, I’m not a big fan of Secretary Geithner. That’s because, to me, he represents all that’s wrong with how the government has dealt with the Wall Street banks, the likes of which nearly brought down our economy.

He knew AIG (NYSE:AIG) was about to use TARP funds to pay bonuses and concluded there was nothing he could do. He knew AIG was about to pay Goldman Sachs (NYSE:GS) $12 billion out of TARP funds and again did nothing. He has consistently coddled the very companies that are in desperate need of tough love.

And frankly, that’s got me worried that Wall Street will go back to “business as usual” as soon as possible. Secretary Geithner has done nothing to stop it, and may even be encouraging a return to over-leverage by going to such great lengths to help these companies clean up their books.

*****The big question surrounding the PPIP is how Secretary Geithner expects to get banks to sell their toxic assets. Banks believe these assets will regain value over time. And between government bailouts and stock sales (see Bank of America’s (NYSE:BAC) $13.47 billion stock sale), banks are certainly going to operate under the assumption that they are well-enough capitalized to play the waiting game.

It seems to me the “stress tests” were an ideal opportunity to force the banks to sell toxic assets. But Secretary Geithner chose to lob softballs, and now he has no leverage.

Maybe he’s got a plan. I sure hope so…

*****As an investor and ruthless capitalist, I always look for profit opportunities in any situation. I might not like the outrageous stimulus spending coming from the government, but I’ll darn well recommend the stocks that will benefit from government handouts.

The PPIP is presenting a very nice profit opportunity for the companies that participate. That’s because the Fed and Treasury will help finance—with your tax money, of course—any toxic asset sales. Companies that participate have an opportunity to make large profits with very little up front risk. It’s a sweetheart deal, and I expect these stocks to move when investors realize what’s going. I’ve prepared a Special Report on the subject and you can get it HERE.

Email me at editorial@247investor.com with any comments or suggestions you have.

Kind regards,

Ian Wyatt

Editor

Daily Profit

Are we Sliding into Socialism, Comrade?

Ian Wyatt — Fri, 15 May 2009 16:32:00 GMT

Your Daily Profit

May 15, 2009

*****Government Intervention

*****Sliding Into Socialism?

*****Rising Gas Prices

You know over the course of the past few months I’ve not held Wall Street or the banking executives in high regard. I hold them almost—that’s almost—singularly accountable for our current recession (Uncle Sam and private citizens who borrowed too much are to blame as well), but the government is beginning to really stick its nose too far. For example, today’s headlines (those not about whether Nancy Pelosi knew about torture and when she knew it) are consumed with government pushing itself on private industry, most notably with the pressure on Bank of America (NYSE:BAC) to change its board.

Granted, “regime change” is a necessity for most of the companies receiving TARP money. After all, they’re the ones who got us into this mess. But shouldn’t it be shareholders forcing the issue? You saw how they forced Ken Lewis of Bank of America to give up his role as chairman. This was done at the shareholder level, not by some bureaucrats in a windowless office overlooking the National Mall.

But for many Beltway insiders this isn’t enough. Someone’s got to pay dearly for the bonuses paid out to Merrill Lynch just before B of A took them over. And since Merrill’s gone, guess who gets to play whipping boy? We’ll see how far this goes and which TARP recipient is next. Unfortunately, this is even more motivation for firms that received TARP money to pay it back as soon as possible, in some case, too soon.

A couple weeks ago the President and his Car Czar worked out a deal to “save” Chrysler. As part of that deal Chrysler is to come out as stronger, if leaner, automaker. We’ll see (ask Daimler Benz how their dance with Chrysler worked out).

But read the fine print on the ownership stake: the United Auto Workers (UAW) union will own 55% of the company with rest as U.S taxpayers, Canadian taxpayers, and Fiat somewhere in the mix, though it’s not 100% on board.

Let me rephrase this, the means of production will be controlled by the workers and the central government planners. They will control the production quotas and development of new products for the masses.

Does this sound familiar? Didn’t we spend 50 years and untold trillions to avoid this?

General Motors (NYSE:GM) is in the throes of its own bankruptcy deal. We’ll see how this plays out, but I’ll bet it won’t be too dissimilar from the fate of Chrysler, except Fiat won’t be at the party.

And this is rich…the UAW has graciously agreed to not strike Chrysler until September 2015. How magnanimous considering that as majority owner they’d be striking against themselves. But isn’t that kind of what they’ve done over the decades anyhow, just one degree removed?

So only Ford (NYSE:F) is left standing as a real company. In a sense, I’m proud of the management and decisions made at Ford to put them in this enviable position. I can only hope that their eventual fate is not that of Chrysler and GM.

*****Rising Gas Prices

While we’re on the subject of cars, I’ve been thinking about gas and oil prices. Have you checked the price at the pump lately? Here at our Washington, D.C. offices we’ve seen a gradual uptick in prices that if it happened overnight, or heck, even during one month, you’d do a double take.

After the markets collapsed last fall, regular gas was going for about a $1.70 a gallon. It was a nice reprieve just in time for the holiday season. But just yesterday I noticed the price at the local Shell station was $2.38, which also happens to be the local average.

So, let me get this straight: in the midst of the worst recession in a generation when we’re losing jobs at a pace of 600,000 and more PER MONTH, housing prices are falling, tax revenues are declining, retail sales are abysmal (unless you’re Wal-Mart (NYSE:WMT)), and businesses are failing, gas prices have increased by 40%? Something doesn’t jibe here.

Over the past few months Jason Cimpl and I have been doing a lot research on the oil sector. In fact, he’s been getting in and out of the ETF USO in the TradeMaster service to pick nice quick gains. One disturbing trend that we found was the rapid deceleration of oil field exploration and development. It’s virtually dried up. I’m not surprised given that according to the International Energy Agency current inventories are at all time highs. At current usage rates that equates to a stockpile of 62.4 days of consumption. That’s 8 days higher than just one year ago.

So oil, and by extension, gasoline prices should be going down, right?

Not so fast, you see oil traders work off not the here and now, but the future (that’s why they buy oil futures). And they’re anticipating greater demand toward the end of this year as the world economies (particularly the U.S. and China) pick up again and they have readily available data suggesting that Big Oil and nationalized oil are not ready to pick up the slack.

There’s no way they can. They’ve cancelled nearly three dozen big projects. And their existing capabilities are looking rather dubious.

For example, production in the developed world is way off: Alaska’s North Slope is way off, Mexico’s famous Cantarell Field peaked in 2002 at 2.1 million barrels per day and is now on track to produce only 772,000 barrels per day for 2009 (that’s 66% drop off in 5 years!), Britain became a net importer of oil last June—not from increased consumption but from depletion of its North Sea fields.

And then there are the other big players: Russia is having a tough time financing continued operations, let alone new projects; Iran, right, they peaked in 1976 at 6.6 million barrels per day and are now around 4 million; Saudi Arabia is well-known to be cooking the books on proven reserves numbers; Nigeria is constantly on the brink of implosion.

Then there’s Venezuela. What can I say? Chavez has done a great job in turning what was once one of the richest nations in South America into one of the poorest. He’s evicted Big Oil (not without stealing their assets first, just ask Exxon-Mobil (NYSE:XOM) and StatOil (NYSE:STO)), used PDVSA as his own piggy bank for keeping the masses at bay, and is now in the process of stiffing little guys like Williams Cos. (NYSE:WMB) and Helmerich & Payne (NYSE:HP) out of what he owes them for development and extraction purposes.

In 1997 Venezuela produced 3.18 million barrels per day. Today that’s down to 2.24 million, and continues to plummet.

But the real kicker is that Venezuela supplies 1 in 5 barrels of imported oil to the U.S. Talk about a real bind for the U.S. Two of its biggest providers, Mexico and Venezuela, have oil sectors on the verge of collapse and it’s own oil fields are drying up.

The only bright spot is Canada. Our friends to the north are our largest provider of imported oil giving us 1.9 million barrels per day. The only problem is that Canada’s got a lot more callers for oil than it used to, particularly the Chinese who are willing to pay top dollar (literally top dollar, as in the dollars from the exports they sell to you and me at Wal-Mart as I mentioned earlier) and at some point Canada might find itself hard pressed to resist China’s offer.

So, there lies the problem: production is down almost everywhere, new projects put on hold will take years to bring back up, and when the world economy turns around the reserves will be quickly depleted. I don’t want to sound like a pessimist, but perhaps the oil futures traders are seeing something much more clearly than anyone else is.

For the moment, I’ve been following small oil sector plays like Graham (NYSE:GHM) and a few others. If you want to find out more about oil exploration and services companies that stand to deliver big profits in the coming months check out my new report HERE.

In the meantime, feel free to send in your questions, comments, jokes, rants, observations and anything else on your mind to editorial@247investor.com. I enjoy receiving your emails and really do read every one of them.

Have a great weekend. We’ll pick it up again on Monday.

Best Regards,

Ian Wyatt

Editor

Daily Profit

Stress Test Rally Over?

Ian Wyatt — Mon, 11 May 2009 21:00:00 GMT

Your Daily Profit

May 11, 2009

*****Stress Test Rally

*****Obama’s Economic Numbers

*****China

Fellow investor,

The “Stress Test rally” didn’t last long. Bank stocks had a good day Friday. In fact, they had a good week. Bank of America (NYSE:BAC), for instance, went from $8.70 to $14.17, a +62.8% gain. With that type of one-week gain, it’s not too surprising that banks backed off today as investors look to take profits.

There’s no doubt that the major indices are extended. Some kind of pullback is on order. But Jason Cimpl, technical analyst at TradeMaster, is in “buy the dips” mode.

Even though prices might be extended, we are still looking at an economy and a stock market that is in recovery. And that means current levels, like 8,400 on the Dow or 1,700 on the Nasdaq, have room for upside.

I’ll keep you posted on what Jason’s looking at and where he thinks certain stocks are going.

*****As if right on cue, the Obama administration revealed its forecast that the U.S. economy will be growing at a 3.5% annualized clip by the end of the year.

If true, that would be great news and may underscore the suggestion that stocks remains attractively valued. But that 3.5% is also more than twice what most economists are expecting. Blue Chip Economic Indicators survey, which was released on May 10^th is calling for 1.8% growth by year’s end and 3.2% next year.

Recall that the Treasury also used 7.9% as its “worst case scenario” for unemployment when conducting its stress tests on banks. Unemployment has already exceeded that number, and will certainly go higher before improving.

I understand part of the government’s role is to boost confidence in the economy, but throwing out ridiculous economic numbers isn’t going to do it. As I like to say, I might be dumb but I’m not stupid. These numbers won’t fool anyone and have the potential to subvert whatever confidence I might have. They also have the power to undercut any confidence in “official Washington” numbers over the long term.

*****If you want growth right now, there’s only one place to look: China. As a percentage of GDP, the $586 billion that China pledged for economic stimulus is unprecedented. And it’s already having an effect. China’s GDP estimates went from 6.5% to 7.5% for 2009.

Much of this has to do with China’s stimulus money hitting the economy. In fact, George Soros went so far as to say that Asia will be the first to find its way out of the financial crisis. It’s pretty clear that this recovery is beginning with China and spreading.

I hate to give Jason Cimpl two mentions today (it might go to his head) but he just finished a great special video report on a few stocks that are breakout candidates. It’s a quick video, maybe 3 minutes, outlining one of the stocks he’s uncovered, Fushi Copperweld (Nasdaq:FSIN).

Fushi is benefiting from China’s stimulus spending, and Jason gives you a great look at the chart and price projection that could make you good money. We made a great profit off Fushi a couple years back during the copper run-up and we’re going back to the well call Fushi.

There’s a report ready with the other two breakout stocks he’s uncovered, and you can get a free 30-day trial to TradeMaster Daily Stock Alerts. Here’s the link to the special video report on Fushi and the other stocks.

That’s it for today, I’ll talk to you tomorrow.

Ian Wyatt

Editor

Daily Profit

P.S. If you’re looking for sure and steady dividend stocks, I’ve just put together a comprehensive report on five dividend stocks that pay out nicely and have big upside potential as the recovery continues. Use this link to discover how dividend stocks can help secure your retirement and to claim your copy of the report.

Why BAC Goes Up on "Bad" News

Ian Wyatt — Wed, 06 May 2009 17:40:00 GMT

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Your Daily Profit

May 6, 2009

*****Uncertainty

*****Understanding Risk

*****Newsletter Advisors Wednesday

Fellow investor,

It’s often pointed out that the financial markets hate uncertainty. Makes sense – you can’t price in what you don’t know. Take the news that Bank of America (NYSE:BAC) needs to raise $34 billion to be adequately capitalized. Sounds bad, right?

Unfortunately for the BAC shorts, there’s no uncertainty to $34 billion. It’s a real number. And it’s also been demonstrated in no uncertain terms that government considers BAC too big to fail. Why would anyone doubt that BAC will be able raise that $34 billion?

For an easy answer, check the stock price: it’s up 8% as I write this morning…

*****The bigger picture problem for individual investors is that you often don’t know what you don’t know. And the news flow from the financial media and Wall Street analysts that purport to be authoritative sources, are, in reality, often responding to price movements based on uncertainty. So in a sense, they make their own news, though not by design.

For instance, they’ve been good at explaining what happened as a result of sub-prime mortgages and credit default swaps, but the few warnings that came ahead of the meltdown, like those from Meredith Whitney who, in the fall of 2007, forecast a dividend cut at Citigroup, were voices in the wilderness. Poor Ms. Whitney got pilloried for it, until it happened. Then she was the toast of Manhattan. So much for the “experts” on Wall Street.

So what does one do? Actually, the hardest part has been done, I think. Investors now understand just how risky investing can be. And I’m talking about the kind of risk that long-term 401(k)/retirement investing implicitly minimizes. The fact that stocks rise over the long-term is no guarantee that you won’t suffer through a market crash. It’s exactly that anomalous event that “buy and hold” investing ignores. And there’s no way to model or otherwise quantify a crash.

*****Some have called the rally we’re been enjoying a “risk” rally. That simply means that investors finally feel comfortable taking on risk. And really, what’s the risk of buying stocks when the S&P 500 is at 700, or 800?

The crash has happened. That doesn’t mean stocks won’t head lower, but at least now when know what we didn’t know in the first half of 2008: that risk was building as stock prices went higher. It gives you a new appreciation for down-home wisdom like Buffett’s “Be fearful when others are greedy.”

*****Finally, I want to share a note from one of my Top Stock Insights subscribers. Paul writes:

All I can say is "Thank you".

I subscribed to your publication last year and it has been the best thing I've done since the market went bad. I am a novice when it come to investing in stocks and traditionally used a broker but I decided to try investing myself through an online broker. I figured I couldn't do any worse than they have. Your reports have been right on and your sell warnings have been dead on. I've invested a small amount of money on stocks that you recommended through my online account and I must say I'm having fun! My current overall return has been 25%.

One stock in particular that you recommended, GE, I bought in March at $7.43 and it's now at $13.04. I've got 6 other stocks that you had recommended and they all are doing exceptionally well. I've recommended your service to all my friends. Thanks again. Respectfully, Paul T., Colorado

Thank you, Paul. I’m really glad to hear of your success.

If you’re interested in finding out more about Top Stock Insights and the kind of fun and profits that Paul’s enjoying, I invite you to visit www.topstockinsights.com. You’ll find information about the service and my newest report that treats the very subject of bank profits and losses.

Here’s that link: www.topstockinsights.com

Now, on to our Newsletter Advisors interview for the week…

Ian Wyatt

Editor

Daily Profit

Amy Calistri is an investment strategist and editor of StreetAuthority’s Stock of the Month premium newsletter. Her investment strategy is the simplest way to make money in today's market. She focuses on just one great idea every month -- no matter which way the Dow moves. So far this strategy has served her well. She's up +22% in this bear market. Go here to get more of her secrets -- like the government indicator that tells you which direction the markets will take.

Last year was devastating for most sectors, if not most companies. Were you able to find any pockets of strength?

Over the decades, I've faced some difficult markets, but perhaps none as unforgiving as we saw last year. In the summer of 2007 I was concerned about the spread of the subprime crisis and put a sizable amount of my personal portfolio in cash and the iShares Barclays 7-10 Year Treasury ETF. For a few months, I wondered if I was being overly cautious. But then 2008 happened, taking the babies with the bathwater, and it convinced me that it would have been hard to have been too conservative.

Gold, as another safe haven, was a pillar of strength last year. And the biotechs were unbelievably robust. It was certainly encouraging to see the amount of M&A activity in the pharmaceutical sector, especially given the tight credit environment. The StreetAuthority newsletter, Market Advisor, had Genentech in its "Aggressive Growth" Portfolio and I know they were happy to close out their position with a 97% gain when Roche bought them out.

Once some sense of normalcy resumes in the financial world, what sector(s) do you think will lead us out of the bear and why?

The tech sector is rallying now and I'd love to think it is the harbinger of a bull market. But I suspect we're in for a long summer, where we'll probably see as much bear as bull. And sure, some sectors will outperform when the bear finally hibernates. But I think it’s the "babies from the bathwater" that will finally lead us out of this market. When fundamentally sound companies and securities got uniformly punished last year, it shook investors. No one wants to invest in an unpredictable market. Once good companies start being rewarded in the market for good performance, I think the money on the sidelines will start to flow again.

Name a stock you would buy today and why?

Right now, I'm focused on American Depository Receipts (ADRs). Foreign company ADRs, trading in U.S. dollars on U.S. exchanges, got spanked with the relative strengthening of the U.S. dollar. Last year's flight to safety drove investors into dollar-denominated U.S. Treasuries and just crushed currency valuations around the world. In fact, the British pound hit a 25-year low against the dollar. But that trend is starting to unwind, and foreign currencies have been clawing their way off their lows since January.

One stock I bought recently was the London-based alcohol distributor, Diageo (DEO). It's a company with strong brand names that include Guinness, Tanqueray, and Johnny Walker. It's a nice defensive play for this environment. People's drinking habits seldom change with the economy. Drinkers also have very strong brand loyalty, sometimes spanning generations. Consumers may "brand down" in the cereal aisle, but you won't find too many Guinness drinkers that will switch to Bud.

Diageo isn't just a defensive play. They have done an excellent job expanding their brand presence and market share in places like Africa and Asia. And of course I love the fact that the company is based in London. As the British pound strengthens, my ADR shares rise with it.

If you were face-to-face with President Obama, what unique perspective could you give him regarding the markets and challenges facing investors?

I think we've all seen the downside of insufficient regulation. As investors, we both want and need regulated markets and businesses. But finding the right regulatory balance is challenging; bad regulation can be just as damaging as no regulation. I'd tell President Obama that he absolutely has to work with businesses to understand the benefits and consequences of different regulatory frameworks. But they can't be the only voices he listens to, no matter how much money their lobbies bring to the table. Investors' voices -- and by that I mean 401K investors and retirees, not the Wall Street machine -- need to be represented. Every regulation should be viewed using an individual investor's benchmark -- how much it improves transparency and levels our playing field.

What areas of the market do you perceive as most safe today?

Every day in the market is a day living with risk. That's the nature of investing. But as ugly as last year's market was, it did create some areas that now have limited downside risk. As I mentioned above, I think foreign companies and funds that trade on U.S. markets have less currency risk than they've had in a long time.

I also think that some, but not all, commodities have been oversold and represent positions with limited risk. I don't like gold or the precious metals right now, but I do like other hard assets. I also like agriculture for the same reason.

And probably for the first time ever, I'm starting to look at the convertible bond market. The spreads on bonds are high and tempting, and I think we're still a good year away before we have to worry about interest rate or inflation risk. But I'd hate to miss out on the appreciation of a recovery rally. I'm wondering if a convertible might not be a way for me to have my cake and eat it too.

What do you say to people who are tempted to buy technology, even financial stocks at these low, low prices?

If financial stocks continue to run, I'm just going to have to miss out. I think there could be some opportunities there, but the sector's current lack of transparency is an issue for me. There is still no credible pricing mechanism for toxic assets and the recent change of the mark-to-market rule has made me even less comfortable with what I see on a balance sheet. And I don't think the stress test is going to reveal much to reduce my personal level of stress over the sector. It's just hard for me to invest in something I can't evaluate. I guess I'm just Old School that way.

I do think there are some opportunities in the tech sector. But even as cheap as I am, I wouldn't focus on price as a criterion. Some of these companies have demonstrated viable growth engines, even in this economy. For instance Google and Apple just turned in nice first quarter numbers. Also, a number of tech companies have little debt and healthy balance sheets. I think as the downside risk to the economy starts to wane, you'll see these companies start to loosen up and make some strategic acquisitions. I think Oracle's acquisition of Sun was just the beginning. But in the end, I don't think tech is a value play. You have to play it for fundamental growth.

What fundamental strategy do you follow for buying portfolio positions?

I tend to take a very macroeconomic approach to investing. I think about buying a portfolio position like a director casts a movie. There are a lot of great actors out there, but some are better for a role than others. There are a lot of great companies out there, but some are better for the prevailing economic conditions and variables. So I definitely consider things like commodity prices, currency valuations, GDP, consumer spending, and government policy when I'm making my selection. Macroeconomic factors can really affect margins, and there's a lot of money to be made at the margin.

What investment advice would you give to someone with a 5-year horizon?

My advice to someone with this kind of time horizon has more to do with process than any specific investment idea. Stay engaged.

A lot of investors couldn't bear to look at their portfolios last year. I'm going to guess there were a lot of brokerage statements that ended up in a bottom drawer, with envelopes intact. And then there were the investors who got overwhelmed. They spent copious hours every day, listening to analysts and researching ideas. In the end, they got burnt out.

Keep it simple. One good idea is enough to transform a losing portfolio to a winner -- or a good portfolio into a great one. Try to come up with just one good investment opportunity each month. It doesn't even have to involve a purchase. Your best idea may be to sell an underperforming asset. After all, minimizing losses can be just as important as maximizing gains.

But the most important thing you can do for your portfolio is to manage it. If you let things slide last year, now is the time to get your portfolio back in control. And start thinking about your next good idea.

Bank Stress Test and Toxic Asset Buyback Explained

Ian Wyatt — Mon, 20 Apr 2009 17:32:00 GMT

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Your Daily Profit

April 20, 2009

*****Nobody’s Fooled by Ken Lewis

*****From Carrot To Stick

*****How to Profit from Toxic Assets

Fellow investor,

Banks are getting pounded this morning after Bank of America (NYSE:BAC) handily beat earnings estimates. Analysts were expecting $0.04 in earnings per share; BAC came in with $0.44.

As I write, BAC shares are down 15%. Now, after Citigroup’s earnings, BAC was expected to beat its number. Are you wondering why investors seem so disappointed at what looks like a solid quarter from a troubled bank?

Well consider this quote from CEO Ken Lewis: “The fact that we were able to post strong, positive net income for the quarter is extremely welcome news in this environment …It shows the power of our diversified business model …”

Does Lewis really think this quarter’s earnings demonstrate the “power of [BAC’s] diversified business model …”? I think it demonstrates the power of $45 billion in TARP money and government-assisted refinance loans.

Ken Lewis is basically lying through his teeth by suggesting that Bank of America is in any way responsible for its first-quarter earnings. Without TARP money, BAC might as well be bankrupt right now.

And the fact that he’s even suggesting that BAC be given credit for its “diversified business model” is the absolute height of arrogance.

*****Two investor advisory groups, RiskMetrics Group and Glass Lewis & Co., are advising Bank of America shareholders to vote against Ken Lewis’ re-election to the BAC board. I hope shareholders take that advice.

*****You may recall I called Citigroup’s earnings essentially a one-time event because they are based on mortgage loan refinances and mortgage loan and credit card debt modifications. A Goldman Sachs analyst has seconded that notion, saying the Citigroup actually posted an “underlying” loss of $0.38 a share due to credit losses.

The same is absolutely true of Bank of America, and investors know it.

*****JP Morgan’s mortgage analysts said Friday that banks still have $400 billion in losses to write down as their assets continue to deteriorate. The team, led by Matthew Jozoff, believes that banks will need more government support.

That assessment doesn’t gibe with comments from the Obama administration that future bailouts won’t be needed. Yes, the Treasury’s imminent “Stress Test” results for America’s banks are certainly going to be interesting …

*****Apparently, some blog reported that 16 of the 19 largest U.S. banks that are being stress tested have failed and are technically insolvent. The Treasury has denied the report, saying that it hasn’t gotten the results of its tests.

But you can certainly see where this issue is headed …

The Treasury is conducting stress tests to determine if the 19 largest U.S. banks can survive further weakening in the economy and deterioration of their assets.

What, exactly, is the Treasury going to say?

I’ve forwarded the idea that the stress tests will be used essentially as a PR move to build investor and consumer confidence. After all, if the Treasury comes out and says the banks are fine, then everything’s hunky dory, right?

However, there’s a problem here. If all’s well at the banks, how does the Public-Private Investment Plan move its plan to unshackle banks from their toxic assets forward?

Seems to me much of the enthusiasm underlying the recent rally is that there’s a plan, however inadequate, to deal with these toxic assets. They are real and they aren’t going away.

On the other hand, if the Treasury announces that a bank or two, or five, is in trouble, that could start a panic and would almost certainly start a run on the bank.

After much thought, here’s what I think is going to happen: The Treasury will make an example of one, maybe two banks by declaring them technically insolvent. These banks will be placed in receivership (a nice way to say nationalized) at the time of the announcement. The Treasury will already have investors in place to buy the toxic assets (with up to 90% funding from the Treasury and Federal Reserve). And The Treasury will also have a buyer for the suddenly healthy bank in place.

The whole thing will take only a few days to complete. Panic will be avoided and the Obama administration will make a smooth transition from carrot to stick by subtly letting banks know that they, too, could be declared technically insolvent if they don’t start disposing of their toxic assets.

*****I suppose one could argue that we all benefit from the plan that will clean up the banks and help get our financial system back on its feet. But there’s only one group that stands to make solid profits from the Public-Private Investment Plan. That’s the investors who are approved by the Treasury to participate.

That’s because they simply won’t be taking on much risk at all, and they potentially make a lot of money. If you’re interested, the latest issue of Top Stock Insights just profiled three such investment houses that are participating in the Public-Private Investment Program. And we added one of these stocks to the Top Stock Insights portfolio. I’ve included all the details in a Special Report called How to Profit from Uncle Sam's Toxic Asset Buy Back. Click HERE for details.

That’s it for today. I’ll talk to you tomorrow.

Ian Wyatt

Editor

Daily Profit

The Stock Market Rally and Re-valuing Banks

Ian Wyatt — Fri, 13 Mar 2009 18:18:00 GMT

***The Rally
***Re-valuing Banks
***TradeMaster Conference

The Rally

Stocks made another impressive move higher on Thursday. I think we're all enjoying seeing a little upside for stock prices. There is a light at the end of the tunnel. But I don't want us to lose sight of the near certainty that at least one of the lights we'll see in the darkness will be the proverbial oncoming train.

Market bottoms can be difficult events to get a handle on. Bullish and bearish sentiment is in equilibrium. As individual investors, we might feel that things aren't getting any worse, but they aren't getting better, either. Sell-offs appear to clearly be buying opportunities (like when the Dow dropped to 6,440), but any upside is immediately suspect because there's no real improvement to the fundamental picture.

It's important to remember that the markets are constantly in flux. Even when things look calm, tension is building below the surface that will propel stocks in one direction or another. Consider the underlying events during this week's rally …

Re-valuing Banks

We know the bearish story for stocks pretty well by now. But when Citigroup (NYSE:C) came out and said things were going well for it, a number of assumptions changed. The most basic: Citigroup may not be headed for bankruptcy.

Honestly, I thought Citigroup was going to declare bankruptcy. Or at the very least, have a fire sale of any assets that could fetch a bid. So Citigroup forced investors to re-value the bank. And if Citigroup is worth more, then others, such as Bank of America (NYSE:BAC), must be worth more, too.

Don't think for a minute that bank CEOs aren't aware of how the news cycle affects their stock price. If rumors can start a bank run, they can certainly inflate a stock price.

BAC's Ken Lewis has been praising the TARP program over the last few days. Banking is saved and he's eager to give all the money back ASAP. Many other banks are falling in line, saying they don't need more money and will give back what they have. Even GM (NYSE:GM) came out and said they don't think they need more money.

*****Of course, as I expressed in Wednesday's Daily Profit, I am skeptical that we are getting the whole story from the banks. But even so, I can accept that the lending environment has improved and that banks now have adequate capitalization to take on a bit more lending risk.

But will an incremental improvement in lending have a positive effect on the 8.1% unemployment rate? Will it impact the foreclosure rate? Will it help clear housing inventory? Will it help retail sales? I think the answer is not really, at least not in the immediate future.

TradeMaster Conference

It's nice to know that stocks can move higher. And higher stock prices can help improve consumer sentiment, which can lead to increased spending.

But a rally that doesn't include assets fundamental to real economic growth, like oil and steel, isn't a recovery rally. It's a relief rally. And that is destined to be temporary.

We'll be discussing these issues in more detail, with charts and specific investment opportunities in an upcoming TradeMaster video conference that will air on March 25. Here's a registration LINK if you'd like to sit in.

In the meantime, I will continue to do my best to keep us on top of what's driving the stock market day to day here in Daily Profit.

Best regards,

Ian Wyatt
Editor
Daily Profit

P.S. Even with the recent bear market rally, many U.S. stocks are priced at levels a value investor could love all day. But knowing which ones deserve to remain in the basement and which are "babies thrown out with the bathwater", presenting a tremendous buying opportunity, is a daunting task, even for the most seasoned investor. I've put together a stock analysis report on 5 U.S. blue chips that are a value investor's dream: they're high quality companies trading at bargain prices. But these bargain prices won't last forever. Click here to find out more about these companies and to order your copy of the report.