Daily Profit : Chrysler

Bernanke and Geithner String Along Investors and the Rally

Ian Wyatt — Tue, 09 Jun 2009 15:04:00 GMT

June 9, 2009

*****Masterful Performance

*****Recovery Illusion

*****The Brilliant General

Fellow Investor,

Bravo. The government’s handling of the financial crisis and recovery should be recognized as a masterful performance. At least, so long as you don’t look too deeply into the numbers…

Bernanke and Co. have managed to restore confidence to the point that economist Paul Krugman has joined the ranks of those who think we are only a couple months away from actual GDP growth.

And they’ve accomplished this remarkable feat by stringing investors along with one carrot after another…

*****The first carrot was bailouts and stimulus packages. There was a time when stimulus spending was going to save or create 3.5 million jobs. Now, states are wondering where the stimulus money is. And the president is now promising 600,000 jobs will be created by stimulus spending.

But layoffs have slowed considerably according to the most recent non-farm payroll report. And Americans, feeling more secure in their jobs, may not notice that stimulus jobs won’t be there, even if they need them.

*****The Public-Private Investment Program (PPIP) was supposed to remove toxic assets from bank balance sheets. Never mind that the banks probably never had any intention of selling at fire-sale prices and investors weren’t thrilled with paying unreasonable prices, no matter how much of the transaction would be funded by the Treasury.

Geithner’s “stress tests” resulted in banks raising their capital bases. That has helped remove the incentive to dump those toxic assets.

And as for the $74 billion banks have raised so far, do not misunderstand all the talk of “green shoots”. These green shoots were not economic recovery per se. Rather, the green shoots were the banks stock prices shooting higher after accounting rule changes allowed them to show a profit where there was none.

In other words, the economic recovery is something akin to an illusion -- those inflated stock prices have allowed the banks to raise enough capital to appear healthy and last a little while longer…

*****Now that investors have breathed a sigh of relief that the problems with the auto industry are being resolved, the Chrysler sale to Fiat has been put on hold. Funny, I would swear a couple weeks ago, Chrysler would go bankrupt and millions would lose their job if Fiat didn’t buy Chrysler right away.

*****And then there’s TARP – the $700 billion boondoggle. Some banks have been asking to repay the money for months. But ever-sensitive to the all-important timing element of a good comedy, the Treasury has been unwilling to accept payment.

After all, why spoil the party by letting all the good news out at once? Why not wait until the rally is looking weak to release the news that, hey, maybe we’ll accept TARP repayments after all? And maybe those payments will be more than anyone expects?

But let’s make sure we string the announcement out as long as possible and let the threat of good news keep the bears at bay…

*****Of course, you can only fool all of the people for a while. Eventually, without a real pickup in economic activity, the millions of Americans who are barely keeping their head above water will sink. And then all the issues the “stress tests” glossed over (higher unemployment, rising foreclosure rate, etc.) will cripple the banks once again.

As economist Joseph Stiglitz of Columbia University recently told Bloomberg: “There’s a chance that it might work...If it does, then they’ll look like the brilliant general. But all these efforts also bank on the economy recovering and housing prices not falling too much further. Those are not safe assumptions.”

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

Ian Wyatt

Editor

Daily Profit

P.S. I normally don’t like to be the guy who says “I told you so”, but for today I will. Back when the PPIP was first floated by the Treasury my diligent research in my Top Stock Insights advisory service spotted three stocks that would profit big time if the PPIP went through and profit modestly even if it did not. We did it. In a matter of weeks – not months or years – we profited on Legg Mason (NYSE:LM) for 8.16%, BlackRock (NYSE:BLK) for 9.1%, and AllianceBernstein (NYSE:AB) for 12.77%. Top Stock Insights readers booked these gains DESPITE the collapse of Geithner’s PPIP plan. To find out how you can see steady and consistent gains no matter what happens, check out Top Stock Insights at http://www.topstockinsights.com/.

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

GM Bankruptcy to Cost 1 Million Jobs: Read if you own GM shares

Ian Wyatt — Wed, 01 Apr 2009 17:21:00 GMT

Your Daily Profit

April 1, 2009

*****Happy April Fools Day!

*****Bankruptcy for GM?

*****Newsletter Advisors

Fellow investor,

*****Even before they’ve had the chance to present a third (or is it fourth?) turnaround plan, President Obama has said bankruptcy is the best way for GM and Chrysler to deal with their problems.

GM would be able to restructure with bankruptcy protection, but apparently it’s a lost cause for Chrysler if the proposed Fiat merger fails. GM’s got around $47 billion in debt it has to deal with.

It’s likely that Obama’s mention of bankruptcy is intended to bring bond holders and union officials to the table for some serious negotiating. Bankruptcy proceedings could cost 4 GDP percentage points and 1 million jobs.

*****Hovnanian Enterprises (NYSE:HOV) is back in the green after the National Association of Realtors said pending home sales rebounded. Some are even calling bottom for the housing market. However, given the massive supply that still exists, I think it’s a little early to ring the bell. Let’s say the housing market is in a bottoming process. That way, when prices stay weak longer than expected, we can say it’s just part of the process.

Hovnanian is up 7% in the early going.

*****As you know, it’s Newsletter Advisors Wednesday. Today’s interview follows …

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

Ian Wyatt

Editor

Daily Profit

Investment Expert Insights

Interview With Timothy Lutts

Timothy Lutts is Cabot’s chief investment strategist and editor of Cabot Stock of the Month Report. I sat down with him recently to ask him about the current state of economic and market affairs.

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

While there were occasional small areas of strength—genetic medicine, oil exploration and for-profit education come too mind—by far our best recommendation to subscribers last year was cash. Trends last year were clearly down, and our market timing disciple places great weight on the trends; we know how futile it can be to swim against an outgoing tide. So our growth-oriented editors spent a large part of the year praising the value of cash, and our subscribers are generally happy about that.

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?

First, I quibble with the word “normalcy.” Every bear market brings challenges that seem unprecedented when you’re living through them, but a longer-term perspective reveals that while history never repeats, it does generally rhyme. The sectors that we have high hopes for today are gold, genetic medicine and consumer thriftiness, and the reason we like them is simple; these are where the best-acting stocks are!

In the gold area, Randgold Resources (RGLD) is attractive, but there are many others also acting well, and the reason is not management but the Federal Reserve. As the dollar becomes less respected, and the prospects for Fed-induced inflation grow, gold and other precious metals gain value.

In the genetic medicine area, Myriad Genetics (MYGN) is one we’ve been recommending since last July, and it’s done very well. It’s the market leader in cancer predisposition testing, with a huge lead over its rivals.

In consumer thriftiness, Netflix (NFLX) is still attractive, though its advance may be getting a little long. The firm’s DVD rental programs offer great low-cost entertainment. And you can now watch online instead of waiting for the mailman. Founder Reed Hastings is a huge, under-appreciated asset.

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

Interestingly, I wrote a column a few weeks ago explaining what I’d do to fix America’s health care problem, but I said I’ve have to be dictator to do it; the entrenched powers make major change very difficult. (Many people suggested I send the column to President Obama, so I did. I’ve had no response yet, but you can read it online. As for the markets, I’d remind the president that our country was built by enterprising people who took risks to gain rewards. I’d warn him that reducing potential rewards by raising taxes could prove very destructive to growth. And I’d ask him to look at the wasted billions of hours spent complying with our increasingly complex tax code. I think simplifying the tax code would remove a great deal of the friction that slows our wealth creation process.

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

The safest area of the market is growing companies with the potential to be added to the S&P 500 in the years ahead — like Myriad Genetics and Netflix. They tend not to be household names, but that’s good. The past year has reminded investors what happens to household names when a thousand institutions try to bail out. As for cash, which is traditionally considered safe, if inflation develops, the value of cash drops, and you don’t want that.

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

I say don’t touch beaten-down financial stocks with a ten-foot pole. It takes years for a group that’s been that badly beaten to recover its health. (An exception is Fidelity National Financial (FNF), which is a leading title processor, and is enjoying the refinancing boom today) As for technology, it’s hard to generalize about such a large sector. I’d avoid beaten-down old favorites, but medical technology—and genetic technology in particular—has some attractive areas.

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

Back in the 1930s, when John Templeton thought the market had fallen far enough, and many good stocks were dirt cheap, he borrowed money and bought shares of every stock on the NYSE trading under a dollar. There were 104 of them; 37 were already in bankruptcy. Three years later, he had a profit on 100 out of 104! My advice is to ignore the bad news; be an optimist. We’ve just come through the worst bear market of your lifetime; the future will be far better.

Editors Note: Timothy Lutts is the Publisher of Cabot Wealth Advisory. This 5 times per week FREE e-letter delivers independent, no-nonsense investment advice on how to build long-lasting wealth. You’ll learn about hot new stocks and the market timing indicators to profit from them. And you’ll receive excellent educational features full of investing lessons that will help you become a savvier, smarter and wealthier investor. Begin your FREE Cabot Wealth Advisory subscription today!

What do you think of Timothy Lutts's picks?

Do you have RGLD, MYGN, or NFLX in your portfolio? How are they faring?

Do you think Obama's going to force GM into bankruptcy?

I love hearing from you. Write to me at editorial@247investor.com or check out the "home base" for Daily Profit at www.247investor.com.

P.S.: A leading indicator of the economic recovery is oil. I've been tracking the trend on oil for over a year now and found that it bottomed about a month ago. I've recently put together my new special report, OIL SHOCK 2009: Strike it Rich with 3 Stocks Under $5. You can request a copy and a trial subscription to SmallCapInvestor PRO by clicking here.