Daily Profit : Geithner

What the G20 Means for the Dollar

Ian Wyatt — Wed, 27 Oct 2010 13:08:00 GMT

I'm back in the office after last week's Wyatt Investment Research company retreat. I wish I could say it was three days of relaxing fun in the Vermont mountains, but the truth is, it was three days of non-stop meetings and presentations.

At least we ate well...

However, I'm sure our meetings were more productive than the G20 meeting in Gyeongju, South Korea over the weekend. This is the second time the G20 has gotten together to chat in the last few weeks. And the only thing they can agree on is that the IMF needs to do something.

OK, G20 countries also agreed to "...refrain from competitive devaluations..." of their currencies. Unless you're the U.S. Federal Reserve, of course. There should be no doubt that the Fed's expected monetary easing is a form of currency devaluation.

Interestingly, though, the subtext of the G20 meeting wasn't the Fed's anticipated actions, it was China and the value of its currency, the yuan.

And it was Treasury Secretary Tim Geithner leading the rhetorical charge.

Due to cheap labor, China has become the world's factory. And that means that China now runs a massive trade surplus. Many countries, including the U.S., have concluded that China helps maintain its cost advantage and trade surplus by keeping the yuan undervalued.

In an interview withloomberg TV, Geithner acknowledged that countries with more flexible exchange rates are "under a lot of pressure" to maintain growth and stability.

"That pressure is magnified because some countries are still limiting the appreciation of their currency. And that's unfair," Geithner said.

Would there be a rejuvenation of U.S. manufacturing if China allowed the yuan's value to be defined by currency markets? No, at least no time soon. But there would be a change in the amount of new investment money that flows into China.

We saw a big drop on the S&P 500 last Tuesday. And Deutsche Bank (NYSE:DB) reported that 30% of short dollar positions were covered last Monday. That's an absolutely huge amount of short covering.

And you can see the result clearly on this chart of the U.S. dollar vs. the euro (USD)...

That big "up" day on the 19^th is the dollar's short covering rally. And the dollar gave it right back the next day.

Now, as we know, stocks have been trading inversely to the dollar. That is, stocks rally as the dollar falls. Last week was the biggest move higher for the dollar since mid-August.

In the wake of the G20s pledge against competitive devaluations, not many are expecting Japan or any other county to act to weaken their currency. That should leave the dollar to move as traders want it to. The "short dollar" trade may be looking good ahead of the FOMC meeting November 2-3.

Speaking of the FOMC meeting, I found this paragraph buried in a Bloomberg article last night:

"The Fed may purchase $2 trillion of assets to stimulate the U.S. economy, starting with a program of about $500 billion of buying over six months that is likely to be announced at the November meeting, Goldman Sachs Group Inc. said in a note to clients."

You'll recall that I've noted the "whisper" number of $500 billion in recent issues of Daily Profit. I've also said that $500 billion is woefully inadequate.

Well, according to Goldman, it now may be $2 trillion total, starting with $500 billion.

I have no doubt that the Fed is leaking numbers to test the market's reaction. After all, we know that Bernanke is fond of transparency, at least when transparency is important to his goals.

If so, he should get a pretty good reaction to $2 trillion. That's definitely enough loot to shake the markets up.

Lost in all of the Fed/dollar talk is third quarter earnings. 85% of S&P 500 companies have beaten earnings estimates so far. And with companies continuing to invest in productivity rather than capacity, solid earnings growth can continue, even with relatively suppressed spending levels.

Of course, I'd like to hear your thoughts. I'll even print them. Write me here: ianwyatt@wyattresearch.com

A Sales Call to the U.S. Government

Ian Wyatt — Thu, 07 Oct 2010 21:47:00 GMT

Technology can fix anything: even the Federal government's deficit. At least, that's what the Technology CEO Council told White House officials yesterday. The council, headed by IBM (NYSE:IBM) CEO Sam Palmisano said investments in efficiency technology could save the U.S. government $1 trillion over the next 10 years.

Of course, the meeting was basically just a sales call. And seeing how much loot the government's been doling out, I wonder what took them so long.

But seriously, the Technology CEO Council makes a good point. The only way to improve the American economy is by investing in it. Sure, infrastructure projects are a good way to put some people back to work. But this type of spending isn't going to create years of growth.

We need investment in education. We need investment in renewable energy. We need investment in biotech. I'm sure we come up with more, but the point is, simply not spending money is not going to help the U.S. grow. In fact, that's probably a great way to ensure that we never recover.

Yesterday, Goldman Sachs said that its outlook for the U.S. economy could be summed up thusly: "fairly bad" or "really bad."

Fairly bad is GDP growth in the 1%-1.5% range. Really bad is slipping back into recession.

Clearly, Goldman has a much more bearish outlook than the International Monetary Fund (IMF), which is looking for GDP growth of 2.3% next year.

I know it's easy to look at the current problems, most notably 10% unemployment, and assume that these conditions will continue far into the future. But that perspective fails to take into account that unemployment is a lagging indicator.

Goldman Sachs is a savvy enough company to know that. So what's the recession fear mongering about? More quantitative easing, that's what.

Low interest rates and asset backed security buybacks are a goldmine for Goldman and other investment banks. I think Goldman Sachs is just talking its book with this forecast.

I'm pretty sure that Treasury Secretary Geithner wasn't talking about the U.S. when he said "More and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies...The collective impact of this behavior risks either causing inflation and asset bubbles in emerging economies, or else depressing consumption growth and intensifying short-term distortions in favor of exports."

But his remarks in a speech at the Brookings Institute, most likely aimed at China, certainly apply to the U.S. as well. Fed Chief Ben Bernanke has done his level best to keep the dollar weak. And Congress has taken up the cause to pressure China on the yuan.

Let's not forget that our very own housing bubble got its start when the dollar was weakened by Alan Greenspan's monetary policy. And it's likely that interest rates will have to rise at some point to fight inflation. I can only imagine how high gold prices will be at that point.

My colleague at Wyatt Investment Research, Jason Cimpl, the trading strategist for TradeMaster Daily Stock Alerts, had this to say in his morning missive to subscribers:

"As mentioned numerous times in the past, the market is not overbought. It has rallied hard over the past month and the move higher offered very few dips to buy, but most indices are not overbought. Also, the indices have not recorded any reversal candles to indicate a turn approaches.

Until one of those changes we should not get bearish."

At the same time, Jason advised his readers to raise their stop losses on open positions to lock in the gains they've achieved over the last few weeks.

That's great advice and the perfect way to play this rally.

Finally, Alcoa (NYSE:AA) kicks off 3Q earnings season after the bell today.

Of course, I'd like to hear your thoughts here: ianwyatt@wyattresearch.com

Low Rates Continue to Rise

Ian Wyatt — Thu, 28 Jan 2010 16:43:00 GMT

Fellow Investor,

I managed to catch part of Treasury Secretary Geithner's testimony yesterday. I actually thought he represented himself pretty well. I can appreciate his stance that AIG really was to big to fail. But that notion that the New York Fed had to make sure all of AIG's credit default swaps were paid still doesn't make sense.

Geithner's explanation was that if AIG did pay off debts like the $25 billion that went to Goldman, AIG would get downgraded and it would become more expensive to unwind the company. Maybe I'm wrong, and I haven't checked to be sure, but I'm pretty sure AIG's debt was downgraded. And do you even need a rating for a company that's 80% owned by the government?

Bottom line: I still think former Treasury Secretary Paulson made sure Goldman Sachs got paid and it really stinks that tax payers get taken advantage of like that. Unfortunately, it's unlikely anything will come of it.

*****The Fed reiterated its pledge to keep interest rates low for an extended period. No surprise there, but investors liked the news. Stocks finished the day with a nice rally.

Still, it's not like the Fed is keeping the liquidity spigots wide open. The Fed plans to end its mortgage-backed securities purchases. With so many stimulative monetary policies in place, low interest rates will probably be the last thing to get changed.

*****China is also doing its part to soothe investors. According to Bloomberg, China's banking regulator has told lenders to "....step up scrutiny of property loans while pledging to satisfy "reasonable" financing needs..."

That's a far cry from earlier reports that China had completely shut down lending.

China is making the right move by slowing lending. And I expect investors will respond by sending Chinese stocks higher. The recent sell-off for Chinese stocks has left Chinese bank price-to-book valuations the same as they were in early 2009.

Asian markets finally put in a strong move to the upside, putting an end to several days of selling. I expect the bullishness will carry over to Chinese stocks listed in the U.S.

*****Small Cap Investor PRO members just discovered a $3 U.S. based company that makes amorphous alloy core transformers for the Chinese market. The Chinese government has mandated that old silicon steel core transformers be replaced by more efficient transformers, like the amorphous alloy core ones.

This isn't earth-shaking news, but this little company is expanding capacity by 200% to meet the demand. I've got a $5.82 target for the stock, which is a 94% gain from yesterday's close. You can get the details HERE.

*****Oil prices rebounded yesterday as the EIA reported a draw on crude supplies. That's good news for stocks, as any reduction in supply suggests improving demand from increased economic activity.

*****Finally, I have to acknowledge a spot on trading call from TradeMaster Daily Stock Alerts' Jason Cimpl. Yesterday morning, he told his readers:

"I am anticipating a rally to start soon ...The [S&P 500] will find support soon, likely around 1084..."

The S&P 500 bottomed yesterday at 1083.11, and rebounded as high as 1099 before the close. I'd say calling the lows within a point is pretty good, especially in the volatility that always follows a Fed meeting. Jason's traders get a pretty good game-plan for each days trading. Find out more HERE.

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

Normal 0 MicrosoftInternetExplorer4

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

Bernanke and Geithner String Along Investors and the Rally

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

Your Daily Profit

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/.

Tech Leads Trading Gains with Wind River's Acquisition by Intel

Ian Wyatt — Thu, 04 Jun 2009 17:48:00 GMT

Normal 0 MicrosoftInternetExplorer4

June 4, 2009

*****Government Doublespeak

*****Deficits Threaten Growth

*****As the News Cycle Turns

Fellow Investor,

Software developer Wind River (Nasdaq:WIND) is the small cap leader today posting a 44% gain as of press time, 1:15 P.M. Eastern, on news of its acquisition by industry giant Intel (Nasdaq:INTC).

With the deal expected to close during the summer, Intel has committed to a price of $11.50 per share. As of this writing, shares of Wind River are going for $11.53. This certainly follows my thesis of technology, in addition to healthcare and energy, leading small caps for the foreseeable future.

Another big small cap gainer for today includes investment banker Cowen Group (Nasdaq:COWN) up 28.5% on news of its impending merger with Ramius, LLC, a privately held asset management firm. The new company will retain the Cowen name and is expected to continue trading on the Nasdaq.

Other small cap gainers include First Industrial Realty Trust (NYSE:FR) up 37.9% on news of closing three secured financial transactions for $154 million; Atlas Pipeline (NYSE:APL) up 16.1% to $7.57 (you’ll recall Atlas was a big winner yesterday after announcing it’s joint venture with Williams (NYSE:WMB)). Since Friday’s close, Atlas has rewarded investors with a 44% gain.

Small cap decliners include Abercrombie (NYSE:ANF), maker of popular clothing directed to the youth market, posting a loss of 10.6% in today’s trading after reporting same store sales had fallen 28%; Northeast Bancorp (Nasdaq:NBN) of Lewiston, Maine, down 14.7%; and The Gap (NYSE:GPS) down 7.9% on reporting that sales fell 6% versus one year ago.

All major indices are reporting positive gains as of press time with the Russell 2000 Index up 1.12% to 528.56, the Dow up 0.70% to 8,735.80, the S&P 500 up 0.96% to 940.74, and the Nasdaq up 1.07% to 1,845.37. Analysts attribute much of this to reports showing that the number of unemployed still receiving benefits dropped unexpectedly for the first time in nearly five months.

Also big in today’s news was crude oil hitting another high for 2009. New York Mercantile Exchange oil hit $69.56 in earlier trading today, meaning that crude oil is now nearly twice as expensive as it was in February.

Note: I’ve recently released a report on three small cap oil plays that will take advantage of crude oil’s drive to even higher prices this year. In fact, one of these stocks has already given investors a nice 148% gain since we added it on March 30^th. And there’s still more action with this and the other two stocks. You can request your copy of the report HERE.

*****Yesterday, Ben Bernanke told the House Budget Committee:

“In recent weeks, yields on longer-term Treasury securities and fixed-rate mortgages have risen…[t]hese increases appear to reflect concerns about large federal deficits…”

Hmmm. I would swear that Treasury Secretary Geithner just told China that rising interest rates were a sign of optimism for the U.S. economy. Can rising rates be both good and bad? All I know is that if you listen to government long enough, anything and everything is possible.

Rising interest rates on Treasury bonds mean that prices are falling. Whether you’re talking dollars or doughnuts, prices tend to fall when there’s oversupply. And right now, with the Federal government raising trillions to fund stimulus spending and budget deficits, there’s a more-than-adequate supply of T-bills.

Competition also affects interest rates, or yields, on T-bills. If the arcane valuation formulas running on server banks in the basement of some hedge fund say that the stock market is likely to post an 8% gain, few managers will get too excited about the 5% return on long bonds. That 5% yield must rise (with the price of the bond falling) to entice buyers.

So when Geithner says that rising yields indicate optimism, he’s telling the truth to a degree. Yes, now that the economy is recovering a bit, investors believe that stocks are a better investment than bonds. And that’s good. But one reason stocks are attractive is because bonds are so unattractive.

*****I suspect the Chinese know all this. They probably also know that they benefit by lending us money. Heck, if Chinese money delays the hard choices long enough, they may ascend to the throne of world’s largest economy sooner than expected.

*****Bernanke also took the opportunity to warn Congress about rising deficits. He said "Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth."

Let’s not forget Bernanke has supported the policies that got us where we are. Now let’s see what he proposes to help get us out of this mess.

*****The last time I made the observation that the news cycle was turning negative, we saw stocks consolidate their recent gains, instead of turning lower.

Well, it seems to me that the news cycle is starting to turn negative again.

Bernanke repeated his belief that the recession is ending, but the financial media chose to latch on to his statement that recovery will be slow. Improving manufacturing data was deemed “not-as-good-as-expected.”

Will this lead to a sell-off, another period of consolidation, or will more positive data emerge to keep the markets moving higher? I don’t know, but I am on alert…

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. One way to help insulate your portfolio (particularly if you’re retired or even if it’s a few years off) from the government’s loose monetary policy is by holding dividend stocks. These stocks give you a regular payout and have tremendous upside. Be sure to check out my new research report with five such winning stocks right now. You can get it HERE.

Housing Bottom: Lead to Double-Dip Recession?

Ian Wyatt — Thu, 28 May 2009 16:13:00 GMT

Your Daily Profit

May 28, 2009

*****A Bottom for Housing

*****Double-Dip Recession

*****19% on BlackRock, Inc (NYSE:BLK)

Fellow Investor,

Yesterday, it was reported that median home prices fell to $209,700 from $246,400 in April 2008. That’s a steep year-over-year correction, even though prices were up from March 2009.

Today, we hear that that new home sales posted a gain, though not as big as expected.

The housing market is bottoming. How long will the bottoming process take? Common sense would say it will take a while, probably a couple years, to work off the inventory and get current delinquent loans back on track.

Persistently high unemployment rates will not help speed the recovery in housing. But at least we’re seeing signs that the housing market is stabilizing. We should expect to see swings in the data, one good month could easily be followed by a bad month. It will be interesting to see how much the stock market moves on housing data going forward. I would suspect that only extreme readings would move stocks significantly.

*****The Mortgage Bankers Association reported that 9% of mortgages are delinquent. Throw in mortgage holders that are in foreclosure and it’s 12%. That’s a huge percentage. It’s also the highest since data was tracked, starting in 1972.

It’s easy to see why the numbers are so ugly – as the unemployment rate rises, fewer can afford their mortgages. And in some areas of the country the unemployed can’t move to find a job because they can’t sell their home. So it’s no wonder that more and more economists expect a “double-dip” of recession.

74 percent of economists responding to a National Association for Business Economics survey believe the U.S. economy will grow in the 3^rd Quarter. But the growth won’t be strong or lasting.

A growing number of economists, including Dr. “Doom” Nouriel Roubini, believe it’s likely that the U.S. economy will go back into recession in the second half of 2010, when government stimulus wears off.

*****The economic recovery is facing two major speed bumps – rising energy prices and rising interest rates. As the economy recovers, energy prices will rise, soaking up excess household funds and leaving less for discretionary spending. We’ve seen oil prices practically double so far this year and OPEC has announced that it feels that RIGHT NOW oil should be valued at $80 a barrel: meaning another 27% from today’s $63. That’s going to hurt at the pump even more. Here at the Washington, D.C. offices we’re already up 40% since December with a regional average of about $2.39.

As the government continuer to sell Treasury bonds to fund the budget shortfall (over $1 trillion for 2009, and counting) and pay for stimulus initiatives, bond yields will rise, making it more expensive for consumers to get a loan. That will affect the market for big-ticket items like cars and new appliances, not to mention homes.

*****All this will have important consequences for your investments for the foreseeable future. First and foremost, it will be important to follow sector trends. Energy will remain strong, but sectors like retail, housing and consumer goods will probably remain volatile. There will be some quick, isolated opportunities here and there in those sectors, but the broader trend is not positive.

Also, risk management will be critical to success. Investors should have exit strategies in place for their investments. This is not a time to be thinking “buy and hold.” Rather, if you have gains, don’t be afraid to take the money and run.

*****Speaking of taking your money…just this morning I advised my Top Stock Insights advisory service members to take their 19% gains on BlackRock, Inc. (NYSE:BLK) today. BlackRock was my feature recommendation for profiting from the Treasury’s Public-Private Investment Program (PPIP) to remove toxic assets from banks’ balance sheet.

Several important aspects of the plan have been removed, and I suspect Treasury Secretary Geithner will abandon it altogether soon. The PPIP is simply not going to work, and for many of the reasons I’ve stated here in Daily Profit.

First and foremost, banks simply don’t want to sell. And Geithner blew his opportunity to gain some leverage over the banks through his “stress tests.” And all the bailout money didn’t exactly convince banks they were in danger of failure and needed to sell.

At least Top Stock Insights readers managed to turn a profit on Geithner’s failed plan. Now, we’re setting our sights on India. The recent election there has set the stage for massive economic reform and jumpstart to growth.

Despite a huge jump for Indian stocks in the wake of the election results, not many investors are considering India right now. But I think that gives us a distinct advantage as India could be one of the great growth stories this year and going into the next several years. If you’re interested, you can find out how to get my Special Report 3 India Stocks Set to Soar in 2009 by clicking HERE.

That’s it for today; I’ll talk to you tomorrow. As always, you can drop me a line at editorial@247investor.com

Ian Wyatt

Editor

Daily Profit

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

Keep Buying The Dips

Ian Wyatt — Thu, 14 May 2009 15:30:00 GMT

Your Daily Profit

May 14, 2009

*****Buy the Dip

*****12% and 17% Gains in Short Order

*****Plausible Deniability

Fellow investor,

The selling got serious yesterday. But once again, as TradeMaster technical analyst Jason Cimpl forecast, the dip was a buying opportunity. Stocks are up this morning as if nothing happened…

But of course, something did happen. Cracks in the rally are beginning to show. And economic data is starting to weaken. Consider this morning’s Producer Price Index (PPI). This popular measure of inflation on the wholesale level came in stronger than expected. Prices for food are ticking upward.

No doubt the Fed is relieved to see a little strength in prices, as overall, prices have dropped 3.7% over the last 12 months. The only thing that scares the Fed more than inflation is deflation.

My question is: at what point do rising prices motivate the Fed to start sopping up the flood of liquidity it has released over the last eight months? Clearly, there will have to be stronger signs of recovery, but with the potential for full employment numbers to be higher than they’ve historically been, I can’t help but be concerned that the Fed will follow the Greenspan model and act too late.

*****However things play out, Jason has TradeMaster Daily Stock Alerts members taking profits this morning. They booked 12% on the US Oil Fund (USO) and 17% on Chinese hog farm and feed company AgFeed (Nasdaq:FEED).

One might have expected profits hard to come by with anything swine-related given the recent pork related pandemic. But a good read on a stock chart will beat conventional wisdom any day. Nice job, Jason.

By the way, if you’re interested in finding out more about TradeMaster Daily Stock Alerts and how Jason’s providing a steady stream of consistent winners to subscribers, go here. You’ll also learn about a special opportunity in three stocks he’s targeted as poised for big run-ups in the coming weeks (not months, not years, but weeks). Visit this link for more.

*****Even though we are looking at the potential for the current rally to peter out and give way to lower prices, I find it funny that certain analysts refer to it as a sucker’s rally.

After all, the S&P 500 has advanced 33% since March 10. Some stocks have done far better. Members of my advisory services SmallCapInvestor PRO and TradeMaster Daily Stock Alerts have had the opportunity to make some solid gains. If that makes us suckers, well, so be it.

*****It was reported by the Washington Post that many senior officials in the Fed and the Treasury were well aware that AIG (NYSE:AIG) was about to dole out billions in bonuses using TARP money months in advance.

Officials had even hired PR firms to examine how to sugar-coat the news so it could more easily be rammed down Americans’ throats.

Apparently, measures to keep AIG from plundering the Treasury were not on the table.

This is appalling news, and further demonstrates just how far up Wall Street’s patoot Tim Geithner is. Sure, there’s no evidence that Geithner had direct knowledge of the planned bonuses, but do you really think he didn’t know? If these Wall Street lapdogs were smart enough to hire PR firms, I think they could probably have figured out a way to give Geithner “plausible deniability.”

If I were President Obama, I’d be calling for Geithner’s resignation. Period.

*****In looking at 3-month chart for Graham Corp (AMEX:GHM), a pattern emerges. The stock has consistently made solid runs to new short-term highs that are followed by sharp drops lower. Each and every drop has been bought and led to new short-term highs.

So in examining yesterday’s large drop, it appears we should see a quick recovery and a new high around $16 a share over the next 4-6 days. Will this be the high that we take profits on?

You’ll have to stay tuned…

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

Ian Wyatt

Editor

Daily Profit

P.S. I really love GHM as both a short term and long term opportunity. Short term for the reasons I mentioned above: long term because GHM is keyed into the oil refinery business and goes up every time oil does. Jason and I are both calling for oil to run up massively later this year and continue into next year. In fact, it’s already up about 60% from it’s lows a few months ago. We’ve found three more oil sector small cap stocks that will be big winners as oil climbs back. It’s in my new report called Oil Shock 2009. Click this link to find out more and to get your own copy.

Buy Wal-Mart or Target?

Ian Wyatt — Thu, 07 May 2009 16:13:00 GMT

Your Daily Profit

May 7, 2009

*****Retail Sales
*****System of Beliefs
*****Return to Risk?

Fellow investor,

Back before Christmas, you may recall I suggested a “Mom cancels Christmas” trade. The idea was that families would attempt to save money by buying gifts for the kids only. After all, most adults learned the truth about Santa a long time ago.

For this trade, I recommending selling out-of-the-money put options on Wal-Mart (NYSE:WMT) and buying puts on the S&P Retail SPDR (XRT). It was my belief that Wal-Mart, a discount retailer, would do well as cost-conscious shoppers went bargain hunting, but the rest of retail would suffer.

I don’t have the exact totals from this trade (initiated in early November, 2008) but it did well. And the basic assumption of the trade – that Wal-Mart would outperform – is still holding true. While most retailers posted less than expected sales declines (which is good), Wal-Mart posted a bigger than expected 5% jump in year over year comps.

For comparisons sake, Target (NYSE:TGT) posted just a 0.3% improvement.

Both Wal-Mart and Target are good companies and solid stocks, but Wal-Mart has a few more things going for it, including paying a higher dividend (2.20% vs. 1.60%), more store locations throughout North America, expansion into China, pricing leverage with suppliers, and a reputation for beating all competition on price.

*****New jobless claims came in significantly lower than expected. And yes, that is absolutely related to better than expected retail sales numbers and the increase in consumer confidence we’ve seen lately.

As I’ve said, never underestimate the American consumer.

*****If you talk to a gold bug, they’ll rail against the U.S. dollar because it’s backed by faith alone. All it takes is for people to stop believing, and the currency is simply a piece of paper.

Of course, the same can be said of gold. A gold standard is still a system based on belief. People either believe it has value or it doesn’t. It’s not like water or food or gas or land that has a certain easily identifiable value.

Even though economics uses a lot of math and calculators, it is a science that measures a system of beliefs. At its very foundation, an economy is belief system. Participants must believe that their counterparties are honest and share their goals. It is when these basic beliefs are challenged that the system starts to break down. We see this both during tough economic times and interestingly in countries rife with corruption and weak laws to protect property and individual rights.

We’ve seen that dynamic in action during the financial meltdown. Banks knew they hadn’t been honest about their toxic assets, so it was an easy assumption that other banks were doing the same thing. So they simply stopped lending to each other and the global economy ground to a halt.

On an individual level, it is vital that people believe they aren’t about to be fired and that they have earnings upside. Otherwise, they won’t spend a dime. I have criticized government bailouts and TARP and stress tests and the PPIP and loans and FDIC guarantees at length in Daily Profit.

But the bottom line is that all of these steps have restored some level of confidence, of belief, in the U.S. economy. And that’s the single most important condition for a return to economic growth. (And I mean that for the entire world. No matter what the pundits say about BRIC countries and the European Union, the United States of America has had, has, and will continue to have the largest and most influential economy on the planet. Period.)

Of course, it’s not the only necessary condition. A large inventory of unsold homes must get worked off. And banks still have to clean up their balance sheets. But the feeling that we have turned a corner is palpable.

*****Private equity funds are on the prowl for risky assets that have been crushed by the financial crisis and recession. These include loan portfolios of hedge funds and, yes, the toxic mortgage-backed assets on bank balance sheets.

Several of these private equity groups are participating in the Treasury’s Public-Private Investment Program. To discover more, you might want to check out my Special Report on the subject. You can get it HERE at the Top Stock Insights home page.

*****I wrote yesterday about how the current rally has been called a “return to risk” rally. Investors are finally adding risk in the form of stocks. Especially small cap stocks. That’s part of what has propelled the phenomenal gains at my SmallCapInvestor PRO.

But I have heard from some of you that you’re more interested in getting into small caps for your retirements funds and even 401(k) options, so individual stocks are not a viable option, at this time.

Has your financial advisor been talking to you about small cap stock mutual funds?

If your financial advisor hasn’t recommended any small cap funds, you might want to check out what I’ve done in my Recovery Portfolio (as a Daily Profit reader you’re entitled to check it out for free for 2 weeks). You’ll find some great investment ideas for your retirement panning that your financial advisor might not be sharing with you. Here’s a LINK for more details.

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

Ian Wyatt

Editor

Daily Profit

P.S. My mailbox is always open for your thoughts, comments, or questions. Feel free to drop me a line at editorial@247investor.com.

Bank Stress Test Results

Ian Wyatt — Tue, 05 May 2009 17:01:00 GMT

Your Daily Profit
May 5, 2009

*****Stress Tests are a Joke
*****The New Bailout
*****How to Profit from Toxic Assets

Bank Stress Test Profits
The Feds continue to leak info about the Stress Test on banks. Some will do fine, others will be forced to sell off mortgage assets for pennies on the dollar. Find out who's going to profit from this fire sale and how you can get in on it...
Click this link for more...

OIL SHOCK 2009
If you missed the oil run up in 2008, you've got a second chance for profits. 3 stocks under $5 starting the run-up.
Find out more...

Profits from Higher Shipping Rates
Pressure from Somali pirates and increased trade in commodities to emerging markets have shipping profits on the rebound. We've found 3 companies keyed into the recovery.
Follow this link for more...

Fellow investor,

The Treasury’s stress tests are now, officially, a joke …

First, the outcome looked as if all banks would need to raise capital. Then it was reduced to just three. Now it “might” be “about 10” of the 16 banks subjected to the Treasury’s toothless stress tests that may need to raise additional capital to withstand further weakness in the economy.

And the report isn’t even supposed to be out until Thursday. The Obama administration is doing its level best to make sure the market is perfectly prepared for the results of the stress tests.

While it’s probably wise to consider the impact of the stress tests on the financial markets, I can’t say I approve of rigging the tests to achieve a preferred outcome.

*****Bloomberg reports that financial stocks made their biggest gains in a month yesterday on “optimism about the tests.”

That “optimism” is better described as the realization that the stress tests are fundamentally flawed and the government is prepared to handle the capital issue by letting the banks convert the preferred stock the government owns from TARP loans into common stock.

So basically, the government is saying that banks don’t have to repay TARP loans. The banks can just issue more stock. It’s appropriate that shareholders should bear the risk here. It’s completely inappropriate that taxpayers have to accept bank stock in lieu of cash.

This is really just another bailout.

Converting preferred shares to common stock gives the banks a convenient way top boost “tangible common equity.” It’s basically an accounting trick. But since there’s only $110 billion left in TARP, and Congress almost certainly won’t approve any more funds, it’s a convenient solution.

*****The stress tests are supposed to establish a bank’s viability if the economy gets worse. But apparently the worst-case scenarios that underpin the stress test are nowhere near worst-case.

For instance, for the current period, regulators reportedly used 7.9% unemployment. Current unemployment is 8.1%. For 2010, the stress tests use 10.3% unemployment. But at current rates, unemployment will hit 10.3% this year, not next year.

Of course, it could be a moot point if the economy improves. But what if things do get worse? Geithner is playing a dangerous game here.

*****Right now, the toxic asset plan (PPIP) hasn’t been getting much discussion. But this plan, complete with loans from the Fed, is another way banks can raise money. And it would be much better for the economy.

Our analysis shows that some publicly traded private equity groups could make tremendous profits by participating in the Public-Private Investment Program. Our top “toxic asset” recommendation is already up 18%. To get my full report in the subject click HERE.

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

Ian Wyatt
Editor
Daily Profit

P.S. Quite a few readers have recently asked about options trading and a couple of you specifically asked about options on banks undergoing the recent "stress tests". And you know those results come out on Thursday. I recently interviewed options expert Bryan Bottarelli from Bottarelli research on what he sees as the best options trading opportunities going forward. Click this link to find out more about his service and how investors can make profits from options trading.

Has Wall Street Taken Over Washington?

Ian Wyatt — Wed, 22 Apr 2009 17:02:00 GMT

Your Daily Profit

April 22, 2009

*****The Quiet Coup
*****Newsletter Advisors

Fellow investor,

Toxic Asset Profits
In Act 1 of the Recession, AIG "whiz kid" Joseph Cassano killed the US economy with risky, hyper leveraged investments, while pocketing hundreds of millions for himself. Now the second act is about to start and it's your turn to jump in for profits...
Click this link for more...

OIL SHOCK 2009
If you missed the oil run up in 2008, you've got a second chance for profits. 3 stocks under $5 starting the run-up.
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Up 30% This Year
A recent comment from a TradeMaster subscriber sums up the success level of the service:
"I appreciate your insight and since subscribing to TradeMaster at the end of January I have an increase of 30% in my account."
-- Greg L.
Follow this link for more...

*****I received a very topical question from a Daily Profit reader …

Do you think that Obama is a legitimate "for the ordinary people" real deal, or is he just another cleverly marketed pretty face representing the interests of the ruling class? If you prefer call them the rich, the wealthy, the owners, the bosses … whatever works for you. In the end they are the same people. I deliberately did not label them as capitalists because I believe that they are corrupt capitalists, scamming the game in their favor even though their performance is proven to be mediocre. In real capitalism, ability and performance matter. As in, let the failed banks, brokerages, etc fail and allow the strong to take them over. When I read about these recent government led bailouts it becomes clear that we have been set up and conned into taking the hit for the unworthy managers, making it possible - inevitable - for the rich to triumph regardless of their audacious arrogance and incompetence. This is not what I understand capitalism to be - and it stinks!

I have to admit, I started to get sucked in by the President’s charm the day he stood on the steps of the Capitol and told us of the sacrifices and hard work that lay ahead for Americans.

I also must now admit that I am extremely disappointed in how President Obama he has dealt with continuing problems on Wall Street. He has repeatedly shown that he is unwilling to take a hard line with the likes of AIG, Citigroup, Goldman Sachs and all the rest.

When the bankers can dictate policy, America is in serious trouble. That’s what got us to where we are now and quite frankly, President Obama doesn’t seem to be changing this situation, for whatever reason, and you’re right: it stinks.

Wall Street has essentially robbed America. And now Washington is driving the getaway car. Washington is essentially helping Wall Street with the cover up, doling out ridiculous sums to maintain the status quo.

Americans should be outraged. Why there aren’t massive protests against the way Washington is continuing to let Wall Street run the show is beyond me. I’m not talking about partisan actions like the “Tea Parties” to protest tax hikes. And there aren’t any specific policies that have led to this situation. It’s a culture, a revolving door between Washington and Wall Street.

Treasury Secretary Tim Geithner’s plan to overpay banks for the toxic assets using taxpayer money is a prime example of just how sick the system is. And it’s complete and utter BS. Take the banks over, fire all executives, remove the boards of directors, strip out the toxic assets and sell the banks back to private investors. Period. That’s the only way to end this mess.

So long as the Obama administration continues to place the interests of Wall Street above the interests of Americans, it cannot be considered an agent of change. And I couldn’t be more sad about the unwillingness of those in power to do what’s right.

There is an excellent article in this month’s Atlantic that discusses how Wall Street has essentially taken over Washington. It should be considered required reading. Here’s the link.

*****It’s Newsletter Advisors Wendesday. Today, we get another round of options trading ideas from Bryan Bottarelli of Bottarelli Research. Enjoy.

Ian Wyatt
Editor
Daily Profit

Exclusive Interview: Three Top Picks From Bottarelli Research

To stay on top of the market volatility, I once again pulled up a chair with Bryan Bottarelli. As you know, his service – called Bottarelli Research - consistently delivers solid performance. That’s why it’s always smart to get his top trading ideas and share this information with Daily Profit readers like you. He is currently editor for three services that trade options (his flagship service), LEAPs and small caps.

Q: Hi again Bryan. Every time we talk, you have some great trading strategies. So let’s get right into it. What’s working for you right now?

A: Over the last 5 weeks, we witnessed one of the strongest market rallies since the 1930s. But throughout this upward push, I told my Bottarelli Research members that I was extremely skeptical of the move. You see, a good chunk of the rally was fueled by a record profit report from Wells Fargo, which appeared very suspicious. After all, nobody had a clue as to how Wells Fargo reported their blowout earnings. What’s worse, WFC refused to provide any details on how they arrived at their numbers!

But here’s the important thing…even though I didn’t trust the rally, that didn’t mean that my Bottarelli Research members didn’t profit off the rally. You see, in previous interviews, I’ve spoken about the trading tactic that entails “not fighting the tape.” In other words, if the market wants to move higher, don’t fight against it. I admit, that’s quite difficult to do, especially if you do not believe that the upside move is for real. But when it comes to successful trading, adopting this strategy is a critical element of profitability.

Given the fact that the markets were rallying, I identified two specific market sectors that looked to have strong upward momentum. Those two sectors were Chinese-based telecom companies and small cap biotech companies. Since both of these sector groups were exhibiting results that were out-performing the major market averages, I carefully recommended adding upside calls on China Mobile Limited (CHL – NYSE) and Dendreon (DNDN – Nasdaq). Specifically, I recommended the DNDN April 5 Calls (UKO DA) for $1.75 per contract and the CHL May 50 Calls (CHL EJ) for $1.25 per contract. Two days later, we sold both positions for gains of 42.86% and 21.60% respectively. And remember, we took these profits despite the fact that we did NOT believe in the market rally.

Q: What did your members think of these trades? Did you give them both the BUY and the SELL signals for the DNDN and CHL trades?

A: For the most part, my members agreed that the rally was bogus – but they also understood that it was important to get positioned to profit as the upside move continued. As a result, they were quite pleased with the outcome of these trades.

As you can see, Bottarelli Research is designed to not only give profitable trade recommendations – but it’s also intended to offer you an unbiased look at the financial events that are moving the markets. While every money manager is telling you to “hold for the long term,” and every financial television show is telling you to “buy this bottom” Bottarelli Research members understand that the true value of my service comes in the brutally honest assessment of the market’s daily moves.

In terms of the second part of your question, I always give BUY and SELL instructions for every single recommendation that I make. That way, you always know when to enter and exit each position.

Q: Can you offer us three new trades that someone can act upon right now – and hopefully be just as explosive?

Right now, I feel like that the markets have temporarily topped out – and we’re now due for some selling pressure. Therefore, I’m currently getting my Bottarelli Research members positioned in three powerful “Ultra” positions, which move at a rate of 2x and 3x their respective benchmark averages. If we experience the pull-back that I expect, all three of these plays will catapult aggressively higher.

The first one is called the Direxion Financial Bear 3X Shares (FAZ), which moves at a rate of 300% of the inverse daily performance of the Russell 1000 Financial Services Index. In other words, if the Russell 1000 Financial Services Index moves down 3% on the day, the FAZ is designed to move UP 9%.

Right now, I feel that our financial system is in one of the most fragile moments in history. Over the last five weeks, the sentiment on Wall Street seems to indicate that the problems have been addressed – and all the problems in the financial system have now been corrected. I do not believe this one bit.

Don’t let the Fed and the Treasury pull the wool over your eyes. From what I’m reading, 16 of the top 19 banks in the nation are technically insolvent. What’s worse, if any two of the 16 insolvent banks go under, they’ll totally wipe out all remaining FDIC insurance funding. This is a very scary situation. And it makes a very strong case for owning the FAZ right now.

If you look at the FAZ chart below, you’ll see that this was a $120.00 asset in early March. Now, after a furious rebound in the financial sector, you can own FAZ for under $11.00! If we see another aggressive pull-back in the financial sector, you could realistically see the FAZ return to their March highs. Heck, if it moves up to $50.00, that’s still a 400% gain from current levels!

My second pick is the UltraShort Real Estate ProShares (SRS), which moves at a rate of twice the inverse of the Dow Jones U.S. Real Estate Index. Similar to the FAZ, the SRS has fallen aggressively in recent action, pushed lower by a near-term recovery in the Real Estate sector. But if you study the time-horizon and the percentage decrease of past real estate collapses, you’ll realize that we’re nowhere near the bottom.

Housing prices are down 28% from their bubble peak in 2006, but they still have a ways down to go before getting back to their pre-bubble levels. You see, the average real estate crisis sheds 35.5% of the value off homes. And the worst crisis on record peeled off 54%. So, if we’re experiencing just an “average” crisis, you can expect prices to move down another 7% to 10%. And in the world of real estate, this move could easily take another year or two. Now, if we hit the levels that we reached during the worst-ever crisis, you can expect another 26% drop. In other words, we could be only halfway through the current crisis. Ouch. In short, you can expect more problems in the commercial real estate sector. As a result, adding SRS makes a lot of sense as well.

And finally, my third pick is the Ultra Gold ProShares (UGL), which moves at a rate of twice the performance of gold bullion. If the markets begin to pull back, as I expect, then you’ll see a rush of investment dollars flowing back into gold. Therefore, adding the UGL at today’s low values puts you in position to leverage any upside move in gold at a 2 to 1 rate.

Considering the unprecedented levels of U.S. debt (both on a governmental and consumer side), I feel that owning gold exposure is one of the safest and smartest plays you can make right now. I strongly recommend that everyone own gold in their portfolio.

Editor’s Note: For a limited time Bottarelli Research is extending a special 9-month discount for any Daily Profit readers who want to join his service. If you’re interested in taking this special discount, follow the link below (and choose the special 9-month offer noted with a red star).

http://www.bottarelliresearch.com/options/offer/H9DQFVY943/

Treas. Sec. Geithner's "Lucy" Moment

Ian Wyatt — Tue, 21 Apr 2009 17:25:00 GMT

Your Daily Profit

April 21, 2009

*****Geithner’s “Lucy” Moment

*****Pandit Feels Our Pain

*****Where the S&P 500 Heads Next

Fellow investor,

OIL SHOCK 2009
If you missed the oil run up in 2008, you've got a second chance for profits. 3 stocks under $5 starting the run-up.
Find out more...

Up 30% This Year
A recent comment from a TradeMaster subscriber sums up the success level of the service:
"I appreciate your insight and since subscribing to TradeMaster at the end of January I have an increase of 30% in my account." -- Greg L.
Follow this link for more...

Treasury Secretary Tim Geithner is having his “Lucy” moment today. Yes, he’s got “a lot of explaining to do …”

He’s speaking before Congress today to answer questions as to how the Public-Private Investment Program will actually remove toxic assets and protect taxpayer money at the same time. Also up for explanation is how the remaining $110 billion in TARP money is enough to fund any future bank rescues.

I don’t envy Geithner one bit. That’s because there’s no way he can adequately answer these questions:

If TARP’s $110 billion is sufficient, why is the government talking about accepting equity in return for as much as $200 billion in bailout funds?

How can you provide loans to private investors to minimize the risk of toxic asset purchases, pay the banks a premium for those assets and still believe that taxpayers can make off the deal?

There’s no way everybody can make money of these deals. The taxpayer is taking on the most risk and has the most to lose.

*****No word on why Geithner thinks $110 billion is sufficient to keep the bailouts rolling. Goldman Sachs mortgage analysts think another $400 in bank write-offs is coming. And the International Monetary Fund just doubled its estimates of U.S. losses from the financial meltdown to $2.7 trillion.

I think, however, we understand why future bailouts are still being discussed. Wall Street has Geithner in its back pocket. He will not make the tough choices, but instead continue to give Wall Street what it wants: money.

*****Citigroup (NYSE:C) shareholders vote on their board of directors today. Amazingly, Bloomberg is reporting that the board will likely survive the vote. Unbelievable.

At the meeting, CEO Vikram Pandit said this: “I fully recognize the loss of value” that investors have endured ...“Our own people have paid a dear and heavy price.”

How nice, he feels our pain. I wonder if, when he says “our people”, he means the confederacy of dunces that got Citi into this mess and missed their last bonus, or the secretaries, clerks and IT people who lost their jobs because of high-level incompetence?

*****Bloomberg goes on to suggest that the Treasury should act to clean house at Citi if shareholders don’t. After all, the Treasury will be Citi’s biggest shareholder once $52 billion in preferred shares is converted to common stock. That means Geithner essentially owns Citi.

Will he make the tough choice and can Citi’s board? Don’t hold you breath. But if he does, it will be very interesting to see who he puts in there to lead this poster child for all that’s wrong with Wall Street and government.

*****Can you tell I’m getting a little worked up here?

*****OK, let’s talk stock market for a minute before I sign off. Last Thursday, I shared some of Jason Cimpl’s (TradeMaster Daily Stock Alerts’ technical analyst) analysis on where the market was headed. You may recall he suggested the S&P 500 had as much as a 9% decline coming.

Well, yesterday the S&P 500 got 4.2% of that drop. What’s next? Here’s what Jason sent his readers at 9:18 this morning …

“Our [S&P 500] downside target is 779 with a chance of breaking 750. The market has noteworthy support levels between 805 and 820 so do not expect to profit overnight. Given yesterday's selloff, we expect the indices to recover some lost ground in late-day trade today, or intraday tomorrow. Unless the market can make a new high, we maintain our bearish outlook.”

*****In light of Jason’s expectations, I think we should take advantage of today’s strength and take profits on Hovnanian Enterprises (NYSE:HOV). As you might have noticed, Hovnanian is extremely volatile. And if the S&P 500 continues lower in the coming days, it will be lead by banks and housing. Hovnanian is up 31% since the $1.52 recommendation here in Daily Profit.

If you bought Hovnanian, I’d love to hear it. Write me at editorial@247investor.com.

Also, I don’t mind to continue to hold Graham. It’s volatile as well, but in accordance to oil prices. Since oil has settled into a comfortable trading range, Graham should remain above my recommended entry price.

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

Ian Wyatt
Editor
Daily Profit

Earnings Expectations and Toxic Asset Profits

Ian Wyatt — Fri, 17 Apr 2009 17:57:00 GMT

Your Daily Profit

April 17, 2009

*****Earnings: Expectations and Reality

*****GE: Could be Worse

*****Who Profits from Toxic Assets?

Fellow investor,

Stocks have marched steadily higher since March 9. The first 10 days or so of the rally was a mad dash, which is how recovery rallies behave. But since the huge up day on March 23, stocks have settled higher. The S&P is now within spitting distance of its 2009 highs.

There’s no doubt that investors have been pricing in some fairly optimistic expectations. And so far this earnings season is rewarding that optimism.

Now, I’m not saying that earnings have been great. The point is, earnings haven’t been terrible. Or at least, not as terrible as investors thought they’d be back in February.

You may recall that many analysts were saying first-quarter earnings would be when we’d really see just how bad the economy has been. It’s still early in earnings season, but we’ve heard from some important companies. I think it’s safe to say that earnings could have been much worse.

*****Take General Electric (NYSE:GE), for example. GE stock price is down 63% form its 52-week highs. It cut its dividend and lost its AAA debt rating. That’s about as bad as it gets for one of the most respected and stable companies in the world.

But the reality of today’s earnings report should put the rumors of GE’s demise to rest.

Overall, GE made money in the first quarter of this year, albeit 35% less than last year’s Q1. Even its finance arm, GE Capital, which at one time was believed to threaten the very existence of GE, made $1.12 billion in three months.

GE saw revenues rise in its energy unit and technology infrastructure division. It maintains a healthy backlog that’s actually growing. And it probably won’t need to raise any more money to maintain its capital base.

All in all, it could have been much worse for GE.

*****Yesterday, I suggested that the idea of the “Stress Test” for banks was really just a marketing ploy by the Treasury to boost confidence that the United States financial system is stable. After all the back-bending, and billions in bailout funds to avoid bank failures, do we really think the Treasury is suddenly going to declare any banks insolvent?

Highly unlikely, in my opinion.

So if the Treasury is unwilling to nail any banks, what does that mean for the Public-Private Investment Program that’s supposed to buy banks’ toxic assets? What will be the motivation for selling if there are no consequences for keeping these assets and waiting for value to return?

Well, it would appear that the Treasury is playing the “opportunity cost” card. Offer the banks a premium for these assets now that might otherwise take years to achieve.

The banks win, as they free up their balance sheets and can theoretically increase lending. The “Toxic Investors” win, as they buy potentially valuable assets with very little of their own money while the Fed and Treasury subsidize the rest. And the taxpayer wins as Fed and Treasury loans are paid back.

I don’t know about you, but that all sounds a little too perfect. Something’s bound to go wrong with this neat little win-win-win scenario. And I know who isn’t going to get shafted – the investors who partner with the Treasury to buy these assets.

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.

*****On Wednesday, we watched Hovnanian Enterprises (NYSE:HOV) make a powerful breakout move through resistance. Yesterday, the stock consolidated that move. And today, it’s moving higher.

Hovnanian is now up 51% since I recommended it at $1.52. And there’s virtually no resistance before $3 a share. My only concern is that the market will turn lower before Hovnanian hits $3. Now might be a good time to put in a stop-loss order protect your gains.

Also, if you bought Hovnanian, I’d love to hear from you. Even if you didn’t, my email box is always open. Drop me a line at editorial@247investor.com.

That’s it for today. Have a great weekend and I’ll talk to you on Monday.

Ian Wyatt
Editor
Daily Profit

Builder Sentiment Moves Housing Stocks

Ian Wyatt — Thu, 16 Apr 2009 18:17:00 GMT

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Your Daily Profit

April 16, 2009

*****Housing Stocks

*****Market Reversal?

*****Banks Not Feeling Stress…Yet

Fellow investor,

The saga continues for the homebuilders. Last week, we saw the first steps toward consolidation in this sector when Pulte Homes (NYSE:PHM) bought out Centex (NYSE:CTX). This came on the heels of some slight improvements in existing home sales.

Even yesterday, a builder sentiment survey showed an improvement among builders. That got investors excited for this morning’s housing starts number. Unfortunately, the optimism was misplaced. Housing starts came in below expectations for March.

Of course, this relates directly to Hovananian Enterprises (NYSE:HOV). Hovnanian jumped 21% yesterday to $2.27, but more importantly, it broke through resistance at $2. And it wasn’t a small break of resistance, either. The stock crushed resistance in what should be considered a breakout move.

There’s not much in the way of a further move to $3 a share. That would be darn near a double for Daily Profit readers who bought on my recommendation at $1.52.

The only thing in the way for Hovnanian is the market in general …

*****Just as traders were looking for a rally in the early days of March, traders are now wondering where the heck the sell-off is. It’s not that there’s anything wrong with current levels per se, it’s that stocks have gotten here in virtually a straight line. It’s just not natural.

To sum it up, here’s what Jason Cimpl, the technical analyst at TradeMaster Daily Stock Alerts wrote in his morning missive today …

Let me get this straight. The world looks to be falling apart yet banks are posting a huge profit. Recall that these are the same institutions that told you everything was fine in 2007. These were also the same institutions that said write downs would be over in April 2008. Now the same banks claim profitability. Should we believe them this time around?

NO.

Unfortunately, the market does not care what we believe. The market is going to move up or down independent of our beliefs. Right now the market still wants to move higher. Almost every indicator is pointing to a huge sell off, but the market continues to see new highs. The SPX reached 866 a few days ago. We would not be at all surprised to see it move higher.

That said, how much higher can it realistically go? Even if the market can bully its way up to 890, that is only a 4.6% gain. Compare that scenario to a sell off that takes us to 775, which is a 9% loss. Both scenarios are likely. The point we are trying make is that we may see some short-term upward movement, but is the reward of going long right now worth the risk of a 9% reversal?

*****We’ve discussed how the banks current profitability is likely a one time event as they put TARP money to work and rework loans and credit card debt.

I expect this will hit the stock prices eventually. And so will the results from the Treasury’s “stress tests.”

You probably heard that part of the Treasury’s “toxic asset removal plan” is a stress test of banks to see how they would hold up if the economy worsened. Now, no details have been released telling us how these stress tests are supposed to work. But apparently the results will be released in May.

My guess is this is a confidence-building ploy. In other words, Geithner will say the banks are healthy, and investors will fell great about buying them. But sometime things don’t go according to plan. I would expect investors to lighten up on their bank holdings ahead of the stress test results.

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

Ian Wyatt

Editor

Daily Profit