Growth Report

Inauguration Rally?

Ian Wyatt — Tue, 06 Jan 2009 16:40:00 GMT

Your Daily Profit

January 5, 2009

*****Inauguration Rally?

*****Oil prices

*****Graham Corp!

Fellow investor,

The first full week of trading in 2009 is off to dicey start. But after the recent gains, it’s not too surprising. At present, the Dow Industrials is rang-bound between 8,000 and 9,000. And since the Dow moved over 9,000 on Friday, today’s sell off is not too much of a concern.

What will be interesting is how stocks trade as we approach Inauguration Day in a couple weeks. It seems highly likely that a sizable percentage of Americans will anticipate the progress that the new administration has promised. And I’d expect some of that good will to carry over into the stock market.

At the same time, however, the Dow is up against resistance already. And clearly, the serious economic issues facing the U.S. haven’t changed over the past few days. The Dow closed at 9,625 on Election Day, November 4. And I can see a certain symmetry of another move to that level on or around Inauguration Day. Though I’ll also say, and this is no slight to Obama, I’d sell Dow 9,625. And I will recommend selling some Daily Profit stocks if the Dow makes it that high.

*****Oil has rallied sharply since Israel and Palestine started going at it. It’s a tragic scenario, that’s for sure. And I, for one, certainly hope that a cease fire can be worked out soon. The casualties are so lopsided, Israel looks like a bully. And Hamas, with its impotent missile strikes, looks suicidal.

As for oil, at $47, I believe it’s approaching the upper end of its trading range. Right now, it’s higher due to supply concerns. But supply issues will fade. Higher prices won’t be sustainable until demand improves, and that could be a while.

The US Oil ETF (USO) has been on fire since the day after Christmas. It’s up 24% since. In addition to supply concerns, I suspect there is some positioning going on that’s helping push it higher. Seems to me that some are betting on a rebound for oil sometime this year. Or at least, some investors are saying that $29 is just too low for the USO.

Either way, if you didn’t buy into USO when it was first mentioned in Daily Profit on December 19, I expect you’ll get a better entry point sometime in the next few weeks.

*****Graham Corp (AMEX:GHM) had a huge day on Friday, jumping nearly 18%. It’s up again today. Graham was first recommended in Daily Profit on November 21, 2008. It could have been had around $7.50. It’s now up 84% since then. Unfortunately, I haven’t heard from any Daily Profit readers who bought the stock. It’s too bad, as I’d love for you to be making money on it.

*****I offered up a few other TradeMaster stocks in the December 30 issue of Daily Profit, Optimer Pharmaceuticals (Nasdaq:OPTR), TeleCommunication Systems (Nasdaq:TSYS) and Shenandoah Telecommunications (Nasdaq:SHEN).

Of the three, only TeleCommunication Systems is up, and it’s only up slightly. But I have faith!

Best regards,

Ian Wyatt

Editor

Daily Profit

editorial@247investor.com

Tech Spending and Stop Losses

Ian Wyatt — Thu, 18 Dec 2008 23:12:00 GMT

Your Daily Profit

December 18, 2008

*****Tech Spending

*****Stop Losses

***** Stock Summit 2008: Profits After the Fall

Dear Investor,

Up 359 on Tuesday, down 99 on Wednesday. I can live with that. But I still have to wonder how long the relative optimism for stocks will last. General Electric (NYSE:GE) was downgraded and received a rare “sell” rating by Sterne Agee & Leach, and, as we saw with Honda yesterday, companies are starting lower 4^th quarter earnings estimates.

We’ve been expecting earnings estimates to come down for some time. But it remains to be seen how much is already priced in. For the financials, it could be argued that the worst is priced.

Consider Morgan Stanley (NYSE:MS). That company posted a $2.37 billion dollar loss during its 4^th quarter, which ended November 30. That worked out to a loss of $2.34 a share. A poll from Reuter’s showed analysts were expecting a loss of just $0.34 a share. A month ago, analysts were expecting a $0.30 profit.

The analysts missed by a mile. They were totally unprepared for such a weak quarter from Morgan Stanley. Sounds like a recipe for disaster, right? Well, after a somewhat rough start to the day, Morgan Stanley shares finished with a 2% gain.

The same thing happened over at Goldman Sachs (NYSE:GS). Goldman lost $2.1 billion, which was roughly in inline with expectations even though there were some wacky calls for losses as high as $6 a share. The stock jumped 14% Tuesday and added another 3.6% yesterday.

*****The Fed’s rate cut helped Goldman and Morgan Stanley out, for sure. But there’s also the mark to market accounting that each company has to use. That means the companies must price all assets every quarter. In the case of mortgage related assets, where the prices are effectively nil, they are forced to take steep write-downs.

Morgan Stanley took around $2.2 billion in write-downs as it re-priced damaged assets. At present, these are paper losses. But it goes to demonstrate the difficulty of earnings estimates. So what looks like a staggering surprise loss may not be quite as bad as it first appears.

Of course, there’s also the flipside, which would be that the assets could be subject to more write-downs in the future. But for now, the companies are getting the benefit of the doubt.

*****We’ve seen the bottom fall out of homes sales, commodity prices, retail sales and lending. Technology spending has remained fairly strong. You may recall I discussed IBM (NYSE:IBM)’s 3Q earnings in Daily Profit as a strong point of the earnings season when it reaffirmed its 2008 full year earnings back in October.

That was then. Now analysts are expecting tech spending to be the next domino to fall. A Citigroup analyst says the first quarter could be the worst ever for software companies. A Gartner analyst is saying “There’s going to be a period of reckoning that’s not going to be pretty…”

IBM and Sun Microsystems (Nasdaq:JAVA) are two companies that could suffer.

IBM sold off sharply in the Fall, dropping from 52-week highs around $130 to as low as $70 a share. A casual look at one- or two-year chart might make it look as though a downturn is priced in. But a look at a longer term chart gives a different perspective.

In late 1999, at the height of the technology bubble, IBM traded as high as $140 a share. Between 2003 and 2007, IBM was range-bound between $75 and $100. In 2007, the stock took off again and rallied to the $130 area in spring and summer of 2008.

Now, IBM is back in that $75-$100 zone. For us to start talking about IBM hitting 10-year lows, like we have with so many other stocks, we’d have to see prices drop to the $50-$60 range.

Sun Microsystems looks even more vulnerable than IBM. Sun was already in a downtrend when IBM was hitting highs in mid-2008. The stock currently trades just above $4 a share.

*****One stock that may be an attractive alternative to the high-end server and software companies like IBM and Sun is VMware (NYSE:VMW). VMware makes “virtualization” software that allows companies to get more bang for their buck from their networks.

The stock has been whacked pretty good this year (what hasn’t?) but may actually benefit from cuts in corporate IT budgets.

*****Finally, I want to address some of the stocks we’ve talked about here in Daily Profit. We’ve managed to get in some positions that are doing well. Both Graham Corp (NYSE:GHM) and Emergent Biosciences (NYSE:EBS) are up nicely since they were first discussed here. It’s time to protect those gains.

Shortly after I recommended a stop-loss on Questcor Pharmaceuticals (Nasdaq:QCOR), the stock started selling off. That stop loss should have taken you out of the position at $8.80, preserving your gains and keeping from suffering as the stock continued to fall.

Now is the time to put in stops on Emergent and Graham. Graham’s got support at $10, so a stop at $9.75 should keep you in on a routine sell-off but take you out if the stock is going to head back to its lows.

A stop-loss at $22 will do the same for Emergent.

Chesapeake Energy (NYSE:CHK) is far more volatile and I also consider it more of a long-term holding. For that reason, I’m content to let it go, for now.

*****Monday’s landmark video investment conference, Stock Summit 2008: Profits After the Fall, was a huge hit. The turnout was phenomenal…thousands tuned in to watch TradeMaster Chief Trading Strategist Benson George give his blueprint for profits in 2009…and his top “breakout” stocks are already showing gains…

Well, it’s not too late for you to share the wealth

I’ve seen this happen more times than I can count. Benson uncovers an absolute gem of a stock with his TradeMaster system, and the profits start rolling in the very next day.

It’s like clockwork. But the thing is, those profits don’t stop after a day. That’s the key to the TradeMaster system. One-day gains turn into two-day gains…and then three-day gains…and pretty soon you’ve got a big winner on your hands.

Now, I want to show you how you start profiting with Benson and the TradeMaster system.

It’s quick. It’s easy. And it won’t cost you a single dime…

Here’s what you do – go to www.TradeMaster.tv to check out the replay of Stock Summit 2008: Profits After the Fall. You’ll discover the secrets to Benson’s amazing trading strategy that’s consistently putting up double-digit gains while the markets collapse around us.

Then accept my invitation to try Benson’s TradeMaster service and get you immediate access to the Special Report TradeMaster’s Top 5 Breakout Stocks. Take some time and watch the video then try the service with no commitment or obligation on your part to continue.

That’s it. That’s all you need to be well-armed to start making some money as soon as the opening bell rings on the New York Stock Exchange tomorrow morning.

Best regards,

Ian Wyatt

Founder and Publisher

TradeMaster Daily Stock Alerts

PS – After you view the video from the comfort of your home or office and sign up to try TradeMaster, don’t forget to grab your two Bonus Special Reports – The Beginners Guide to Shorting Stocks and Technical Analysis: Top 4 Indicators for Profits. Along with TradeMaster’s Top 5 Breakout Stocks, you’ll be armed for profits tomorrow!

Saved By Zero

Ian Wyatt — Fri, 12 Dec 2008 17:51:00 GMT

Your Daily Profit

December 10, 2008

*****Moving Averages

*****Saved by Zero?

*****Solar Stocks

Dear Investor,

After flirting with 9,000 for a couple of days, the Dow Industrials turned tail and closed lower yesterday. Still, there has been some encouraging action. We’ve seen stocks move higher despite bad news, which is a sign that the bad news is already accounted for in stock prices.

The recent rally failed right at the Dow’s 50-day moving average (MA). If you don’t know a moving average is just that – a moving average of closing prices, in this case of the last 50 days. The 50-day moving average is often used to identify short-term trends. When prices move above the 50 day MA, it’s taken as a bullish sign. When prices fall below, it’s bearish.

You can easily find apply a 50-day MA to chart at Yahoo! Finance. Click on a 6-month chart for the Dow Industrials and then choose the “technical indicators” from the list of drop-down menus at the top of the chart. Then select “simple moving average”. The drop down menu should offer you the 50-day MA.

You’ll clearly see that the Dow dropped below its 50-day MA back in May. It then flirted with it in August and part of September before leaving it behind until Friday and Monday.

Of course, moving averages aren’t 100% reliable. Nonetheless, they can offer important clues as to what direction prices are heading.

*****Yesterday’s failure to move above the 50-day MA doesn’t mean the Dow is headed for another massive decline. But it does send enough of a warning that you probably shouldn’t take any new upside positions first thing in the day. Let the Dow find a support level and start to rally first.

*****It appears that a bailout plan for the automakers could be announced in the next few days. Even though the market has rallied on the possibility, don’t be surprised to see stocks sell off when a bailout is announced. But the rumor, sell the news may be a very old saying. It’s also one of the most reliable Wall Street maxims you’ll ever hear.

*****It’s amazing, but the shortest T-bills are now paying zero interest. Yesterday, the Treasury sold $30 billion in 4-week bills at zero interest. Even more amazing, in trading after the auction, interest rates on some of the bills went negative. It actually cost money to own them.

As one money-market mutual fund president said “Down slightly is the new up.”

It’s nice he can maintain his sense of humor. But there’s not much funny about bonds paying nothing. It tells you that the big money is absolutely risk averse. To them, there is no guarantee in any market at any time. Clearly, that will have to change for stocks to make any real headway.

And by its very nature, it has to change eventually. Institutional investors will become less risk averse and start seeking actual profits at some point.

*****I’m starting to kick the tires on some solar stocks. Not buying, just looking. That’s because prices for solar panels are falling. One of the biggest solar companies, Suntech Power (NYSE:STP) estimates that its prices could fall 25%-30% in 2009.

That’s significant because price is the biggest barrier for large scale adoption of solar technology.

Obviously, it’s the economic environment that’s forcing the prices lower. But if the industry cuts prices in half by 2012, as Suntech CEO thinks possible, solar power suddenly becomes a competitive energy source.

Of course, such a drastic drop in cost will drive marginal players out of business. But that’s how these things work. In fact, a solar bankruptcy or two may be the buy signal for solar stocks. We’ll see.

*****Registration for Stock Summit 2008: Profits After the Fall opens to the public today. We’ve already filled our first 500 spots, so I’ve made arrangements with my ISP to let more of you in the door. But with the number of investors who are signing up every day, I can’t guarantee you’ll get to sit in for Benson’s profitable insights unless you register now.

So please, take a minute and click HERE to reserve your spot for Stock Summit 2008: Profits After the Fall. You’ll be glad you did.

*****As always, keep your questions and comments coming. Here’s my email -- editorial@247investor.com, thanks!

Best Regards,

Ian Waytt

Editor

Daily Profit

Will It Stick?

Ian Wyatt — Wed, 26 Nov 2008 18:36:00 GMT

Your Daily Profit

November 25, 2008

*****Will It Stick?

*****Stock Updates

*****Black Friday

Dear Investor,

*****You may recall the last time the market’s put in a gigantic rally, I was skeptical. The Dow had just launched 900 points, reversing 25% of October’s losses. The Dow closed at 9,065 that day (October 28) and went on to peak at 9,625 the day before the Presidential election.

Basically, it was a case of “too much, too soon.”

I don’t think we have that problem this time. Even though the Dow has jumped close to 1,000 points in two days, it now sits in the lower portion of the post-meltdown range between 8,000 and 9,500.

In my opinion, that’s sustainable. So if you bought any of the stocks we’ve discussed here in the Daily Profit since Friday, you’re probably looking pretty good.

*****For the record, we had Graham Corp. (AMEX:GHM), Emergent Bioscience (NYSE:EBS) and Questcor Pharmaceuticals (Nasdaq:QCOR) on the table as good buys from Friday’s Daily Profit.

Graham could have been had most of the afternoon for $7 and change. It closed Monday at $8.42. Emergent could have been had around $17.50 Friday and it was pushing $20 Monday afternoon.

Questcor has been the laggard. It traded in a wide range Friday. Friday’s entry could have been anywhere between $7.20 and $8. The stock spent most of Monday trying to work through two resistance points at $8.20 and $8.40.

I realize that both Emergent and Questcor have been mentioned in Daily Profit before Friday. If you’ve bought either of these, or Graham, and you have a minute, drop me a line and tell me your entry price editorial@247investor.com. It will help me track the stocks if I know where you got in.

*****Here’s a question I wanted to share about Questcor. Tim Writes: I looked at the Questcor web site. I do not see any products that would lead to optimism about its future. What is their pipeline? I fail to see the upside in terms of future products.

I’m going to be straight with you – I don’t know what’s in Questcor’s pipeline, either. And I only know that it has a drug for multiple sclerosis and another awaiting approval for some kind of central nervous system disorder.

But you know what? Everything I need to know about Questcor, I learned from my stock selection machine TRIGR. The company passed a rigorous fundamental and technical criteria to make it to the top of TRIGRs list.

Questcor has 6 months of revenue in cash and no debt. The company is profitable and is growing both revenues and earnings at a very impressive pace. And it expects to exceed its revenue guidance for the year.

So I may not know all the details of their products. But I know they’re selling them at record pace. And the company is using its cash flow to buy back stock.

I also know that Questcor was about the only stock around strong enough to make new 52-weeks in October, when stocks were getting creamed.

Finally, I know that my trading service TradeMaster Daily Stock Alerts recently made 15% on Questcor. Back in the summer, TradeMaster Daily Stock Alerts traded Emergent 4 times for gains of 12%, 19%, 17% and 12%.

For more about TradeMaster Daily Stock Alerts, click here.

*****I said I thought the gains of the last two days are sustainable. But that doesn’t mean it’s an all-clear signal. Unemployment is still on the rise. As much as Obama’s stimulus plans are welcome and necessary, they may not have a direct effect on the jobless rate until 2010.

And Black Friday is coming up fast.

I assume you know what Black Friday is. It’s the day after Thanksgiving and it’s one of the biggest shopping days of the year. It’s “black” because that’s the day retailers get back in the black.

Will that hold true this year?

It’s hard to imagine it will. But what’s more important are expectations. Black Friday is usually a day to see how much more people are spending than the year before. But some analysts are already calling for the first drop in holiday retail sales since 1992. So Black Friday certainly represents a downside catalyst for stocks.

End of year selling for tax loss and other reasons is another potential downside catalyst for stocks. I’d expect that most people have sold individual stocks they hold. Mutual fund and hedge fund holdings are the ones I’m a little worried about.

Best Regards,

Ian Waytt

Editor

Daily Profit

A Sea Change for the Consumer?

Ian Wyatt — Tue, 04 Nov 2008 18:50:00 GMT

*****Happy Halloween

*****A Sea Change for the Consumer?

*****Chesapeake’s $2.85 Billion Surprise

*****The rally that started Tuesday and continued on Thursday might have investors feeling like the worst is past. But I can’t help but think we haven’t seen the last of the declines.

I don’t mean to sound like a perma-bear. Just yesterday, I was noticing that some stability has returned to the stock market. And today’s nice move higher came after we saw some bad news on U.S. GDP.

Yesterday’s GDP number clearly shows that the economy went into recession during the last quarter (July – September). And given the complete business standstill in October, there’s no doubt the 4^th quarter GDP will be another negative number.

But then, we knew that.

Stocks wouldn’t be rallying if investors didn’t believe that stocks were priced for the slowdown.

*****GDP declined 0.3% in the last quarter. Expectations were for a 0.5% decline. I suppose you could say today’s number was good news. Or at least you could say it was be not-as-bad-as-we-thought-it-would-be news.

But this drop in GDP involves the first decline in consumer spending in 17 years. And at 3.1%, it was the biggest drop in spending in nearly 28 years. That’s significant.

The U.S. economy was in recession in 2001-2002. But that recession was marked mostly by a huge cut in corporate spending. Consumer spending slowed, but it didn’t shrink. Now, the consumer is leading the decline.

*****People can’t spend what they don’t have. The 3^rd quarter GDP report showed that Americans discretionary income fell 8.7%. That’s the biggest drop since they started tracking discretionary income in 1947.

And job losses are mounting. American Express (NYSE:AXP) is laying off 7,000 employees. And the proposed merger between Chrysler and GM (NYSE:GM) is expected to cost 75,000 jobs. That could lead to another 50,000 jobs lost in the auto parts industry. Throw in advertising and shipping and we could be talking 200,000 jobs.

As I’ve noted, unemployment could hit 8%-9% next year. Numbers like that don’t suggest a quick turnaround for discretionary income or consumer spending.

I’m now seeing 4^th quarter GDP estimates of -1% to -5%. Again, given what we’ve seen in October, the first month of the quarter, investors expect a negative number. -1% might even seem like good news.

But -5%? It’s hard to imagine investors shrugging off a number that big.

*****It’s pretty clear that investors aren’t looking too far ahead. Stocks may be priced properly for the next couple of months. I can’t help but wonder if we might be in the midst of a true sea change for consumer sentiment.

My grandfather grew up in the tail end of the Depression. He was tight like no one I’ve ever met before. I remember he would stand outside the bathroom and time your showers so you didn’t use too much water. A dinner out was a trip to the S&S Cafeteria. He never shook the spendthrift habits he learned when he was young.

It’s often said that you should never underestimate the strength of the American consumer. We’ll spend like there’s no tomorrow. Massive credit expansion over the last 15 or so years has certainly helped perpetuate that image of the American consumer.

But now, Americans have $900 billion in credit card debt. 6.8% of credit card balances are being written off by banks. And believe it or not, some banks are now begging the U.S. government to allow them to forgive up to 40% of some customers’ debt, just to keep those customers making monthly payments. Those banks are afraid these customers might just walk away from their obligations.

Take staggering debt, throw in 9% unemployment, impossible to get credit, falling home values and more stock market declines, and you just might start to see the kind of environment that forces us Americans to permanently change our spending habits.

Of course, it would take a few quarters for any such trend to show itself. I’ll be watching retail sales numbers just as closely as I watch unemployment numbers.

*****Don’t let my pessimistic analysis make you think that there won’t be any good profit opportunities in the stock market. If anything, difficult economic times make good research even more rewarding.

For some good news, it’s nice to see that companies still know how to use derivatives. Chesapeake Energy (NYSE:CHK) reported a massive earnings gain due hedges it placed on its natural gas and oil sales.

Including the derivatives gains, Chesapeake earned $3.25 billion in the 3^rd quarter, compared with $346 million a year ago. Without the phenomenal one-time gain, Chesapeake still earned an impressive $486 million. That missed estimates by 3 cents, but investors seem to be focused on the $2.85 billion profit form the hedging activity.

Not only is that $2.95 billion a nice boost to the bottom line, it shows that management is paying attention. They apparently foresaw falling natural gas prices and took steps to insulate the business. Well done.

I first discussed Chesapeake on October 16. The stock closed at $18.35 that day. Yesterday, the stock finished at $22.07. It’s up 20% in two weeks. And it looks like more gains are on the way.

Best Regards,

Ian Waytt

Editor

Growth Report

Greenspan: Shoocked Disbelief

Ian Wyatt — Fri, 24 Oct 2008 18:04:00 GMT

Alan Greenspan was in Congress yesterday. Congress is digging through Wall Street’s rubble to find out who was responsible for the financial crisis. Of course, the old “Orient Express” conclusion – that everybody, from borrowers, to lenders, to Congressmen, to Greenspan, “did it” – won’t satisfy the need to hang somebody up by their thumbs.

While the culprits are many, I’ve been calling out Greenspan for his part in the debacle for years. Whether you believe that Greenspan should have been able to see into the future and change the course of history or not, there’s no question that he created the risk-ignorant environment that led to the crisis.

After all, interest rates are all about risk. If a loan is risky, you charge more for it. If the borrower is upstanding, you’ll charge less because you know your money’s coming back.

So when Greenspan left interest rates at an all-time low for a year, and then spent another year normalizing them in virtually unnoticeable quarter-point hikes, he was telling the market loud and clear to forget about risk.

And that’s exactly what the market did.

But now Greenspan is back-tracking. How could he have known the mortgage industry, borrowers and the debt-insurance industry would go nuts?

As Greenspan himself said yesterday “Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity -- myself especially -- are in a state of shocked disbelief…"

I don’t know about you, but when I read such a naïve statement coming from the man who was once the most powerful banker in the world, I’m the one who’s in a state of shock and disbelief.

Greenspan is saying he expected the lenders to police themselves. And now he’s “shocked” that they didn’t. You mean Wall Street will put profits and bonuses above the interest of faceless shareholders? No! Say it ain’t so!

Unfortunately, Greenspan’s wide-eyed disbelief at human nature in action isn’t that much of a surprise. I always thought his post-adolescent fascination with Ayn Rand’s objectivist philosophy had been tempered at least a little by the realities he most certainly witnessed in his years as an economist and Fed Chief.

After all, Greenspan witnessed first hand the “irrational exuberance” of the late-90s Internet bubble. He saw point blank how investment banks would outright lie in an analyst research reports to attract investment banking business. Guess not.

How he can say with a straight face that he seriously believed lending institutions would police themselves is absolutely beyond me.

Actually, I know quite well how he could make such a statement. In his youth, Alan Greenspan became infatuated with Ayn Rand’s Objectivist philosophy. In Rand’s view, unregulated capitalism was an ethical system because participants would act in their own best interest.

In other words, if you’re a banker, and depend on depositors to stay in business, then you’ll take good care of those deposits. It’s in your best interest to do so.

Of course, Rand’s utopian vision totally ignores a little thing called human nature. Unfortunately, some people are greedy, selfish and short-sighted. And there are enough of them to totally undermine unregulated capitalism.

If American capitalism went unchecked, we’d probably have a King Vanderbilt or Emperor Rockefeller running the country right now. No, it’s thanks to Teddy Roosevelt, the Trust Buster, that we have some semblance of a free market today.

Greenspan continues to say that there’s no way anyone could have seen the current financial problems coming. And maybe nobody really knew how much damage the credit-swap market could cause, but there were plenty of warnings that our economy was headed for trouble.

On July 19, 2005 chief economist for Standards & Poor's, David Wyss offered up some solutions to Greenspan. He said that the Fed could control mortgage rates by increasing interest rates, and could also place restrictions on banks to get them to stop providing mortgages with no money down.

Wyss said these types of loans place risks on the economy by providing owners with houses "that they can't afford." "What do you do when [the owner] mails the key back to the bank?"

Well, we’re finding that out right now. And it’s not good.

On August 29, 2005 Paul Krugman wrote in a New York Times editorial what Greenspan apparently couldn’t see “…we're going to have an economic slowdown, and possibly a recession.”

In 2004, Alan Greenspan gave his blessing to the sub-prime mortgage industry: ''American consumers might benefit if lenders provided greater mortgage product alternatives (read: no interest loans and adjustable rates) to the traditional fixed-rate mortgage.''

In 2005, Greenspan said "There do appear to be, at a minimum, signs of froth in some local markets…the apparent froth in housing markets may have spilled over into the mortgage markets."

Also in 2005, he said “…history has not dealt kindly with the aftermath of protracted periods of low-risk premiums (interest rates).''

In these statements, it’s clear that Greenspan was ever the optimist. He never thought sub-prime lending would get predatory. He thought a warning that housing was “frothy” would halt the real estate bubble in its tracks.

Wrong. That’s what interest rates are for.

OK, enough about Greenspan. You can probably tell I don’t think he did a very good job at the Fed. Now let’s move on to the stock market.

It’s pretty clear that people are buying stocks right now. Even though we’ve seen plenty of nasty sell-offs, we’ve also seen days like Monday’s 400-point advance for the Dow Industrials and yesterday’s impressive rally out of the hole.

What we’re seeing is two cross-currents: investors with cash are buying stocks because of the historically low valuations; and investors fearful about their cash are selling. Much of this selling is coming from mutual funds and hedge funds.

Now, I know things look bad. And they are. But I believe now is not the time to be cashing out your mutual funds. The idea with investing is to buy low and sell high. Right now, if you cash out, you’re selling low.

I can’t tell you that stock prices will be higher next month. But I do know there are some very low valuations that are almost certainly great investment opportunities out there right now.

Best Regards,

Ian Waytt

Chief Investment Strategist

Growth Report

Is Anybody Out There?

Ian Wyatt — Wed, 15 Oct 2008 14:17:00 GMT

Something’s bothering me.

I’ve been writing a weekly column here at Investors Insight since July. In my very first article, I mentioned the burgeoning bull market for biotech stocks. That was July 23. Emergent Biosciences (NYSE:EBS) was one of the stocks I mentioned.

Even despite the recent carnage, it’s up 15%.

On August 19, I mentioned a solar stock, Canadian Solar (Nasdaq:CSIQ), that ran 16% in the two days after that article.

Last week, I said it was time for a surprise interest rate cut. The very next morning, Bernanke obliged.

I’ve made a couple bad calls, too. Now that we’re in a global recession, inflation isn’t the problem I thought it would be.

But right or wrong, I’ve managed to elicit a grand total of 2 comments from you, dear reader.

I know there are people out there. I can see that my articles have been read 4,217 times. I know from the interactive chat I hosted on the Discussion Forum that there’s an intelligent, savvy group of readers here at Investors Insight.

So I can’t help but think, that after 4,217 views, someone must have walked away from one of my articles thinking “Hmm. That’s a good idea” or “Wow, that Growth Report guy’s about as smart as a box of hair.”

But you’d never know it from the comments I get. I promise, if you leave a comment, I’ll read it and respond. (Though I’ll warn you in advance, if you say I’m smart as a box of hair, my response will probably be nonsensical gibberish.)

Glad I got that off my chest.

“We Should Chat More Often…”

OK. So two things are bothering me.

Since I last wrote with that perfectly-timed call for a rate cut, the Dow Industrials peeled off 700 points, made a wild 1,019 point swing and then launched 936 points.

Clearly, we should stay in touch more. And I’ve got just the way to do it.

I just started writing a daily e-letter called Daily Profit. Plus, I launched a new website to support the letter called 24/7 Investor. (the URL is a clever www.247investor.com.) All together, it’s 24/7 Investors Daily Profit.

So this week, I’m going to reprint yesterday’s letter and give you the opportunity to sign up for it if you like it. I don’t need your social security number or shoe size to sign up. Just an email address to send it to you is fine. The Daily Profit is so new, we don’t yet have a sign up box available at 24/7 Investor. But you can get on the mailing list here www.bigideainvestor.com.

Thanks for reading.

Your Daily Profit

October 14, 2008

******Record Day for Stocks

******Global Recession?

******Earnings, Part 2

Dear Investor,

*****Now that was a good old-fashioned rebound. The Dow Industrials jumped a record 936 points, or 11%. The NASDAQ was up 195 points.

Of course, with the bond market closed for Columbus Day, stocks pretty much had a free pass yesterday.

Despite the nice point totals, I still have to wonder if these gains will stick over the long term. Volume wasn’t particularly heavy.

Like I pointed out yesterday, the emergency G-7 meeting over the weekend failed to produce any concrete plans of action. And Paulson is still mulling what to do.

Buying bank stocks is a start. But the U.S is still far behind England when it comes to moving quickly to restore some semblance of stability to financial markets.

Recall that the U.K. has guaranteed inter-bank loans, set interest rates for such loans, made cash available to banks and is even taking majority stakes in three troubled firms.

Meanwhile, Paulson is “seriously considering” a few things. All I can say is they better hurry. Monday’s euphoria will fade.

*****Even if Paulson follows the U.K.s lead to the letter, it doesn’t mean the U.S. economy returns to growth. There are a number of headwinds that will likely keep the pressure on the economy and stock prices.

As you know, my number one worry is unemployment. The unemployment rate is currently 6.1%. And since it’s pretty much a consensus that the U.S. is in a recession. Estimates for unemployment are rising to between 7% and 8%.

Obviously, those numbers would be the worst since the early 90s. And there’s no way stocks will stage a comeback so long as unemployment is rising.

Forecasts for commodity prices are coming down. One analyst notes that copper is still three times higher than it was in 2001. And Goldman Sachs analysts are now saying that oil prices could drop into the $50s. Steel prices are also coming down.

And that’s not all. One analyst says corporate IT spending will fall 5%, or $170 billion in 2009. That’s not a good sign for tech stocks. If you remember the Nasdaq bear market from 2000-2002, that’s exactly what happened then, too.

Corporations cut spending and the likes of Intel (Nasdaq:INTC) and Microsoft (Nasdaq:MSFT) get killed. Intel reports earnings this afternoon, and what the company says will be very important for the future direction of the Nasdaq.

It will be interesting to see how consumer oriented tech stocks like Apple (Nasdaq:AAPL) fare.

*****Most economists are calling for the worst global recession since 1982. The IMF puts growth at 3% for 2009. Harvard Economics professor and former chief economist for the IMF Kenneth Rogoff says we should knock 2 points off that estimate.

So while stocks may look like a bargain right now, there’s plenty of reason to think earnings estimates for 2009 are coming down. S&P 500 analysts are currently expecting record 3^rd and 4^th quarter profits.

Profits dropped 7.5% in the second quarter. But analysts are still expecting a 22% jump to a record $222 billion for the third quarter and to post another record $241 billion for the 4^th quarter.

Needless to say, a lot of market strategists say those numbers are too high. And with lower earnings, stocks won’t look as attractive as they do right now.

*****I’m still a bit haunted by what Lehman CEO Richard Fuld said in his Congressional testimony last week.

“Until the day they put me in the ground I will wonder," Fuld said. "I do not know why we were the only one.”

He means Lehman Brothers was the only investment bank that was left to fail. AIG, Freddie Mac and Fannie Mae were rescued. The Fed stepped in to broker deals for Bear Stearns and Morgan Stanley.

Only Lehman was left to fail. Yesterday, Germany’s financial regulator said Lehman’s bankruptcy cost $300 billion outside the U.S. Apparently, Paulson didn’t think those losses were worth protecting against. Sounds to me like he had a personal vendetta with Lehman’s Fuld. And that’s clearly no way to run financial policy.

Best Regards,

Ian Waytt

Editor

Daily Profit

Gurus Ring the Bell

Ian Wyatt — Tue, 07 Oct 2008 20:13:00 GMT

Gurus Ring the Bell

Ahh, the newsletter crowd is getting bullish. My inbox is full of stock-picking gurus saying now’s the time to be bold and buy stocks. Fear is rampant, they say. Distant relatives are calling in the wee hours asking for advice. The VIX is at an all time high. 59% of respondents to a CNN poll feel a depression is either very likely or somewhat likely.

And you know what? I agree. About being bullish, not about depression.

My trading guru, Benson George, the man behind TradeMaster Daily Stock Alerts saw a silver lining to Monday’s gut-wrenching decline. Namely, the 800 point sell-off came on relatively light volume.

I know, it’s a little difficult to call an 800 point drop orderly, but if there ever was an orderly decline, that was it.

Then there was the substantial recovery off the lows. Clearly, buyers are seeing value at current prices. Now, how long it will take for the buyers to gain the upper hand remains to be seen.

I do know that if Bernanke is trying to prep the market for a rate cut at the upcoming FOMC meeting on October 29^th, he should save his breath. We’re ready. Do it. Do it now.

Victor Sperandeo, of Trader Vic fame, maintained in one of his books that the key to making an interest rate move effective was surprise. Fed moves work best when they are a surprise. And any action that comes during a FOMC meeting is not a surprise.

Bernanke should pull another fast one and cut rates 20 minutes before the market opens tomorrow. That’ll help certain companies’ balance sheets immediately. Bill Gross over at PIMCO wants a full point rate cut. Sounds good to me. At this point, it’s about investor confidence. A big rate cut would definitely help.

A Bottom or THE Bottom?

Of course, I have to hedge my rally call. I do think we’re set for some kind of a rally. But I’m not, repeat not, ringing the bell at the bottom. I’m on record saying that employment has to show improvement before there’s sustainable upside for stocks. And the U.S economy is on pace to lose a million jobs in 2008.

No economy can lose that many jobs and still manage to grow significantly. And don’t forget, consumers don’t have the extra refi cash they used to fuel the last bull market.

In other words, there’s upside for stocks in terms of valuation. But growth? I’m not sold on that one just yet. Still, every one knows the story of how Warren Buffett made his fortune buying beaten down stocks in the 70s.

Earnings Season

I wonder if all the newly bullish realize that earnings season kicked off today with Alcoa (NYSE:AA)? With so much going on, it would be easy to miss. But there’s no way earnings are good. And there may be a few nasty surprise waiting in 10Qs. Because what the heck, when news is already bad, you might as well get it all out there, right?

That’s probably why Bank of America (NYSE:BAC) chose to announce a secondary offering to raise cash at the same time it announced a 68% drop in earnings. You might think investors would be glad that BofA even had earnings.

I can only guess that, somehow, the $10 billion stock offering put a damper on the enthusiasm. And the fact that offering was only two-thirds subscribed probably didn’t help. Neither did the 50% cut in dividend. (Of course, it’s only polite to rein in your own spending when you’re begging for cash, but that doesn’t mean investors have to like it.)

BofA got whacked for better than 24%. And by my rough calculations, that accounts for 20% of the Dow’s drop today.

Here are some stocks I’m targeting for a valuation-based bounce:

General Electric (NYSE:GE) jumps to mind. That stock has hit an 11-year low. It’s important to note that GE has to access the credit markets to fund operations, which could be problematic. But on the other hand, GE’s already done a secondary, and Buffett added some liquidity as well. Earnings are October 10.

Intel (Nasdaq:INTC) quickly recovered from these levels back in 2002. Before that, you’d have to go back to 1996 to find the last time it was under $17. Earnings are October 15.

And Verizon (NYSE:VZ) has hit support at $30 that dates back to 1995. They report on October 27.

I’m sure there are some more speculative stocks that might fare better in a liquidity driven bounce. But for short-term trading opportunities, I favor the blue chips. And for the record, I’d rather buy AIG than anything emerging market related. And I’m not buying AIG.

Best regards,

Ian Wyatt

Chief Investment Strategist

Growth Report

PS – I’m launching a new daily e-letter Monday, October 13, 2008. It’s called 24/7 Investor’s Daily Profit. The website is in place. Feel free to check out the new website, www.247investor.com, and sign up for Daily Profit.

After the Bailout

Ian Wyatt — Tue, 30 Sep 2008 21:15:00 GMT

After the Bailout

I can’t help but wonder if Monday’s bailout vote would have been different if the Dow Industrials were down 770+ points before they started the roll call.

Members of Congress that voted against the Paulson Asset Management plan seemed to be responding to political concerns. Apparently Capitol Hill phone lines were clogged with angry voters. And voting with President Bush isn’t the best career move these days.

Most in Congress agree that doing nothing will certainly lead to higher unemployment and foreclosure rates (and more angry voters). They wanted the bill to pass, but didn’t want to be on record as having voted for it.

I suppose that’s understandable. Whether you want to blame the Democrats and Nancy Pelosi for undermining the vote, the fact remains that the American public wasn’t sold on the bill. First of all, the word “bailout” is poor marketing. It gives the impression that Paulson and Bernanke simply want to help their banker buddies. And frankly, the terms of the bill didn’t do a lot to dispel that perception.

Bernanke argued against setting salary caps on CEOs who sold impaired mortgage-related assets to the government. And the plan to buy these impaired assets at above-market prices smells of cronyism.

Marking to Market: Fair Value Accounting

Over the last couple of days, the issue of “marking-to-market” is getting a lot of attention. Financial institutions are required to mark their assets to the market. They have to value their assets according to the price they’d fetch on the open market. Since nobody in their right mind would buy anything that even remotely looks like a mortgage backed security, those assets have to be carried on the books as a huge loss.

Makes sense. I can’t claim my house is still worth what it was 3 years ago. And I sure can’t adjust my brokerage statement to reflect what I think a stock should be worth. To let banks value their assets at anything other than what they can sell them for is utterly ridiculous.

Don’t get me wrong. I see the point. If banks can value their assets at a higher level, they suddenly have enough capitalization to raise their creditworthiness. Then they have the ability to sit on these mortgage-backed assets until the market (hopefully) improves.

The only problem with this is it’s not reality. It’s wishful thinking. And any move to suspend mark-to-market accounting is a sin of the exact nature that got us into this mess. Namely, that there’s no downside risk.

Nothing but Downside

So Congress goes back to vote on some new version of the bailout plan Thursday. And given Monday’s record-setting decline for the Dow, I suspect Congress and their constituents are a bit more amenable to passing the bailout bill. I just hope Congress avoids the real bailout issues, like suspending mark-to-market accounting, and instead focuses on truly helpful measures like increasing FDIC insurance limits and expanding unemployment benefits.

Traders certainly seemed to be hopeful. On Tuesday The Dow took back more than half of its Monday losses. But it’s still going to be interesting to see what happens in the wake of a passed bailout bill.

It seems a pretty good bet that stocks will rally further, at least in the short term. But it’s hard for me to get fundamentally bullish about massive government intervention. The dollar is enjoying a little return to faith rally. But ultimately, $700 billion coupled with the massive amounts of cash being made available by the Fed seem more than a little inflationary.

And while we might stave off disaster, there are still fundamental problems with the US economy that won’t be fixed by helping banks with their mortgage related credit problems.

Where’s the Money Going

Monday was a very interesting day, trading wise. While the total point losses were huge, some sectors did very well. Biotech and alternative energy rallied strongly. Both sectors are about as far from mortgages as you can get. But they do depend on investment, which is a little incongruent.

In any event, Pacific Ethanol (Nasdaq:PEIX) shares shot up from $1.30 to $2.08 in the final 30 minutes of trading. Of course, it gave most of it back on Tuesday.

Beacon Power (Nasdaq:BCON) and Quantum Fuel Systems (Nasdaq:QTWW) made a similar late day jumps only to fall back. Only Ocean Power Technologies (Nasdaq:OPTT) managed to hold its gains.

In the biotechs, Altus Pharmaceutical (Nasdaq:ALTU) and Helicos Biosciences (Nasdaq:HLCS) gave back their Monday afternoon gains.

Gold prices have been extremely volatile. But not much has changed with the miners, which means they aren’t doing well. Oil prices seem to be highly correlated to the bailout plan. Traders appear to believe the bailout will mean stronger economic activity and hence more demand for oil.

Now I hate to keep saying the same thing over and over, but I’m still a big fan of the MLPs. I first mentioned these stocks in my column on September 17. One of the stocks in the free report I offered, Eagle Rock Energy (Nasdaq:EROC) opened at $10.41 that day. 2 days later it closed at $13.75.

Today, Eagle Rock closed at $10.53. Now, I’m not going to predict another 32% run in two days. But I won’t be surprised to see it move higher when the bailout bill passes.

Also, my special report is still available here.

Best regards,

Ian Wyatt

Chief Investment Strategist

Growth Report

Paulson Asset Management, LLC

Ian Wyatt — Wed, 24 Sep 2008 19:43:00 GMT

Paulson Asset Management, LLC

So now the Treasury has a massive $700 billion bailout plan on the table. The idea is to create a government agency to deal with bad mortgage related debt, sort of like how the Resolution Trust Corp. (RTC) dealt with $394 billion in assets of failed banks during the S&L Crisis in the 80s.

You probably recall how regulators would swoop in on troubled banks, close them down and turn their assets over to the RTC, who would then dispose of them, sometimes for pennies on the dollar.

It was like free money for some savvy investors as they were able to buy assets on the cheap from the RTC. Still, many shareholders in failed banks like Silverado and Lincoln never recovered their money.

That’s got me curious as to how Paulson Asset Management, LLC (PAM) will deal with the mortgage-related assets it takes on. Clearly, some of those assets, like the credit default swap derivatives, are essentially worthless and will remain so.

However, there’s certainly a fair amount of mortgage-backed securities that have been written down to near-zero out of necessity, because no one will buy them now, but will probably regain some value in the future.

After all, why else would PIMCO’s Bill Gross say that he’s expecting to be called by PAM (Paulson Asset Management), to help manage the mortgage-backed assets it buys?

Economic Socialism: Puttin It Mildly

My point here is that we’re seeing much more than economic socialism, or the economic communism that Jim Rogers alluded to recently. This is more akin to Valdimir Putin’s hostile takeover of Yukos Oil.

Politics aside, there’s a profit-motive here. Think about it. The Fed and Treasury lent AIG $85 billion. AIG can either pay up (with 11% interest) or the Fed and Treasury get an 80% stake in the company. And from what I understand, AIG has a matter of days to come up with the loot.

At $5 a share, AIG is worth around $13 billion right now. At the start of the year, it was worth around $130 billion. As of June 30, 2008, AIG had $67 billion in tangible assets, down from $95 billion a year earlier.

Obviously, those tangible assets are worth less than $67 billion now. Nobody will buy them.

But what will they be worth a year from now, after most of the bad debt out there has been exposed and investors can make informed decisions about what’s got value and what doesn’t?

That’s OUR $85 Billion

I suspect that PAM’s stake in AIG could be worth a decent sum in a few years. Same goes with whatever assets PAM’s $700 billion buyout fund targets.

It seems to me, since PAM is using taxpayer money to fund its investments, the American people should be considered shareholders. We should share in the spoils.

Now before you think this suggestion is like investing social security in the stock market, there’s a very important distinction here. For instance, PAM can change the rules anytime it wants to. Stock price going down? No problem. Just make it illegal to short.

The more I think about it this idea, the more I like it. And for the record, I have no problem with Bill Gross as the Chief Investment Officer.

What Will Congress Do?

Now I want to be clear about something. I might sound a little flippant with my suggestions here. But this financial mess is very serious. It’s a massive fraud, and the government’s bailout plan doesn’t mention even the slightest slap on the wrist for the offenders or deal with homeowners problems.

Of course, there will be new regulations. There always are. But they never seem to do what they’re intended to do.

As the panic from last week’s market rout eases a little, and Bernanke and Paulson testify before Congress, Congress seems to be taking a harder line on the bailout plan, which is good.

Because, again, I want to know how PAM intends to dispose of billions in impaired assets.

And what’s more, Bernanke apparently wants to buy impaired assets from banks at a premium to current value, and hasn’t really talked about what he’ll do with them. That’s a problem.

If you remember the S&L Crisis, you’ll recall that there was a lot of criticism as to how the RTC disposed of its assets. Much of it was real estate, and in less than desirable markets, as well. Still, many felt that the RTC sold at prices that were way too low to compensate investors for their risk. (The New York Times reported about a resort with an $8 million book value selling for 695K.)

If Bernanke and PAM buy impaired assets at a premium with no realistic plan of how to monetize them, then they’re simply seeking to recapitalize failing banks at taxpayers expense. If so, this PAM shareholder has to vote no.

So what Should We Do?

I’d tell you to call your Congressmen, but they’re busy. Plus, judging by the tone of yesterday’s Q&A following Bernanke and Paulson’s testimony, I’d say they’ve got the message. Taxpayers are not wild about bailing out banks.

Why not expand the powers of the FHA and let Americans with mortgage problems refinance to a lower rate? At least that would address the “real” problem, which is default and foreclosure.

As far as investing goes, my advice hasn’t changed from last week:

“There’s one asset class I like a lot right now. It’s something of a defensive play, mainly due to the high dividend yield. But there’s also a case to be made for some capital appreciation.

It’s MLPs. Master Limited Partnerships. These companies own and operate pipelines for oil and natural gas, mostly in the Southwestern U.S. These companies have pretty stable revenue streams because they sell capacity in advance. MLPs are required to pay 95%+ of their income in dividends to maintain their tax exempt status. And they rely on credit to expand their operations, and hence, revenue.

Many MLPs are currently trading at 52-week lows. I believe this is because their ability to expand has been impaired by the banking liquidity problems. But these companies have stable revenue and they pay dividends of 6-11%. That alone makes them a good place to park your cash until the markets get better.

Plus, as the lending situation improves over the next few months, you could see as much as 30% gains for the stocks as investors anticipate revenue expansion.”

Here’s the link I posted last week to get my favorite MLPs. Most of these stocks have jumped 10+% since lows last Thursday.

Best Regards

Ian Wyatt

Editor

Big Idea Investor

Panic in the Air

Ian Wyatt — Wed, 17 Sep 2008 13:43:00 GMT

Dear Investor,

Monday’s 500 point drop on the Dow was the closest thing we’ve seen to an outright panic in years. Stock prices have been extremely volatile, and that’s probably going to continue.

Now, before I go on, I’d like to take a quick minute to thank my loyal readers for sticking with me. In times like these, when so many of Wall Street’s leaders have proved to be so reckless, it’s not easy to trust anyone when it comes to your money and investments. I’m flattered by your support.

And I’ll be straight with you – I can’t tell you how much farther the markets will fall (though I have some ideas I’ll share in a moment). I can, however, continue to do the same type of analysis that’s lead to 12 out of 16 winners for my Growth Report newsletter this year.

I can also tell you that the problems we’re facing now will be resolved. We may get a stronger SEC, or more laws to protect investors. But we won’t learn our lesson. We’re dealing with the human element here. We’re only 10 years removed from the Internet bubble and Henry Blodgett’s $400 Amazon target…

Back in the day, investment banks put out analyst reports with pie in the sky stock price targets to lure investment banking clients. In the aftermath of the bubble, a few political bulldogs made quantum-leap career moves by pushing regulatory reform.

Investment banks were forced to separate their research divisions from their investment divisions. And in some cases, that meant separating research from any real income, too.

So now, good research on small cap companies is hard to come by. And Elliott Spitzer’s naked ambition got the best of him just up the street from my D.C. offices.

Same Old, Same Old

It’s almost a perfect replay. Just insert “condo” for “Amazon” and you can pretty much leave everything else in place. Except the stakes are far higher this time around.

Because, this time, it’s mortgages and not just stock.

It’s hard to blame investors for being worried – bad bets on mortgages have put our entire financial system on thin ice.

Well, I don’t mind saying I’m worried, too.

And I’m also mad as hell about it. As far as I’m concerned, Wall Street’s committed every one of the Seven Deadly Sins. And it’s you and I that will pay the price as the government bails them out.

However, fear and anger won’t help any of us be better investors. In fact, if you let fear or anger inform your investment decisions, you’re all but guaranteed to wind up poorer.

Let the Times Make the Man (or Woman)

I never recommend taunting the gods with questions like “How can it get any worse?” I did that once. It didn’t turn out well. Still, with Bear Stearns, Lehman, Countrywide, Fannie Mae, Freddie Mac, and IndyMac gone, Washington Mutual and Wachovia soon to follow, and AIG not looking good either, it’s hard not to wonder how it can get worse.

It’s fine to wonder. Just don’t say it out loud. That’s what really gets the gods peeved.

After Freddie Mac and Fannie Mae got nationalized, a lot of stock gurus heard the proverbial “bell at the bottom” and stated it was time to buy financials.

Not me. And not because I know anything more about the situation than they do. Only because I’ve learned that it can always get worse. (And by the way, I think the gods like that kind of talk.)

I’ve repeatedly stated that unemployment is now the key to finding a market bottom. Financial companies may be done writing off bad debt (though I doubt it). But we’re not getting a sustainable rally until the employment situation reverses. Or at least stabilizes.

Times like these don’t call for desperate measures. They call for rational actions. And I’ve got a pretty rational investment for you, which I’ll share in a minute. But first, I need to make a brief comment on the Fed’s decision to hold interest rates steady.

The Right and Wrong Answer

The FOMC responded to the Bear Stearns crash with a rate cut. That was the wrong answer. Cheaper money didn’t really help the banks. They just ramped oil prices higher and the dollar lower.

This time, the Fed got it right, but apparently for the wrong reasons. The FOMC voted to hold rates where they are, with the understanding that the Fed and Treasury will make special liquidity provisions where necessary.

Just when you think the Fed is getting a handle on things, it comes out and says it’s concerned about inflation. That statement got big “huh?” from PIMCO’s Bill Gross. Gross says we’re clearly in a deflationary environment. And it’s hard to argue.

If banks won’t or can’t lend, then there’s less money in circulation. That’s deflation.

Now, the investment angle I wanted to discuss plays directly on this situation…

Low Price, High Yield

There’s one asset class I like a lot right now. It’s something of a defensive play, mainly due to the high dividend yield. But there’s also a case to be made for some capital appreciation.

It’s MLPs. Master Limited Partnerships. These companies own and operate pipelines for oil and natural gas, mostly in the Southwestern U.S. These companies have pretty stable revenue streams because they sell capacity in advance. MLPs are required to pay 95%+ of their income in dividends to maintain their tax exempt status. And they rely on credit to expand their operations, and hence, revenue.

Plus, as the lending situation improves over the next few months, you could see as much as 30% gains for the stocks as investors anticipate revenue expansion.

If you’d like to get my Top 5 MLPs, just click here. They’re free, you just need a valid email to access the report.

Best Regards

Ian Wyatt

Chief Investment Strategist

Growth Report

A Yacht, Greenspan and Uranium Stocks

Ian Wyatt — Wed, 10 Sep 2008 01:51:00 GMT

On Monday, in a CNBC Europe interview, Jim Rogers wondered if the US was “…more communist than China.” He was referring to the Fed’s bailout of Freddie Mac and Fannie Mae, and to a lesser extent, the bailout of Bear Stearns back in March. “Socialism for the rich” he called it.

“This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents," Rogers said. "I’m not quite sure why I or anybody else should be paying for this.”

That’s great stuff. And when you consider that the Treasury is on the hook for something like $50 billion (assuming the entire portfolio of mortgages doesn’t go non-performing), it does seem a bit like the taxpayer is, to quote the license plate of my home city, experiencing taxation without representation.

As a counterpoint, Warren Buffett applauded the move as the best deal available. But even Buffett admits that this outcome was made somewhat inevitable when Freddie Mac and Fannie Mae were chartered as quasi-government entities.

There’s a lot of “coulda, shoulda” going on these days.

But to get to the best of them, we need to throw a couple more names into the discussion: Bill Miller and Alan Greenspan.

The Line Up

Bill Miller is the once-legendary manager of a few Legg Mason mutual funds. Miller beat the S&P 500 16 years running. It should be noted that the same year his streak was stopped, 2006, was the year he bought the 9^th biggest yacht in the U.S, the Utopia.

Many wondered at the time if this purchase was the ultimate “sell” signal. Well if that wasn’t, Miller’s early-summer admission that he doubled down on Freddie Mac should have been.

As of July 31, he owned 80 million shares of Freddie Mac. Ouch. So certain was Miller that he was sitting on a value goldmine, he added 30 million shares this summer, even as Freddie’s stock was getting pummeled.

You have to look at Miller as some kind of tragic hero. King Lear perhaps, who thought he was “…more sinned against than sinning.”

Miller apparently took Bernanke and Paulson’s pledge to keep Freddie Mac “in its current form” as gospel. And so it was either greed or ego that made him think averaging down on Freddie Mac was a good idea.

I’m guessing Miller was the only one who took Bernanke at his word. Now he’s found out how much sharper than a serpent's tooth it is to have a thankless Fed!

(I’ll certainly never forget my senior analyst Benson George’s warning to stay away from any mortgage-related stocks, but that’s a different article.)

Heads on a Platter

Bill Miller may be the sacrificial lamb, albeit of the same species as the homeowners who bought more house than they could afford. But what of the “crooks and incompetents” that Rogers spoke of?

It’s not as if Freddie Mac CEO Richard Synor and Fannie Mae CEO Daniel Mudd (could that name be more ironic) had no idea what was going on.

Freddie Mac’s chief risk officer David Andrukonis told Synor in 2004 that the bad loans it was buying “would likely pose an enormous financial and reputational risk to the company and the country.”

Syron got the warning in writing that “shoddy” underwriting standards were exposing the company to losses, according to Andrukonis. Demands to raise its capital cushion went mostly unmet. Even when they came directly from Paulson and Bernanke.

Well Syron’s out of a job now. But of course, he was paid $38 million in the last five years -- $38 million to make $80 billion in shareholder equity disappear.

Freddie Mac’s bond holders will get paid. That’s what Rogers means by “socialism for the rich.” Syron’s mess will get cleaned up. Eventually. It remains to be seen what happens to homeowners in over their heads and Bill Miller. I expect they won’t be the beneficiaries of any socialism.

Playing for the History Books

I remember thinking back in 2005, after Greenspan had announced his retirement, that he was playing for the history books. Using low interest rates to prop up a weak economy so he could go out in style. (Sort of like how gas prices have dropped as we head into the election.)

And even now, Greenspan seems to be trying to re-write the books.

"Much as we might wish otherwise, policymakers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances," Greenspan recently said.

He went on to say that governments and central banks probably could not have altered the course of the once high-flying housing market.

Oh man. This is just too easy. I don’t even need a narrative. These comments speak for themselves:

· ''history has not dealt kindly with the aftermath of protracted periods of low-risk premiums (interest rates).'' 2005 Greenspan

· ''American consumers might benefit if lenders provided greater mortgage product alternatives (read: no interest loans and adjustable rates) to the traditional fixed-rate mortgage.'' Greenspan 2004

· "There do appear to be, at a minimum, signs of froth in some local markets," Alan Greenspan said. June 10 2005

· "…the apparent froth in housing markets may have spilled over into the mortgage markets." June 10, 2005

Wyss said these types of loans place risks on the economy by providing owners with houses "that they can't afford." "What do you do when [the owner] mails the key back to the bank?"

Well, we’re finding that out right now. And it’s not good.

On August 29, 2005 Paul Krugman wrote in a New York Times editorial what Greenspan apparently couldn’t see “…we're going to have an economic slowdown, and possibly a recession.”

Wyss could see it. Krugman could see it. Benson could see it. Why not Greenspan or Miller?

Uranium Stocks

Now, on a completely different note, I hosted a forum chat here at Investor’s Insight last Friday. It went really well and I’d like to thank all the readers who came out to ask questions and leave comments.

You really helped that chat with informed questions and insightful comments. Thanks.

The transcript of the discussion is still available under Discussion Forums.

One person inquired about a couple uranium stocks. Here’s my response:

Uranium prices peaked in Spring of 2007 and have been pretty much downhill ever since. There appears to be plenty of supply and little increase in demand.

With a rising dollar, commodities in general have been headed lower. Until there is some stability in the dollar, price pressure will remain on commodities in general.

Uranium is a bit of a special case, as its price started falling well before most other commodities. That’s probably not a good sign. Though it may be worth noting that sentiment on uranium couldn’t get much worse at the moment.

There doesn’t seem to be much talk about new nuclear plants coming on line here in the U.S., and that makes me think that uranium prices may stay low for a while.

However, if you don’t mind waiting for a while, uranium stocks may be OK. But you must buy big companies, with plenty of cash, and, preferably, other sources of income, like gold mining.

For the record, I can’t believe Bancroft Resources (BCFT:OTC:BB) isn’t “bankrupt resources.” Granted, it’s only in the exploration stage, but with virtually no cash, I don’t see how this company stays afloat.

At least Uranium Resources (Nasdaq:URRE) has revenue and a decent cash position. But institutions are dumping and no insiders are buying, despite the stock price sitting at nearly all-time lows. In fact, the stock’s down 17% today on no news. That’s usually not a good sign.

I always advocate waiting for signs of buying before taking a position in a stock. That’s what my stock-picking machine TRIGR is engineered to do, and that’s the way I like it. I don’t want my money sitting around for months or years waiting for a stock to move.

There are plenty of trends moving stocks higher right now that you can profit from. Opportunity cost, while not an outright loss on your capital, is still a cost.

Best Regards,

Ian Wyatt

Chief Investment Strategist

Growth Report

Big Oil and Big Brother Google

Ian Wyatt — Wed, 03 Sep 2008 09:44:00 GMT

Big Oil and Big Brother Google

I hope everyone enjoyed their long weekend. I know I did. But I’ll also freely admit – I always look forward to getting back in to the office after a holiday.

The financial markets are the most dynamic of beasts. They give you something new and different to chew on every day. It’s a constantly shifting landscape. On a daily basis, you have to be ready to shift gears quick in response to trader’s fickle sentiment.

For instance, on August 19^th we noticed a pronounced shift in sentiment toward one solar stock, Canadian Solar (Nasdaq:CSIQ). That stock was up 17% in the days following. And you’d think the entire solar sector had received an upgrade.

By August 22^nd, a handful of double-digit gains could have been made, based off that one event with Canadian Solar. Canadian Solar is still holding 10% or so of its gains, while other solar stocks have given all their recent gains back.

Think Long-term, Act Short-Term

Of course, over weeks and months, the recent rally for solar stocks will be just a bump on the charts as longer term business and economic trends play out. I’ve been bearish on traditional “Big Oil” stocks for months. I just can’t see how – with virtually no new discoveries and rising costs – a company like Exxon-Mobil (NYSE:XOM) can see its stock price rise. Record-setting profits or no.

And Exxon recently broke below $80 a share for the first time in nearly 2 years. That was well before Hurricane Gustav was even a blip in the radar.

We’ve been having good results with small, dynamic exploration and services companies all year.

Today, oil prices may be responding to Gustav-relief. But there are much bigger issues for oil prices. Commodities are dropping across the board as the OECD has slashed growth estimates for Japan and Europe to 1.2% and 1.3% respectively. England’s 1.2% estimates appears to be a best-case number, as the OECD acknowledges that the UK economy is looking recessionary.

Surprisingly, the US is doing better than expected. Growth estimates here rose to 1.8% from 1.2%. With a strengthening dollar and rising exports, perhaps the rally that began on July 16 hasn’t been complete folly.

This Time, I’m Cheering for Microsoft

One particularly important-sounding headline that greeted me this morning was the latest in the Google vs. Microsoft heavyweight battle. In case you missed it, Google is launching an Internet browser, called Chrome, to compete Microsoft’s 8^th version of Internet Explorer.

Internet Explorer is the dominant browser with 75% market share. With no vested interest, I’ll usually pull for the underdog. It’s always nice to see the little guy win. Of course you can’t really call Google “little” anymore. This is a battle of titans with Google weighing in with a $146 billion market cap to Microsoft’s $248 billion cap.

We all saw Microsoft crush Netscape. And WordPerfect. And any other company it could. But I’m pulling for Microsoft and Explorer 8 to thoroughly pound Google’s Chrome into the cyber-canvas. And I’ll tell you why.

Google is a remarkable company. It pretty much created the paid search industry. And it’s now a major determinant for all Internet traffic. In other words, if you’re not picked up by Google’s search functions, you ain’t sellin’ squat.

Trust me, I’m in the publishing business and we do much of our work on the Internet. And I consider my relationship with Google downright Faustian. On the one hand, with its paid search results, Google has made Internet advertising simple and effective, albeit a little expensive.

But on the other hand, Google is very specific about the free results that it will display when you search for specific information. In fact, if you don’t construct your website with a Google-approved design, you’ll never show up in their search results, no matter how relevant your solution to a query might be.

Free the Internet!

Google’s strict and mysterious search criteria has spawned legions of companies that do nothing other than try to figure out what Google’s search algorithms are looking for. And of course, those algorithms change every few months.

In a nutshell, Google is attempting to take way to much control over Internet commerce. And it seems to me, if it gets a massive share of the Internet browser market, Internet commerce will become Google commerce.

So how’s Microsoft going to help? Mainly, by keeping what websites we visit at least semi-private. Here are a couple quotes I’ve come across today…

“[the new Explorer’s functions include]…privacy changes that could prevent it [Google] from collecting information related to the effectiveness of its ads, quick-linking to Microsoft mapping and other offerings and a more robust search bar that is also more Microsoft-centric.” -- D: All Things Digital

“Microsoft…released a new version of Internet Explorer last week for testing. The software lets users control whether it saves the sites they've visited.” Bloomberg

We all know that many company websites put “cookies” on your computer when you visit. The cookie can then track your steps and report its findings back to the company for marketing purposes.

Maybe I’m being too Orwellian here, but the thought of Google taking sole control of Internet advertising scares me a bit. If I have to align myself with evil Microsoft to maintain Internet commerce freedom, then so be it. I won’t be using Google’s Chrome browser any time soon.

Friday’s Investors Insight Discussion

As you know if you read last week’s entry, the moderators at the fine website Investor’s Insight (www.investorsinsight.com) asked if I’d be willing to host a live forum discussion event on their website. I agreed and it’s happening this Friday, September 5, from 11:30 am to 12:30 pm, ET.

It’s totally free. All you have to do is sign up with a valid email address at the website. Then you can listen in to the discussion and ask questions if you like. I expect we’ll be talking mostly about my stock-picking machine TRIGR and what investment opportunities it’s been turning up lately. But this is an open forum discussion so you’ll be free to bring up any topics for discussion.

Again, I’ll be hosting a live Internet discussion at www.investorsinsight.com on Friday, September 5 between 11:30 am and 12:30 pm, ET. I hope you can make it, it should be fun, informative and profitable!

Best regards,

Ian Wyatt

Publisher

Growth Report

"I Put a Spell on You"

Ian Wyatt — Tue, 26 Aug 2008 20:27:00 GMT

“I Put a Spell on You”

Last week, I left you with a stock pick that my stock selection machine, TRIGR, turned up. If you recall, Canadian Solar (Nasdaq:CSIQ) had jumped over 3,000 points in TRIGR’s ranking system to take the number 3 slot.

3,000 points is a pretty big jump for a stock in TRIGR’s rankings. And that’s because of the number of variables that TRIGR measures. 155, to be exact. There are relative strength measures, relative sector strength, moving average, earnings growth, price regression analysis and so on.

Canadian Solar scores well in most of these categories. It was an analyst upgrade and subsequent earnings revisions that fueled its massive jump up the charts.

Canadian Solar opened last Wednesday, at $28.50. By Thursday morning, it was hitting its most recent high of $33.07. Played perfectly, that’s a 16% gain.

The stock is down nearly 6% today, to the $30.50 neighborhood. Still a nice neighborhood. But not as nice it was. We’ll see what happens when (if?) the market turns up.

The Evil Mastermind

I have to give my senior research analyst, Benson George, a mention here. He’s the chief architect of TRIGR’s ranking system. Last week I referred to him as the “mastermind” behind TRIGR’s stock-picking prowess. Well, Benson wasn’t quite happy with being a mastermind. He wants to be referred to as “evil mastermind.”

So there you go Benson, you’re now TRIGR’s evil mastermind. Unfortunately, this probably still won’t make him happy. I think you lose some respect in the evil mastermind community if you’re happy.

Speaking of evil masterminds, I’m also going to give a mention to Robert Shiller and Karl Case. These professors from Yale and Wellesley (respectively) created a home price index, now called the S&P/Case-Shiller index. (I’m guessing this means S&P bought the naming rights to this index, sort of like my Washington Redskins now play at Fed-Ex Field, except far more annoying.)

In any event, the June S&P/Case-Shiller index (the latest one available) shows that the rate of decline in home prices is slowing. Some are taking it as a sign that the real estate market is stabilizing. You’d think that any data suggesting that home prices are stabilizing has to be the work of an evil mastermind, trying to trick investors into over-subscribing Freddie Mac’s next bond sale on Tuesday September 2.

I Put a Spell on You

That’s a tall order. I’d think some witchcraft would have to be involved for investors to buy bonds from Freddie Mac when delinquency rates on its $2.21 trillion in mortgages rose from 0.93% in June to 1.01% in July. That’s $20 billion in delinquent loans. Yikes.

And it’s even worse for Fannie Mae -- $3 trillion in mortgage debt and a whopping 1.36% delinquency rate.

I don’t know which is harder to believe, that Freddie Mac managed to dump $2 billion worth in bonds on the market Monday, or that some anonymous “Wall Street” analyst, perhaps from Barclay’s, said that both Freddie and Fannie have enough cash to absorb billions in losses. At least in the near term. If the housing market stabilizes. And the bond sales go well. And employment picks up. Evil mastermind indeed.

An Invitation

TRIGR’s biggest gainer in today’s rankings was Quality Systems (Nasdaq:QSII). This medical software maker jumped 4,778 points into the number 2 slot.

TRIGR first pulled up Quality Systems on August 13 at $39.53. It’s gotten as high as $45.45 since. Current price is $42 and change.

Now, I want to extend an invitation to you. I’m going to host a forum chat right here at Investor’s Insight on September 5. The chat is next Friday. The chat will be typical Q&A style. It will run during the lunch hour most likely, between 12 noon to 1 or so, Eastern Time.

Of course, I’d love for you to sit in and throw some questions my way. I haven’t decided on a topic just yet. But if you want to leave some topic suggestions in the comment space here at my Growth Report blog, I’ll definitely consider them all.

I’ll be sure to remind you next week. And the fine managers of this great website will be alerting you via email as well. It should be a fun event, and hopefully informative as well. And with any luck, we’ll get to make it a regular thing.

So till next week,

Best regards,

Ian Wyatt

Chief Investment Strategist

Growth Report

PS – For more information on TRIGR, please click here

Inflation, The Fisher King and a Solar Stock

Ian Wyatt — Tue, 19 Aug 2008 21:12:00 GMT

Inflation, The Fisher King and a Solar Stock

And to think, investors cheered the Fed’s decision to hold interest rates unchanged.

Today, the Producer Price Index, a popular low-ball measure of wholesale inflation, came in twice as hot as expected at 1.2%. That 8.9% rise is the biggest jump since 1981. I don’t think anyone cares to hear the annualized number.

In case anyone is curious, the inflation rate for July of 1981 was 10.76%. A year later, Paul Volcker’s rate hikes had slashed inflation to 6.44%. Speaking of Volcker, his name is certainly being tossed around a lot lately. And not just for his endorsement of Presidential candidate Barrack Obama.

Apparently I’m not the only one invoking his name as a model for Bernanke. Larry Kudlow’s “Where's Bernanke's Inner Volcker?” takes a similar position as my “Princess and the Dragon” article here on August 5 – interest rates are too low and should be hiked.

The Fisher King?

At least there’s one member of the FOMC who seems to understand that inflation needs to be dealt with pronto. Dallas Federal Reserve Bank President Richard Fisher has dissented at every FOMC meeting this year. He has advocated smaller cuts to help the financial meltdown and he’s been on the side of higher rates lately.

Maybe I’ll start calling him the Fisher King. In the Arthurian legend, the Fisher King keeps the Holy Grail. But he has a lingering injury and cannot move of his own will. And so long as he is injured, there is a blight on the land. So he sits and fishes.

I’d say there’s enough connection there to make it an intriguing metaphor. The Fed’s Fisher can’t move rates on his own. And until rates are higher, inflation is likely to remain a blight on the U.S. economy.

In the week following the FOMC’s last meeting on August 5, the Dow put on an amazing 544 points. Amazing, because homebuilders and financials were leading the charge. It should be no surprise that the Dow has since given all that back. And then some.

A Keen Eye for the Obvious

The obvious reason is that it’s dawning on investors that the banking liquidity problems are far from over. Just the other day, bankruptcy specialist Wilbur Ross told CNBC that a thousand banks could fail. Of course, Wilbur would be in hog heaven with that much feed in his trough.

I see it a little differently when it’s the former chief economist for the IMF saying that …”we’re going to see a whopper…”. Now an economics professor at Harvard, Kenneth Rogoff side with the Fisher King in saying that the Fed shouldn’t have cut rates as much as it did to help the financial sector.

Still, the one item that stuck with me the most is the Freddie Mac bond sale from Monday, August 18. Apparently it was undersubscribed. Ya don’t say?

And stocks sold off as a result. Shocking. I’ve always had a keen eye for the obvious.

A Solar Stock

Well, just a few minutes ago, my senior analyst Benson George called me over to his office. Benson’s the mastermind behind my stock-trading machine, TRIGR. If you ever need someone to turn support and resistance points or moving average breakouts into mathematical formulas, he’s your man.

Apparently, Candian Solar (Nasdaq:CSIQ) jumped over 3,000 points in TRIGR’s ranking system to take the number 3 spot. The 3,000 points were awarded due to new analyst coverage and some recent increases in earnings estimates that leave Canadian Solar with a forward P/E of 7.3.

I can’t tell you whether thin-film or polysilicon technology will be the big winner in the solar energy sector. But I can tell you what happened the last time Canadian Solar rose to the top of TRIGR’s rankings.

It was April 10, 2008. the stock closed at $23.75 that day. Over the next month, it made it as high as $34.10 on May 12. The next day, Canadian Solar announced blowout earnings. The stock closed at $40.78 on May 13 and $44 on May 14.

The stock eventually peaked at $51 in mid-June. Now, it’s almost back to where it started in April. Support looks good at $25. Just thought you’d like to know.

Best Regards,

Ian Wyatt

Chief Investment Strategist

Growth Report

PS – The last time Canadian Solar (Nasdaq:CSIQ) made it to the top of TRIGR’s rankings, it went on to post a 102% gain. Find out how high it goes this time with TradeMaster Daily Stock Alerts .