Mega banks around the globe reveal billions more in subprime exposure
How Countrywide’s CEO made $138 million from CFC’s crashing stock
Why the dollars in your wallet have never been as worthless as they were this morning
Gold near Kerr’s $750 price target… The Maniac Trader on the metal’s next moves
Ethanol’s “out of gas,” says the WSJ… a quick “we told you so” and Mayer’s way to play the trend
China’s SWF opens up shop… think $600 billion could move a market or two?
Plus… what would you do with half a million bucks? Change a swastika? The Navy would… details below
It was “come clean” day on Wall Street today, the beginning of the fourth quarter.
First, global mega bank UBS announced its fixed income division will record a negative revenue of $3.4 billion for third quarter,
thanks entirely to bad subprime bets. This morning alone, UBS’ disclosure has reduced share prices by 2% and has cost 1,300 UBS employees their jobs.
UBS is taking “decisive action to be as transparent as possible,” said new CEO Marcel Rohner. Translation: more bloodshed to come.
Next, the slightly more massive Citibank warned third-quarter earnings could fall 60% because of subprime issues.
The bank will lose about $1.3 billion due to the falling value of subprime-backed securities, and also warned that billions more might be lost once calculations on fixed income credit trading, loan write-downs and credit costs are finalized.
Countrywide chief Angelo Mozilo was forced to come clean himself. News this morning revealed Mozilo saw his company’s collapse coming — and he made $138 million selling his own shares at the market’s top.
Mozilo altered Countrywide’s “stock trading plan” three times between October 2006 and February of 2007. Each change affected how many shares of CFC Mozilo could sell in a month… we’ll let this morning’s LA Times do the heavy lifting:
All of Mozilo’s alterations and trades were 100% legal, transparent and, if you ask us, smart. Still… we missed the “We’re all freaking doomed, sell while your stock is still worth something” memo to CFC employees and shareholders.
Mish Shedlock saw this one coming, too… and shorted CFC to the tune of over 200% gains and counting in Survival Report. CFC’s fall was just one facet of what Mish and Brian call “the second wave of the housing bust.” Click here to learn the rest.
Early this morning, the dollar index dropped to 77.6
… making today’s dollar the least valuable in the index’s 34-year history.
Over the weekend, the pound shot up to $2.04, the euro is up to $1.42, the Aussie dollar is a hair short of 89 cents and the loonie is back above parity with the dollar.
Gold prices continued their climb over the weekend
, settling in at a solid $744 an ounce for immediate delivery.
“All the bad news for the dollar has been great news for gold,” Kevin Kerr reminds us. “I predicted at the start of 2007 that gold would climb to $750, and we are almost there now. Over in RTA, we have a gold option spread that is doing very well. In fact, as I write, gold is making a new high for the December futures contract. Nice!
“I expect gold to gain even more as we head into year-end, especially if oil continues to climb too.”
Kevin’s Resource Trader Alert readers sold half of their gold position this morning for 155% gains in less than eight months. Kevin recommended a 700/750 call spread back in February… safe to say he nailed that one. If you want in on this action, read this.
Markets had a down day on Friday.
The Dow and S&P 500 lost less than half a percent. Nevertheless, both major indexes are only a scant 2% below all-time highs. In fact, as we write, the Dow is testing 14,000. Dollar weakness has its benefits for stock investors too. At least for the time being.
We love it when the mainstream catches up with us. Exhibit A: “Ethanol Boom Is Running out of Gas,”
headlines this morning’s WSJ. We tell you because, frankly, it feels good. Ethanol, in a word, sucks… we’ve been saying it all year.
“The price of ethanol has fallen by 30% over the past few months as a glut of the corn-based fuel looms,” writes the WSJ, “while the price of ethanol’s primary component, corn, had risen. That is squeezing ethanol companies’ profits and pushing some ethanol plants to the brink of bankruptcy.”
Thus far, ethanol has done little but help rising food prices skyrocket higher and give a handful of farmers slightly cheaper fuel.
Exhibit B: The Great Ethanol Swindle of 2007.
“The boom in food prices is great for the agricultural sector,”
says Chris Mayer, always one to find opportunity in crisis. “The USDA projects net farm income of $87 billion this year. That’s 48% more than last year and a new all-time record.
“Just a look at the prices of various food commodities paints the picture. Illinois corn and soybeans are up 40% and 75% from a year ago. Kansas wheat is up more than 70%. In Georgia, three-pound chickens go for record prices, up 15% from a year ago. A pound of whole wheat bread is up 24%. Whole milk, up 26%.
“The agricultural sector can thank a pair of big trends (not counting the irrational
government subsidies the ag sector continues to enjoy). One of those trends is the growing economies of Asia and South America, which mean more people have money for food. The other trend is the surging demand for biofuels.”
Put it all together and global grain stockpiles are down to the lowest level in more than 30 years. As the WSJ reports: “Next year is shaping up to be the third year in a row in which the world consumes more grain to make fuel, food and livestock feed than it harvests.”
“Those record-low grain stockpiles look to get even lower, and many ag companies will continue to grow,” advises Chris. Chris has already pulled the trigger on a several ag plays in the Special Situations portfolio. Take a look.
The China Investment Corp., the nation’s $200 billion sovereign wealth fund (SWF), officially began operations over the weekend.
You may recall its first foray back in May, when it bought a $3 billion stake in Blackstone. $570 million of that initial investment is now gone, thanks to a 19% haircut in Blackstone shares. Still, China forged ahead.
CIC “will be prudent in its foreign exchange business,” said a fund spokesperson this morning, “keeping in mind tolerable risks, while also aiming to maximize investment returns in the longer term.”
Backed by over $405 billion in U.S. Treasuries… it’s likely to make some fairly sizeable wagers.
But fear not… the U.S. is investing intelligently too. The Navy has agreed to spend $600,000 (of your money) on redesigning/camouflaging barracks that resemble swastikas.
Built in the 1960s, these San Diego barracks stood for nearly 50 years without a peep of dissent. But recently, thanks to Google Earth, some sensitive Jewish folk and a radio talk show host from Missouri, the Navy found itself in a pickle:
Oops… did the architects forget to look at the blue prints?
Words like “public outrage” and “anti-Semitism” apparently don’t go over too well with the Navy. It’s added an extra half a million bucks onto its latest budget to change the barracks into a square, or peace sign or whatever.
No flight paths go anywhere near the barracks, and chances are Google won’t be able to update its satellites for at least a year.
“I like The 5 Min Forecast very much,”
said Black Bear — the anonymous leader of the Secret Order of Jurojin. “In fact, it’s one of the financial e-zines I read in full every day. But you know what would have given this mention
of Jurojin more zing? Mentioning that Jurojin readers grabbed a tidy profit of $3675.00 per contract before commissions on a gasoline futures trade. And they were in that trade for just three days.
“And isn’t anyone scared by the fact that the U.S. dollar is refusing to bounce? Be afraid. Be very afraid.”
The 5 responds
: True… we did forget to congratulate Jurojin readers on their nice trade. Kudos.
“Good job keeping things in perspective on the GM side,”
said a reader. “I would love to see GM thrive. But it is increasingly harder to do in light of the ludicrous wages being paid some of its employees. These unions have come to justify their own existence and serve a healthy plate of greed over reasonable negotiations. Job security? NOT!
“You want job security, then accept a wage that is consistent with the task performed and the training needed. And be careful about what you say. I support GM, own a GM and besides, anything you say from this point on represents GM. You really need to be making friends right now.
“Incidentally, with my master’s level education, I get to take a position making less than 500 per week, no insurance, no retirement, and have to pay both sides of FICA (15%) off the top. But the benefits are better than any other position. That’s my choice, I know. As has been said, “If God has called you to be a pastor, don’t settle for being king.” Even with that wage, I’m still in the top 10% of the world population. Anyone making $50,000 per year is in the top 1% of the world’s wealthiest people. So stop whining and thinking you deserve more. You really don’t want what you deserve (Rom 6:23).”
The 5 responds:
We’ve gotten plenty of GM/UAW mail in the past week… we must have touched a nerve. Check out The 5 Min. Blog
for a full listing of feedback we’ve received… we simply can’t fit it all in our daily 5 minutes.
“Your comments about our president are unprofessional, unnecessary and inappropriate,”
says a reader. “I suggest you confine your news items to noneditorial financial reporting.”
The 5 responds:
Noneditorial financial writing? What the hell is that?
Of course, you’re right. How unprofessional of us to point out that George II has presided over the largest deficits in U.S. history… that Congress has had to raise the “debt ceiling” five times while he’s been trying to solve the Rubik’s cube in the Oval Office
… and that the dollar has subsequently fallen to its lowest point in 34 years on his watch. Shame on us. We’re definitely the bad guys here.
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