Worst Not Nearly Over, Global M&A, Gold Price Targets, The Solar Car, and More!

by Addison Wiggin & Ian Mathias

  • Is the worst yet to come? Major hedge fund says credit crisis only 25% over
  • Dan Amoss on why a big market sell-off might be right around the corner…
  • Global M&A activity shrivels… yet biggest leveraged buyout ever is finalized
  • Ed Bugos’ latest gold price targets, and the “important transition” in the gold market
  • Gasoline at another record… airline industry slashes more jobs, Toyota unveils 2009 solar car
  • Plus, The 5’s tribute to July 4… reader mail on the true state of our union

 The global financial crisis is only 25% complete, says a recent study by one of the world’s biggest hedge funds. A study by Bridgewater Associates estimates that total credit crisis losses will amount to $1.6 trillion worldwide… a far cry from the nearly $400 billion lost already.

The fund’s call was based in a particularly simple reality… bean counters at Bridgewater estimate financials handle around $26.6 trillion in debt-based assets. If such assets were valued at today’s market rates, around $1.6 trillion would be instantly lost. Et voila…  Bridgewater thinks we’re only a quarter of the way through.

Thus, we’ll tack another prediction onto our “write-down rundown.” This thing is starting to look pretty ugly:

 “We could see a capitulation bottom in the market very soon,” predicts Dan Amoss. We’ve yet to see that “turn off the computer and hide under the covers” sort of sell-off. According to Dan, it might be around the corner.

“The market action last week was a continuation of the past months’ decline… with one surprise: Only the financial stocks weren’t punished, for a change. The leading gainers in the market thus far in 2008 — in the steel, coal and fertilizer sectors — fell extremely hard.

“Too many hedge funds are operating with too much leverage. When these hedge funds receive redemption requests — as many are — they’re forced to sell winning long positions and buy to cover winning short positions to raise cash. Last Wednesday was one of those days.
 
“At certain times, rational decision-making takes a back seat to emotion. That’s where we are today. The health of the banking system is still weak, and now we’re seeing waves of funds exiting winning positions… we could see a capitulation bottom in the market very soon.”

Such a sell-off would line the pockets of Dan’s Strategic Short Report readers. They’re up an average 70% this year. If you’re looking to profit as struggling stocks fall, you have to check out Strategic Short Report.

  Proof the financial system is still suffering… global mergers and acquisitions are down $850 billion compared to last year. According to a recent Bloomberg bit, deal volume fell 36% in the first half, compared to 2007. “Only” 14,210 deals were announced around the world, at a value of $1.5 trillion… seems like a lot, but it’s actually the worst half since 2005.

  That doesn’t seem to faze teachers in Ontario… the record-setting buyout of Canadian telecom-giant BCE by the Ontario Teachers’ Pension Plan has been settled. We last checked in on this deal in June… today, we learn both sides have agreed on the terms, and it’s essentially a “done deal.”

The pool of Canadian teacher retirement accounts will borrow $35 billion to purchase BCE for $51 billion… the biggest leveraged buyout ever. It’s a strange world we live in, isn’t it?

  Equally odd, the U.S. dollar is staging quite a rally this morning. Since the European Central Bank exposed its flaccid inflation stance on Thursday , the dollar index has been on a tear:

The dollar index has garnered a score of 73, up a full point since Thursday and about 3 points above its record low. Consequentially, the euro’s been taken out to the woodshed. It’s down 3 full cents over the same period, to $1.56 as we write. The British pound has done slightly better, down 2 cents, to $1.97. The yen slipped to 107. 
  

  And as the dollar rises, gold is falling. After a $65 run over the past week, the precious metal is down about 20 bucks today… about $915 an ounce.

  “I’m sticking to my call that we’ve seen the seasonal low in gold,” declares our gold adviser Ed Bugos. “I think the gold market is going through an important transition… the debate is shifting toward monetary stability.

“In the past few weeks, we’ve seen both the Federal Reserve and the European Central Bank lose a lot of credibility. Clearly, neither has the political resolve required to fight inflation. With both economies weakening, central bankers cannot afford to back up their inflation-fighting rhetoric… the fundamental fact behind my bullish gold price outlook.

“I expect gold prices to heat up as bear markets pick up around the world and recession looms — regardless if the dollar firms up and oil prices correct. I think gold will be the best-performing commodity over the next 12 months, touching off a high of $1,200 this year, and $2,000 in 2009.”

If you’d like to hear about Ed’s favorite gold plays, check out Gold & Options Trader. He has stakes in junior miners, options on the big diggers and everything in between. Learn about Gold & Options trader here.

  Also par for the course in 2008, the dollar’s strength brought on a sell-off in the oil market. Light sweet crude is down nearly $5 today, to $140.

  The national average price at the pump hit another record high today. It’s up to $4.10 a gallon, says AAA. Diesel found itself a new high as well, a staggering $4.80 a gallon.

  Rising fuel costs have led American Airlines to cut another 7,000 jobs. The airline announced Thursday it plans to slash an additional 8% of its work force. Clearly, the new “$15 for your first checked bag and $25 for your next” policy can’t cover the 96% rise in jet fuel costs from last year.

The Air Transport Association expects commercial jet fuel expenses to rise $20 billion this year. That’s the market caps of American Airlines, United, Delta, Northwest, Continental, US Airways, Frontier, JetBlue and Southwest… combined.

  And it’s about time…

Toyota announced it plans to incorporate solar panels into its next generation of Priuses. The photo above might not be exactly what they’ll look like… but you get the idea. Available early next year, the high-end third-generation Prius will sport a group of solar panels on the roof, says The Nikkei Business Daily. According to the paper, the panels will be used to power the air conditioning system. 

  A recent survey showed a surprising portion of Americans spent their stimulus checks on… porn? Heh… we found a study from the Adult Internet Market Research Co. (AIMRCo) this morning, and no — it’s none of your damn business how we stumbled upon it.

Anyway, according to adult Web sites surveyed by AIMRCo, membership sales are up 20-30% since mid-May, when the stimulus checks began falling from the sky. Not only is that period historically a slow season for porn, but the survey revealed 32% of new members referred to the stimulus package as a reason to join an adult site or renew their memberships.

  “I believe America’s core is as corrupt as never before,” says another reader, continuing our patriotic discussion from last week. “Our Founding Fathers evidently knew this was possible by penning a Constitution to protect ‘the people’ from government policies, taxation and religion.

“I love America, but the core is sick and needs a healthy injection of American civil action, including and not limited to protecting my hard-earned money from government bureaucrats, shrewd and selfish promoters, eager to line their own pockets.”

  “I totally agree with the writer from Australia ,” says another, “who noted that the U.S. of today’s reality is far from that of the ideals that the Founding Fathers wrote about. I spent a year or so in Australia and shorter times in many other places, and can say that it alters one’s blind patriotism. I still believe in the foundation of the U.S. Unfortunately, politicians have taken the reality of the country into another direction. Yes, this reality is the country that I will leave just as soon as possible, and take the ideals to somewhere that they might flourish.”

  “All the discussion about patriotism,” writes yet another, “causes this patriot to reflect on ‘the greatest place on Earth.’  Jim Rogers may indicate he feels otherwise, but throughout much of the world, the USA is still looked upon as a model of success. What most of us here are not recognizing is that millions of ambitious kids in Asia are excelling in school with the dream of taking the American Dream away from our kids. Until we recognize that this is the real battleground for our future, and until our kids realize that they will have to fight for their ‘birthright,’ we face less-than-bright prospects.”

The 5 responds: This editor is currently reading Fareed Zakaria’s The Post-American World… if you would allow a sloppily paraphrase one of his many arguments: The “post-American world” is not fueled by anti-Americanism, or a global desire to “live the American dream.” Zakaria would say the next era is marked by the rise of poorer nations and a subsequent global indifference to what the U.S. has, what it’s doing or where it’s going. Do students in Brazil fight to steal away the “Canadian dream” from children in Toronto? We can’t say for certain, but we doubt it. And something tells us as nations like China continue to grow, they’ll care less and less about the American dream… and start dreaming for themselves. 

  “I find that those people who believe that we’ve drifted from our roots,” writes the last reader, “seem to have a very poor understanding history of the Constitution and the social conditions of the era. The Constitution was the second attempt at a federal-level government after it became clear in a mere 12 years that the Articles of Confederation weren’t going to cut it.  It was not at all clear at the time that the second try was going to do any better than the first, which is why they built in provisions to amend it as needed. The original Constitution also contained provisions for the counting of slaves toward representation, and the states were free to keep their existing laws preventing nonlandowners and women from voting. As a freedom-loving woman who currently rents her abode, I’m pretty OK that we’ve moved on from the original.”
 
Thanks for reading,

Ian Mathias
The 5 Min. Forecast

P.S. This is your last chance. The Agora Financial Reserve will stop accepting members at midnight tonight. Once the doors slam shut, there’s no telling when we’ll open them again, or by how much membership dues might rise.

The Reserve is your chance to gain access to all our investment advice, for the lowest possible price. Join tonight, while you still can. Learn more here.

 

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