5 Min. editors plagued with bitter irony… hated stocks soar as Symposium enters full swing
Forget the FDIC… The 5’s discovered an extensive list of the most at-risk regional banks in the U.S.
GE teams up with UAE, plans to import credit crisis to Middle East
Chuck Butler on the perfect storm drowning the euro
Rick Rule on junior miners… why he’ll be buying a little soon, and a lot down the road
Life has a way of being terribly ironic, doesn’t it? This time last year, speakers at the Agora Financial Investment Symposium were preaching caution. A severe bear market and recession appeared right around the corner. While we were here, the Dow fell over 800 points in a week.
This year, we’re in that bear market. We’re in that “scary” recession… and stocks are soaring. Not all stocks — just the ones most likely to fail.
For starters, check out the airlines. Yesterday, airlines produced a wave of wretched earnings reports… apparently, to the delight of fearless bottom-fishers across the world.
United Airlines got the party started with a huge second-quarter loss. The company lost $2.7 billion in the three-month period alone, mostly due to fuel costs. But severances packages paid to thousands of axed employees didn’t help. The company — with shares prices hovering around $5 a pop — announced a $1.19 per share loss.
Any normal human being would run for the hills after this earnings announcement. But the Street expected a $2.05 per share loss, and thus “investors” bought shares of UAUA by the truckload.
United stock soared 63%.
US Airways and JetBlue announced earnings with the same results… big, nasty losses, but better than expectations. Nearly every airline stock in the market enjoyed double-digit gains.
“Looking ahead,” Chris Mayer said in his presentation here in Vancouver yesterday, “I want to be long businesses that help the world save energy. I want to be short their clients. Energy savers — manufacturers and machine companies that help companies use their energy more efficiently — will be the big beneficiaries of higher energy prices. Big energy spenders – companies whose core businesses rely on using lots of energy all day and night — obviously, will not benefit from high commodity prices.”
Despite what “investors” think, airlines fit into the latter category.
Wachovia shares leapt 27% yesterday.
We mentioned the bank’s dreadful earnings report in yesterday’s 5 Min., and then casually noted that shares were down 10% premarket and would likely fall further. Despite worse-than-expected losses, over 10,000 jobs cuts and another dividend slashing… traders rushed to buy the bank’s stock when CEO Robert Steel said he didn’t plan on issuing more of the stuff to raise capital.
Washington Mutual announced a $3 billion second-quarter loss of its own yesterday. And it’s set aside nearly $4 billion more in loan “loss provisions.” Uh-huh.
Naturally, shares rallied over 14%… and are continuing to rise as we write.
“Is it time to buy banks?” Eric Fry asked the audience of nearly 1,000 here in Vancouver yesterday. “Perhaps. This may be an incredible buying opportunity, and I mean that genuinely. But I’d rather miss the first 20% of the rally than try to pick the bottom. You always hear that you should ‘buy when there’s blood in the streets,’ but it’s supposed to be somebody else’s blood, not yours.”
“I think we’re at an inflection point,” Mr. Fry continued. “We appear to be leaving an age of greed and entering a new age of caution. And caution is good. It sounds boring, but it’s not nearly as boring as it sounds. It’s an uncelebrated virtue, like being free of venereal disease… something you can’t brag about at a party, but a great thing to be, nonetheless. Caution is why Warren Buffett is a billionaire.”
Since the FDIC refuses to tell you which banks are on its watch list, we’ll do you the honor:
All of the banks on this list fail to satisfy the “Texas ratio.”
If you’d like to try that ratio at home, divide the bank’s bad/delinquent loans by its cash on hand plus money set aside to cover those at-risk loans. If the total is higher than 100, your bank’s in trouble. IndyMac had a score of 116.
In all, as many as 150 have worrisome Texas ratios. The above represent the worst of the bunch. Below are the S&Ls with a similar affliction:
The rest of the market went along with the financials for the ride. The Dow, S&P and Nasdaq all rallied over 1%.
GE announced that it’s entered an $8 billion joint venture with the Abu Dhabi investment agency Mubadala Development Co.
The venture will eventually operate “clean energy,” water purification, aviation, oil and gas operations. GE will first focus on the most American of ventures… commercial finance operations in the Middle East. Heh… because it’s worked so well for us here in the States.
“We got a perfect storm for the euro yesterday,” our friend Chuck Butler says this morning. A myriad of events gave traders plenty of reasons to sell euros and buy the greenback in the last 24 hours. Here’s “the skinny” from Chuck:
1. Fed head Plosser said interest rate policy reversal should start ‘sooner, rather than later.’
2. The head of the IMF said that given the medium-term fundamentals, the euro is ‘overvalued.’
3. U.S. Treasury Secretary Paulson came out with the usual drumbeating for the dollar, but this one sounded different… a strong dollar is ‘really very important’ to national interest and is something he’s advocated for some time.
4. The stock jockeys swept the HUGE losses for Wachovia and Washington Mutual under the rug and marked those financials higher! WHAT? I don’t get that one… But there are a lot of things going on these days that don’t make sense to me!
5. Oil dropped $4…”
Factor all that in and the euro’s dropped 2 cents, to $1.57. The dollar index, on the other hand, crept up a full point, to 72.8. The pound fell below the $2 mark, to $1.99. The yen stayed still at 107.
We enjoyed a tapas dinner with Chuck the other night, by the way. He’s a class act. For such a boisterous writer, he’s quite polite and quiet: a perfect gentleman.
Oil fell another couple bucks yesterday. Light sweet crude is down $2, to $125. This morning, the U.S. Energy Department announced a healthy 1.6 million barrel decline in American oil and gas inventories, but not nearly as much as the quants expected.
“The last three or four years,” Kevin Kerr told the Symposium audience today, “the right side of the commodity trade was long. But that’s starting to change.” Kevin told our Vancouver attendees to start being particularly careful going long commodities in the near future, especially oil.
As such, gold is taking a beating. It’s down about $50 since Monday, to $920 an ounce.
“I will be buying junior mining stocks in August and buying aggressively in December,” proclaimed resource guru Rick Rule. With the recent pullback in gold, “We’ve participated in a disconnect between commodity price outlook and the outlook of the individual companies. Most shares of junior gold miners have nothing to do with gold. What should happen to the price of a company looking for gold that has no gold if the price of gold goes down?
“As the appetite for risk falls with the price of gold, these stocks get cheaper and cheaper. The stock market is paying me to take on this risk. By August I will begin nibbling on my favorite junior miners, and by December — tax season — I will be buying aggressively.”
Which junior miners? See below…
“Any idea if there are publicly traded makers of gas pumps?” asks a reader. “Many in use currently can go up only to $9.99 for the gas price.”
The 5: Heh… no, we don’t know any, but we love the idea.
“The fellow who made the Puritan crack yesterday ,” writes a reader, “really doesn’t know about what he is talking. I’m the son of Puritans, and I can guarantee there are no ‘Puritans’ at the reins. If there were, we’d still have blue laws and witch trials and stuff. People get it into their heads that everyone anti-murder (abortion) is a so-called Puritan. Maybe they need to actually study some history, and only then compare our worthless leaders with the relics of a bygone era. They will need it, for what is to come!”
The 5 Min. Forecast
P.S. You’ve read just a tiny sampling of the presentations we’ve seen so far. There are dozens more to come. Some are crucially informative, others provide actionable advice, while some are just hilarious… and many are all of the above. We’ll keep the commentary coming, but if you’re interested in purchasing recordings of them, we’ve made the 2008 Investment Symposium audio CDs available at a discount conference rate starting this morning. Get the details here.
P.P.S. The world premiere of the final cut of I.O.U.S.A. was a big hit. We packed the Fairmont’s auditorium to standing room only. If all of the vendors and their staffs joined us… as we believe they did… over 1,300 people saw the film.
David Walker, the former comptroller general of the federal government, who’d flown in from Washington for the event, got a standing ovation when Addison introduced him for the Q&A after the film. He fielded questions for 45 minutes before jetting off to New York City.