Stocks Boom, Gold $2,500, A Contrarian Sector Play, Advice for Congress and More!

by Addison Wiggin & Ian Mathias

  • Citi sends stocks through the roof… a closer look at the bank’s carefully worded memo
  • More “solutions” coming out of Congress… uptick rule, protectionism back in limelight
  • James Howard Kunstler’s two pieces of advice for U.S. policymakers
  • Chris Mayer on a sector “as popular as wading in sewage”… and why you should check it out
  • Gold loses its luster… but one bank says $2,500 is just around the corner


  “We are profitable through the first two months of 2009,” Citi CEO Vikram Pandit wrote yesterday morning, grasping at straws in a memo to his employees, “and are having our best quarter-to-date performance since the third quarter of 2007.”

The devil’s in the details, as they say.

“In January and February alone, our revenues excluding externally disclosed marks were $19 billion,” Pandit continued. Heh. Only an American bank can get a $45 billion check from Uncle Sam and turn a $19 billion profit. And did anyone take the time to figure out what “externally disclosed marks” even means?  

Naaah. The “news” sent Citi stock flying… up 27%. (And booked some potentially impressive gains for Options Hotline readers… details below).

That is all it took to make this historically dead cat bounce:

Major indexes soared over 6% yesterday, their best single day effort since November’s violent seizure.

  Barney Frank opened his fat mouth yesterday long enough to stammer out more support for the infamous “uptick” rule. The rule, if you’re unfamiliar, prohibits short sellers from repeatedly biding a stock down. A given stock must tick up (hence the clever name) before the same short seller can borrow more shares and send it lower.

The Massachusetts representative said he’s urging the SEC to reinstate the rule within a month. Funny… we don’t remember anyone in Congress clamoring for a “downtick” policy when the Dow was frothing over 14,000.

  The “uptick” rule is about as intelligent as the provision in the TARP legislation that prohibits any bank receiving bailout money from hiring H1-B visa holders. Bank of America, The Wall Street Journal noted this morning, just rescinded all job offers made to foreign-born graduates of U.S. business schools.

Yeah, that’s just what the financial system needs to recover: A dearth of new talent.  Congress is really on top of this crisis. Don’t you feel confident? Maybe this will help:

  “The too-big-to-fail issue has emerged as an enormous problem,” Fed Chairman Ben Bernanke said, stating the obvious in congressional testimony yesterday. “Until we stabilize the financial system, a sustainable economic recovery will remain out of reach… In the near term, governments around the world must continue to take forceful and, when appropriate, coordinated actions to restore financial market functioning and the flow of credit.”

Bernanke later revised some of his previous economic forecasts. He now thinks the U.S. economy will end its downturn “later this year” and enjoy “a period of growth” in 2010.

A reader shares his thoughts on the Bernanke testimony below. But first, these thoughts from a Whiskey & Gunpowder regular:

  “The Obama White House, Congress and The New York Times,” opines James Howard Kunstler, “are hung up on exercises in futility — ‘rescuing’ banks and insurance companies that cannot be rescued (because they are hopelessly trapped in ‘black hole’ credit default swaps contracts) and restarting a ‘consumer’ binge that was completely crazy in the first place, based, as it was, on a something-for-nothing standard of living…”

So what should they do differently, you might ask?

“First, the people who caused the train wreck of ‘innovative’ securities have to be prosecuted,” Kunstler suggests, helpfully. “The public’s collective voice on this is muted, but growing. It has been muted by the general air of blackmail that the banks have used to enthrall policy and opinion — the ‘too big to fail’ idea — in effect holding the nation’s future for ransom.
“Last week, New York State Attorney General Andrew Cuomo hauled Bank of America chief Ken Lewis into his office to explain who, exactly, received an aggregate several billion dollars in bonuses late in 2008 after the U.S. Treasury forked over billions of dollars in TARP money to his bank. That was a good start…

“Another thing that President Obama can set into motion anytime — and pull himself back to the head of the curve of leadership with — is to either by executive order or by proposal to Congress shut down the credit default swap system for a period of time while procedures are drawn up to place all these dubious contracts in a ‘clearing’ market, where the holders of them will have to come clean about what they’re sitting on.

“The lack of this procedure is allowing zombie banks to hold the United States hostage for never-ending bailout ransoms. None of these banks are going to survive another six months anyway, so the basic blackmail motif that the whole money system will collapse if ransoms are not paid is a bluff that has to be called sooner or later in any case. So Mr. Obama might as well get on with it.”

Mr. Kunstler has been known to set the house on fire in Vancouver. We expect he’ll no doubt do the same this year. From July 21-24, 2009, we’re going to be celebrating a “Decade of Reckoning” at the Fairmont Hotel in Vancouver. In the next few weeks, we’ll be announcing the speaker lineup and selling out the seats. Right now, there are a few hundred left, but if you want to join us, we’d recommend locking in your spot today. Call Barb at (800) 926-6575 for details.

  Even while pretending to grill the Fed chairman, Congress managed to write itself a check for $410 billion yesterday. The bill will cover federal budget gaps and fund a governmental orgy for the next six months. It’s also stuffed with over 8,000 earmarks totaling $8 billion and change.

  We heard a good one on the news this morning. One of the “shovel-ready” projects getting stimulated in Arizona as we speak: $1.5 million dollars to convert road signs south of Tuscon from kilometers to miles, because “This is America, we ought to have things the way we’re used to them.”

  And while the government spends your future tax dollars, we notice
private-sector jobs are flying out the window this week:

  • United Technologies said it would cut 5% of its work force yesterday, about 11,600 jobs
  • The Los Angeles school district will lay off 8,800 teachers and other employees, board members announced Tuesday
  • AOL is scheduled to begin its 10% layoff campaign today… another 700 jobs lost
  • Famous paper publisher McClatchy announced earlier this week it needs to nix another 1,600 employees to stay in business
  • U.S. hedge funds will likely trim their staffs by 14% this year, guesses the Options Group, a financial recruiting firm. That would spell over 20,000 lost jobs.

  And that seems to be the trend: 67% of employers will not change their hiring plans in the second quarter of 2009, says a study today from Manpower. The HR firm said that only 15% of the 31,800 companies surveyed plan on hiring more employees from now until June.

"Until the outlook is clearer," said Melanie Holmes, vice president for Manpower, “employers will continue to run lean.” Or leaner.

  The one exception that proves the rule: AT&T. The company said yesterday it’s looking to hire 3,000 people this year in an effort to build up its wireless and broadband business.

  In the markets today, traders are doing their best to keep the juices flowing. Most indexes popped up 1% at the opening bell, driven by little more than yesterday’s enthusiasm and a big rally in Asia overnight.

  “Industrial companies are about as popular as wading in sewage right now,” notes Chris Mayer, just back from super-sexy Gabelli Pump, Valve & Motor Symposium with some investment advice of his own. “The Economist echoes popular sentiment when it features on its latest cover ‘The Collapse of Manufacturing.’ I wonder if this will be like BusinessWeek’s famous ‘The Death of Equities’ cover, which signaled the bottom for stocks to come in 1982.

“Almost all of the companies at the conference got the same question: ‘What are you expecting from the Obama stimulus?’ The most common answer was, ‘Zero.’ They said it was too complex, too vague and no one knew how it would work. So much for all the hope pinned on that.

“The consensus seems to be there is still a lot more action overseas than on U.S. shores.
Baldor Electric reported that for the first time, its international sales were more profitable than its domestic sales. The company continues to grow mainly overseas — adding plants in China and Mexico.

“Crane Co. reported lots of hiring going on in the Middle East and Asia and Eastern Europe. The company’s head counts are up over 100% in some of these places. Conversely, it’s dropped by 10% the number of workers in the U.S. The best growth is overseas, as are the lowest-cost locations. Crane pointed out how it closed high-cost plants in California and the U.K. and moved to Suzhou, China. This is one trend that hasn’t changed.

“On the acquisition front, again, most companies are looking overseas. Regal Beloit’s CFO, David Barta, said that three-quarters of what the company is looking at buying is outside of the U.S. Investors take note. Don’t shun those emerging markets for good.”

Chris covers the infrastructure beat in his high-end service Mayer’s Special Situations. For continuing updates and profitable recommendations, be sure you’re a subscriber. It’s complimentary with your Reserve membership. Otherwise, check it out here.

Yesterday’s gold sell-off continues today. As we write, the spot price is barely clinging to $900 an ounce. 

  Also yesterday, UBS, the Swiss bank most notably in the news for caving to U.S. regulators on tax issues and banking secrecy, issued a target of $2,500 an ounce for gold over the next five years.  
“The current environment,” the UBS report said, “is one which can best be characterized as having a ‘low margin of error’ for central bankers, with the prospects for deflation or inflation becoming more extreme… Given the broad uncertainties in the current macro climate, we believe investors should look to gold, given its historic tendency to act as a hedge.”

  The dollar is struggling to maintain recent highs too. The dollar index has fallen from a high of 89.6 last week to barely 88 today.

  “So Ben Bernanke assures us and Congress,” writes a reader, “that he’s confident that he ‘can raise interest rates, reduce the money supply and do that all in a timely way to avoid any inflationary consequences.’

“Ahahahaa…. yeah, I bet he can. These are nothing more than the classic, predictable maneuvers used repeatedly throughout history by central bankers, taken straight from their dog-eared playbook.  It’s not unlike Lucy holding the football for Charlie Brown — no matter how many times he trustingly charges towards the great kickoff — she yanks it away at the last minute and he somersaults and collapses into a dejected heap.

“They’ve spent a decade or two quietly flooding the world with increasingly worthless currencies, addicting consumers to their insidious drug and encountering virtually no resistance or objection. Then Ben & Co. will call in the money supply and jack up rates, which will invariably decimate the middle class, further deepen the depression and deliver years of unnecessary economic suffering and hardship. All in the name of protecting us from inflation! 

“Gee, maybe they should have prevented it in the first place through a prudent and disciplined monetary policy?”
The 5: Heh. You’re so cynical.

“Keep up the good work at The 5.”


Addison Wiggin
The 5 Min. Forecast

P.S. Options Hotline readers had a chance to book 71% gains yesterday after Steve Sarnoff bet U.S. financials would rally. That’s an impressive call in this environment.  Lately, Mr. Sarnoff’s been on a roll. Last week, he recommended trades that spiked 103% and 222% as the Nasdaq and S&P 500 tanked. If you’re not receiving Steve’s recommendations, but would like to, you can still try the service for a limited time with our aggressive guarantee.Find the details here.



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