The Second Wave, A Gold Play, Your VIX Fix, A Favored Sector and More!

by Addison Wiggin & Ian Mathias

  • First major commercial real estate player bites the dust… the second wave cometh
  • But market cheers, again… stocks rally, VIX down to significant level
  • Greg Guenthner on portfolio strategy in a choppy market
  • Byron King reports a sector about to “receive gobs of money”… and the best way to play it
  • A smart way to play gold from Alan Knuckman
  • Bull market in seeds, canning supplies, dehydrated food… "Economic survivalism" in 2009


  Quick quiz: How can you own real estate like this… and lose money?

Leverage, of course.

Faneuil Hall, the Boston historic site and tourist trap, was among the $29 billion portfolio of commercial real estate owned by General Growth Properties — the second largest mall owner in the U.S. GGP also has a huge stake in the Inner Harbor, the biggest source of tourist revenue in Baltimore…. and half the suburban Petri dish south of town known as Columbia, Md. Gack!

This morning, GGP grabbed the mantle as the biggest property bankruptcy in American history. GGP’s aggressive “growth” model left it strapped with $27 billion in debt, which as you can imagine, has been increasingly hard to service. Oops.

We’ve been expecting this “second wave of the Housing Tsunami” for some time. Looks like it may be coming crashing ashore in as spectacular a fashion as the bankruptcy of Lehman last September.

  Bad timing, too. The VIX — the market’s broadest measure of certainty for the future — just returned to levels last seen two days after Lehman went bust, on Sept. 15, 2008.

But it’s worth noting that at 35, the VIX still registers far above “normal” volatility in the market. For the better part of the tech bust in 2000-2001, the VIX stayed below 30.

  Still, “the next shoe to drop” during this crisis has yet to affect the stock market. The big indexes rallied 1-2% yesterday leading up to GGP’s bankruptcy, fueled by better-than-expected earnings from JP Morgan and Nokia.

At 8,125, the Dow’s found a two-month high. The Nasdaq is even better — a close of 1,670 marks a five-month high for the tech index. And if it’s improved earnings traders seek, we should see a helluva rally today: GE, Citi and Google beat estimates in their respective earnings announcements.

  “The fact is,” Greg Guenther reminds us, “we’ve been in the midst of the best rally since the 1930s. But there are plenty of unknowns that will need to shake out before we can truly be at ease with the markets.

“For the time being, the Depression analogies will continue to ring true. Consider this: Between 1930-1932, investors experienced five rallies that shot the market up 20% or more.

“If nothing else, we should all learn a lesson from this interesting piece of history. When you’re offered the opportunity to cash out with substantial gains in this market, take it. You might leave a couple of bucks on the table. But more importantly — you are protecting your hard-earned profits. With this in mind, we will be constantly monitoring our positions. Should this surge continue, it might be time to bank some gains.”

  Foreclosure filings climbed 17% from February to the end of March, reports RealtyTrac. The group says there were 341,180 national filings, up a whopping 46% annually. That’s also the highest monthly total since RealtyTrac started tracking the market in 2005.

For the whole quarter, filings were up 9% compared with the previous and 24% per anum. Nevada and Arizona suffered the worst in during the first three months of 2009.

Foreclosure filings in District of Columbia and Maryland actually fell during the same period. Hmmmn… housing in the Washington area is still going up? Wonder why that is…

  The dollar index is up for the fourth day in a row, thanks mostly to the talking heads at the European Central Bank.

As hard as they try, ECB governors can’t seem to instill confidence in their mandate this week. Alex Weber’s hint yesterday of “nonstandard” central bank policy didn’t help. Nor did a speech by Jean-Claude Trichet overnight in Tokyo in which he failed to paint the rosy picture traders pined for. Lousy industrial output numbers from the eurozone earlier this week didn’t help either.

The euro is down to $1.30 and the greenback index is back to a point shy of 86. And the Fed wants to begin holding these types of press conferences? Heh.

  Gold sank to $875 an ounce yesterday and hovers there now.

There is “more upside is in the works,” however, writes our resource trader Alan Knuckman, “when you adjust the then-record 1980 gold highs for inflation. That would value it at $2,300 an ounce. But the risks get much higher as prices rise for some SERIOUS profit taking.

“Limited risk option spreads are a great vehicle to deal with potential volatility and ride the waves to the golden shores… sorry for the bad metaphor.”

Alan’s Resource Trader Alert just locked in a 100% gain on that gold option spread. He picked up the spread when gold was at $750 and sold above $950 an ounce. Triple-digit gains in just two months. Hard to beat these days. For more on these spreads, take a look here.

  In the oil patch, light sweet crude is back up to $51 a barrel today. But the trade seems awfully fickle… data this week have ranged from bad to horrific, and the IEA, EIA and OPEC have all recently lowered annual oil demand forecasts.

While the long-term picture for the stuff still seems bright, we wouldn’t be surprised to see it fall whenever stocks give up this rally.

  “I spoke the other day with a contact at the Dept. of Energy,” Byron King tells us. “He told me that it has literally billions of dollars to spend on ‘alternative energy’ development, but the DOE lacks the overall procurement ability to administer the funds. This DOE professional takes his role seriously and is haunted by the specter of waste and fraud.

“So with that conversation in mind, I expect to see gobs of money move into alternative energy development in the next two years. For geothermal development, this should benefit Ormat, the best single pure-play geothermal company on the market today.

“As I’ve discussed before, geothermal power is clean and green. It has only small amounts of trace pollutants coming out of the pipes (extremely low levels of carbon dioxide, or occasionally some sulfur compounds or metals — not that hard to control and abate). Ormat has its own geothermal developments on several continents. Ormat also manufactures systems and provides engineering support to other companies in the geothermal business. It would be as if Boeing didn’t just build airplanes and sell them to airlines, but ran its own airline as well.”

Byron’s Energy & Scarcity portfolio is chock-full of geothermal plays. If you’re not already following them, you can begin by reading the following.

  Last today, a few more signs of the times: Could 2009 be the year of the “survivalist”? Signs of this, from USA Today:

  • “Stockpiling. When the stock market drops, orders surge for freeze-dried food, survival kits and emergency supplies, says Nitro-Pak president Harry Weyandt. One best-seller: a $3,375 food reserve that feeds four people for three months
  • Gardening. Sales of vegetable seeds and transplants are up 30% from 2008 at W. Atlee Burpee, the USA’s largest seed company. The National Gardening Association says 7 million more households will grow food this year than in 2008 — a 19% rise. A book on building root cellars is the top seller at Johnny’s Selected Seeds in Winslow, Maine, supervisor Joann Matuzas says
  • Canning. Jarden Corp. says sales of its Ball and Kerr canning and preserving products are up more than 30% from 2008. Sonya Staffan, owner of The Jam and Jelly Lady commercial cannery in Lebanon, Ohio, is offering twice as many classes this year
  • Sewing. More people are learning to sew so they can mend clothes and make home decor, says Rachel Cohen, spokeswoman for SVP Worldwide, owner of sewing products makers Singer and Husqvarna Viking
  • Relocating. Steve Saltman, general manager of, a national real estate company, says more customers want to ‘live simply in a less-expensive place.’ Jonathan Rawles of says more people moving to rural areas ‘are specifically worried about economic and social instability.’”

“Wall Street was cheering,” a reader writes, “that unemployment claims were only 610,000 last week, down 50,000 from the week before. Why doesn’t anyone ever mention that there were only four days to file last week — Friday being Good Friday/Passover.

“Next week, I predict that the people that couldn’t go in on Friday went this week and claims will be over 700,000. There were also heavy government seasonal adjustments. What a racket.”

  “Tea baggers… what a bunch of idiots,” writes another of Wednesday’s “protests.” “Where were they during the Bush years? And interestingly, most of the demonstrations were held on park lands, which, I believe, are paid for from taxes.”

  “Isn’t it ironic,” says another reader, “that the multitudes are reviving the idea of a Tea Party to comment on the level of taxation. The Tea Party invoked by the commemorated yesterday was actually about the lifting of a tax, It was perpetrated by smugglers who lost their pricing advantage with the repeal of the Tea Tax. The ‘legal’ tea was dumped in the bay so the smugglers could sell theirs.


“Anyway, aren’t these the same multitudes that wanted the various wars kept ‘off budget’ so they wouldn’t add to the deficit?”


Addison Wiggin

The 5 Min. Forecast

P.S. Full market recovery is almost impossible in 2009 and even 2010… but that doesn’t mean you can’t get rich in the meantime. 


We’ve just polished off a special report on how to protect yourself from the next leg down while building profitable long-term positions in a variety of markets. It’s a must-read for the serious investor… check it out here.



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