The End of the Credit Crisis, Huge Medical Breakthrough, A Currency Play, Technical Indicators and More!

by Addison Wiggin & Ian Mathias

  • Is the “credit crisis” over? One chart’s clear answer
  • Chris Mayer on protecting your wealth from the calamities to come
  • Wayne Burritt calls for a market correction… how to tell when it’s happening, and when its over
  • A technical indicator reveals a promising currency opportunity
  • Plus, a medical breakthrough so big its could save the U.S. economy


  Rejoice! The credit crisis is over.

Sort of… maybe.

Most of the complicated lending spreads that define a crisis in credit have returned to normal levels. For starters today, the mighty “TED spread”

Kind of a mouthful of a chart, eh? In simple terms, the TED spread is the difference, in percentage points, between how much it costs the banks to borrow dollars and how much it costs the U.S. government to do the same. The lower the spread, the more freely money is being lent around the country.

The spread is now at its lowest level since August 2007.

Alan Greenspan’s favored Libor-OIS spread is back to pre-crisis levels, too. This complicated affair of interbank lending compared to overnight index swaps was at 87 when Lehman died, peaked at 364 on Oct. 10 and this morning is barely 52.

Our point? While the crises in employment, housing, banks, stocks and life in general still seem as pertinent as ever, the numbers claim that the credit crisis is a thing of the past… for now, at least.

  A similar indicator: The volatility index has fallen to its lowest level since the day before Lehman went caput. The VIX, a measure of uncertainty in options on the S&P 500, is down 13% just this week, now at a score of 28. You’ll have to go back to Sept. 12, 2008 to get a score that low… the last trading day before Lehman announced its demise.

  But despite these “encouraging” signs, Bank of America felt compelled to raise $13.5 billion in a common stock sale yesterday. The U.S.’ biggest bank (by assets) diluted stock owners to the tune of 1.25 billion new shares.

Under the most adverse scenario in the government’s “stress test,” Bank of America faces potential losses of another $136.6 billion over the next two years. So if you wanted fresh BoA shares yesterday (why?) but couldn’t get a hold of any… we suspect there will be another offering in the not-too-distant future.

  Fannie Mae and Freddie Mac are still a “critical concern” for the U.S. government, reads a report from the Federal Housing Finance Agency. The FHFA delivered Congress results from its first investigation of Fannie, Freddie and 12 federal home loan banks this week, and the results were a little scary. Here’s the meaty quote:

Fannie and Freddie “still face numerous significant challenges including building and retaining staff and correcting operational and credit management weaknesses that led to conservatorship.”

Fannie and Freddie accounted for 73% of mortgage originations in the second half of 2008, and likely a similar percentage at present… yet they still don’t have a grip on the same issues that put them out of business? Hmmm, that could get interesting.

The two GSEs have tapped about $60 billion worth of their $400 billion government lifeline. They lost over $33 billion of it in the first quarter alone.

  “The financial crisis is not over yet,” Chris Mayer assures us. “The banks still need capital. And more credit losses are on the way — from commercial real estate to credit cards and everything in between. The great deleveraging is still under way, and that’s one reason — among many — that gold should do well.

“The ripple effects of the financial crisis have been felt in all sectors, though. In the world of oil and gas, we see lots of production cutbacks and projects shuttered or delayed. Getting financing is tough. About the only people spending money are the Chinese.

“In general, I think we are in an age in which political risk is high. Increasingly, we’ll have to take into account what governments are doing. Most of them are broke. Most of them seem intent on bailing out banks and other failing businesses in favored industries. So that would mean the printing presses will run amok. That’s good for gold and commodities generally, which ought to preserve their purchasing power as paper currencies lose theirs.”

Chris just added another gold play to the Mayer’s Special Situations portfolio…learn about it here.

  After a small dip yesterday, gold’s back in its recent trading range. The spot price is around $930 as we write… about where it’s been for the last week.

  The stock market is back on the rise today. After a flat session Tuesday, the Dow and S&P 500 opened up this morning just under 1%. Target is leading the march. Despite reporting a 7% decline in annual profits, the mega-retailer handily topped expectations and is stoking the market’s retail vibes.

  “The market is long overdue for a correction in the 10%-plus range,” says one of our options analysts, Wayne Burritt. “Last week, it bit off about 5% of that. And that means we have another 5%-plus to go. Take a look for yourself in this daily chart of the S&P 500:

“As you can see, the market took it on the chin last week. From a high of 923 to a low of 879, U.S. stocks shed 4.8%. No matter how you slice it, last week’s action certainly falls into the pullback category.

“So where do we go from here? Notice the dotted red line on the chart. That’s near-term support in the 825 area. From last Friday’s close, that would represent a 6.6% haircut. Add that to the 4.8% we took off last week and, all told, we’re at an 11% pullback.

“Now, this kind of correction — at this magnitude — wouldn’t bother me one iota. Don’t forget, from a low of 667 on March 6 to a high of 930 on May 8, the market has soared a mind-blowing 39%. So a 10% correction or so is certainly nothing to cry about.

“The fact is any investor or trader worth his salt looks for and welcomes these kinds of relatively gentle corrections. Not only do they allow for profit taking, but they also discount share prices so more investors have the chance to get excited about the market. After all, new investors with new money need a way into a market, and pullbacks provide just that kind of opportunity.”

  Oil is garnering plenty of trader attention today. The front-month contract was up a buck and change to $61 a barrel, a six month high, after the Energy Department said crude supply had fallen last week more thanoriginally expected.

  The dollar is in another funk this week. Except for just a tiny stint of support yesterday, the dollar index has been on a steady downtrend since Monday. It started the week at 83.2, and now it’s at 81.7.

  Keep an eye on 200-day moving averages in the currency world. Sometimes these technical indicators don’t mean squat… but they’ve been pretty spot on lately.

Early this month, the dollar index fell below its 200 DMA for the first time since July 2008, and has been falling ever since. Not long after, the euro popped above its 200 DMA, and has rallied 2 cents since.

Today, history looks poised to rhyme… if not repeat:

If the pound goes the way of the dollar and euro, $1.555 is the price to watch.

(Readers of our currency letter Master FX Options Trader have purchased pound calls in anticipation of this event. Even without breaking the 200 DMA, their calls are up 43% already. Learn how to profit in the currency market with the power of options, here.)

  Bad news for the yen… Japan’s economy contracted another 4% in the first quarter, its government announced today. Yikes, these guys can’t catch a break: That’s four straight quarters of contraction, for an annualized fall of 15.2%! Japan hasn’t had a streak this bad since 1955, the end of its postwar slump.

Interestingly, though… 1955 was the beginning of the “Japanese miracle.” Within five years, Japan’s GDP was booming at a 10% clip.

  “The cure for arthritis is at hand,” declares our breakthrough technology guru Patrick Cox. You might recall our “ringing the bell” last week over the announcements Patrick was anticipating. This is one of them… stem cell technology looks poised to eradicate arthritis.

“Arthritis is a national tragedy. It is a human tragedy. It causes acute, unrelenting pain. Two-thirds of its victims are under 65, but the odds of getting it skyrocket as we age. As life spans continue to increase, arthritis will become an even larger catastrophe. Severe arthritis almost inevitably causes other problems. These include depression and conditions created by the lack of physical activity, such as heart disease and obesity.

“Somewhere between 2-3% of our GDP is currently consumed by arthritis. This includes increasingly expensive therapies and lost incomes. More than 46 million Americans have been diagnosed as having the disease. With unreported cases, the actual number may be 70 million. It is America’s leading cause of disability and morbidity. The CDC says it cost the U.S. $128 billion in 2003, but it is increasing rapidly.

“Arthritis is caused by the deterioration of joint, cartilage and other skeletal cells. Like brain and heart tissues, these cell types are among the few that do not regenerate. With cells potentiated to regenerate these tissues, however, the cure for arthritis is at hand.

“There are a few therapeutic details to be worked out yet, but they are trivial and will be worked out in clinical tests. The big breakthroughs have been made and one company, which I’ve recommended to my Breakthrough Technology Alert readers, has patents pending on many of them.”

We can’t go into the fine details of this breakthrough without giving away the company Patrick recommends. If you want to learn more, click here.

  “I’m sorry, but Social Security it not an entitlement, nor is it ‘insurance,’” writes a reader, adding to our ongoing debate on SS.

“Rather, its purpose is to operate as a retirement savings plan/vehicle that both I and my employer would contribute to, based on my annual earnings. Those annual contributions would be held in an account designated for MY benefit, earning a return just like any other savings account, and those saved funds, plus earnings for about 45 years, would be PAID BACK TO ME, over time, upon my retirement.


“Although I could long ago see the writing on the wall regarding whether I would ever receive any of MY savings back, what kind of BS has become the common herd mentality where others seek to continuously raise the amount of funds I must contribute, raise the age at which I may begin to receive my own savings back or simply confiscate my savings from me (the one who worked very hard for it all my life) and give it to others for any reason under the sun that another feels may justify theft from me???


“Give me a break.”

  “Social Security is a Ponzi scheme,” says our last reader. “It robs the young when they most need to be saving, thereby damaging the finances of young families. It encourages those with a lifetime of valuable experience to leave the work force too soon, interfering with intergenerational mentoring. It encourages people to depend on the state for their savings, thereby destroying self-sufficiency. It breaks family ties of responsibility and is therefore socially destructive. Nothing positive for our culture — not to mention our economy — results from this pernicious system.”


Ian Mathias

The 5 Min. Forecast

P.S. There’s one way to escape all the madness of our entitlement programs: Become so miserably rich that affording retirement is no longer a concern to you. One of our analysts just completed a report on how to do just that, which you need to check out… here.

P.P.S. The next installment of our Retirement Recovery Series is almost ready. We’ll let you know when its ready for viewing… just be sure you’re signed up plenty in advance. Do so, here. And don’t stress — it’s completely free!



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