The Resourceful Bear Blog

I. Fannie And Freddie May Need A Bailout The S&P Warns
Housing Chronicles reports that rating agency S&P is issuing a warning that financial pressure on GSEs Fannie Mae, FNM, and Freddie Mac, FRE, could require a government bailout far larger than the $29 billion in mortgage assets assumed by the Federal Reserve from Bear Stearns.

II. Yet Despite The S&P's Concern Over Fannie And Freddie, Stocks Rallied
In today's news: Joe Bel Bruno reports that Wall Street surged higher on earnings reports with mortgage providers IndyMac Bancorp, IMC, Impac Mortgage Holdings, IMH, Freddie Mac, FRE, and Fannie Mae, FNM, Basic Materials, IYM, Homebuilders, XHB, Real Estate, RWR, Computer Networking, PXQ, Semiconductors, SMH, Private Equity, PFP, Steel, SLX, Coal, KOL, Telecom, PTE, Transports, IYT, Energy Services, OIH, leading the way up.

JPMorgan beat analysts' expectations despite a 50 percent drop in quarterly profit. The nation's third-biggest bank, which is in the process of acquiring ailing Bear Stearns Cos., reported $2.6 billion of write-downs tied to its loan portfolio. JPM, rose $1.90, or 4.5 percent, to $44.02 after issuing its quarterly report.

Dow stock Intel, INTC, rose $1.25, or 6 percent, to $22.16 after reporting late Tuesday that quarterly profit matched analysts' expectations and sales topped projections. Intel also issued a forecast that kept profit-margin predictions for 2008 intact.

A. Basic Material Stocks
The basic material stocks rallied rightly on higher oil and gold prices; yet I perceive a Financial Emergency coming soon from any number of sources such as a further write downs of mortgage backed securities by the rating agencies, S&P, Fitch or Moodys, or a write down of the above mentioned GSEs, or increasing credit default swaps, CDS, values, or Treasury repo fails or homeowners walk away from mortgages in large number. When the Financial Emergency comes, and the provisions of the Security and Prosperity Partnership, the SPP, are implemented, and enforced by the military, there will be a de facto expropriation of natural resource producers in the United States and Canada, and these stocks, which rose dramatically today, will suffer the most catastrophic loss of stock value at that time. All of these roared and soared higher today:
X, NUE, Steel
AMN, KOP, DEL, GWW, Lumber
CLF, Iron Ore Pellets
FSLR, Solar
AEM, KGC, GG, Precious Metal Miners
MRB, XPL, Gold Exploration Companies
PAAS, Silver
MOS, POT, Fertilizer
CNX, MEE, JRCC, Coal
COS/UN.TO, PCZ, Oil Sands
PX, APD, Industrial Gasses
VHI, Synthetics Manufacturer
NEU, Specialty Chemicals
CWCO, AWR, CWT, Water
PVA, DPTR, CRZO, GEOI, SWN, UPL, GMXR, HK, SFY, CWEI, EAC, WLL, BXEP, RRC, COG, DVN, XTO, NBL, CWEI, GEOI, all of these natural gas producers

B. Transports
Transports have been taking their cue lately from the basic materials, disregarding any negative influence from higher oil prices; like the natural resource stocks above, when the SPP is implemented, these will fall dramatically
CSX, NSC, GWR, Railroads
CHRW, Air Transportation
R,ABFS, Trucking

C. Energy Service Providers
RIG, NOV

D. Farm, Irrigation Equipment and Industrial Supplies
LNN, Farm Equipment
VMI, Irrigation Equipment
GEF, Industrial Supplies

E. Homebuilders
Home construction plummeted during March to its lowest level in 17 years, the government said in a report signaling that the housing sector will continue slumping. Housing starts decreased 11.9 percent to a seasonally adjusted 947,000 annual rate, after falling 0.7 percent in February to 1.075 million, according to the Commerce Department; yet that report did not keep the followoing from rallying
HOV, RYL, BZH, MTH, DHI, WCI, NVR

F. The Following Financial Sector Stocks Rallied Strongly
Banks
WFC, BAC, DB, PNC. C

Mortgage REITS
AHR, GKK, NCT

Surety And Mortgage Guarantors
PMI,ABK,

Mortgage Providers
IMC, IMN, FRE, FNM

Insurers
AIG

Real Estate Developers
JOE, STRS

Credit Services
CIT, AGM, ADS, ADVNB, WRLD

International Dividend Payers
BTI, Tobacco
OI, Glass Products Manufacturer
PEY, Dividend ETF
FDD, Dividend ETF

Self Storage Led Real Estate, And REITS Higher
PSA, EXR

G. Yen Carry Trade Favorites Did Quite Well
The natural ressource sector rally and the financial sector rally blew EUR/JPY, FXE:FXY, through support; and these interest rate differential based investments soared:
BTM, Telecom company
GFA, Homebuilder
PBR, Oil Producer
AGT, Synthetics Materials Producer
SCNH, Steel
PCU, Copper
MICC, Cellular

Today was most definitely a terrific rally, which I believe was engineered by the Working Group on Financial Markets, the Plunge Protection Team, PPT for short, in as much as JPMorgan Chase, profit declined 50%, and CEO Jamie Dimon said: "Our expectation is for the economic environment to continue to be weak and for the capital markets to remain under stress." Short sellers were right in justifying their positions as indicated by the S&P report on Fannie and Freddie, so the only way today's rally could have happened, was for it to have been engineered: it's just so tragic to see the short sellers battered -- definitely the PPT ruled sovereignly today.

Volatility, $VIX, fell off today, closing at 20.53 which is below its 50 day moving average on the weekly charts: this puts those holding an open short position at a disadvantage.

III. Oil Prices Soared To $115 As Investors Sought An Anti Dollar
Ambrose Evans-Pritchard reports that Société Générale said the near $30 spike in prices since early February is largely due to money pouring into commodity index funds, now worth some $200bn. Crude has taken on a "safe-haven" role for investors fleeing the dollar, or those betting that central banks will let rip with excess liquidity.

Another reason for the increasing price of oil is that many are convinced a war on Iran is imminent.

IV. A Run On The US Treasuries Is Underway
Jack Chan's chart of the Treasury ETF, TLT, shows that Treasuries fell on today's rally, confirming that a run on the US Treasuries is now underway.

The 30 Year Treasury Interest Rate, $TYX, shows three white soldiers -- a reversal signal indicating that the Government Bond market place is calling rates higher based upon perceived risk.

The Rydex Bear Treasuries Mutual Fund, RYJUX, which operates inversely of the 30 Year US Treasury is moving higher from a spiked bottom, providing clear, cogent and convincing evidence, that an investment "sea change" has occurred in the Treasuries.

It's as Trader Mark questions could the USA loose its AAA rating? This week's market actions says. "Yes"; the reason being that 34% of the Fed's Balance sheet is now perceived as junk.

V. The G-7's Currency Statements Over The Weekend And Today, Inflated The Euro And Gold
A. Today's Currency And Gold Charts

Gold, $GOLD, rose, and the US Dollar, $USD, fell to an all time low as the Yen, FXY, rose to a new high, confirming that a run on the US Dollar is underway.

Jack Chan gave his buy signal to the gold ETF, GLD, today.

B. Analysis Of The The British Bankers' Association, And Thus The G-7s, Furious Currency Statement

The Ted Spread, And The Libor Suggest Banks Are Insolvent
The Ted Spread is the difference between the T-bill interest rate and LIBOR.

Find the current TED Spread quote.
Refer to the Wikipedia presentation of the TED spread.
Understand the TED spread.

Bank Lending, Investment Banking, And Capitalism Are Dead, Posing Toxic Risk To The Trader And Investor
As much as the G-7 would like to preserve the status quo, of an ongoing yen carry trade, and banking liquidity, both are dead; yes, dead and gone, with Corpus Delicti coming from the EUR/JPY, that is FXE:FXY, turning lower from 1.62 and the Ted Spread turning higher from 1.5.

The G-7, via the The British Bankers' Association, issued a shun notice to banks: Banks That Misquote Money-Market Rates to Be Banned, BBA Says; Bloomberg's Ben Livesey reports: that the British Bankers' Association said it will ban any member deliberately misquoting lending rates at daily money-market operations amid concern that some contributors are providing misleading quotes.

The global credit squeeze has raised concern lenders have been manipulating the so-called fixing process to prevent their borrowing costs from escalating, the Bank for International Settlements said in March. Participants have complained to the BBA, the Wall Street Journal said today, citing a person familiar with the matter. The BBA holds its annual board meeting today.

``Libor will survive, although its credibility is severely weakened,'' Paul Calello, Credit Suisse Group's head of investment banking, said in a speech at the International Swaps and Derivatives Association annual conference in Vienna today. ``Continuing to base an enormous amount of derivative contracts on an index with credibility problems is a serious issue we must address.''

Today's shun notice was a knee jerk reaction to what Agnes Lovasz reported in her April 15 Bloomberg article that "The cost of borrowing in dollars overnight climbed by the most in two weeks, suggesting that central bank efforts to ease a credit-market squeeze is proving insufficient. The London interbank offered rate, or Libor, for dollars climbed 27 basis points, the most since March 31, to 2.67 percent today, according to the British Bankers' Association. The three- month euro rate gained less than 1 basis point to 4.76 percent, the highest since Dec. It's very disappointing that we haven't seen these levels dissipate more than what they have,'' said Sean Maloney, a fixed- income strategist in London at Nomura International Plc, a unit of Japan's largest securities company. ``The dislocation in the market is still very apparent. Central banks must be getting very worried about how to deal with it.'' Credit markets seized up after the collapse of the U.S. subprime-mortgage market led to $245 billion of losses at financial services companies, leaving banks reluctant to lend to each other.

Across The Curve comments that the BBA will meet out harsh punishment to those found dealing in untruths. The BBA announcement is an example of a Framework Agreement, that is becomming a more and more common practice, of state corporate rule by oligarchs over the finance, commerce and trade institutions. The announcement that it will meet out harsh punishment to those found dealing in untruths is quite Orwellian, like something out of the George Orwell Book 1984. I content that both the Libor, and the credit default swaps, CDS, will serve as ongoing investment landmarks and tools; and it also could be that the BBA's, and thus the G-7's efforts in this area, could manifest an embroglio that could morph into a full Financial Emergency and meltdown.

Cormich Grimshaw reports that Libor rates may be understated; and if they were truly reported, the cost of borrowing would be much higher.

Here are two truths, The JPM Buyout Of BSC Is The 911 Of Capitalism and also A Totalitarian Regime Will Arise To Oversee The Coming Liquidation Of Labor, Industry And Debt.

VI. The Investment Application
The very last thing one should own is a dollar anything: it's simply not wise to have a dollar denominated brokerage account, a short selling account, a money market fund account or a savings account.

John Browne writes in 321gold article The Problem Spreads that for alert Americans, investment attitudes must undergo a sea change. Instead of thinking in terms of return 'on' capital, investors will be well advised to think about return 'of' capital! Greed should give way to extreme prudence.

It is becoming increasingly clear that any investors, who wish to protect their wealth, should invest in non-dollar denominated financial assets and, where possible, hold them (legally, including paying tax) offshore, in order to avoid any risk of the future imposition of American exchange controls.

If one believes that gold and gold alone is the sole means of wealth preservation and management, the two greatest risks now to the investor are: one, not having 100% access to one's cash or money wealth in a system wide financial emergency, and two, the risk of investing in gold and seeing it depreciate in value until it rises again due to a hord of investors seeking safety in hard metals.

I recommend a mini-max investment strategy of minimizing risks and maximizing potential: I recommend that one 'dollar cost average' buys of gold at BullionVault.com.