The Golden Rule? Gold Will Rule

More metal talk today. There's been more buzzing about the mining companies shedding their gold hedges. From Briefing.com:

"However, the industry has clearly realized this and gold companies have been de-leveraging, and thus are once again drawing investor attention due to the potential for earnings acceleration as the price of gold rises."

"While prices are expected to rise more moderately this year compared to 2006, the bullish gold fundamentals will likely drive prices even higher in 2008."

This bodes well for those invested in mining companies. Just as rising oil prices benefit oil exploration companies, rising gold prices benefit mining companies. And why would the price of gold rise? Well, in addition to an increasing demand, the supply of gold is decreasing:

"On the supply side, production has been curtailed due to the absence of new discoveries as well as environmental activism in North America and Asia, and political and labor turmoil in hot spots such as Venezuela and Angola."

Ah what great news that is. At the beginning of the month I recommended a couple of mining companies. This month I recommended a few funds that are derived from various mining companies. I shed the mining funds last week due to volatility, but I'm retaining the two giants: Newmont Mining (NEM) and Barrick Mining (ABX). Not invested yet? There's still time; gold hasn't exploded yet.

The Bears are Breaking the Banks

Forbes.com has a great article on the bears ruling banking stocks. Tom Van Riper makes some very sound arguments for that reasoning:

"Investors in major U.S. brokerage stocks haven't seen the last of the sell-off. Not with bank funding for merger deals slowing as credit gets more expensive. Wider spreads in the junk bond market, where so many deals are done, mean the costs of issuing securities are higher, as are the risks for doing so."

I cannot disagree with logic. And for just these same reasons, I'm waiting to see what happens before taking my profits. When Goldman Sachs fell below $200, I was tempted to cash out. Of course, I did not. And when Goldman Sachs broke through the $200 dollar mark last week, I was regretful. I waited and saw GS lose even more value. For that reason, I'm holding off on covering my short. I think we've got a ways to go before banking stocks begin a recovery. Mortgage rate resets have yet to reach a peak, while overall business credit is trending tighter and tighter. The Chrysler deal is a great example. With every new story coming out of the financial main stream media, psychological factors will push banking stocks lower. And if Hank Paulson has his way, the federal deficit will crowd private investment even more, but that's for a different post.

Of course there are some people who will disagree with me. Here, James Altucher of The Street wonders why Goldman Sachs is so cheap. He even goes so far as to say that the company might be subject to a private buyout. Here, Mr. Altucher continues his faulty reasoning by indicating that investors should buy Goldman Sachs, as well as JP Morgan, and Citigroup, all of which I've indicated at sell or short sell status. At least James didn't try and convince investors to buy Bear Stearns. Ha!

I may be wrong about this next point, and if that's the case, then call me out. I think the credit cycle is at least as easy to predict as the housing market. Why is this? Because the credit (ie: banking) industry moves at a pace that is similar to the housing market. Complete cycles in both sectors take years to complete. As soon as one realizes that the credit cycle downturn is beginning, a savvy investor would take bank stock shares from Mr. Altucher's account and sell them short. When the credit cycle peaks as high as it has this last go around, the drop should act in symmetry. What does this mean? Big money for "danger-seeking" investors who know how to play the game.

Subprime's Other Victims??

Give me a break! I found this article from the NY Times:

"You’ve gotta feel for him. John Devaney, United Capital’s chief executive and a one-time master of the mortgage market who has been taking it on the chin lately, has put his yacht up for sale — for $23.5 million. According to TheStreet.com, he is selling his 142-foot Trinity yacht, dubbed Positive Carry, and his $16.5 million second-home, named Sardy House and the home of the nation’s largest living Christmas tree."

This is a great example of the fact that the entirety of the media only exhibits a persona recognized by the upper class. Does the NY Times really expect me to feel sorry for this 'poor' guy?

I could feel sorry for the guy, except for the fact that he has to sell his 23 million dollar yacht and his 16 million dollar second home. I wish I owned a first home! This is a pathetic piece of journalism, only representative of the most upper class of citizens. Yuk!

Edward Kennedy: Working for the Poor Man

This weekend there was talk of the Democratic Party attempting to raise the minimum wage above nine dollars per hour. I applaud that attempt. What's more important is this:

"There is also a possibility the wage would be indexed to inflation or some other measure of the cost of living. Ten states already have index adjusted-minimum wages. They provide for automatic increases to the wage in the same way Social Security or Congressional salaries factor in inflation and costs of living."

The wage NEEDS to be indexed to inflation. Currently, the Federal Reserve has more control over inflation than one might think. The obvious and glaring reason has to do with the fact that the FED doesn't include food or energy into their calculation of CPI, the index used to measure inflation. In addition to this point is the fact that the Federal Reserve has the ability to increase the money supply at a whim. If the money supply were to increase, this would cause inflation. Inflation causes prices to increase, but prices don't really increase; rather your dollars are just worth less.

We should note that different wages have different values among regions:

"Liana Fox of the labor-backed Economic Policy Institute said part of the reason for Kennedy's initiative is that by July of 2009, when the federal minimum is $7.25, 12 states with their own minimum wage law will be over $7.25."

"We've never had a situation like that before," said Fox. "It will increase pressure at the federal level."

Thank god for states' rights. And thank god for the rights of the city governments to go one step further. Take San Francisco for example. The minimum wage is already at $9.14 per hour. When you consider the cost of the town, you're still not in the livable wage arena, but at least the city government is making the effort. Again, from CNN:

"Raising the wage to $9 an hour 'would cause a lot of trouble,' said Edwards. 'There are huge differences in local economies. $9.50 an hour in New York and $9.50 an hour in Kansas are two different things."'

It's true that there needs to be an indexing to livable wages, instead of setting a national minimum wage. The nation consists of many different economies, which constitute many different minimum wages. We need to create a system that can peg the different wages to the regions in which they're located. This is definitely a problem, one that could be cured by instituting regional economic centers that monitor the price increases of their respective areas. Conservatives and Republicans will certainly rail against this idea as it would only expand the bureaucratic system currently in place. But it needs to happen.

NY Times: Homebuilders See Inventory Value Decline

On Friday, the NY Times posted a story explaining that the homebuilders have seen major declines due to a devaluation of inventories they hold:

"D.R. Horton, one of the nation’s largest home builders, posted a third-quarter loss after writing down the value of unused land and warned there was no recovery in sight for the troubled housing industry."

"Another home builder, Beazer Homes USA, which faces federal investigations of company practices and personnel, also said it swung to a loss in its fiscal third quarter after cutting prices to spur sales and taking charges to write down the value of unsold inventory."

My prediction has come to fruition. I reported this last month:

"Their respective inventories will continue to decrease in value as the housing bust runs its course and prices subside. Inventory makes up 73 percent of total assets for KB Homes, 77 percent of total assets for Lennar, and 83 percent of total assets for DR Horton. As inventories decrease in value, so should the stock prices."

This will continue to happen over plenty more quarters. The losses reported will get deeper and deeper and unlike my thoughts last month, some major homebuilders will file for bankruptcy. This has to do with the fact that homebuilders began forecasting future projections based on super-inflated numbers and made speculative bets based on those inflated numbers.

Of course there are those people who think it has nothing to do with fundamentals; rather, it has to do with psychology:

"'It's a psychological problem right now, more than anything else,' Hovnanian said on CNBC's 'Squawk Box.' 'Job growth is good. Interest rates are still really, really good. Demographics are good so it will come around.'"

"'We've been through these cycles many, many times before,' he continued. 'When it's bad everybody thinks it's going to be bad forever, and that’s not the case. It is going to come around.'"

I agree with Ara about the fact that it won't be bad forever, but I do think that there are some homebuilders that are extremely overextended. Ara insists that interest rates are low and job growth is good, but he fails to see two points:

(1) Job growth means nothing without wage growth. We can create millions of new jobs, but if they're all minimum wage jobs, then what's the point? It wouldn't bode well for the housing market unless they feel like making more subprime mortgage loans.

(2) Interest rates are at historical lows, but they're not low if you look at the last eight to ten years. The reason homebuilders and the housing market were able to persist after the recession at the turn of the century can be attributed to Alan Greenspan and his psycho-crazy idea of setting interest rates below the rate of inflation. He saved the economy temporarily, while putting off the major recession until later.

To recap, I think the recent housing downturn has more to do with fundamentals of the economy than it does with the psychology of the average prospective homebuyer. I think that the value of land will continue it's slide for years to come, creating lower book values for homebuilders who are overextended, which in turn creates downward pressure on homebuilder stocks. Don't miss out on this easy opportunity.

Leisure Time

I'm tired of talking financial and economic news all the time. I'm going to be posting leisure items in addition to weekend video (which doesn't always address leisure items). The first 'leisure time' is of the boxing nature. I just got done watching ESPN Friday Night Fights. The main bout pitted Andre Berto vs. Cosme Rivera. The fight was trending towards Berto until the sixth round, when Rivera scored a knockdown. Unfortunately for Rivera, the knockdown only awakened the beast in Berto. The subsequent rounds were devasting for Rivera, including one in which a nasty cut appeared under the right eye of Rivera.
Ultimately, Berto won the fight unanimously by a wide margin, but Rivera was only the third boxer out of 19 to go the distance with Berto. Andre Berto is now 19-0 with 16 knockouts. Rivera, although he lost, should feel proud. He was a part of one of the most entertaining fights of the year, and the only fee I had to pay was for cable. Splendid!

(I've got plenty more to say about the financial news of the day, but it will come later. For now, I'm enjoying leisure.)

Dow(n) Drops Another 200

Stocks took another deep hit today as the Dow dropped another 200 points. Amazingly, the bulls decided that a better than expected GDP growth report wasn't enough to quell the risky fundamentals. From Yahoo:

Wall Street extended its steep decline Friday, propelling the Dow Jones industrials down more than 500 points over two days after investors gave in to mounting concerns that borrowing costs would climb for both companies and homeowners. It was the Dow's worst week in nearly five years.

The credit squeeze is on. Investors are facing the hard fact that homeowners and businesses alike are seeing a tightening lending trend. For months, investors ignored the fact that the mortgage rate reset was going to get worse and worse this year. The reset chart has been available on the internet since the beginning of the year. It wasn't hard to find with Google. And there have been news reports warning of the looming problem. On July 10th, there was an article on CNN Money warning that October of 2007 was to be a record month.

Despite that the Dow surged up to 14,000. Psychology was trumping fundamentals. Now, the tide has turned.

Gold Funds That Make Sense

One of the purposes of this blog is to educate myself. I have been educated. I'd like to address the issue of gold funds right now. I recently suggested three gold funds that I thought were good buys: XAU, HUI, and GDX. Apparently, they are more sensitive to price changes than the previous ETFs I suggested: IAU and GLD. I made a mistake. To illustrate, let's look at the return (or loss) from both. Here's the first group:

I recommended XAU at a price of $158.26. Since then, we've seen a drop to $147.25. That equates to a loss of 6.95%.
I recommended HUI at a price of $368.93. Since then, we've seen a drop to $345.79. That equates to a loss of 6.27%.
I recommended GDX at a price of $42.99. Since then, we've seen a drop to $40.30. That
equates to a loss of 6.26%.

Now let's look at the losses incurred by the second batch over the same time period:

IAU's closing price on the same day of the recommendations was $67.43. It closed trading today at a price of $65.67. That equates to a loss of 2.61%
GLD's closing price on the same day of the recommendations was $67.47. It closed trading today at a price of $65.65. That equates to a loss of 2.70%

What I see here is that the first two funds I recommended seem to be much less susceptible to the volatility seen in the precious metal market. The first three funds lost much more equity than the last two. For this reason, I recommend that the funds I first suggested be the ones to focus on for your portfolio. I hate flip-flopping so soon after recommending them, but sometimes it only takes a few days to analyze the implications. XAU closed at $147.25. HUI closed at a price of $345.79. GDX closed at a price of $40.30. Reallocate your portfolio to reflect removing those funds and place the diminished proceeds into IAU and GLD; over the long term, gold will continue to rise. I will record the losses of the other three in shame. (And here I thought I was making progress...at least I have the homebuilders)

Mortgage Deliquencies: Destined to Rise

A headline I saw today: "Mortgage Rates Could Soar". Could is not the word I would use. From the story:

"The already poor performance of many mortgage loans will worsen substantially through the rest of the year, according to an analysis released Thursday by Moody's Economy.com."

"The worst-hit loan category will be subprime adjustable-rate mortgages (ARMs). Economy.com expects foreclosures for those loans to hit 10 percent of that group by mid-2008. The foreclosure rate for that group is currently 4 percent and was as low as 2.5 percent in 2005."

When you consider the looming mortgage rate reset that's just starting out, it's illogical to think mortgage rates could soar. Could implies that it's a possibility or even a probability. It's way passed that. Mortgage rates will soar, perhaps into the realm of federal bailout. There will be a lot of people who will need a lot of financial help in the coming months and years and there will be a lot of people who lose their home. The population's current financial IQ is poor at best and it's something I think that will be a huge hindrance to our future economic growth.

Homebuilders Tank; Dow(n) Jones

Two homebuilders reported earnings today. Unfortunately, they weren't earnings; they were losses. And they were much worse than people thought they'd be.

"For the three months ended June 30, the company posted a loss of $123 million, or $3.20 per share, compared to a year ago when it earned $102.6 million, or $2.37 per share." "The result was significantly worse than estimates on Wall Street, where analysts projected a loss of 32 cents per share, according to Thomson Financial."

Significantly? That's an understatement! The loss was 640 percent worse than analysts expected. It's frightening how far off the analysts expectations were. Millions of investors base their picks on what these analysts report.

What about DR Horton? From Yahoo:

"D.R. Horton Inc., posted a third-quarter loss Thursday as one of the nation's largest homebuilders wrote-down the value of unused land and warned there was no recovery in sight for the troubled housing industry."

"With the write-down charge, Horton said it lost $823.8 million, or $2.62 per share, in the quarter, compared with a gain of $292.8 million, or 93 cents per share, a year earlier."

"Analysts surveyed by Thomson Financial expected losses of 35 cents per share."

Analysts were 648 percent off with their DR Horton expectations. The evidence is here: people are vastly underestimating the severity of the housing downturn. The problem will still get worse before it gets better. The more days that pass, the more I think that the recovery won't happen in 2009. This could take many years to iron out.

The news helped to spark a 300 point drop in the Dow. Apple is the only stock I've seen rising. For now, the bears rule the world. Are you covered?

Hank Paulson: Don't Single Out an Industry!

Henry Paulson came out today to criticize congress' attempt to impose working tax rates on hedge fund investors. I agree with his view that we shouldn't single out an industry for imposing a tax rate:

"'I want to avoid responding to the headline of the moment, singling out an industry,' Paulson said. 'I don't believe it makes sense to put in a special provision aimed at one industry today.'"

What industry would that be? The hedge fund industry? And what industry do they engage in? Let me explain the problem I have. Hedge fund managers are managing other people's money. A guide for determining the tax rate:

(1) If you're managing your own money, then you should be taxed at fifteen percent.
(2) If you're managing somebody else's money, then you should be taxed at thirty-five percent because you're essentially acting as a money manager.

A Bad Omen: Subprime Defaults Drop the "Sub"

It's not just a subprime problem anymore. Countrywide has reported that mortgage defaults are now starting to affect quality borrowers:

"The subprime mortgage meltdown has begun to spread to prime loans as even credit-worthy borrowers have started to fall behind on payments."

"'Unable to afford their own homes, [borrowers] turned to increasingly risky mortgage products,' said Amy Klobuchar, a member of the House of Representatives from Minnesota, speaking Wednesday before a hearing of the Joint Economic Committee examining the national foreclosure crisis."

"Some home buyers, caught up in red-hot markets and afraid of getting locked out of homeownership forever, overpaid for houses."

Home prices rose so high in the early part of this decade, that most people couldn't afford a traditional 30 year mortgage. Well, I guess they couldn't really afford non-traditional mortgages either.

The inability to live within your means and to recognize the limits of your means is going to make a relatively small problem (subprime defaults), a very big problem. This is the kind of widespread problem that could wipe out the middle class in this country: going into a loan based on highly inflated property values that then begin to deflate. As mortgage rates reset, more and more families will find themselves upside down in terms of property values versus loan balance. That will not be easy for the economy to iron out.

But wait, there's more:

"Analysts said the trend could continue, particularly in areas of the country that have been hardest hit by job losses in general or seen a decline in speculation-driven construction, such as South Florida, parts of California and Las Vegas."

Job loss? Rising mortgage payments? Rising energy costs? Rising food costs? This doesn't sound very good, considering consumerism accounts for over two-thirds of our economy.

More Horrible Housing Numbers

The bad news in housing gets reported as if it's a surprise. Consider the headline: "Existing-home sales fall to 5-year low". Did anyone REALLY believe that sales wouldn't drop to that mark? Did someone think that housing would rebound? From the article:

"Sales of single-family homes plunged at a 30% annual rate in the second quarter, the steepest decline in 28 years, the National Association of Realtors said Wednesday. Sales of single-family homes were down 12% in June compared with a year earlier."

"Even with a significant 4.2% drop in the number of homes for sale, the supply remained at a 15-year high at 8.8 months' worth of sales."

Any of that information would have made much bigger headlines than the one Market Watch used. Sensational headlines, in fact. We saw the steepest decline in 28 years. DR Horton is reporting earnings tomorrow. Anyone wanna make any bets?

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Update 07/25/07 5:55 PM: It should also be noted that Beazer Homes is expected to announce earnings tomorrow as well. Analysts have pegged them to report a loss of 0.46 per share. Look for their stock to dive some more if they miss that expectation.

Serious Reading: 1920s Style

I've been reading some chapters from a book that gives a synopsis of the 1920s and I've found that the last chapters have offered some chilling parallels to our times. I'm not done reading, but I think the comparisons are scary. Market Oracle alerted me to the publication. You can find it here. I'm reading (per M.O.) the eleventh through the fourteenth chapters: "Home Sweet Florida" through "The Aftermath" are the ones to focus on. I'll review with full quotes and comparisons in a day or two.

Take Your Profit

I'm recommending selling oil and taking the profit. I realize this would have been a great move on Friday, but I'd rather lose a few percent from a price decline than lose ten or fifteen percent from selling too early. It seems that OPEC is willing to increase supply if needed:

"Iran said on Tuesday Opec would inject more crude oit to the market if it was needed, the official IRNA news agency quoted Javad Yarjani, head of Opec affairs at Iran's oil ministry as saying."

"'In case the oil market needs it, Opec will inject more oil into it,' Yarjani said."

OPEC knows a few things. First of all, the members know that increasing energy costs cause slower economic growth. Slower economic growth means OPEC would sell less oil, albeit at a higher price. But if economic growth were to grind to a halt, OPEC would sell virtually no oil. In addition to this, OPEC realizes that if they increase supply which creates downward pressure on prices, then the people will buy more. This could lead to greater profits than selling less oil at a higher price. Of course, this is all me hypothesizing about their intentions.

I recommend selling your crude and wait for a jump in point at the end of the year or the beginning of next year. As of this writing, crude futures are selling at 73.28.

iPhone Estimate: iWasRight

Earlier today, AT & T reported the number of iPhone activations for the first weekend. From Yahoo:

"The nation's largest provider of broadband Internet and land and wireless phone services said Tuesday that 146,000 subscribers activated new iPhones in the first 30 hours of sales as the quarter closed"

Sales estimates ranged as low as 100,000 units and up to 750,000 units. Here's what I said way back on June 25th:

"I think the iPhone will sell closer to 150,000 units over the first two days. The longer-term sales expectations should be easier to meet as prices go down and as people's wireless contracts end."

My estimate of first weekend iPhone sales was within three percent of the actual activation total. After taking all of the factors into account (phone price, only one service provider, high cost of service, etc.), it was hard for me to believe that sales in the first weekend would be much more than 150,000.

Of course predicting demand for a product doesn't necessarily make investors money. What makes investors money is predicting stock prices. I should have rode the wave of hype and enthusiasm until unit sales figures were published, instead of following my gut feeling that the stock is overvalued. Bulls will be ostriches until hard sales figures are known. Now that the numbers are in, the price should fall, creating a possible buy opportunity. We shall see

I stand by my long-term sales expectations for the iPhone.

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Update 07/25/07 5:25 PM: I realize that there were only 146,000 activations in the first two days. But I find it hard to believe that nearly half of the supposed 270,000 units were unable to or failed to be activated within the same time frame. Had I purchased an iPhone, the first place I would have gone is home to activate it. It serves no purpose if it's not activated. I guess the same confusion over company expectations for the device have carried over to reporting actual sales numbers.

Hundred Dollar Oil - Sooner or Later?

We should all be prepared for oil/gas getting more expensive in the future. What we might not be prepared for is the fact that it could happen much sooner than people expect:

"'We're only a headline of significance away from $100 oil,' said John Kilduff, an analyst in the New York office of futures broker Man Financial Inc. 'The unrelenting pressure of increased demand has left the market a coiled spring.' New disruptions of Nigerian or Iraqi supplies, or any military strike against Iran, might trigger the rise, Kilduff said in a July 20 interview."

A military strike against Iran is highly unlikely, though I'm not discounting the possible threat they pose. But oil will climb to a price of or above one hundred dollars by the summer of 2008. Oil has been a volatile commodity and will continue to be for as long as the BRIC (Brazil, Russia, India, China) countries are growing. I previously said that oil will exhibit an upward trend, while at the same time offering buying opportunities about once a year. I believe this is based on seasonality:

"On January 18, 2007, the price of crude was $50.20. Today, June 14th, oil traded at $67.69 per barrel; that's a 35 percent increase since the winter months. Seasonal cyclical patterns are apparent in the short term."

I find it hard to believe that we're at the seasonal peak right now. Although oil pulled back today, it should be temporary. The Market Oracle offers a great visual representation of oil's summer peak last year. Oil peaked at a price just above $78 in September; although last summer seemed to have more conflicts last year, I would estimate that the world demand for oil this summer is higher than last summer. I would suggest taking profits if oil tops $78 dollars (16.5% profit) this summer and wait to jump back in during the winter months, which generally offers more jump-in points. Of course, I wouldn't recommend anything until the event happens and I issue a recommendation; oddities in the world could trigger unusual spikes and a savvy investor would much rather take more profits, even if the risk increases.

More Metal ETFs and Indexes

Gold and other metals are poised to rise. Here's a few more recommendations for cashing in:

XAU: "The XAU is an index traded on the Philadelphia exchange. It consists of 11 precious metal mining companies."

HUI: "The AMEX Gold BUGS(Basket of Unhedged Gold Stocks)Index represents a portfolio of 14 major gold mining companies.The Index is designed to give investors significant exposure to near term movements in gold prices."

GDX: "Global Markets Vectors tracks the Amex Gold Miners Index, which includes a total of 37 large-, mid- and small-cap U.S. stocks and ADRs. It is heavily weighted with two Canadian firms, Barrick Gold at 14.45% of assets and Goldcorp at 9.45%, followed by Newmont Mining at 9.51%."

As the dollar continues to weaken and adjustable mortgage rates continue to reset (leading to more bad mortgage-backed securities), gold and other metals will continue to rise. And because mortgage-backed securities are illiquid, the bull market should be slow, long, and drawn out. Over time, a bubble could develop.

XAU ended trading at $158.26; HUI ended trading at $368.93; GDX ended trading at $42.99.

Sirius/XM Plan Gets Overhauled

In another attempt to attract the blessing of the FCC, satellite radio companies Sirius and XM have announced a new plan:

"'Our definition of the public interest,' Karmazin explained, 'is that [the merger] will result in more choice and lower prices for consumers.'"

The pricing plans announced Monday range from $6.99 per month for 50 channels from either Sirius or XM, to a $16.99 per month subscription, which would allow customers to keep their existing service and cherry-pick channels from the other provider's service.

For me, I'd be able to get the music channels I want and then add Howard Stern and the NFL. If I don't want to pay for the Martha Stewart channel, I don't have to. If I don't want to pay for the NHL or MLB channels, I don't have to. If I don't want twenty different rock channels, I don't necessarily have to pay for them all. How would this arrangement harm the consumer? The only problem would be the possibility that the existing customers would have to buy new radios:

"To subscribe to the “à la carte” plans, consumers would have to buy new radios."

I was under the impression that previously, this was one of the concerns of the FCC. And that could pose problems. I only paid $25 for my radio. I'd be happy to buy a new one; the lowered cost of my subscription plan would more than pay for it over a few months. Others have paid considerably more and that's where the problems would arise. As I said previously, I seriously doubt the merger will happen. But I have hope.

The Case for Ron Paul: Part One and Two

I think it’s important for us to examine where our true priorities are. The first thing I’d like to say is that, unless unusual circumstances come to pass, I’ll be voting for whoever the Democratic candidate is. That being said, I’d like to examine what the election in 2008 should ultimately be about.

The election in 08 is about the Iraq war. That’s been the biggest issue separating our Democratic leadership in the senate from the Republican leadership. While we’ve been fighting to redeploy our troops to Afghanistan and other more urgent areas, our Republican counterparts have been filibustering to protect their president and his Iraq war policies. Since we’ve held the congressional majority, we’ve been unable to pass meaningful legislation that would do so. Obviously, we need to get out of Iraq.

The election in 08 is about the Patriot Act. Since 9/11, the Patriot Act is the single most damaging piece of legislation to our nation. The Patriot Act is responsible for the telephone wiretaps, and the expanded ability of the Feds to conduct searches. The Patriot Act is responsible for stripping the people of the right of habeas corpus. The Patriot Act is the legislation that gives the government the right to access our library records (if you’re lucky enough to have a library). The Patriot Act is the law that allows increased monitoring of our internet ‘clicks’. And of course, the Patriot act allows for secret searches and searches without a warrant. But most importantly, the Patriot Act EXPANDS PRESIDENTIAL POWER.

If you’ve had the courage to read this thus far, then let me explain why I feel the way I do. There are four democratic presidential nominees who have voted in favor of the Iraq War, as well as the Patriot Act. These are individuals who should be admonished within our party. Biden, Clinton, Dodd, and Edwards all voted for the Patriot Act, as well as the authorization for force in Iraq.

The problem I have with these four candidates is that they didn’t have the conviction to turn down these laws. Either they were afraid of losing elections or they believed that the executive branch should have the authorities that these laws allowed for. So what happens when they become president? Does this mean that Hillary will fight to keep the powers that she voted to instill the president with? If you are afraid of 'big brother', would you be equally afraid of 'big sister'? Why should we trust Edwards or Biden or Dodd now? Since they're running for president, don't they have something to gain? Should we allow them to pander to us now when they wouldn't stand up for our beliefs four years ago? We have candidates in our own party running from president who have voted to EXPAND PRESIDENTIAL POWER. Am I the only one who sees a conflict of interest? This is a serious problem. We need a president who has exhibited the foresight to say “NO”. Imagine if we had a candidate in either party who was bold enough to say “NO” to his own party? A candidate who has never voted to EXPAND PRESIDENTIAL POWER…Would you vote for him if he were running for president?

Blindly following party lines is exactly the problem that has kept us from redeploying our troops out of Iraq. So why should we, as progressives, exhibit the same characteristics? Partisanship is the problem. Voting for the candidate based on party affiliation rather than qualifications and voting records is a serious blight on our democratic society.

Ron Paul is the antithesis of our current president; he’s further from the president and the Republican Party than some of our own candidates. Labels should mean nothing in this election. Issues should be paramount. That’s why I’ve been advocating for Ron Paul. He’s a serious long shot to win his party’s nomination, but if the unusual were to happen I would have to seriously consider his candidacy. Were he to run against certain Dem candidates, I wouldn’t think twice. I’m sick and tired of expanding presidential power and the war in Iraq to the point where I could be blinded to all other views. Labels are nothing; issues are everything.

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Part Two:

I realize he has his shortfalls. But you must remember a few things:

(1) We're all but assured of having solid majorities in both houses of congress. If the war in Iraq persists through the 2008 election, it's guaranteed. Furthermore, we would have a president in the White House who believes that there are THREE equal branches of government. What you're thinking is that we'll have another Bush Republican in the White House issuing signing statements and claiming unrealistic executive privilege at every turn. If you examine Paul's record, you'll see extreme consistency. If Paul were president, we would be OUT OF IRAQ and there would be NO PATRIOT ACT.
Thus, if we had a stronghold on the congressional branch, we'd have a serious check on the White House.

(2) If Hillary is being truthful in her speeches, as president she'd keep residual forces in Iraq. If her voting record is truthful, she'd claim the same authorities as president that Bushie has. Why wouldn't she?

(3) Ron Paul is a firm believer in state's rights. When you transfer rights from the federal government to the state government you have a much purer form of democracy. Your vote means more at the state level than it does at the federal level, no? If we're not paying federal taxes, does that mean we don't have to pay state taxes? Does that mean we don't have to increase state taxes? Does that mean we won't have more money for state taxes?

(4) Number four ties into number three. Ron Paul is in favor of abolishing the Federal Reserve and returning to a gold standard. What that means is that our dollars would have intrinsic value. Each dollar would be worth a certain amount of gold. As our current system stands, our federal government is essentially a counterfeiter. Whenever it feels like expanding the money supply, it can. All it has to do is keep interest rates low and print more money. What happens when the money supply expands? It causes inflation. Inflation isn't a problem for those who are rich, and when I say rich, I mean top five percent income level. For the rest of us, it causes our money to become less valuable. At the same time, we have no hedge because we have a limited amount of dollars.

Recently, the stock market hit the 14,000 milestone. Have you wondered why that happened despite an ailing housing market, a massive credit bubble, and rising food and energy costs? It's because the FED has the ability to expand the money supply. That money has to go somewhere; thus, it enters the financial markets. Money entering the financial market will create upward pressure on prices (inflation), despite the fact that the fundamentals are poor. It's simple supply and demand. The money has to go somewhere. People will refute this argument by saying that quarterly profits are up, but the quarterly profits are only up among business to business transactions. Look at retail numbers (besides Walmart, where everyone will start to shop when they're poor). They're down. Way down.

So when I hear people talk about Ron Paul's bathtub being smaller than Grover's, I laugh. It's a view that's too simplistic and it's a view that buys into the corporate mindset.

Extremist views? Yes. Isn't that what America needs? Aren't we too complacent with the status quo?

Finally, I'd like to discuss the last reservation I have, which wasn't addressed in my diary, nor in the comments. That is, that his Supreme Court nominees will be conservatives. The views I just laid out before you, were they really conservative views? I realize he has a problem with homosexuals and I realize he might hold some prejudices. But do you really think that a man as honest as him, a man who respects ALL THREE branches of government, do you really think he'll nominate more Bushie candidates? Or do you think he'll nominate individuals who deserve to serve on the highest of courts? If you think otherwise, then please let's see some proof. Prove it with his voting record. Prove it with his public statements. If you can't do so, then you're just as partisan as the people you oppose.

I'm always willing to change my mind. All I want is evidence.

Jim Cramer Finally Gets the Memo

Mad money or just plain madness? Jim Cramer finally got the memo. I issued a couple memos a month ago. Had you sold/shorted when I told you to, you'd already be enjoying the following profits:

Beazer Homes: 31%
Lennar Homes: 19%
KB Homes: 17%
D.R. Horton: 9%
Standard Pacific Homes: 3%

Flash Memory Shortage?

Last Thursday I ran across some interesting news that could have good implications for savvy investors. It seems that the Apple iPhone and iPod accounts for a significant amount of NAND flash storage production:

"Apple's new red-hot iPhone and the company's line of iPod media players are expected to use a much as 25 percent of the world's NAND flash memory production in the current quarter of this year, according to new data from research firm DRAMexchange."

This news bodes well for manufacturers of flash memory chips. Producers of NAND memory include Micron (MU), STMicroelectronics (STM), and SanDisk (SNDK). These stocks are all on my watch list. I'll let you know if/when I think they could be a good buy. For now, the risk is too high.

Weekend Video - iTulip Rocks Edition

Three videos from the iTulip website. I wanted to call this the 'Zombie Financial Media Edition', but there are only two videos of that theme. So I decided to name it the 'iTulip Rocks Edition'. Thank god we have them around to tell it like it is! Leading it off is a commercial with Gary Coleman pushing loans. I actually saw it on cable at the beginning of the week in full. I noticed the 99.25 percent and sat for a minute. Forty-two payments of $216.55 is $9095.10...for a $2600 loan. And then I saw it on iTulip which forced me to put it up here. It's a symbol of the fact that financial education is more important than ANY other. Gary Coleman: King of Shame.

Gary Coleman Pushing Loans for Cash Call:



Zombie Financial Media: Fair Taxation on Wall Street:



Zombie Financial Media: Reporting on Subprime Fiasco

Jumping Ship on US Stocks

I'm jumping ship on some stock recommendations I've listed as "buys". This includes:

(1) AMN Healthcare - Stock symbol AHS
-Recommended on 6/25 at a price of $22.41
-Closed trading on 7/19 at a price of $21.48
-Net Loss of 4.14%

(2) Cross Country Health Care - Stock symbol CCRN
-Recommended on 6/25 at a price of $16.85
-Closed trading on 7/19 at a price of $17.26
-Net Gain of 2.43%

(3) Intel - Stock symbol INTC
-Recommended on 7/14 at a price of $25.97
-Closed trading on 7/19 at a price of $25.26
-Net Loss of 2.73%

(4) Hewlett Packard - Stock symbol HPQ
-Recommended on 7/14 at a price of $47.25
-Closed trading on 7/19 at a price of $48.40
-Net Gain of 2.43%

I'm keeping all metal ETFs, mining stocks, foreign ETFs, and GE for their alternative energy holdings. Also, I'm keeping sells on the banking and homebuilder stocks I've previously indicated. I'll be recommending more foreign ETFs and metal funds later this evening or tomorrow.

Why the change? I'll give you four reasons: here, here, here, and here. The fourth reason might be the most important. From the Market Oracle:

When this game is over and the music stops there will not be chairs for all players. There will be some winners and many losers. We believe the winners will be those investors that have aligned themselves to the natural resource sector and the many different ways to invest therein.

I don't quote the Market Oracle very often; in fact, this might be the first time. The reason? I seem to always agree with their positions. Two weeks ago, the Oracle had an article stating that the downside risk outweighed the potential gains in US stocks. Had I heeded their warnings, I wouldn't have lost face with Google. Although I gained a few percent with HP and Cross Country, I lost plenty more.

In addition, the Bloomberg stock option report also weighs heavily in my mind. If people are betting against the market at a two to one ratio, then the optimism has turned to pessimism. Consider the options report to be an investor confidence index that's turned south.

Therefore, I'm reducing my exposure to US stocks. The risk just isn't worth it.

Google Misses - Market to Drop Tomorrow

Look for a stock decline in trading tomorrow. It's almost guaranteed now that Google has missed analysts expectations for the second quarter:

"The Mountain View, Calif., Net giant made $3.56 a share on a non-GAAP basis. Net revenue, excluding the money Google shares with its advertising partners, was $2.72 billion."

"Analysts surveyed by Thomson Financial were looking for a $3.59-a-share profit on net revenue of $2.68 billion."

So there you have it. Revenue was up, profit was down. Google needs to retain that level of revenue while wrangling in costs. I expect Wall Street to overreact as they have in the past:

Indeed, bulls might well note that previous profit disappointments have provided good buying opportunities. When Google last missed a quarter back in January 2006, shares tumbled into the $370s in a 15% after-hours selloff.

I have learned a valuable lesson and hopefully, by observing me, you have too. Flip flopping on stocks (the way I did on Google) is generally not a good idea.

This should lead to a precipitous drop tomorrow among all stocks, or even act as a catalyst in bringing about the market correction. I haven't decided if I should close the recommendation or persist. I'll update this post later today with a recommendation on Google.

***********************************************************
Update 7/19/07 7:28 PM: Last I checked, Google was down seven percent in after hours trading. Since there are plenty of investors who don't have access to after hour trading networks, I think the stock will decline further tomorrow. Sell at the opening bell. To be fair, I will close my recommendation at the price that the stock opens with tomorrow.

Update 7/20/07 7:08 PM: Google opened at $511.90.

Fixing the Bond Market

When you don't like what you hear from one doctor, you get a second opinion. But how ethical is it to get a second opinion when you're talking about rating the creditworthiness of mortgage-backed securities? From Bloomberg:

"Moody's Investors Service has been excluded from rating 70 percent of new commercial mortgage-backed securities after toughening its guidelines. "

"'There's no doubt in my mind that it's because of the change' said Philipp, who included a chapter titled 'Rating Shopping is Alive and Well' in a report released today. 'Normally, we'd rate 75 percent of the issues, not 30 percent. I guess this is sort of like, no good deed goes unpunished.'''

Investors beware. You can put makeup on a pig, but it'll still be a pig.

Dow Drop Turns Into a Hiccup

The Dow dropped as much as a percent in early trading, before rebounding for a 0.38 percent loss. Over the last few weeks, we've had one trading day in which the market recedes from a subprime scare. In the previous weeks, the market has rebounded the following days. Last week, the market rebounded to post record highs. Will this week be the same? If the last half of the trading day is any indication, it could be.

One thing about trading today that made me scratch my head, is the minimal hit taken by Bear Stearns. If you'll recall yesterday, the company announced what the two troubled hedge funds were really worth: Zero, Point, Zero! Okay, actually one of the two funds is still worth nine cents on the dollar. But Bear Stearns didn't take the hit today. They lost less than half a percent. Goldman Sachs and JPMorgan, on the other hand, both lost two percent of their value; Citicorp lost one and a half percent; Merrill Lynch lost 3.25 percent.

The next two days should be telling as to what direction the market will turn. Will this be another hiccup, or the start of a correction period?

A Pure Play on the Brazilian Economy

After perusing The Street, I came across an article written by Jonas Elmerraji which discussed ETF investing in South America, as well as Latin America. In the piece, Jonas suggests an ETF tied directly to the Bovespa stock exchange in Sao Paolo, Brazil:

"The ETF mirrors the MSCI Brazil Indes, an index that was designed to measure Brazil's domestic market equity performance. What that means is that EWZ essentially tracks the performance of the hundreds of Brazilian companies that trade on the São Paulo Stock Exchange."

"The ETF is heavily weighted in Brazil's key economic areas -- materials...and energy...as well as quickly emerging service areas, such as financials."

I think the Brazilian ETF, EWZ, is a splendid pick. The fund has gained 88 percent since a year ago. This fact certainly doesn't take away from the fact that the economy is still growing at a breakneck pace; in fact I think it will continue to do so. Jonas explains:

"Brazil has the most powerful economy in Latin America. The country manufactures everything from sophisticated turbine aircraft to orange juice, and it has a well-established professional services sector."

"Of the four BRIC (Brazil, Russia, India, China) countries, Brazil arguably has the most developed economy."

Mr. Elmerraji also notes that Brazil's infrastructure is superior to the other BRIC countries. So if Brazil has the lead in infrastructure and is the most developed economy of the four, why hasn't it seen the kind of growth that the Chinese stock markets has seen over the past five or so years? I think the economy, as well as the Sao Paulo stock market, has a ways to go before its growth slows down; thus my recommendation of the EWZ. The fund closed trading on July 17, 2007 at $68.22.

Bear Stearns: WORTHLESS

It's being reported tonight that the riskier of the two Bear Stearns hedge funds is as good as worthless, while the other troubled fund is worth about NINE CENTS on the dollar. From the NY Times:

“'The preliminary estimates show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for the investors in the High-Grade Fund as of June 30, 2007,' according to the letter."

In a related story, Bloomberg reports that Goldman Sachs and JPMorgan are among a few bank who are unable to dump their debt:

"'The private equity firms, being very tough negotiators, are unlikely to let the banks off the hook,' said Martin Fridson, chief executive officer of high-yield research firm FridsonVision LLC in New York. 'They'll say that's your problem and that's why we're paying you: To take risk.'''

"'Those bonds are probably worth 94 cents on the dollar, or $43.5 million less than when they were sold on June 28', according to Justin Monteith, an analyst at high-yield research firm KDP Investment Advisors in Montpelier, Vermont."

I have a feeling that the faulty debt problems will be mostly contained within the banking industry. I can't see this affecting tech stocks very much, if at all. As for gold, these developments will only cause upward pressure on metal and metal stocks, especially if it gets bad enough for a federal bailout.

Investment banks beware. When the chickens come home to roost, the cock-fights will get bloody. Did you follow my advice? What about this? Are you covered?

(Edited 7/17/07 7:57 PM: edited to fix the NY Times link)

CNBC Double-Speak

Consider the following two headlines:

(1) Market Milestone: Pros Say Stock Rally Isn't Over

(2) Options Report: Investors Expect More Volatility in Market

Both headlines appeared on the CNBC website today; one is the antithesis of the other. So why is CNBC talking out of both sides of their mouth? Fair and balanced financial news? Are the waters in the stock market truly this murky?

Bull market's seem to last longer than the fundamentals would allow for. That is, in essence, the psychological influence on financial markets. With tech earnings up, the bull market could last for a few more weeks, or even a couple more months. However, the further it goes beyond the fundamentals, the harder the correction will be.

The options report says that people are buying twice as many put options as they are of call options. Put options allow you to sell stocks at a certain price, while call options allow you to buy stocks at a certain price.

I think CNBC is covering their a$$es. Talk out of both sides of your mouth and you can be right at least part of the time.

Here's a related post regarding the options report, first reported by Bloomberg.com.

Housing Market - No Bottom in Sight!

The homebuilder confidence index fell even further this month. From the NAHB:

"A surplus of unsold homes on the market, combined with ongoing concerns in the subprime mortgage arena and affordability issues associated with tightened lending standards and higher interest rates, continues to take a significant toll on builder confidence, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI declined four points to 24 this month, which is its lowest level since January of 1991."

(An index level of 50 indicates that half of those polled have a favorable view.) The article continues with the claim that house sales should increase later this year, with a continued rebound into the start of next year. I say they're crazy. We've yet to see the spike in mortgage rate resets, which will increase the already high default rate. This, in turn, will flood an already bloated level of supply. Plus, lending restrictions are tightening and will continue to do so, stifling demand. And what happens when the Fed finally decides to take care of the inflation problem? Interest rates will increase, further dampening the demand for homes.

Today's report from the NAHB looks frighteningly similar to last months index. I see a continuing trend. Homebuilders should look forward to 2009. That's their best bet.

Kooky Kucinich, Cold Clinton, and Activist Al

Forbes.com recently published a few articles ranking presidential candidates based on Kookiness, Coldness, and Activism. The results were, as the title indicates, very predictable. What's interesting is the buzz being generated by Democratic presidential candidates. The number one position in each poll was held by a Democrat.

From Forbes:

"The top six slots in this category (activists) are all held by Democrats. Former New York Mayor Rudy Giuliani claims the honor of most activist Republican but is seventh overall."

The top six activist slots are held by Dems...Wow! In order after Gore comes Clinton, Obama, Kucinich, Edwards, and Richardson. At the bottom of the list is Fred Thompson (surprise surprise). But what do you expect from a failed senator turned actor?

At the top of the coldest list is Clinton. Newt Gingrich (who isn't really running), clocked in as the coldest Republican, followed by Romney. The bottom of the cold list should come as no surprise; the bottom two democratic candidates in terms of coldness are Obama and Richardson. The article draws parallels between low coldness and high appeal, which could indicate that Clinton's polling numbers are inflated. Fred Thompson and Rudy Giuliani are the least cold Republicans (and they have high appeal).

In terms of the most kooky-wacky, Kucinich wins in a land slide. (Is he running for president of the US or president of Middle earth??) What I find surprising is that Al Gore came in second, followed by Clinton and then Republican McCain. The way McCain's been acting recently, I'd have pegged him second or third. In my opinion Al Gore should be at the bottom of the list. Instead, Fred Thompson and Mike Bloomberg hold the bottom spots.

Does this mean that activism equals kooky-wacky?

Bloomberg.com: Put Options Indicate Pullback

According to stock option data compiled by the Bloomberg news service, the market could see a correction of between five and ten percent:

"Bets in the options market against the Standard & Poor's 500 Index have exceeded wagers it will rise by a 2-to-1 margin for a month, the longest since Bloomberg began compiling the data in 1995."

"That's seen as a warning sign the market is due for a decline of 5 to 10 percent after the S&P 500 rose to two records last week, say managers of almost $1 trillion at Morgan Stanley Global Wealth Management, National City Private Client Group and Russell Investment Group."

At current levels, a ten percent decline would knock the Dow down to around 12,555, while the S&P 500 would be at 1,394. It's certainly nothing devastating and it's definitely due. The current bull market has been one of the longest in history without a correction, thanks in part to the Federal Reserve pumping liquidity into the economy nonstop since the dot.com bust. Now, ten percent would be easy to swallow, but that's assuming it's only ten percent:

"The Leuthold Group, whose flagship fund has beaten 99 percent of similar funds over the last five years, expects the S&P 500 to slide as much as 19 percent by the end of the year."

Okay, now we're venturing into uncomfortable territory. A 19 percent pullback would leave the Dow at 11,300 and the S&P 1,255. These numbers would be a bit tougher to handle. Investor dollars would fly out of the country and unemployment rates would soar. Consumers, already hurting from the deflating housing market and the increasing gas costs, would spend even less. I think the sector with the most to lose is retail. I briefly mentioned the problems they're experiencing last week:

"Another sector that could feel the hurt is retail. Fewer homeowners refinancing mean less being spent at home depot or at the mall. We've already seen home depot's hurt. Bed Bath and Beyond has also lowered it's expectations in the last few weeks. The housing downturn might be blamed as the number one reason, but subprime is not far behind. And as the noose tightens around lending standards, the infusion of cash that has helped fuel earnings in retail will evaporate."

It's the housing market, and the tighter lending restrictions, and the rising food costs, and the rising energy costs. Individually they're containable; collectively they could do some damage.

Black Gold - Are You Profiting?

The price of oil has been riding high the last few weeks. And it could go higher:

"Crude oil prices soared to 11-month highs Friday on a new forecast that global oil demand will accelerate next year as supply remains tight."

"'My line right now is that we're headed to triple-digit oil prices within three or four years and the first digit is not going to be a 1,' said Philip Verleger, an economist who heads energy consultancy PK Verleger LLC."

"He cited 'huge' pent-up demand in China and the rest of Asia, lack of growth in production capacity and reduced investment in refineries amid local resistance to new sites, and worries about measures to fight global warming."

Since my recommendation one month ago, oil has increased by 9.5 percent. On June 14th, oil was trading at $67.69. Although historically high, if Philip Verleger is correct a $68 barrel of oil will look mighty cheap. And it's not just a lack of supply or an increase in demand; it's both. From Forbes:

"Scheduled summer North Sea maintenance lent support, while the unexpected closure of the Central Area Transmission System (CATS) stoked supply jitters. J-Block, a group of oilfields in the region, has been unable to produce oil or gas since July 1, when CATS was closed."

Maintenance issues are strangling supply, while increased growth in emerging economies such as Chindia are accelerating demand. I don't anticipate the price to subside any time soon. Hold onto your oil funds!

Solar Overvalued

Last week, I reported on the possible over valuation of solar energy stocks. First Solar (FSLR) was trading at 491 times earnings, while SunPower (SPWR) was trading at 182 times earnings. Quite inflated! In today's New York Times, comes a solar story with more evidence that the psychology of solar is trumping fundamentals:

"The trade association for the nuclear power industry recently asked 1,000 Americans what energy source they thought would be used most for generating electricity in 15 years. The top choice? Not nuclear plants, or coal or natural gas. The winner was the sun, cited by 27 percent of those polled."

"...some of the most ardent experts and investors say that moving this energy source from niche to mainstream — last year it provided less than 0.01 percent of the country’s electricity supply — is unlikely without significant technological breakthroughs. And given the current scale of research in private and government laboratories, that is not expected to happen anytime soon."

Even by the year 2030, the government expects solar energy to account for a tenth of a percent. Of course, plenty can change over that period, but the fact that most experts are pessimistic should hold plenty of weight.

The only question now is when will we see the correction in stock prices?

Chris Bancroft - Our Last Hope

Reuters is reporting that Chris Bancroft is trying his hardest to block the proposed takeover of Dow Jones by News Corp:

Christopher Bancroft has recently approached hedge funds, private equity firms and General Electric Co. , hoping to buy enough voting shares of Dow Jones to give him the power to thwart a sale, the paper reported on its Web site, citing people familiar with the matter.

Imagine if Rupert Murdoch controlled the Wall Street Journal. Oh sure, the Bancroft family has been negotiating to retain editorial control of the newspaper, but so did the Times newspaper of London. A lot of good that did. It doesn't matter what is negotiated. If Murdoch gets his hands on the WSJ, it will start to look more like the New York Post. Yuk!
In my opinion, Murdoch only wants the WSJ as another platform to challenge the NY Times. I can't find the story online, but I remember there being a piece in which Murdoch states that he wants more NY media so that he's better equipped to shout down the NY Times. The NY Times reports the facts and sometimes those facts don't jive with the reality uber-conservatives such as Murdoch would like there to be.
Murdoch would turn the Journal into a complete joke. As it is, every story should be taken with a grain of salt. Imagine the inaccuracies if Murdoch has his way.
If you don't believe me, check this out. I can't get through the movie without yelling at the screen. Dow Jones needs to say no to Murdoch or the business community needs to find another buyer, either collectively or individually. Where's George Soros when you need him?

Weekend Video - Knockout! Edition

ESPN's Friday Night Fight from June 29th was one of the best bouts I've seen in a long time. I tivo'd it on my computer and have watched it a few times now. I doubt I'll ever delete it. Who says you have to spend $60 on PPV for a great fight? The knockout leads off this week's weekend videos.

Darnell 'Ding-a-ling' Wilson Crushes Emmanuel Nwodo:

'Pretty Boy' Floyd Mayweather beats down Ndou:



Roy Jones Jr: "Look Mom, No Hands":

GE Ditches Subprime Sector (and Other Reasons to Buy)

It was recently announced that General Electric is in the process of getting out of the subprime mortgage industry:

"The Fairfield, Conn.-based company...announced it is exiting the U.S. subprime-mortgage business, and that it has already sold off $3.7 billion in loans to reduce its exposure to turmoil in that market."

"In the first quarter, GE laid off more than 460 WMC Mortgage employees and took a $500 million charge when it sold off part of its residential subprime assets. On Tuesday, Moody's Investors Service downgraded 399 subprime securities, including home loans originated from WMC Mortgage."

As the subprime mortgage industry continues to crumble, the smart players are positioning themselves for protection. That's precisely what GE has been doing. The company also reported a ten percent increase in profit for the second quarter:

"General Electric Co. shares notched a five-year high Friday after the conglomerate reported a 10% increase in second-quarter earnings, due in part to strong revenue growth in its infrastructure businesses, including aviation- and energy-equipment sales."

I want to focus on their energy-equipment sales. In his book, The Coming Economic Collapse, Stephen Leeb takes a few pages to discuss General Electric's alternative energy ventures. Leeb describes GE as being a leader in the area of wind:

"General Electric is the world's largest integrated wind company and the second-largest maker of wind equipment. Over the past three years, wind revenues, admittedly starting from a small base, have grown by 50 percent a year. [The edition I have was published in 2006.] The Street projects the percentage growth from this division will be in the low 20s over the next five years. We think it could easily exceed 30 or even 35 percent."

Leeb also touches on the fact that energy-related products and services make up 12 percent of revenue (in 2006). A quick glance at GE's most recent earnings report indicates that orders for energy related equipment increased by 72 percent in the second quarter of 2007. Furthermore, revenues from their energy business increased by 17 percent, while total profit in the energy business increased by thirty percent. Those are strong increases that should continue, even despite a possible market downturn. That's why I recommend buying GE. The company closed trading on Friday at $39.50.