3SOF

David:

While the subprime mortgages have been about 20% plus of the market for the past two years they are only about 1% of all outstanding mortgages.

This is from a news paper report:

Greenspan said that if home prices "would go up 10 percent, the subprime mortgage problem would disappear."  (Cut interest rates and the problem is solved)

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson also have said they don't expect the problems of the subprime mortgage market to spread through the financial system and hurt the economy.

What Bernanke is really saying is that he will cut interest rates if they see a real problem.  Just try to find a cheap foreclosure today.  To many investors are ready to snatch them up.  The people that will really be hurt are the people that were talked into the subprime mortgages.

Keep the recommendations coming David we still have more time to make money in this Bull market.  The Fed is pumping out money. our government will keep spending like crazy, and the rest of the world is awash in Global Liquidity.

Below is from a market analyst:

A few days ago, Chairman Ben Bernanke confused everyone by making a slight change in the Federal Reserve's policy.  Essentially, he deleted the part that implied a bias towards higher interest rates.  Now the major financial houses are divided over which way rates will move next.  Because interest rates have a big impact on investments, we want to clarify the situation for you...

If you're a long-term reader of these updates, you may recall that when Bernanke took office, we suggested that the key to Ben's mind lay in his previous body of work.  Bernanke rose to fame in academic circles because of his research on the Great Depression -- specifically what caused it and how to avoid another big D in the future.

We theorized that if the Fed today must choose between inflation and depression, Bernanke will do everything he can to prevent the latter, even (to use his own expression) if that means dropping money from a helicopter to keep liquidity as high as possible.  We might add, even if that liquidity results in soaring inflation.  The last thing he wants is to go down in history as the Chairman who caused Great Depression II.

In your last update, we argued that the subprime mortgage crisis, while serious, is unlikely to derail the economy.  Compared to the 1990 real estate crisis, today's meltdown in subprime mortgages is quite limited.  Nonetheless, Mr. Bernanke's change of policy was clearly intended to help keep liquidity high in order to ease the situation in the mortgage industry.

This is the only instance we know that a Fed Chairman has ended a bias towards tightening in the middle of a period of long-term, worldwide expansion.  (Global economic growth is now around 5% annually.)  And we feel it is an overreaction on his part.   

After all, every way we look at it, inflation is a much bigger threat than recession/depression today.  Industrial commodity prices are rising strongly.  The dollar looks weak.  Money supply is huge and expanding rapidly worldwide.  Core inflation, the most widely quoted inflation measure, is near a 10-year high.

Core inflation, as you may know, resembles the Consumer Price Index except that it leaves out energy and food costs.  If you are not a government economist, you probably think that the price you pay for energy and food matters.  So let's consider what these two factors are up to today ...

NON-CORE INFLATION ... IGNORE IT AT YOUR PERIL



Let's begin with food, since we talk about energy more often. (Well actually, food and energy are closely related today.  Here's why...)

The centerpiece of U.S. alternative energy policy today is ethanol, a fuel made from corn.  We deplore this policy, which could only have been designed by someone who wanted to discourage America from developing alternative energy.

As we have said before, meeting our nation's fuel needs with ethanol will simply take too much corn.  In a world where food and water are becoming scarce, it makes little sense to convert food into auto fuel.

Already, corn prices have doubled as a result of this policy.  Now, we have had periods before when corn prices doubled as a result of drought, which reduced supply.  But those were temporary price increases that eased when rainfall returned to normal.  This time, we have an increase in demand which is unlikely to ever lessen -- unless Americans give up their love of the automobile.  That means food prices will rise, and stay higher, which puts pressure on the CPI to rise.

Turning to energy itself, the other component left out of core inflation, clearly it is in a dramatic long-term uptrend.  Admittedly, August 2006 saw the beginning of a correction in oil prices, but that correction looks to be ending.  (Oil rose 2.7% last week to close over $62.)  If it surpasses $65, we think the correction will be definitely over.  Oil will have broken through horizontal resistance, its 200-day moving average, and similar technical indicators traders use to judge changes in trends.

We don't know exactly the situation in Saudi Arabia (no one does, apart from the Saudis themselves), but we think it is suspicious that Saudi oil production peaked in 2004 despite rising demand.  We also are concerned that oil inventories have fallen dramatically.  Worldwide growth isn't likely to slow anytime soon.  So even if oil doesn't break above $65 this time, it will next time.  And a jump in oil prices, combined with rising food prices, certainly spells higher inflation. -- especially if the Fed holds interest rates steady.

However, one thing we are not worried about to day is the stock market...

Just bought NVTL.  Good pick David!

Verizon Wireless Offers First ExpressCard by Novatel Wireless to Take Advantage of New Faster Wireless Broadband Network
Thursday March 15, 8:30 am ET
V740 ExpressCard Features Superior Wireless Broadband Connectivity for Verizon Wireless Customers

SAN DIEGO and BASKING RIDGE, N.J., March 15 /PRNewswire/ -- Novatel Wireless, Inc. (Nasdaq: NVTL - News), a leading provider of wireless broadband access solutions, and Verizon Wireless, operator of the nation's most reliable wireless broadband network, today announced the commercial availability of the V740 ExpressCard(TM). The world's first ExpressCard to operate on Verizon Wireless' faster wireless broadband network, based on Evolution-Data Optimized (EV-DO) Revision A (Rev. A) technology, the V740 offers advanced data speeds and connectivity, lower latency and quick, reliable access to important information.

Free Newsletter for what it is worth:

This week is quadruple witching week, which is something you need to be aware of. It happens four times a year on the 3rd Friday of March, June, September, and December (the month at the end of each quarter). Four different types of derivatives related to stocks expire: stock index futures, stock index options, stock options, and single stock futures all expire. You can even mark these weeks on your calendar.

These witching weeks are often very volatile, so remember this as a trader.

Also, we need to take profits on the UltraShort S&P500 ProShares (SDS) and UltraShort Dow30 ProShares (DXD) which were some free picks I sent out a few weeks ago because I was very concerned about a downside in the markets, and I wanted to protect even my free newsletter subscribers from this.

Right now, the S&P 500 index just bounced exactly right off its upward trendline, which to me wouldn't be a problem, except I never like it when stocks fall from such high levels so fast. It may not look like it hit the trend on this picture, but in my own proprietary charts at home, it did indeed touch a short term trendline.

                         

Sure, small pullbacks along the way are great, and it keeps a stock moving upward at a nice pace, but when this happens, it means stocks have fallen onto sell signals (moving below previous support levels), so even when they rally, it only usually means the rally will be sold into (assuming you are even in).

So, I am not bullish by any means. In fact, I am never a bull or a bear. I just like to do what's working at the time. It's fantastic that these inverse ETF's are now available to make money in down markets without having to short an index. In fact these give double the move. For example, if the Dow is down 2%, we're up 4%.

It may take some more rallying for some more selling pressure to come in, but when stocks hit an intermediate term bottom like mid-day Wednesday, you never want to just be short because your "longer-term objective" is lower. It's okay to be short for a while like we were (well we were LONG a SHORT fund, so technically we were short the market even though we BOUGHT these ETF's) but you never want to be in the way of the bulls, even if the bulls are only out for a short run.

Good Trading,

Stocks and Options: http://www.traderreview.com

For what it is worth here is one point of view on the current market condition:

OUR MARVELOUS RECESSION METER

We use some very complex machinery for making economic predictions. At the moment, the overall readouts are pointing to a slowing U.S. economy.

However, when it comes to predicting recessions, there are only three gauges we pay close attention to. The first of these is industrial commodity prices. When recessions are about to begin, demand for commodities falls and so do prices. Last week, however, industrial commodities soared to an all-time high. That's a clear vote against recession, at least for another six months.

Our second gauge is an assortment of stock market technical indicators. Most important of these is the relative strength of small-cap stocks. Like the canary in the mine shaft, small-caps are the first to sense a recession coming on. However, the RS of the small-caps is close to all-time highs at the moment. So that's two votes against recession.

The final gauge is one we have worried about a little recently – unemployment insurance claims. Naturally, as the economy starts to recede workers get laid off and UI claims rise. In recent weeks, there has been an increase in UI claims. But last week they declined, so the UIC situation isn't pointing to a recession either, at least not strongly.

If a recession were likely, at least one of these three gauges would be in the danger zone. But at the moment, UIC is only in the amber zone, and the other two are green.

So, with no recession in the offing, we prefer to see the current market correction as a buying opportunity. If you see a promising stock, you can buy today and enjoy little market risk. Most likely, a rising market will benefit the purchase you make.

Sold CPNE and BFLY this morning.  I still hold OFI with a tight stop loss.  Bought some CNE (14%+ dividend) MCGC (9.5% dividend).  However, this is boring.

Small cap gold stocks are starting to look good again: MRB, EGI, MNG.                                                                                     

SLW is still a buy, but you need to sell it when it gets goes up because is a rolling stock. Some extra excitement if you buy the options.  Fairly safe in this market if you trade within the range.

AMD put still looks good.  Fairly safe because INTC will have the upper hand for at least a year and they should not shoot up in this market.

I bought OFI again.  People are not going to stop eating and they will probably eat more if the market goes down.  They will eat more if the market goes up.  This is a recession proof stock.  I also bought CPNE and BFLY.  People will not stop using the internet and they will keep buying clothes.

Here are some subprime loan holders that are PUT candidates:

NEW YORK (Fortune) -- When a certain $126,000 subprime loan on a $696,000 house on the West Coast failed to produce a single mortgage payment, alarm bells went off at Clayton Holdings, a company that monitors credit risk.

Closer scrutiny revealed other red flags. The borrower's previous rent payment had been $1,000, compared to the $4,482 she was supposed to be shelling out for both the primary loan and the $126,000 piggyback. And her stated income was $84,000 even though she was an hourly worker at Target.

"We do an autopsy to find out what caused the loss of blood," says Keith Johnson, Clayton's COO. "It's a CSI subprime."

In the past few weeks, the bodies have been piling up fast and furiously. Fallout from subprime mortgages - that is, home loans to borrowers with a blemished credit history - gone bad has wreaked havoc on the industry.

Big names Washington Mutual (Charts) and HSBC have reported hits tied to their subprime business and there has been a nonstop barrage of bad news for major subprime lenders, including New Century Financial (Charts) and NovaStar Financial (Charts).

The complete story is below:

http://money.cnn.com/2007/02/28/magazines/fortune/subprime.fortune/index.htm

AMD will lose to Intel over the next two years.  Goldman Sachs rates AMD a sell and recommends AMD as a short.  I would buy the PUT.

 Chinese auto sales jump 28th February 2007
Int 2006 FC Thumb.jpg (6.0k)

Read more about the platinum group metals markets in Johnson Matthey's bi-annual reviews click here.

It has been suggested that there will be a substantial increase in the sale of vehicles in China this year.

Statistics quoted to Bloomberg by an analyst from Beijing Antaike Information Development have indicated that demand in the Chinese market is set to flourish in 2007, as the country's economy has made car ownership more affordable for many people.

Over the past ten years, the Chinese economy has grown by nine per cent per year and during 2006 sales at automakers such as General Motors (GM) and Volkswagon increased by around 25 per cent compared to the previous year.

Vehicle sales in China surpassed Japan for the first time during 2006 and it is anticipated that such growth will continue, with the China Association of Automobile Manufacturers expecting sales to rise by 18 per cent across the vehicle sector during 2007.

Commenting on the growth, Beijing Antaike Information Development analyst, Jin Xiangyun, told Bloomberg: "The market share of diesel vehicles will grow rapidly as more rigid standards for emissions are in place or are to be implemented worldwide on environmental concerns."

SLW is the only silver stock I trade.  Good solid company that is over due for a breakout.

Look at the ETF's:  SLV and GLD.

Hi David:

I can't see any money in shorting SIGM.  Reminds me of my Put on GM a few months back.  How about Puts on the Diamonds as a hedge against long positions.  I won't short but I will buy Puts.  Shorting affects the value of the stock.  Puts do not.  I lost more than I made on Puts.  You can make money in a long tough bear market, however, I think you get eaten up in a sideways market which is probably the worst that we will have this year.

I lost a little over a $1,000 in my IRA yesterday and now I have it back today.  I am new so I only had CPNE, OFI, ETLT, AMKR, BFLY and MCZ from 3SOF and a few of my own in the IRA.

How about some income producing investments if a Bear Market is coming:  LCM, AINV, AGUNF, ARCC, DSX, EGLE.  These pay around 10% and appreciate about 10% to 25% a year.

I think I will sell BFLY today and watch the rest.

Thanks for your great analysis of the stocks you have covered.