How would you like to have been the guy that bought shares of Ford (NYSE:F) when they dipped to a 27-year low of $1.01 back in November? If you were lucky enough to have made the move, a thousand-dollar investment would now be worth just shy of $7,500.

Thanks to today’s news that the company saw its first year-over-year sales increase since late 2007, shares of the company are up by about 6%.

Of course the success comes to the detriment of its recently bankrupt competitors, General Motors and Chrysler, which announced declines of 19.4% and 9%, respectively.

While the quick billion-dollar burst of the Clash-for-Clunkers plan will get all the credit from Washington, there are several factors involved in the surge in buying.

First, with bankruptcy filings now in the history books, the market is filled with much less risk and uncertainty. That means wary buyers now know who will be around next year and who will be joining the growing list of economic casualties.

Of course, Cash for Clunkers is making its mark. But only time will tell if last month’s figures are destined to become an anomaly as the funding eventually dries up and vanishes or if buyers will continue shopping even when the free money runs out.

More importantly that what is compelling buyers to head back to dealerships is the list of companies bound to profit from the government’s free money and the turnaround in demand.

Who gets my tax dollars?

Ford is obviously one beneficiary. And with the market bidding shares of the company up today, the market has already spoken its obvious bullishness for the company’ s future revenue-generating potential.

Some other companies worthy of the attention they are getting today are the big dealerships, like Sonic Automotive (NYSE:SAH). Shares of the small-cap company are up by double-digit proportions as the market re-figures the impact of several billion dollars worth of new-car buying.

With nearly 140 dealership franchises, you can bet the company’s bean counters are preparing for a few extra zeroes on the next accounting statements, especially if the Senate caves later this week and dishes another round of cash.

Of course, the nation’s automotive supply chain runs deep. Some analysts even draw it as long as the corner donut shop down the street (blame the unions).

A bit further upstream than the donut shops, look at the action at ever-volatile Dana Holding (NYSE:DAN). Shares of the parts maker are soaring by 20% today as investors rush to get in before Detroit makes a rebound that mirrors the broad market’s recent moves.

Now, before you get all jumpy thinking today’s action will continue for weeks or even months, let me explain how hype-driven investments work.

Rule number 1: It doesn’ t last.

Rule number 2: If the government is in charge, be cautious.

Rule number 3: Take your profits and run.

This message is not so much for the folks looking to get into a few goods stocks, but for the investors looking for a signal to get out.

Volatility is getting sheepishly low. It scares me.

Stocks don’t like to make broad turnarounds when everybody is looking. Instead, they do it when nobody is looking. Or, more succinctly, when presidents exclaim, “mission accomplished.”

If you want to be greedy and stick it out, you have a few more days. But in auto industry, I am a seller, especially after today’s moves.

There are simply too many other under-valued, low-risk plays to be made to be investing in an industry running on government whims.

Source: Three Winners from Cash for Clunkers

Good day… And a Thunderin’ Thursday to you! It’s a Thunderin’ and lightenin’ here in St. Louis. It all began last night, went through the night, and still hangin’ round this mornin’! Yes, I’m into dropping “g’s” today! HA!

Well… We had “Turn Around Tuesday”, and that was fallowed by “Whipsawed Wednesday”! The euphoria of the dollar bears, turned quickly yesterday, with the dollar bouncing back… I’ll tell you this dollar has more lives than a cat! But that’s OK… I certainly don’t want to see a dollar collapse, as some have called for… I just want to see it at a “fair” level, given the fundamentals of exploding deficit spending… That seems fair, eh? Trends… Weak dollar, strong dollar, alternating throughout time… Well, at least since Nixon closed the Gold window in August of 1971!

There was plenty to sell dollars on yesterday, but the dollar bulls got some wind in their sails in the afternoon, after the Fed Beige Book was printed… Now, I know, I said yesterday that the Fed’s Beige Book rarely moves a market… But that’s what seemed to happen yesterday… The Fed’s Beige Book reported that all the districts saw that economic conditions remained weak or worsened through May. This news threw cold water over the “the recovery is on its way campers” and pushed Risk Aversion to the front of the class once again.

Overnight though… This news was erased when “upon further review” it was reported that five of the Fed districts saw the downward trend in activity showing some signs of moderation. So… Just like I said a couple of weeks ago… This daily back and forth reminds me of a Wayne and Garth street hockey game… Yesterday it was “game off!” today, it’s “game on!”

The really big news that caught everyone attention yesterday was reported by all the major media outlets, and the title of the story was… “Russia to sell U.S. Treasuries, to buy IMF Bonds”… Now, that title alone should have sent a shot across the dollar bulls’ bow… But, I guess the dollar bulls weren’t paying attention… They were probably still rejoicing the Jobs Jamboree farce from last Friday! HA!

Seriously though… Of Russia’s over $400 Billion in reserves, which are held in Treasuries, they plan to allocated $10 Billion to the IMF bond program… So… In reality the Title is a bit misleading, eh? I mean they could have said, “Russia to diversify $10 Billion of Treasuries to IMF Bonds”… So, this doesn’t sound like a Chicken Little story right? Well, not so fast there Tim!

Didn’t China announce last week that they were going to buy as much as $50 Billion of the IMF Bonds? $10 Billion here, $50 Billion there, and pretty soon we’re talking about a large sum of Treasuries getting sold!

And with that in mind, the 10-year Treasury hit 4%! Later in the afternoon, we saw this 4% yield, which was 3.87% at the start of the day, come back to 3.93%… Hmmm… You don’t think that the Fed bought Treasuries do you? I mean, they have carte blanche to do this whenever they feel it to be necessary! And with yields going to 4%, I guess it was necessary!

And, the assumption that the Fed used Quantitative Easing left the dollar hanging out on a line overnight, and Asian traders first, then European Traders pushed the dollar down… Now… I’m watching the currency movements since I came in, and it’s more of the back-n-forth stuff we’ve seen for a couple of weeks now… (the euro was 1.4005 when I came in, traded to 1.4030, and now back to 1.4005) But, the important thing to notice is, while the dollar makes its comebacks / rebounds, at the end of each week, the dollar is lower overall… This makes for a trend people…

Whenever the Risk Aversion campers take their ball and go home, the high yielders / Commodity Currencies get the court, and they start slam dunking the ball! In other words… They kick some dollar tail and ask names later! The high yielders / Commodity Currencies of Australia, New Zealand, Brazil, South Africa all see huge chunks of investments coming their way when “risk” is back on the table. The Canadian dollar / loonie, is a Commodity Currency, but surely (Hey! Who’s Shirley?) not a high yielder! But with Oil prices now touching $72, the loonie is once again on the rally tracks!

Overnight, the Reserve Bank of New Zealand (RBNZ), left rates unchanged and didn’t jawbone about keeping the rate cut door open… RBNZ Gov. Alan Bollard said: “The economic outlook remains weak both in New Zealand and in other countries. However, there are signs that international economic activity is stabilizing, and international financial conditions are improving. We expect the New Zealand economy to begin growing again toward the end of this year but the recovery is likely to be slow and fragile.”

Sounds like Bollard has taken on my friend John Mauldin’s line about a “muddle through” economy!

While we’re “down under”… Australia saw employment data last night, and it paved the way for a strong performance overnight for the A$… Job losses were negligible in May, falling just -1.7K, when a negative -30K was expected. The thing I think that’s very interesting here is that the Aussie futures are pointing to rate hikes early next year… Of course that’s all based on the rosy outlook the markets seem to have right now…

Now… For Australia that might be all fine and dandy, as their fortunes are tied to China, not the U.S. But here in the U.S. the rosy outlook the markets have right now is to me, like putting the cart before the horse, as we might want to see a “bottom” before we recover!

Well… The Trade Deficit in the U.S. was as expected widening from a revised upward $28.5 Billion in March to $29.2 Billion in April… The number that was even more concerning was the Budget Deficit of $189.7 Billion… This puts us on target for $2.3 Trillion in a Budget Deficit, and then you have to add in the $787 Billion Stimulus, that’s not accounted for in these numbers… That puts us over what I said we would be this year… Over $3 Trillion Budget Deficit…

Now… How many more Treasuries are going to have to be auctioned off to cover that nut? Can you say… Treasury Bubble, popped? I knew you could! The foreigners we need to buy these Treasuries are going to demand a higher yield… And… I don’t think the Fed has enough money to keep buying Treasuries in an attempt to keep yields lower, no wait! Just like Helicopter Ben, told us before he was Fed Chairman… “The U.S. Government has a technology, called a printing press.” They can print what they don’t have!

Any way… What I’m getting at here is that yields will rise, but not to the degree the foreigners want to see… So… The clearing mechanism for these Treasury purchases, gets discounted… And class… What’s the clearing mechanism that will be discounted? (play the Final Jeopardy music) the dollar! I knew you had it all the time! The dollar will be allowed to be debased even further to allow the Treasuries to be bought at a discount.

Oh, there will be the usual shallow statements that “the U.S. believes in a strong dollar”, but then those that say that will have their fingers crossed behind their backs!

OK… The data cupboard has a Biggie today in Retail Sales… The Weekly Initial Jobless Claims will also print as usual on a Thursday. May’s Retail Sales are expected to rebound from April’s poor showing of -.4%… The BHI (Butler Household Index) also agrees that May will rebound. I think if this report does rebound, the “it’s all clear” campers will come out in force… And… That may cause the dollar to lose more ground, as those that purchased dollars and dollar assets as safe haven trades, will no longer see the need to own their safe haven trade!

And then in the “I still can’t believe we’ve come to this” category… The Treasury Department on Wednesday appointed a well-known Washington lawyer, Kenneth R. Feinberg, to oversee the compensation of employees at the seven companies — the American International Group (NYSE:AIG), Citigroup (NYSE:C), Bank of America (NYSE:BAC), General Motors, Chrysler and the financing arms of the two automakers.

He will have broad discretion to set the salaries and bonuses for their five most senior executives and their 20 most highly paid employees.

I know, I know, I shouldn’t swim in these waters, but you know me, I can’t help but get myself into these things… But… This is just the beginning folks… I told you months ago that this was going to happen when the Gov’t began to bail out Financial Institutions. They’ve got their hooks in this fish now, and have you ever seen the Gov’t give back something they had gained? It will only get worse… And worse… And worse…

And it will all be OK because these are “extraordinary times, which call for extraordinary measures” right? HOGWASH! This is really baaaaaaaaaaaaaaddddddddddd folks…

OK, on that note! Let’s go to the Big Finish!

Currencies today 6/11/09: A$ .8130, kiwi .6425, C$ .9065, euro 1.4005, sterling 1.6455, Swiss .9255, rand 8.05, krone 6.3475, SEK 7.6750, forint 200, zloty 3.20, koruna 19.12, yen 98, sing 1.4520, HKD 7.7510, INR 47.59, China 6.8368, pesos 13.62, BRL 1.9470, dollar index 80.09, Oil $72.10, 10-year 3.93%, Silver $15.09, and Gold… $950.50

Chuck Butler

Source: Whipsawed Wednesday!

Of course, many Nobel prize-winning economists would argue that it has only been a blessing for us, but that only shows how the newspapers are committing suicide-by-irrelevance. And if other societies, such as China’s late-entry industrial start-up, want to adopt a similar fantasy, they will only find themselves all the sooner in history’s garage with a tailpipe in their mouths.

Here in the USA, we will mount the most strenuous campaign to keep the motoring system going — in fact, we’re already doing it — but it will fail just as surely as two (so far) of the “big three” automakers have failed. It will fail because car-making is only one facet of a larger network of systems that is coming undone, namely a revolving debt cheap energy economy.

Americans will never again buy as many new cars as they were able to do before 2008 on the terms that were normal until then: installment loans.  Our credit system is completely broken.  It choked to death on securitized debt engineered by computer magic and business school hubris.  That complex of frauds and swindles coincided with the background force of peak oil, which meant, among other things, that economic growth based on ever-increasing energy resources was over, and along with it ever-increasing credit.  What it boils down to now is that we can’t service our debt at any level, personal, corporate, or government — and that translates into comprehensive societal bankruptcy.

The efforts of our federal government to work around this now, to cover up the “non-performing” debt and to generate the new lending necessary to keep the old system going, is a tragic exercise in futility.  I’m not saying this to be “pessimistic” grandstanding doomer pain-in-the-ass, but because I would like to see my country make more intelligent choices that would permit us to continue being civilized, to move into the next phase of our history without a horrible self-destructive convulsion.

Another consequence of the debt problem is that we won’t be able to maintain the network of gold-plated highways and lesser roads that was as necessary as the cars themselves to make the motoring system work.  The trouble is you have to keep gold-plating it, year after year. Traffic engineers refer to this as “level-of-service.”  They’ve learned that if the level-of-service is less than immaculate, the highways quickly enter a spiral of disintegration. In fact, the American Society of Civil Engineers reported several years ago that the condition of many highway bridges and tunnels was at the “D-minus” level, so we had already fallen far behind on a highway system that had simply grown too large to fix even when we thought we were wealthy enough to keep up. Right now, we’re pretending that the “stimulus” program will carry us over long enough to resume the old method of state-and-federal spending based largely on bonding (that is, debt).

The political dimension of the collapse of motoring is the least discussed part of problem: as fewer and fewer citizens find themselves able to buy and run cars, they will feel increasingly aggrieved at the system set up to make motoring virtually mandatory for all the chores of everyday life, and their resentments will rise against the elite that can still manage to enjoy it.  Because our car-dependency is so extreme, the reaction of the dis-entitled classes is liable to be extreme and probably delusional to an extreme, too.

You can already see it being baked in the cake. Happy Motoring is so entangled in our national identity that the loss of it is bound to cause a national identity crisis.  In places like the American south, the old Dixie states, motoring lifted more than half the population out of the dust, and became the basis of the New South economy.  The sons and grandsons of starving sharecroppers became Chevy dealers and developers of suburban housing tracts, malls, and strip malls.  They don’t have any nostalgia for the historical reality of hookworm and 14-hour-days of serf labor in hundred-degree heat. Theirs is a nostalgia for the present, for air-conditioned comfort and convenience and the groaning all-you-can-eat Shoney’s breakfast buffet off the freeway ramp.  When it is withdrawn from them by the mandate of events, they will be furious.

Given the history of the region and the predilections of its dominant ethnic group, one might imagine that they will want to take out their gall and grievance on the half-African politician who presides over the situation. Among the ever-expanding classes dis-entitled from the so-called American Dream, the crisis is only marginally different in other regions of the nation. Mr. Obama faces a range of awful dilemmas, and it is painful to see them go unrecognized and unacknowledged by his White House.  It’s hard to imagine that the president and his elite advisors are blind to these equations, but as the weeks tick by they seem stuck in a box of limited perception.

We’re in a strange hiatus for now.  “Hope” levitates the legitimacy of the dollar, the stock markets, and the authority of leadership. In the background, implosion continues, debt goes unpaid, banks ignore bad loans to keep them off their books, jobs and incomes vanish, cars and other things go unsold, and a tragic wishfulness strains to sustain the unsustainable. Our expectations are inconsistent with what is happening to us.

It will be very painful for us to walk away from the car-centered life.  Half the population faces the ugly obstacle of being hopelessly over-invested in a suburban house and all the life-ways associated with it. There will be no easy way out for them, whatever they chose to do politically, whatever noise they make, whomever they scapegoat, whatever fantasies they cultivate about what the world owes them, or who they think they are.

Mr. Obama should not waste another week pretending that we can keep this old system going.  The public needs to know that we will be making our livings differently, inhabiting the landscape differently, and spending our days and nights differently — even while we suffer our losses.  The public needs to hear this from more figures than Mr. Obama, too, from leaders in the state capitals, and the agencies, and business and education and what remains of the clergy.  But somebody has to set in motion the chain of recognition, or events will soon do it for us.

Regards,
James Howard Kunstler

Source: Revolving Debt Cheap Energy Economy on Its Knees

Angela is a genius. Tim is a schmuck. That’s what we took away from yesterday’s news.

As near as we can make out, Tim Geithner’s trip to Beijing was, at best, a draw. He told his soothing lies. China listened. The markets reacted favourably.

Stocks fell… with the Dow down 99 points. Gold was down too – $18. And oil lost $2, to close at $66.

But the dollar went up – to $1.41 per euro.

His goal was to bluff and bamboozle the world’s investors – notably China – into believing that the US had its finances under control. Once we’re out of this mess, he told China’s top man, we’re going straight. No more binges of EZ credit and wild government spending. We just need a little more of that old time medicine… just one more time… to get us through this dark night of economic downturn. But once the sun comes up and the economy is back on the road to recovery, trust me on this, America is going to balance its budget, foreswear Quantitative Easing forever, and join AA. No kidding. Cross your heart and hope to die.

But some habits are hard to break. The habit of getting something for nothing is one of them. Spending money someone else earned is like eating a big slice of Black Forest cake and watching someone across the table get fat. You’re likely to ask for seconds.

Americans are in the habit of spending huge amounts of money – with no intention of ever paying it back. Consumers did it in the ‘09s and ‘00s. Now the feds are doing it. The federal deficit for this year alone is four times last year’s record. The official US debt is exploding. Bill Gross says it will be 100% of US GDP within 5 years. Our guess is that it will reach that level even sooner.

At 100% of GDP… even mainstream economists believe the situation will be irreversible… interest payments will be more than the US can afford. At that point, forced to borrow more and more just to keep up with the interest, the system will go into a Ponzi-scheme endgame.

“Our expectation is the government won’t be able to exit” from its deficit spending positions, said Gross in an interview on Bloomberg Radio. The programs “will be semi-permanent positions on their balance sheets.”

Once you go down that road, it’s hard – maybe impossible – to come back. The US won’t be able to pay off its debt… and it won’t be able to unload GM. Nor will the Federal Reserve be able to sell its holding of bonds onto the open market – without causing yields to rise.

Even Ben Bernanke says that “long-term deficits threaten the financial stability” of the nation.

As we’ve pointed out many times, the problem is more political than financial. The bums in Washington could still straighten up – if they wanted to. We’ve already told them how they could bring the deficits and the economic downturn under control. But they’re not about to take our suggestions. Instead, they’re “gonna have fun, fun, fun until Daddy takes the T-bird away… ”

Daddy China, that is. The Middle Kingdom. The Red Menace. Now, the leader of the bond vigilantes.

Remember the bond vigilantes? They are supposed to keep a lookout for inflation. And when they see it increasing, they come riding into town guns a-blazing… they sell bonds and force up yields, thus bringing inflation back under control.

Inflation rates and bond yields have generally been going downhill for the last 26 years… so the old vigilantes have retired. But now China seems to be strapping on its six-guns.

According to the press reports of the showdown in Beijing, it sounds as though Geithner diverted attention from the main issue – at least for a while. There’s some blah blah about China paying a bigger role in the IMF, for example, and more blah blah about cooperation between the US and China on financial matters.

Someone actually asked the Treasury Secretary why he was talking about involving China in the IMF. His answer: “I just see it as the necessary evolution.” We won’t stop to wonder what a ‘necessary evolution’ is. Because the whole IMF discussion was irrelevant and pointless blah blah.

The real story is the last thing Geithner wanted to talk about. Partly because he doesn’t understand it. And partly because he can’t say anything about it that would help. China has a lot of money with pictures of dead US presidents on it. It’s worried that those green presidents may soon be not only dead, but worthless.

“If the US can find a way to protect China’s assets,” said Yu Yongding, going right to the bottom line, “America’s standing here will increase.”

If not… well… that’s what we’re going to find out.

And more thoughts… from Theo Casey… who sees good news away from the stock market.

“Despite the recent rally in stocks, there’s really not been that much good news for investors this year. The UK’s credit rating is on negative outlook, our stock market is inexplicably overvalued and our political system is in tatters. Times are tough. However, there are reasons to be cheerful, if you know where to look…

“In the directionless market following the collapse of Lehman Brothers until the end of last year, things were desperate. Then, one group stepped forward and saved all our portfolios – the government. The public purse represented, and still does represent, the largest spending force in the markets.

“As the old saying goes “money moves markets”, so our strategy was to front-run the government. Anticipate what they might do, but do it first. That strategy led us into the world of corporate bonds. This asset class has performed well so far, but it’s not too late to get in and we’ll show you what to watch out for…”

Editor’s note: As Investment Director of Fleet Street Letter, Theo Casey has recommendations on fantastic opportunities to profit, even during a recession. Click here to sign up.

*** Blah… blah… blah…

How much of what goes on is just blah… blah… blah… just people talking?

Probably 90%. People come to think what they must think when they must think it. Then they blah… blah… blah to convince each other that they’re right.

But what really matters are the deep, long patterns… patterns of history that no one can control and few take the trouble to try to understand.

Bill Gross: “I think it is important to recognize that General Motors is a canary in this country’s economic coal mine; a forerunner for what’s to come for the broader economy. Their mistakes have resembled this nation’s mistakes; their problems will be our future problems. If the U.S. and General Motors have similar flaws and indeed symbiotic fates, they appear to be conjoined primarily by the un-competitiveness of their existing labor cost structures and the onerous burden of their future healthcare and pension liabilities. Perhaps the most significant comparison between GM and the U.S. economy lies in the recognition of enormous unfunded liabilities in healthcare and pensions. Reportedly $1,500 of every GM car sold in the dealer showrooms goes to pay for current and future health benefits of existing and retired workers, a sum totaling nearly $60 billion. The total future healthcare liability for all U.S. citizens can be measured in the tens of trillions.”

*** Our heroine, Angela Merkel, made the front page news yesterday. She stood up against almost every mainstream economist, politician, and central banker in the world – and gave them all hell.

“What other central banks have been doing must be reversed. I am very skeptical about the extent of the Fed’s actions and the way the Bank of England has carved its own little line in Europe,” she said at a conference in Berlin.

“Even the European Central Bank has somewhat bowed to international pressure with its purchase of covered bonds.

“We must return to independent and sensible monetary policies, otherwise we will be back to where we are now in 10 years’ time.”

You go girl!

“This lady is currently the only person among all of our mighty and famous whom ordinary taxpayers in the western world can look to in order to hope for any protection of them interests,” says a letter writer to the Financial Times. Of course, the professional economists and the earnest press all replied with the typical blah, blah, blah…

“Ms. Merkel’s intervention may be a political ploy and will probably come to nothing,” says the Financial Times editorial page. “But it is, nonetheless, harmful… ”

Bloomberg reports:

Ben Bernanke, the chairman of the United States Federal Reserve, said Wednesday that he “respectfully disagreed” with Angela Merkel, the German chancellor, about her recent criticism of efforts by the Fed and other central banks to stabilize Wall Street and the banking system.

“The U.S. and the global economies, including Germany, have faced an extraordinary combination of a financial crisis not seen since the Great Depression, plus a very serious downturn,” Mr. Bernanke told lawmakers Wednesday morning at a House Budget Committee hearing, after being asked to respond to the chancellor’s remarks. “In that context, I think that strong action on both the fiscal and monetary sides is justified.”

“I am comfortable with the policy action the Federal Reserve has taken,” Mr. Bernanke said Wednesday. “We are comfortable we can exit from those policies at the appropriate time without inflationary consequences.”

Ha! That’s the question. Like Bill Gross, we don’t think the US can get out of its inflation-causing positions. It won’t want to act too soon – that’s the lesson Bernanke thinks he learned from the Japanese. And then, when it finally does act, it will be too late. It may want to unwind its positions by then, but the market winds will be against it. Bond prices will be falling – inflation will be responsible for that. The feds won’t want to dump more bonds onto a falling market.

Then, traders – especially the same Wall Street institutions that they are subsidizing – will take advantage of them. In effect, the feds will have a massive short position in bond yields. When yields rise, they will have to cover… and shrewd traders all over the world will know it. They’ll stick it to them… selling bonds ahead of the feds’ massive selling.

Finally, the feds will be hung out to dry… like Long Term Capital Management, but with no one to bail them out.

Source: America’s Great Big Bluff

There is no doubt, the country will be glad to see 2008 come to an end.

Out of all of the horrific economic events taking place in Russia these days, none is more intriguing than Standard & Poor’s move it made earlier today. The company cut Moscow’s debt rating to just two notches above the dreaded “junk” status.

Thanks to a huge outflow of cash from Russia’s once-monumental reserves, the country’s debt is starting to join the ranks of failing companies like Ford (NYSE:F) and General Motors (NYSE:GM). The news is only going to make the situation worse for the Kremlin.

No relief in sight

If oil prices remain where they are today, or fall even lower, the next few years are going to be very painful for Russia. With its cash reserves quickly dwindling and its borrowing costs on the rise, Russia is in a financially tough spot.

It has been nearly a decade since Russia was in such dire financial problems and was forced to default on its debt while watching the value of the ruble plummet. The current government is doing its best to assure its citizens that situation will not occur again anytime soon.

So what are the country’s options to pull it away from the grasp of economic calamity?

If you know, I am sure Putin and Medvedev would love to hear them.

The country’s options are to find a new natural resource to dig out of the ground and sell to its neighbors at a premium or raise the rates on the oil and natural gas it is producing now. Unlike the United States, it cannot borrow its way out of trouble. And it cannot follow China’s lead and produce its way out.

We saw a preview of what is in store last August when Russia raised its hackle in Georgia. Over the next few months, we are bound to see increased hostility in Eastern Europe. Moscow will not be able to stand back and watch its neighbors take advantage of plummeting natural gas prices. It will take aggressive action.

For investors, that means big-time profit potential. This is a subject we have been discussing a lot at Hot Stock Confidential. In fact, we are already seeing the action boost our portfolio. If you would like to read our thoughts, click here.

These are interesting times for Russia. Unfortunately, this looks like just the beginning of the story.

Source: The trouble keeps adding up for Russia

After surging more than 40% earlier Thursday, shares of Ford (NYSE:F) were back to where they began the day. General Motors (NYSE:GM) is sitting on a 6% gain on the day.

It looks like it is politics as usual in our nation’s capital.

There is big news out of Washington. Congressional insiders are telling us that key senators have reached a compromise that will allow the Big Three to tap into $25 billion in loans originally set aside for the automakers to re-tool their factories.

While this is not the $25 billion grab at TARP money Detroit was on its knees begging for yesterday, it is enough to get investors interested in the industry once again. As I write, Ford (NYSE:F) and General Motors (NYSE:GM) are up by 40% and 25%, respectively. They are pulling the major equity indices with them.

Obviously, there is much more to this story than initial reports indicate. As we get the details, we will pass them on.

For now, continue to hold onto those shares of Ford I recommended buying several weeks ago. If Congress makes good on these rumors, they could be profitable quite soon.

Source: Washington bows: General Motors (GM) and Ford (F) shares soar

The Dow Jones Industrial Average (.DJI) and the Nasdaq (.IXIC) are skirting 5-year lows.

To date, the 10-year return of the S&P is -16%. If that performance holds until the end of the year, this could be the first 10-year period in which the market has lost money. Your broker’s marketing materials may require some significant edits.

In other news…

Jobless claims surged to a 16-year high, while leading economic indicators erased gains from September. Wall Street has keyed off a stream of seemingly endless negative information. And primetime Senate hearings for the auto industry haven’t helped.

The CEOs of General Motors (NYSE: GM), Ford (NYSE: F) and Chrysler failed to impress Capital Hill during their testimony. Executives were unable to gain the support they needed to get federal bailouts. All three companies could face bankruptcy without help.

Meanwhile, GMAC – the finance arm spin-off from General Motors – was looking for money, as well. GMAC is looking to become a bank holding company to qualify for federal bailout dollars.

Companies mentioned in this article: GM and F.

Source: S&P’s Back To The Future: 1997

Ford, GM and Chrysler are all in danger of folding into bankruptcy after a complete lack of innovation and outmoded business models combined with the current financial crisis and a lack of credit to drain the American icons of profitability.

Ford posted a $2.98 billion operating loss for the quarter ended Sept. 30, while GM reported a $4.2 billion operating loss during that same period. Together, the companies burned through a combined $14.6 billion of cash in the third quarter.

Ford chewed through $7.7 billion in cash taking its reserves down to $18.9 billion from $26.6 billion at the end of the second quarter. If the company continues to burn cash at this rate, Ford will run out of money by April 2009.

GM is even worse off. The nation’s largest automaker said that the amount of cash it has on hand fell to $16.2 billion at the end of September, down from $21 billion at the end of June.

The company said it could run out of cash by the end of the year, and be forced to declare Chapter 11 bankruptcy.

“Even if GM implements the planned operating actions that are substantially within its control, GM’s estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business,” GM said in a news release.

If any, or all, of Detroit’s Big Three fail to acquire the financing they need going forward, the consequences for the U.S. labor market – and for the economy – could be devastating.

All told, the three automakers employ more than 200,000 people and support millions more U.S. workers indirectly through suppliers and dealerships. Their collapse could ultimately cost the economy more than 2 million jobs total. And that doesn’t count the estimated 1 million Americans – including many retired autoworkers – who rely on the U.S. auto companies for pension and healthcare benefits.

“The industry is so interdependent,” Ford Chief Executive Alan Mulally told CNBC.  “We’re nearly 10% of the U.S. GDP, and if one of the automobile manufacturers gets into serious trouble, it has tremendous implications for the entire industry.”

Mulally was one of three CEOs – GM’s Richard Wagoner and Chrysler’s Robert “Bob” Nardelli being the other two – lobbying lawmakers for financial assistance over the past month. All three yesterday appeared before the Senate Banking Committee, in the hopes of building on the marginal support they currently have.

“This is about much more than just Detroit,” GM’s Wagoner told the Senate. “It’s about saving the U.S. economy from a catastrophic collapse.”

Today, Mulally, Nardelli, and Wagoner will make their case to the House Financial Services Committee.

Policymakers Take Sides

Washington is deeply divided over whether to loan the automakers taxpayer money at a time when the U.S. budget deficit is spiraling out of control. (The U.S. budget deficit hit a record-high $237.2 billion in October – the first month of a new fiscal year. That’s four times larger than the October 2007 deficit of $56.8 billion.)

The White House and its Congressional supporters argue that the U.S. auto companies are victims of their own ineptitude and stubbornness and have long been spoiled by Democrats all too eager to accommodate their union lobbies.

“The fact is [the U.S. auto companies are] in trouble for reasons that relate to their own decisions rather than a lot of consumers out there who have gotten caught up in this credit crunch, in effect, through no fault of their own,” Sen. Jon Kyl (R-Ariz) said.

For years, Ford and GM fought tougher regulations of fuel efficiency and chose to promote gas-guzzling sports utility vehicles and pick-up trucks instead of pursuing hybrid technology and alternative fuels.

GM has spent $95 million on lobbying over the past decade, and $10 million so far this year, according to OpenSecrets.org – a Web site that tracks political contributions. Ford has spent $5.7 million on lobbying this year and $80.6 million over the past decade, according to the Web site.

However, many Democrats say that the United States can’t afford not to bail out the auto giants given the precarious state of the economy. Most analysts believe the U.S. economy has entered into a deep and painful recession that could take years to emerge from.

“We’re seeing a potential meltdown in the auto industry with consequences that could impact directly upon millions of American workers and cause further devastation to our economy,” said Senate Majority Leader Harry Reid (D-NV).

Dems Determined to Push Bailout

Reid has proposed a $100 billion economic stimulus plan that would include $25 billion in loans for the auto industry as well as $13.5 billion for roads, mass transit and other public infrastructure; money for financially ailing state governments; more jobless benefits; and added food stamp assistance, the New York Times reported.

The plan will need about 60 votes to avoid being bogged down in a senate debate. That means at least 10 Republicans would have to vote in favor of the bill even if all Democrats supported the measure. That seems unlikely. There’s also no guarantee that President George W. Bush wouldn’t just veto the bill anyway.

Should that piece of legislation fail, which it almost surely will, Democrats say they will propose a separate plan to divert $25 billion of the $700 billion approved earlier for the financial industry to the automakers.

In return for the loans taxpayers would receive stock warrants, and automakers would have to accept limits on executive pay and ban dividend payouts. They would also have to use the money to build more fuel-efficient vehicles. The loans would be for 10 years at 5% interest for the first five years and 9% interest for the remaining five years.

Of course, U.S. Treasury Secretary Henry M. Paulson and President Bush have made it clear that they are staunchly opposed to diverting bailout money meant for use in the financial sector to the auto industry. They would prefer the auto companies simply make due with the $25 billion in loans cleared by Congress earlier this year to make the industry more fuel efficient.

“We want the automakers to succeed and we support using an existing program to help them do so,” said White House spokeswoman Dana Perino. “There’s not an appetite in Congress, or in the administration, to open up the… funding for individual industries, because once you start down that road, it’s a slippery slope to other industries that might say that they need help.

With sufficient strength in Congress, the Republicans may be able to stall the Democrats and keep Ford, GM and Chrysler on the hook for now, but come January the landscape will change considerably.

President-elect Barack Obama will be moving to the White House on January 20, and as Reid pointed out, he’ll be bring a stronger Democratic majority with him.

“If ever there were a time for bipartisan solutions, this is it,” Reid said. “Senators have a choice to make: We could wait until January – when we have a new Congress and a new president – or we could start solving this crisis now.”

Source: GM, Ford, and Chrysler Chiefs Push for Action in Washington as Congress Debates Another Bailout

So the question becomes, how do you know what you are going to catch when you go bottom fishing? Now, if I am fishing, where I am fishing will have a big influence on what I catch, as will the bait that I am using.

In stock investing, if you are going to go bottom fishing there had better be something compelling before you invest. In most cases, stocks that are so beaten up that they qualify for consideration as a “bottom feeder” are not going to have anything compelling to offer from a technical perspective. You are more likely to find a bullish case in a combination of the fundamentals and the sentiment analysis.

I mentioned that a caller from a recent radio interview asked about General Motors (GM). If I were choosing a domestic automaker, I would be more inclined to choose Ford. The reason is simple, the cash on hand for Ford is $25.27 billion and fewer perceived problems than GM.

The sentiment towards Ford (F) is a little more bearish than that of GM. As a contrarian, the more bearish the sentiment the better. The reason behind this thinking is the more bearish the sentiment, the better the chance of the stock being at a bottom because the sellers have been exhausted. For Ford, the short interest ratio is at 7.5 and the analyst ratings show one “buy”, eight “holds” and three “sell” ratings.

The bottom line is this: if you are going to go bottom fishing, you have to be careful. Be selective about the waters you fish. If you are fishing with a net and just hauling in anything you drag in off the bottom you will catch the occasional lobster, but you are going to catch a lot of carp and catfish too.

Source: When You Bottom Fish, You Can Catch Carp, Catfish, Or Lobster

Junior Mogambo Ranger (JMR) Rick K. thinks that I am being too critical of the Dow Jones Industrials when I snort in derision at that index sporting the unheard-of price-to-earnings ratio of 87, as “almost all of the insanity comes from just one company: General Motors (NYSE:GM).”He explains that “GM lost $74.29 per share over the last year (on a stock priced at only about $17 per share), compared to earnings for the rest of the Dow of $92.37 per share. So GM alone lost 80% of what the rest of the Dow companies made over last year! If GM’s loss was excluded from the Dow’s earnings, its P/E would be around 16 rather than over 80.”

Naturally, I figure that, as the old saying goes, “What’s good for GM is good for the country,” and so it reflects what is actually going on in the country. And besides, it really makes no difference anymore, anyway, since accounting itself has gone to “the dark side of the Force”, like everything else.

And to show you what I mean, Bloomberg.com reports that regulatory filings show that “Banks and securities firms, reeling from record losses resulting from the collapse of the mortgage securities market, are failing to acknowledge in their income statements at least $35 billion of additional writedowns included in their balance sheets.”

And so everything is lies, lies, lies! Hahaha! We’re freaking doomed!

This saved me from having to mention that the other indexes are just as weird, as the historical average for a Price-to-Earnings ratio is 14, with a P/E of 20 being near the extreme of “overvaluation”, and while currently the P/E of the DJ Industrials is 86, the DJ Transportation Index has a P/E of 24, the DJ Utility has a P/E of 16, the S&P500 has a P/E of 23, and the S&P Industrial Index has one at 22! Hahahaha! Apparently meaningless, as the prices of these stocks are actually rising! Hahahaha!

And the reason is that nobody is buying, because nobody has any money! I say this as a way of introducing this week’s episode of “What is wrong with this picture?” The scene opens with the Commerce Department reporting that consumer spending rose 0.2% in April, which is down from the 0.4% increase in March.

The more stupid of us are busily trying to multiply this 0.2% increase for April by 12 months (to get an annual figure), and screwing it all up pretty badly, and we keep re-entering the data over and over and making stupid mistakes until we are so frustrated that we are jamming the calculator’s keys with murderous force, and our fingers hurt.

Coincidentally, the Commerce Department also said that incomes grew 0.2%, which even included the $134 billion in the government’s tax rebates that are only half sent out! Hahaha!

If you are like me, you are suddenly realizing that your income did not go up by 0.2%, or any percent, because if it did, it seems like you would have remembered it. And anyway, if my income DID go up, then where in the hell is all of this money?

In fact (and I think I speak for everyone), we’re slaving away at our stupid jobs like the caged, workaholic rats we are, and all we ever get is an ungrateful boss, an ungrateful spouse and ungrateful children whining, whining, whining that you don’t give them enough money, and how I “owe” them money just because they were born and how they didn’t “ask to be born”, even though I sure as hell did not ask them to be born, and pretty soon we are yelling about who is responsible for their being born at all, but everyone knows it’s about the money.

In fact, everything is about the money these days. Mostly the lack of it. But mostly, mostly because of businesses and governments lying about it. Ugh.

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Editor’s Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it.

Source: A Phantom Increase in Income