Investors snapped up shares of technology bellwethers a day after the semiconductor index <.SOXX> fell for a fifth straight day. Apple Inc led the Nasdaq higher, climbing 1.8 percent to $121.59, while the semiconductor index gained nearly 2 percent.

Stocks in defensive sectors such as consumer staples and health care also advanced, with Coca-Cola Co (KO) up 1.6 percent to $44.34 and Pfizer Inc adding 0.8 percent to $15.39.

“What we’ve seen the past three days is not that money’s leaving the market, but just flowing in that (defensive) direction and trying to find the better deal,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

The Dow Jones industrial average <.DJI> was up 22.86 points, or 0.28 percent, at 8,307.75. The Standard & Poor’s 500 Index <.SPX> added 3.23 points, or 0.37 percent, at 887.15. The Nasdaq Composite Index <.IXIC> gained 12.78 points, or 0.77 percent, at 1,676.97.

Data showed the number of U.S. workers filing new claims for jobless benefits rose to 637,000 and was more than expected in the latest week, according to government data, pushed up by plant shutdowns related to automaker Chrysler’s bankruptcy.

In another report, the Labor Department said prices received by U.S. producers rose at a brisk pace in April, driven by a surge in food costs.

May 14 (Reuters)

Amazon was trading at $61.15 a share when we recommended it, and rose about 30% in the nine weeks since. And I’m pretty certain that our investment in Amazon will continue to reward us with a steadily advancing profit.

Not only does the company continue to gain market share against its brick-and-mortar competitors, its innovation and superior strategic execution continues unabated.

Our reasons for buying Amazon stock back in February turned out to be right on target:  Amazon did release the mysterious-but-rumored encore to its successful Kindle, known, appropriately, as the Kindle 2, just one week after we beat them to the punch on their own announcement right here in this column.  And a large amount of other new and improved technologies have been hitting the market lately, from multi-terabyte storage memory devices, to enhanced iPods, laptops and PCs. A step-up in technology is bringing with it another wave of upgrade fever.

Amazon’s “cloud-computing” initiative continues to make major progress, as well.  The impact of this technology – like most new successful technologies – has been grossly understated at the onset, but it promises to gain massive momentum.

The reality is that Amazon is turning out to be a much better profit play than I anticipated. In fact, after I wrote that article, I bought a Kindle 2 for my youngest daughter’s 11th birthday.

I had been looking for a way to appease my daughter’s voracious reading appetites. But I also wanted to try the novel device for myself, and save the long and highly inconvenient morning walk through the snow, rain or cold up and down my long driveway to pick up The Wall Street Journal and the Financial Times print editions.  I also wanted to experiment with other foreign newspaper subscriptions like the Shanghai Times.  And lastly, but very importantly, I wanted to see for myself just what the upside for this device actually was.

The experiment proved to be an immediate success.  In short, I was blown away by the Kindle’s simplicity and powerful capabilities. It can hold more than 1,500 books, the definitions for words a reader might not know appear at the bottom of the page, and you can make notes and cut and paste sections of the onscreen content.

When parents and teachers across America find out about these capabilities, the Kindle’s sales are going to take off exponentially. These functionalities make reading a book much easier and more useful in this electronic form than in the “hard-copy” formatf. The device also proved to be much more attractive and addictive than I expected and it’s remarkably easy to use.

Critics point to the devices hefty price tag, but the low cost of electronic publications versus paperback or hard cover books – as well as the aforementioned technological advantages – offsets the high cost of the Kindle.

With the Kindle’s free Whispernet wireless Internet access, I was able to quickly purchase and download the complete works of Charles Dickens (more than 200 works) for less than $5, a Bible (Old and New Testament) for $2, and other works for as little as 75 cents each.

I went on to buy Adam Smith’s “The Wealth of Nations,” Sun Tzu’s “The Art of War” and Baron Von Clausewitz’ “On War” for a pittance.  Just buying the more than 200 Dickens books in physical form would have cost well in excess of $1,000.  And the whole exercise took less than five minutes.  Such convenience and value in buying can be very dangerous to people’s budgets and conversely good for Amazon.

And you don’t have to carry that weight.  A student could conceivably carry all his or her school or university textbooks in the 10-ounce Kindle. Imagine having every book you ever read or studied readily at hand.

What’s more is that every book you buy is not just stored in your Kindle, but also in your Amazon account – a true testament to the huge value of cloud computing. So, if you ever lost your Kindle, you could re-download your previous purchases into your new device.  And should you max the memory capacity of your Kindle, you can just delete it from the device and it appears as “archived,” reminding you that you can re-download it from Amazon’s servers whenever you please.

Indeed, the Kindle is both unique revolutionary, and will be a huge success for Amazon.

So, ahead of the quarterly profits I would not dare to take profits in this stock. Sure, technology stocks have been on a tear, and Amazon is one of the leaders, but this is just the beginning.

We still have the bank stress tests ahead, the General Motors Corp. (NYSE: GM) and Chrysler LLC deadlines and the implementation of the Public-Private Investment Program (PPIP) government program to help ease the toxic asset problem at the banks, so nothing is certain. But I am optimistic about these three situations.

As we saw with Wells Fargo & Co. (NYSE: WFC), when you are borrowing at 0% interest and lending at 6% through 22% (lowest FICO score credit card loans), profits accumulate very fast and help resolve many problems.

I expect the PPIP program to be a resounding success, as well, Since it not only provides huge subsidized financing from the government, it moves much of the credit risk in those positions to them.

Finally, the Chrysler and GM situations – either through bankruptcy or voluntary reorganization – will eventually result in companies that can be great once more.

That brings us back to Amazon’s valuation.  Amazon has continued to grow sales and profits in this recession and as the economy picks up, I can see momentum accelerating.

The first line of true resistance that Amazon stock should encounter is its all-time high.  And if Amazon beats estimates when it releases its earnings on April 23, it will get there really fast.  But even if it doesn’t get there as quickly as I expect, this is a stock to keep well stashed for years to come.

Recommendation:  Buy Amazon.com Inc. (Nasdaq: AMZN) before Monday’s product announcement and ahead of the rollouts of the stimulus packages planned by both the United States and China (**).

(**) – Special Note of Disclosure: Horacio Marquez holds no interest in Amazon.com Inc.

Source:  Buy, Sell or Hold: Amazon.com Inc. Looks Even Better Now Than it Did in February

]]> http://www.contrarianprofits.com/articles/buy-sell-or-hold-amazoncom-inc-looks-even-better-now-than-it-did-in-february/15494/feed 0 http://www.contrarianprofits.com/articles/the-importance-of-stop-losses/15169 http://www.contrarianprofits.com/articles/the-importance-of-stop-losses/15169#comments Tue, 24 Mar 2009 02:06:59 +0000 Charles Delvalle http://www.contrarianprofits.com/?p=15169 Over the past few weeks I’ve talked about the importance of consolidation patterns. But the thing about consolidation patterns (and practically every other pattern you’ll ever learn) is that there’s NO GUARANTEE that the pattern will follow through. That’s why it is important to set a stop-loss to protect your portfolio.

Back on the 18th of this month I told you that Apple Inc (NASDAQ:AAPL) was trading in a price range of $83 to $100 a share. It was a pattern that had been ongoing since last November.

I said…

Here’s my big, bold prediction: AAPL is heading south. Short AAPL (or buy a put option if you’re feeling saucy) and ride the sucker down to $83 a share.

That’s a nearly 20% profit.

Always…

Instead of establishing a new, specific primary interest rate, the central bank’s Federal Open Market Committee (FOMC) voted for a target range – 0.0% to 0.25% – a record low. Before yesterday’s cut, the Federal Funds target rate stood at 1.0%.

Instead of addressing the reason for its peculiar target range, the Federal Reserve opted for canned doomsday language that could have appeared verbatim in any of its previous rate cut announcements: It hasn’t been good. It doesn’t look good. And we’re trying to fix it.

Most cryptically, the FOMC said it “will employ all available tools” to promote economic growth and price stability. But those objectives could take some time to achieve.

“The committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time,” the Fed said in a statement.

U.S. stocks soared on the Fed announcement, with the Dow Jones Industrial Average gaining 359.61 points, an increase of 4.2%, to close at 8,924.14. The Standard & Poor’s 500 Index jumped 44.61 points, or 5.14%, to finish the day at 913.18. The tech-laden Nasdaq Composite Index jumped 5.41%.

Since September 2007, U.S. Federal Reserve policymakers have cut the benchmark Fed Funds target rate 10 times – taking it from its starting point at 5.25% to the current rate range, hoping it would encourage bank-to-bank lending, as well as bank-to-consumer lending.

“It’s a highly unorthodox and creative step,” Michael Woolfolk, senior currency strategist at the Bank of New York-Mellon Corp. (BK), told Reuters. “We think it’s the best possible move for the U.S. consumer and for the financial market.”

The rate cut announcement dropped onto a cushion of ugly headlines from earlier in the day:

• Consumer prices posted their biggest plunge in 76 years. The U.S. consumer price index (CPI) fell by a seasonally adjusted 1.7%, lead by a 17% decline in energy prices, the Labor Department reported. On a non-seasonally adjusted basis, the CPI fell by 1.9%, the biggest decline since 1932, three years into the Great Depression.
• Yields for 30-year Treasuries fell to an all-time low, Bloomberg News reported.
• Goldman Sachs Group Inc. (GS) reported a loss of $2.12 billion, or $4.97 a share, for its fiscal fourth quarter.
• New building permits and new housing starts hit a record low in November, as permits plummeted 15.6% to 616,000 units from 730,000 in October. Housing starts fell 18.9% to 625,000 from 771,000 in October, Reuters reported.

Joel Naroff, president and chief economist of Naroff Economic Advisors, doesn’t expect the rate cut to do much because banks simply don’t want to lend.

“There is little belief that will do anything as the issue is not the level of rates but the willingness to lend.  It may put a little more pressure on other central banks to ease, especially the Europeans,” Naroff wrote in a note to clients. “But other than that and the reduction in some variable-rate loans tied to the prime, the rate cut will not accomplish a whole lot.”

He added: “With the rate near zero, the Fed is basically out of bullets when it comes to the rate cut weapon so we will see what they say about using other mechanisms to add liquidity.”

Money Morning contributing editor Martin Hutchinson said in a recent column that the Fed’s rate cuts – combined with the government’s $700 billion bailout – will push so much money into the financial system that the final result will be widespread inflation – which is essentially an open invitation to profit from gold.

What Else Can the Fed Do?

With little to no room left to cut rates, Fed Chairman Ben S. Bernanke has signaled that he may employ unconventional ways to restore balance to the U.S. financial system.

The Fed extended the lives of recently initiated programs (lending facilities for investment firms, for instance) and is exploring additional moves (like Treasury purchases) aimed at reviving the credit markets.

Meanwhile, the U.S. Treasury Department is working on a plan to rejuvenate the housing market by slashing mortgage rates to 4.5% on new purchases. Experts say that, at some point, these stimuli must take hold, but that’s not necessarily true.

Many of Bernanke’s plans may be an afterthought on Jan. 20, when President-elect Barack Obama takes office with a different economic team and agenda.

New York Federal Reserve Bank President Timothy F. Geithner will be the new administration’s U.S. Treasury secretary, a role that will give Geithner the reins to what’s left of the Bush administration’s $700 billion bailout.

Former Treasury chief Lawrence Summers will head Obama’s National Economic Council. Analysts say this appointment puts Summers in line to succeed Ben S. Bernanke as chairman of the U.S. Federal Reserve in 2010.

New Mexico Gov. Bill Richardson will take over the Commerce Department, and Congressional Budget Office Director Peter Orszag will head the Office of Management and Budget.

Source: Fed Slashes Interest Rates to a 0.0% to 0.25% Target Range … But Now What?

With that being said, the calendar this week is full of some important reports that could set the tone for the early part of next year.

On Tuesday, the Building Permits report for November is released, and is anticipated to show only a slight decline of around 8k units. I am not sure if this is simply due to the seasonal slowdown of building in northern climates, or if perhaps builders have finally found an equilibrium point with the market, but I view it as a positive sign if the number holds close to expectations.

The same can be said about the November Housing Starts report that comes out at the same time. A decline is expected, but again, it could just be do to seasonal issues (you can’t build in northern climates when the ground is frozen) rather than a worsening housing sector.

The big reports of the week are the November CPI and Core CPI figures.  Much like last week’s PPI and Core PPI reports, the Core CPI figure is expected to show a slight increase while the CPI figure will likely show a continued drop. Energy costs (oil) continue to drop, and this will be reflected in the CPI figure.

The Philly Fed report comes out Thursday morning, and it looks like reality has set in again. As I reported last month, expectations for the November report were for a rather large improvement versus October. Well not only did that not come true, but the report was actually worse than October. This month, expectations are for a slight decline.

The attention grabber this week is the FOMC Policy Statement on Tuesday. As it stands, expectations are for a huge rate cut. Currently the Fed Funds rate is 1.00%, and the probability chart shows a 65 percent chance of a cut down to 0.25%. This is especially shocking for two reasons. One is the shear size of the cut, which would be three-quarters of a percent. The second aspect is that if the cut is down to 0.25%, it leaves only one more bullet left in the gun for the Fed to cut rates.

Source: FOMC Statement Highlights The Week … Will The Fed Be Left With One Bullet?

The one thing you notice about Silicon Valley is the meetings. They multiply like a fungus. Once inside, you become intoxicated from the heady fumes of whiteboard markers, since the entire culture seems incapable of explaining anything without standing in front of the room to draw organizational charts. Ditto for PowerPoint.

And so the Myth of Empowerment came into being after years of sitting in conference rooms listening to these pretentious windbags. As the Myth of Empowerment goes: The more computing power you give to incompetent people, their incompetence rises commensurate with their reliance on that computing power.

Of course, now that computers are becoming more powerful more quickly, the rise to incompetence is meteoric in some organizations.

It seems that as an analytical tool, The Myth of Empowerment could have predicted why the bottom fell out of Yahoo’s stock price long before the current economic malaise.

Reporter Om Malik, writing for Fortune online, nailed the Yahoo culture in his piece of Nov. 17th. This excerpt could have come directly out of the text of The Myth of Empowerment.

“What hasn’t been discussed is that the company isn’t really facing up to the fact that its layers of management have resulted in a state of masterful inactivity, masked perhaps as a culture of consensus. This starts at the top – from the company’s board and senior management down to VP level where people are prone to organizing and attending twenty meetings before deciding the fate of a project. Some senior managers including the ones who are deserting the company are skillful players in this game of hiding ennui behind grandiose plans and a great future that never happens.”

Malik’s observation was part of a story he wrote regarding the resignation of current CEO and Yahoo Founder, Jerry Yang. This is the guy, along with his board, who fought off a bid by Microsoft earlier this year at $31 per share, because they believed the price undervalued the company. Today, Yahoo is at $11.67.

After he resigns as CEO, Yang will remain on the board and take on the title of Chief Yahoo (seriously) as the company seeks a replacement.

Given the current shortage of cash in the market, everyone now expects Microsoft to make another pass at Yahoo for the lack of other potential suitors. In fact, some wags conjecture that the #1 job of the new Yahoo CEO will be to broker a Microsoft deal.

The someone else part, however, gets real tricky. Private equity has just reached a stand-still. There may have been a Chinese taker earlier in the year, but that market is also under siege. And if the Yahoo board thinks that AOL is a bailout scenario, then more power to them.

A Google deal may have been possible at one point, but the Feds were already making noise that they would kill a prospective alignment with Yahoo as part of joint-marketing and technology-sharing agreement that got shelved in reaction to hostile Feds. And that wasn’t even a full-blown merger.

In the end, it all comes back to Microsoft. Over the past two days, Microsoft’s shares have slipped 9%. This is consistent with the long-term trend of the stock’s price surrounding a takeover of Yahoo.

Whether or not Microsoft approaches Yahoo again largely depends on Yang’s successor. Our expectation is that if Microsoft does manage to buy Yahoo, Microsoft shares will drop. If word leaks of a Microsoft-Yahoo merger, Microsoft will drop. And until the fate of Yahoo becomes definitive, Microsoft shares will continue to drop.

Last time I checked, the price of soybeans, cocoa or orange juice had absolutely no relationship to whether Microsoft (Nasdaq: MSFT), Disney (NYSE: DIS), or Google (Nasdaq: GOOG) declined in price.

But these days, we’ve got a serious blurring of the lines between global marketplaces. In addition, the prevalence and ease of electronic trading, coupled with well-capitalized hedge funds, means we’re seeing all kinds of different markets having an affect on one another.

Not so long ago, it used to be that money typically flowed from one asset class to another – for example, from stocks to commodities. But that isn’t happening now as most players have either bailed out of everything completely, or are selling assets to meet margin calls.

For commodity-watchers like me, I’ve looked on in surprise (as well as a little frustration) as commodities head the same way as stocks and pickings are slim. All the different commodities have suffered a hammering over the past few months, as the stock market’s mess spills over.

The selling wave has taken all the major commodities to new lows for the year, with most markets giving back all their gains for 2008 and more. Let’s see if we can pinpoint the next moves…

Oil’s Slippery Downward Slope… Have We Hit Support?

There’s no question that the oil has dominated the commodity headlines this year, topping out at $147 a barrel back in July.

But somewhat quietly amid the financial crisis, stock market slump, and bailout talk, oil has bounced down to around $60 a barrel. In turn, this has resulted in gasoline prices declining to the $2 a gallon level.

Although there might be more downside to come, it seems we may have hit a temporary support area here.

Natural Gas Could Be Nearing A Bottom… But We Need More Evidence

Oil’s partner in crime – natural gas – has also endured a vicious selloff. Having topped out in July, it’s given up just as much ground as crude oil, with the December 2008 futures contract dropping a solid 8100 points from top-to-bottom. That’s a whopping $81,000 change in equity.

Like crude oil, natural gas seems to have found a temporary support level as prices have consolidated a bit over the past two weeks and remained in the same area. In order to feel confident about a support level, prices have to tread water for a while without giving up more ground. We’re going to watch the price action for a while, but we could be getting near a bottom here.

Even The Safe Havens Are On Shaky Foundations

Ask most folks to name which markets are usually the beneficiaries of an unstable financial market… and you’ll likely get the resounding answer: “Gold and silver.”

Nine times out of ten, they’d be right. But not today. Even amid the economic turmoil, the safe haven hard asset metals can’t muster up any bullish action.

Sure, they got caught up in the bullish frenzy over the summer, just like the other markets. But when the music stopped, investors decided to bail out of the metals, too.

However, take a look at the charts and you can see that they’ve joined oil and natural gas in trying to establish some support. We can see evidence of this in the fact that neither metal has made a new low over the past two weeks. If the stock markets can find their footing here, then the metals may move up just the same.

As you can see, the December silver futures currently sit at $10.40 an ounce, while the December gold futures are trading around $753 an ounce – a far cry from their highs this year of $19.70 an ounce and $1,000 an ounce respectively.

If the market feels confident that the Federal Reserve’s bailout plan will work, investors could start dipping their toes into the long side of the market. If so, that could result in gold and silver moving higher. Until that happens, however, remain cautious, as it doesn’t take much for widespread selling to rear its ugly head again.

It seems that “support” is the word of the moment for the commodities sector. The rest of the markets (corn, wheat, soybeans, coffee, cocoa, sugar, orange juice, and cotton) are all trying to find a foothold and establish some support.

Having been torn apart in the nasty selloff over the past few months, though, it may take some time.

Source:The Commodities Buzzword Of The Moment: Support

The Dow logged its second best one-day point gain, 889 points, in its even more storied history yesterday:

Percentage wise, at 10.8%, the rally ranks sixth. The S&P and Nasdaq trundled alongside the old lady like puppies.

After finding a new “credit crisis” low on Monday, traders on Wall Street snapped back with vengeance. But it’s not the higher highs we’ll be watching for the rest of the week — but lower lows. During each sell-off since extreme volatility began three weeks ago, we’ve reached all-new lows.

The Japanese market performed in a similar way through the entire decade of the ’90s. It rallied at least 30% higher five times since 1992, before finding new lows again, and again… and again.

Extreme volatility is a good thing if you’ve got the stones for it. “You do know someone who does seem like they know what the hell they’re doing, day to day,” Steve Sarnoff wrote to us after reading yesterday’s 5.

Steve included his gains sheet from Options Hotline, noting that his Intel calls triggered yesterday. Any of his subscribers with filled orders profited about 97% in a single trading day. Yawn… stretch… not as exciting as his 439% gains on QQQQ puts two weeks ago. But still…

On the short side, Dan Amoss told his readers yesterday to pocket 94% gains on their Fleetwood Enterprises short sale. Shorting a financially distressed manufacturer of recreational vehicles… who’d have thought that would be a good play?

If you’re interested in options or shorting stocks, let us remind you both are extremely risky ventures. But we’ve got a couple of ringers to help. Check out Options Hotline and/or Strategic Short Report for ideas. Both are included in your Reserve Membership. Or available a la carte.

Despite yesterday’s monster stock rally, the credit markets are still moving cautiously. The rate at which banks lend to one another (Libor) did decline again today, the 13th day in a row, but only by a little.

The three-month dollar Libor fell just 4 points overnight, to 3.46%. Considering an all-but-certain rate cut from the Federal Reserve today, commercial banks had every excuse to relax lending rates significantly… but guards are still up around the world.

“We are not going to say, ‘Yahoo, this is over!’” explained JPMorgan Chase CEO Jamie Dimon, “and extend credit like we did without fear. If you’re not fearful, you’re crazy.” That coming from the guy who was fearless enough to buy Bear Stearns with little more than a wink from Ben Bernanke over Sunday tea.

The Fed will announce its latest interest rate decision today around 2:15. Anything less than 75 point cut and we suspect a sell-off. 1% or lower, here we come. We’re turning Japanese… we really think so.

After a decade and a half of practically free money, the Bank of Japan is considering its interest rate again, too. It’s already at the 0.5%. How much lower can the Japanese go?

The reversal in the equity market yesterday reverberated in the currency world.

The dollar took a pretty good whack. The dollar index fell two full points from yesterday’s high, now at 85.5. Thus, the euro enjoyed a nice bounce, up 3 cents, to $1.27. The British pound is back up nearly a nickel, to $1.60. And yen traders took profits, bringing the Japanese currency back to 97.

“The eventual cost to the U.S. financial and economic system,” says John Williams, “will be much higher inflation.

“The monetary base has seen an unprecedented surge, reflecting total reserves of depository institutions jumping from an average of $47.1 billion (seasonally adjusted) in the two weeks ended Sept. 10 to $328.6 billion in the period ended Oct. 22.

“Using the St. Louis Fed’s adjusted monetary base (effectively total reserves plus M1 cash in circulation), the year-to-year growth in the latest period was an unprecedented 38%. In the period since 1919, the previous high growth rate was 28% in September 1939, as the U.S. was building up industry for the evolving war in Europe.

“Back in the days when the Federal Reserve targeted money supply growth, the monetary base was the measure it adjusted. The current surge in the base is a direct result of the ongoing, extraordinary actions taken by the Federal Reserve and the U.S. Treasury aimed at preventing a collapse of the U.S. financial system. The higher monetary base growth will result in sharp spikes to domestic money supply growth and will intensify inflationary pressures in the year ahead, irrespective of wild gyrations and sell-offs in oil and of strength in the U.S. dollar, which otherwise should prove very short-lived going forward.”

Meanwhile, the U.S. government is beginning to advertise for new bailout money: “We are making it clear to sovereign wealth funds,” Deputy Secretary of the Treasury Robert Kimmitt said yesterday, while seeking help in the Persian Gulf, “that we are open to investments that are done on a commercial, not political, basis, and that do not raise security concerns.”

Kimmitt hinted he may have found some takers already: “We think that they are continuing to look very closely at opportunities in the United States. We have a number of cases before the Committee on Foreign Investment right now… Every investor that I’ve spoken with here and elsewhere had been in the United States within the past month, looking for opportunities.”

Who would have thought even three months ago — besides your cranky editors of The 5, I mean — that Wall Street would be holding a global garage sale this fall?

Orders for durable goods, surprisingly, jumped in September. According to the Commerce Dept. today, orders for things meant to last more than a few years increased 0.8%, well above the expected fall of 1.2%.

Before you celebrate (we know how durable goods data get you percolating), the actual details weren’t so optimistic. The Commerce Dept. revised August data to show a 5.5% fall in orders, the worst month in almost two years. And all of this month’s improvement came from transportation equipment, a sector so depressed it hardly has any more room to fall.

Since the dollar has pulled back, commodities have pushed forward. Gold continues to inch up this week, and has now struggled back to $760 an ounce.

Oil is creeping back up, too. Crude is up $4 today, on a weaker dollar and the fleeting image of a stronger U.S. economy. A barrel goes for $66.

“Energy development is exploding in Africa,” reports Byron King. Our energy adviser made the long trip to South Africa for a conference on African energy development.

“In the past decade alone, the number of companies actively looking for energy deposits in Africa has soared from under 100 to over 500. By 2018, there may be 800 or so companies exploring for and producing energy in Africa. Expect to see $350 billion spent in Africa by 2020, just on energy development.

“There are over 100 billion barrels of discovered oil reserves in Africa. And there may be as much as another 100 billion barrels left to be found. And even more natural gas, in terms of energy content. Plus, heavy oil. And coal and coalbed methane. Which makes Africa more of an energy development target than Russia, or the even the Arctic — without the weather issues that we find up north in such frozen climes…

“For now, oil prices are down, but investment is still flowing into a lot of energy projects in Africa. Some companies are having trouble with short-term credit, but this is not the biggest issue for the energy industry and its efforts in Africa. When the economic logjam breaks up, among the first things that will happen is that worldwide energy supplies will tighten. And eventually, the world will confront its long-term lack of investment in the energy industries.”

Even though oil has perked up, gas prices are still plummeting. The national average is now at $2.58 a gallon. That’s a level unseen since March 2006. The national average has shaved off a full dollar and change in the last month alone.

The IMF officially bailed out Hungary today. The country is getting a $25 billion loan. That’s the third IMF nation rescue in this crisis, and bigger than the first two — Iceland and Ukraine — combined.

Six percent of U.S. employers have cut 401(k) contributions this year or plan to do so in the coming months. According to a study by human resources firm Watson Wyatt, that number is likely to grow, as many firms surveyed refused to comment, as admitting to a 401(k) slash stinks of fiscal weakness.

Notable companies that have already nixed their 401(k) contributions include Goodyear, Frontier Airlines, commercial real estate firm Cushman & Wakefield, Entercom and rental car agency Dollar Thrifty.

“I, for one — also a Reserve Member — am totally thrilled,” writes a reader, responding to yesterday’s inbox, “that not one word of ‘asset allocation,’ ‘time horizon,’ ‘risk tolerance,’ ‘cost averaging’ or other such drivel and pablum of the financial industry is to be had among the Agora publications. I hope it stays that way. If it’s advice on those subjects he’s looking for, well, it’s even more abundant than the rivers of worthless paper flowing out of the Fed. Just ask for it from almost any investment adviser.

“As Buffett aptly notes, those are all methods for how to be average — and average right now is downright scary. The degree of risk that one assumes is directly proportional to how much one understands the fundamentals of an investment, sees the obvious and acts accordingly. It was largely due to the steady stream of spot-on, if not conventional and frequently unpopular, commentary coming from the crew of Agora doomsayers, who often ran against the mainstream financial media and consistently pointed to the buildup of ugly economic data, that I became convinced to do the obvious.

“Last year, I exited nearly all long positions and loaded up on puts in the financials and in the consumer stocks and indexes and barricaded myself with inverse market positions, with many of these either recommended or inspired by Strategic Short Report and the late Survival Report. And yes, I even did this for my retirement account. I couldn’t be happier with the results.

“While I’m still waiting for gold to have its day, Mr. Bernanke and friends have been very hard at work ensuring my eventual returns there. Had I asset allocated according to my time horizon and risk tolerance (gag…cough…) I would no doubt be enjoying the wonderful returns on bonds and cash, instead.”

The 5: Nice work.

Cheers,

Addison Wiggin
The 5 Min. Forecast

Source: Can the Mega-Rally Hold? The “True Cost” of the Crisis, An “Exploding” Energy Market, and More!