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 Investors awakened from their slumber yesterday with a start and exclaimed, “Sell!” The Dow, S&P and Nasdaq all shed more than 1%.
 The 10-year Treasury marched back up to 5.13%.
 And the “fire sale” at Bear Stearns continues. Yesterday, we told you about Merrill Lynch’s plan to auction $850 million of risky loans on Wednesday after rejecting a Bear Stearns offer to buy them directly. Now, Deutsche Bank and JPMorgan have joined the fray.
Deutsche Bank plans to sell $350 million of collateralized debt obligation (CDO) assets seized from the funds. JPMorgan began selling its share of seized assets on Tuesday, but halted its sale yesterday after some backdoor dealings with Bear Stearns helped it eliminate its exposure to the fund.
This “fire sale” is dampening the prices of CDOs and other mortage-backed bonds everywhere. Once prices are revealed in this wave of sell-offs, other holders will realize they own “junk in investment-grade clothing,” as one mortgage broker called it. Funds will start asking for more collateral, lenders and investors will want their money back… and so it goes. The Second Wave of the Housing Tsunami
 “As bull markets approach their final days,” writes Eric Fry in this morning’s edition of the Rude Awakening, “the earliest signs of failing health tend to appear in the financial sector. In other words, bank, brokerage and utility stocks tend to top out weeks or months prior to major stock market declines.
“Right now, the chart of Merrill Lynch (NYSE: MER) looks bearish… and if it breaks to the downside, it will be an ominous sign for the broad stock market.” For more on Eric’s attempt to divine the top of this year’s bull market in stocks, see the Rude Awakening.
 Crude oil prices fell back from a nine-month high yesterday, after the U.S. Dept. of Energy said there was more of the black goo in supply tanks than expected. Oil dropped a dollar to $68 and change.
“Hurricanes, the labor strike in Nigeria and the threat of Iran using oil supplies as a ‘weapon’ are all weighing heavily on traders’ minds,” our Maniac Trader, Kevin Kerr told an interviewer on CNBC yesterday morning, “but we have to see actual disruption from these events before they affect the market.
“Until then, the big drivers are the weekly oil supply and gas consumption numbers. That and the fact that OPEC has reduced production by 1.7 million barrels a day.”
 Gasoline followed its thicker, stickier cousin. The national average price of gas dropped below three bucks a gallon for the first time since the end of April.
 The Russian oil giant Gazprom announced yesterday that it intends to cancel gas trading agreements with China. According to the state-owned company, Russia needs the gas and can’t afford to export it.
If the contracts are indeed canceled, China will be short over 12 billion barrels of gas this year. Exxon will get squeezed, too. The gas is due to be exported through an Exxon Mobil facility in Siberia.
At the end of the day, that gas will need to come from somewhere. We’ll keep our eyes peeled.
 “International investors now own 28% of the Japanese market compared to only 4% in 1990,” reports Chris Mayer. This record-high rush of foreign investors will surely amplify the “influence” of Western shareholders in a country historically resistant to that kind of thing.
“Japan is growing again,” Chris points out. “The stock market has been rising. The yen is cheap. Japanese companies are flush with cash. A little Western-style capitalism could be what’s needed to unlock the treasures stuffed in corporate bank accounts and produce higher dividends, buybacks, acquisitions and higher stock prices.”
One intriguing way to play the resurrection in Japan is with a CD that’s linked to the real estate market there. Our friends at EverBank have assembled one. The MarketSafe Japanese REIT CD makes diversifying into the real estate market easy. And these MarketSafe CDs are 100% principal protected, meaning you won’t lose any money, but you keep all the potential upside. Because of our ongoing business relationship with EverBank, we’ll likely get a referral fee if you open an account, but we’re told the Japanese REIT CD is available until July 17, 2007. Follow this link for better details.
 “Recent strength of the Brazilian economy,” writes Christopher Hancock, who has been digging through investment opportunities there, “has allowed President Lula da Silva to oversee some much-needed domestic reforms. He has presided over macroeconomic stability for five years now.”
The Brazilian central bank has reduced its short-term rate to 12% from 19.75% just two years ago. “These are good trends. If Brazil receives the much-anticipated investment-grade credit rating,” Mr. Hancock predicts, “look for those rates to drop even further.
“With good credit, countries find stability and growth. Credit ratings play the decisive role in determining how much both governments and companies pay for access to credit markets. The cost of capital, the true driver behind real growth, decreases sharply when an issuer crosses into the investment-grade club.
“This should push economic expansion even further. Look for a housing boom to take off in Brazil. The country could also benefit from a major overhaul in infrastructure. I would love to find the company that dominates the Brazilian cement market.” Christopher has already bestowed his favorite Brazilian pick to his Free Market Investor readers. If you’d like to join them, click here.
 And from the sometimes-bizarro world of tech investing: The Raytheon Company recently unveiled its new “ray gun.” The gun emits tiny waves that penetrate human skin a fraction of an inch… just enough to make enemy combatants or rock concert attendees feel like they’re on fire.
“This is one example in a relatively new military trend of nonlethal weaponry,” reports Craig Walters. “Military officials at a recent test of Raytheon’s weapon said that it would be of great use in Iraq right now, but production isn’t slated until the end of the decade.”
In his Small-Cap Strategy Report, Craig bought a similar small arms manufacturer a month and a half ago that is already up 22%. The way things are going in Iraq, we’re likely to see much more opportunity in military R&D.
 “The ‘mistakes’ you’re referring to are merely an attempt to generate interest in the coin,” writes a rather skeptical reader in response to yesterday’s blurb on “godless” dollar coins. “The government thinks we are stupid.
“They think that maybe if people buy enough of them to find the ‘mistakes,’ they will then use them and forget the trash metal they are made from; forget the pathetic attempt to color every new coin ‘gold’ to make us think they actually have some value, forget the fact that the only way a dollar coin will be accepted is when the dollar bill is withdrawn...
“All in all, these new ‘dollar’ coins represent so many things wrong with our country far better than they represent a store of value or medium of exchange.”
Regards,
Addison Wiggin
The 5 Min. Forecast
P.S. One of my colleagues and best competitors recently told me he thought I'd lost my mind... click here to find out why I’m willing to give $11 million away by July 5, 2007! |
