Ian Cooper - Angel Publishing

Thematic Trading

Anyone would think the markets were suffering from an onset of schizophrenia by the way they've been acting lately.

One second, all is well. . . buyers line up to chase the recovery. The next, buyers are swimming for the exits in a sea of red ink.

Not exactly the kind of "confidence" you'd expect in a recovery, is it?

But while negativity is abundant, a bull market is never far away. . . and you can easily find it by using the three technical indicators I've written about before.

Or, by using themes.

The Most Profitable Energy Transition The World Has Ever Seen!

On November 12, 2008, the International Energy Agency (IEA) officially confirmed that every fossil fuel resource we rely on today will simply not be able to keep pace with demand.

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I'm going to give you some examples. . .

Resolution Profits

It's a seasonal phenomenon that many of us are all-too familiar with.

This year is likely to be no different, as millions head into the winter holiday season rummaging through our kids' Halloween candy, anticipating the traditional Thanksgiving gravy and stuffing, and marking our calendars for December holidays and office parties. . .

The end of the year marks the time when we assess the pounds we've packed on from pumpkin pie and eggnog and start worrying about added "baggage" — and promise ourselves that next year will be different.

How do you profit from this predicable trend? You find the stocks, namely ones like eDiets.com (DIET), that have historically risen at the tail end of the year on New Year's resolutions. The trick to playing this stock is to buy during mid to late November.

The stock should then rise as people begin promising themselves that next year will be the year for weight loss, and sign up for diet and exercise programs.

We haven't noticed the same run in stocks like Weight Watchers or NutriSystem that we have with eDiets.com (DIET), though:

From around mid December 2003 to the start of 2004, DIET ran from about $3.50 to about $6.50.
DIET ran from $3.25 to $5.35 from mid December 2004 to the start of 2005.

It ran from $4.50 to about $8 between mid December 2005 and January 2006.

From mid December 2006 to the start of 2007, DIET sold off after an early November 2006 run.
And from the end of November 2007 to the start of 2008, DIET ran from about $4.60 to $6.

DIET is a seasonal — and very predictable — thematic mover, as you can see by most of the posted gains. Buy and hold.

Another way to trade themes is to watch the press. Take H1N1, for example. . .

H1N1: How to Live High on the Hog

It's all about swine flu these days. Millions of kids have been out of school. Parents are calling out of work sick. People—unfortunately—have died. And multi-billion dollar industries are suffering.

Six months ago, fears that H1N1 might have originated at a Smithfield Foods (SFD) facility in Northern Mexico put the company in crisis mode. And the stock plunged until Mexico said there was no connection to Smithfield's farms.

There is news that a pig at the Minnesota State Fair tested positive for H1N1 in preliminary tests. But while confirmation is still needed, the "easy money" trade may be to play the downside of stocks, like Smithfield (SFD), Tyson (TSN), and even Hormel (HRL), as this could easily cause panic in the pork industry.

It took only a few cases of mad cow disease to create a wave of panic in the beef industry years ago. Countries — including Japan — banned American beef imports and prices plummeted. And from what we're seeing now, the damage is far from over. . .

Suffering like they haven't suffered in years. . .

Things are so bad for pork producers that congressional leaders are drafting a letter to the U.S. Secretary of Agriculture, asking that he buy $100 million in pork for various federal food programs and take more emergency action to help the troubled industry.

Take a look at Smithfield again: The company had record sales of $12.5 billion last year. But thanks in part to H1N1 and high supplies of pigs, they lose an average of $23 on every pig sent to slaughter.

This loss has resulted in a $190 million loss for the year ending May 2009. Other companies are losing an average of $20 to $25 per pig.

Even hog-related commodities have come under pressure, based on fears that pork consumption can cause swine flu. Frozen pork belly futures fell close to 7% in recent months, thanks to swine flu.

So how do you profit from the swine flu theme? You play off the nation's fears, and short pork-related companies like Smithfield (SFD).

Just imagine what could happen to the $15 billion pork industry bottom lines going into end-of-year holidays, in which pork is normally consumed in high volumes.

It could be bad. . . real bad.

But you can profit from it, even in this schizophrenic market.

Stay Ahead of the Curve,

Ian L. Cooper
Wealth Daily

P.S. Wealth Daily has been pointing out market trends and opportunity for profit to our readers for years now. . . and our team of researchers realizes just how precious time is when it comes to gathering information, spotting trends, buying, holding, and selling. We take the legwork out of this time-consuming process for readers. Options Trading Pit, for example, delivers market commentary, urgent updates, and market picks that are up 1,794% since January of this year. Click here to become one of these profit-taking readers.

Soros and Ross -- Where Have You Been?

For months, we've pounded the table over the risks of commercial real estate... and for good reason. It's a trillion dollar time bomb... And it's exploding as we speak.

But it seems Ross and Soros are just realizing this.

Ross sees a "huge crash in commercial real estate coming" and Soros spoke of a "bloodletting yet to come." Makes you wonder how these guys became so filthy rich when they can't see what's happening.

"In commercial real estate and leveraged buyouts, the bloodletting is yet to come," Soros said. "These factors will continue to weigh on the American economy, and the American consumer will no longer be able to serve as the motor for the world economy."

That's interesting, Soros... because the bloodletting started a long time ago.

There have been bankruptcies, bank failures, foreclosures, destroyed property values, and so on and so forth. And there's more pain to come for commercial real estate and the greater economy. I don't care what Geithner would have you believe about the economy's ability to handle any CRE hits it takes.

But I digress...

Here's what we reiterated in early September, months after the collapse already began:

Without a doubt, this problem has emerged as the biggest threat to our economic rebound and banks (especially regional banks, which hold more than $1 trillion of mortgages backed by CRE that is quickly losing value).

The sector will suffer from two things, one of which is bad underwriting. CMBS owners were lent money on the assumption that occupancy and rents would keep rising. But that never happened. The opposite did. "The result is that a growing number of properties aren't generating enough cash to make principal and interest payments."

And with values sinking, vacancies soaring, and a recession making it unlikely for us to see demand pick up, banks aren't exactly jumping up to refinance deals.

Even Steve Christ will tell you that all of this is a recipe for disaster. . . and that industry leaders have estimated that 200,000 businesses and 10 percent of the nation's shopping malls will close their doors over the next year.

That means that we're maybe only in the second inning here as this crisis unfolds.

So, with roughly $530 billion in commercial mortgages coming due for refinancing in 2009-2011, and some estimates showing that as many as 68% of loans maturing during that time will fail to qualify for refinancing, you have to wonder how it will all get done, says Steve.

The brutal answer: it won't.

"Federal Reserve and Treasury officials are scrambling to prevent the commercial real estate sector from delivering a roundhouse punch to the U.S. economy just as it struggles to get up off the mat," said a recent Wall Street Journal article. But "their efforts could be undermined by a surge in foreclosures of commercial property carrying mortgages that were packaged and sold by Wall Street as bonds."

And, according to Deutsche Bank AG, "as property value declines and scarce credit continue to drive commercial property developers and investors into default, total lifetime losses on banks' $1 trillion "core" commercial-mortgage holdings, or those backed by income-producing properties, would reach between 11.6% and 15.3%, or $115 billion and $150 billion."

"So far, banks in general have been reluctant to take losses on their commercial books," says the Wall Street Journal. "This "delay and pray" strategy is preventing most banks from issuing new loans as they prepare their balance sheets for potential future losses..."

It's bad... real bad. But there are ways to profit from the coming disaster... which you can check out in Options Trading Pit.

Even Insiders Think Market is Overvalued

Tough week, huh?

Any one would think the markets were suffering from the onset of schizophrenia the way they've been acting this week. One second, all is well. Buyers line up to chase the recovery. The next - buyers are swimming for the exits in a sea of red ink.

It didn't help that consumer confidence fell unexpectedly to 47.7 in October from 53.4 in September thanks to worsening unemployment numbers... or that new home sales plunged 3.6%, as the effects of the temporary tax credits begin to die off.

Not exactly the kind of "confidence" you'd expect in a recovery, is it?

But don't tell that to those buying anything that confirms the delusion of a "jobless" or "consumer-less" recovery...

Even corporate insiders know better than to chase this rally higher.

Insider selling just about tripled last week to $846 million, as insider buying came in at a pathetic $14.7 million from $32 million. That's a clear message. Even insiders believe their company share prices are overvalued... and they're cashing in before the next leg down that we have been calling for.

Technical Trading Made Easy

Technical trading may sound hard. Heck, I often hear how trading options is hard.

But I'm here to tell you that both couldn't be easier.

With just three simple steps, you can master the art of technical trading in no time at all.

In fact, in addition to thematic trading, Options Trading Pit uses these tools more often than not — despite market direction.

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I'll give you some examples. . .

Tiffany & Company Upside Profit. . . in a Recession

It was June 2009 when we watched Tiffany & Company (TIF) briefly spike from an oversold $25 to more than $30 — in spite of being knee-deep during the recession.

Those who went long with the underlying stock walked with max gains of 25%.

Those who bought the August 2009 26 call (TIFHZ), for instance, walked with 45% off of the same move.

But here's something else you may not know: profiting from technical developments has never been easier.

While there are many ways to screen for opportunities, four of my favorites involve the use of Bollinger Bands, W%R, the news, and candlesticks.

By using these four things, we can call for tops and bottoms on indices as well as individual stocks.

Let's take a look at AIG, for example, from November 2006.

In late November 2006, shares of AIG were grossly overbought.

Technically, once we got word of extremely overbought W%R read (as seen in mid-November), we knew AIG was overdue for a correction. Also notice that at the time, the underlying stock crossed above the upper Bollinger Band with a doji cross, indicating near-term reversal, which we got.

And just as we had hoped, AIG fell from about $72 to less than $69, handing us a quick gain.

However, AIG then bottomed out at $70. Again, technically, we had another doji reversal signal — this time at the bottom of the trend (a doji at the bottom of a trend can be used as a bullish reversal signal).

We bought again at the bottom, marked by an oversold W%R and rode it back from about $69.50 to more than $72 in a few short weeks.

For those of you who aren't familiar with the terms (doji, Bollinger Band and W%R), check this out:

Dojis usually appear at times of market indecision and have called key reversals in indices and individual stocks.

W%R (or Williams % Range) is the ultimate momentum indicator that signals oversold and overbought conditions. W%R shows an overbought condition with a numerical range read of 0% to 20%. Oversold conditions are measured with a numerical range read of 80% to 100%.

As for Bollinger Bands (plotted at standard deviation levels above and below moving averages), stock prices tend to stay within the upper and lower bands. So when prices (in this case, with the Dow) move above the upper Bollinger Band, and are coupled with a bearish candlestick read (gravestone doji, for example), and an extreme overbought W%R read is present, we expect a reversal at the top.

Reverse everything you just learned and you can play bottoms, too.

Using the W%R, the Bollinger Bands, and bearish candlesticks, we called the top of CVS before it sold off from a $36 high on Sept. 12, 2006, to less than $31 two weeks later.

Here's how we found this:

Step 1: On Sept. 12, 2006, the W%R peaked in overbought territory.
Step 2: On the same day, a bearish doji made its presence known above the upper Bollinger Band.
Step 3: We bought puts and watched as the stock sold off to $31.

Okay, but what's a doji?

The profit stars, more commonly known as dojis, are commanding reversal signals. These are formed when the candlestick opens and closes at the same level, implying indecision in the stock price.

Depending on the location and length of the shadows, dojis can be categorized into four subcategories:

Doji

This candlestick looks like a cross, inverted cross, or plus sign. At the top of a trend, it can indicate that a reversal is near.

Long Legged Doji

Long legged doji formations occur when the stock opens at certain levels, trades in a wide trading range intra-day, and closes at the same level that it opened. These become better predictors when preceded by small candlesticks. Long legged doji formations can imply a change in trend.

Dragonfly Doji

The bearish dragonfly doji can usually be found at the market top or during an uptrend. This candlestick tells us the bulls may be losing their way and casts doubt on the market's ability to continue north. Confirmation is essential. You can confirm with a gap down or a lower close on the following day.

Gravestone Doji

Gravestones are the opposite of dragonflies and indicate top reversals when confirmed with a bearish engulfing scenario (which we also use). These dojis look like gravestones and can signal the death of a stock.

As for the bearish engulfing scenario, an engulfing occurs when a candlestick engulfs the preceding candlestick body.

The Bollinger Bands

For our purposes, let's make this a bit simpler.

When we use the Bollinger Bands, the closer the market prices move to the upper Bollinger Band, the more the stock market is considered overbought. The closer the prices move to the lower Bollinger Band, the more the stock market is considered oversold.

We're not going to get into the scientific structures and Bollinger band calculations with each trade. We'd be here until New Year's 2012 doing that.

Using the Bollinger Bands, look at what happened to CVS (CVS: NYSE) after putting in a doji cross above the upper Bollinger Band. (Note: If a pattern is above the upper Bollinger Band, it's an extremely overbought condition. We view this as a near-term reversal opportunity.) It sold off from its $36 high (on Sept. 12, 2006), to about $31 two weeks later.

The Williams Percentage Range (W%R)

The third component of the trade is to find an overvalued W%R read, or a chart where the W%R has peaked. According to the W%R, values of 80% to 100% indicate an oversold condition. Values of 0% to 20% are overbought.

Interesting to note: W%R has the ability to anticipate reversals. The indicator will oftentimes peak and turn down days before the stock peaks and turns down. It does the opposite with upside.

In Conclusion. . .

If you're interested in trading options, print this article. Reference it often.

These are some of the easiest and most important technical indicators out there. Master them, and you can call tops and bottoms with ease.

They're what we use in Options Trading Pit, along with thematic trading. And we've been banking some impressive gains along the way.

Stay tuned for some new research we're publishing on how we'll take our newest gains trading options.

Stay Ahead of the Curve,

Ian L. Cooper
Wealth Daily

Dow Breaks 10,000

Welcome to the Wealth Daily Weekend Edition - our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

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The dollar just can't catch a break.

But that's okay. We're finally above 10k... hooray!

As long as the dollar stays weak and traders remain pumped over the start of earnings season, we should have no problem staying above 10k... at least immediate term.

FHA on the Brink of Disaster

More than a year after the government took control of Fannie Mae and Freddie Mac, both of which were on the brink of disaster, what have we learned?

Absolutely nothing.

According to a congressional hearing, the Federal Housing Administration "appears destined for a taxpayer bailout in the next 24 - 36 months."

And believe me - this should go over really well with taxpayers.

But it didn't take a genius to see this one coming. A year after bailing out the over-leveraged Fannie and Freddie, the FHA has managed to put itself in the same predicament.

You see, when our market stopped issuing easy money last year, the "geniuses" at the FHA stepped in and became the big player in the mortgage loan business. So, FHA went from insuring 6% of new mortgages to 21% in 2008... .and even more in 2009.

Genius.

Nowadays, the FHA insures 5.4 million mortgages - most of which only required 3.5% down payment at a value of "only" $675 billion. Unfortunately, the FHA forgot to beef up its cash position, which sits at just $30 billion. That's about a 20:1 leverage... and should end well, as insured loans only begin to deteriorate.

So what happens when the FHA goes down the drain? Unfortunately, we can't let that happen because there'd be no mortgage market.

Dig deep in your pockets, folks. We'll be paying for another failure.

None of this should come as a shock, though. We first brought this to your attention in late September:

Be prepared to fork over more of your hard earned dollars to Uncle Sam, who continues to guarantee and insure loans to just about any one who wanted a house. The financial decay continues... and this time, it isn't Fannie or Freddie on the chop block, it's the Federal Housing Administration.

The Federal Housing Administration has said its cash cushion will dip below mandated levels for the first time... but insists that it won't need a taxpayer rescue (where have I heard this before?).

The agency, a source of income for first-time home buyers is facing mounting concerns that it will need a taxpayer bailout, despite what it's telling the public. As of this summer, 17% of FHA borrowers were at least a month behind or in foreclosure, as compared with 13% for all loans.

Those rising defaults mean FHA reserves could sink below the 2% mark required by federal law. And a study being sent to Congress this November is expected to show that percentage dipping below required levels for the first time.

According to the Wall Street Journal:

It isn't clear how the rising losses may affect home buyers. Options for the agency could include politically unpalatable choices, such as asking for taxpayer funds to boost reserves or increasing the premiums borrowers pay for the insurance offered by the agency. Agency officials say if there is a shortfall, they don't have to do anything except report it to lawmakers. But some mortgage and housing analysts see trouble ahead. "They're probably going to need a bailout at some point because they're making loans in a riskier environment," says Edward Pinto, a mortgage-industry consultant and former chief credit officer at Fannie Mae. "...I've never seen an entity successfully outrun a situation like this."

But hey, it's only money, right?

When you have trillions in debt, what's a few billion dollars more?

Gold Runs Wild

Welcome to the Wealth Daily Weekend Edition — our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

All it took was a rumor. . . and gold just took off.

Rumor had it that a global group of European, Middle Eastern, and Asian nations were plotting to stop using the U.S. dollar to trade oil, according to the UK's The Independent.

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The report, which caught the eye of many in the media, claimed:

"Gulf Arabs are planning — along with China, Russia, Japan and France — to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Cooperation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar."

And gold ran north of $1,040 in the blink of an eye.

Bakken IPO

Dear Reader,

Today I turn your attention to my colleague, Keith Kohl.

Keith and I have been covering the domestic Bakken oil formation for the past two years, primarily through Keith's Energy and Capital letter.

And we're anxious to report on a brand-new development in the Canadian side of the Bakken... before the story hits the major financial rags.

Keep reading to get the full report from Keith. This region is hot... and what he's about to share with you could be well worth your time.

Enjoy.

Ian L. Cooper
Wealth Daily

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Let's rewind the clock for a minute.

A year and a half ago, I had a discussion with my readers about tapping into Canada's next oil patch.

Those of you that have been with me for a while will immediately think of the oil sands. I won't hold that against you.

After all, we already know the important role the oil sands will play in Canada's future oil production. . . But that's not what I'm talking about today.

In fact, I want to alert you to a new Canadian oil investment. It's not your traditional IPO... but upside potential is tremendous. More on that below, and how you can get in on it before the news breaks.

And, trust me, this is big news.

First, let me explain what led to this.

What initially attracted our attention last year were the record land sales in Saskatchewan.

And you can't blame us for taking notice. . .

In April 2008, Saskatchewan raked in $265 million in revenue during its land sale auction. That single auction generated more revenue than all of the land sales in 2007.

Naturally, my readers were all over it.

Today, our stance hasn't changed in the slightest. If anything, we've become even more interested in the Weyburn-Estevan area.

But before I get too far ahead of myself, let's take a quick look at why Canadian production is becoming increasingly important to us.

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The Backside of Peak Oil

Much of this story revolves around peak oil.

I'll let my readers make up their own minds concerning when a global peak in oil production will take place. Some believe it won't occur for another 5 to 10 years. . . some even push the date back 30 years. . . still, many of you think it's already passed.

Whatever your opinion on the subject, there exists one cold, hard truth that none of us can deny: Oil production in the U.S. peaked nearly four decades ago.

There's no getting around that fact. Put global peak oil aside for just a moment.

Since 1970, the U.S. has been sliding down the backside of the peak oil curve. It's that simple. Please feel free to check it out for yourself: Looking at the EIA data on U.S. field production is a sobering experience.

A Shining Light of U.S. Production

By now, you're well aware of Bakken oil production. I know the success that my readers are having with several prominent Bakken players.

Now we have news coming from producers that the Three Forks-Sanish formation beneath Bakken may be a separate reservoir. And if it turns out to be more than just a drip pan for the Bakken, we'll be smiling all the way to the bank.

However, make no mistake about our situation: As bullish as we are with the Bakken, we know that production there is not a panacea. U.S. production peaked almost 40 years ago, and nothing - nothing - will magically boost our domestic production back to 10.4 million barrels per day.

That was the highest amount of oil we've ever pumped out in one month, back in November 1970.

The name of the game today isn't to increase our production by 12 million barrels per day to eliminate our reliance on foreign oil imports. I haven't met one person that still believes that's a possibility - nobody is that optimistic.

Right now, the best thing we can do is lower our exposure to some of the riskier oil. That means cutting our ties with the Middle East.

And that, dear reader, is already happening. . .

Take a look at the EIA import data for yourself. Something happened that hasn't occurred for 21 years. In fact, it's happened twice already this year.

In March and June of 2009, Saudi imports fell below a million barrels per day. The last time that happened was in April 1988.

Perhaps they're finally starting to get the picture.

Canadian Imports on the Rise

While Saudi imports are steadily decreasing, someone has to be picking up the slack.

It's no secret where we're making up those imports: our neighbor to the north.

Even despite last year's oil price crash, imports from Canada have been on the rise. As you can see below, it's clear on whom we're depending for crude oil:

This time around, Canada's good fortune isn't from their oil sands. You see, not just the United States is developing the Bakken formation. It's also no secret that Saskatchewan's portion of the Bakken is what drew the most interest during last year's record land sale auction.

Tomorrow, the pot will get much sweeter for investors, as a small Canadian company is about to make big headlines.

However, it's not their production numbers that has my attention - rather, it's the area in which their focusing their efforts.

My readers of the $20 Trillion Report have been banking on these hot oil and gas plays all year. In fact, I know they've closed 11 winners in the last two months alone. Tomorrow morning, they're going to take a strong position in this small Canadian oil stock. By tomorrow afternoon, it'll be too late. . . which means this may be your last chance to get in on the ground floor. Click here to learn more.

You don't want to sit on the sidelines for this one.

Until next time,

Keith Kohl

Tax Nightmare: A National Sales Tax may be Coming

President Obama, who wants to stimulate consumer spending and revive the economy, may consider a consumption tax with a national sales tax...

That's absolutely brilliant...

It should do wonders for his approval ratings if he takes it seriously... not to mention how well it'll impact our wallets.

This Wednesday the Center for American Progress, led by John Podesta (an Obama adviser), will recommend that:

The Administration should consider a tax on consumption, such as a value-added tax [VAT] system similar to that in use in the European Union. Mr. Podesta suggested that its impact should be limited to protect lower-income people, who otherwise might be hit particularly hard.

With the federal budget deficit ballooning, the Obama administration and congressional leaders could look to tax-code changes to generate more revenues for the government.

But hey, as long as it stimulates the economy and consumer spending... oh wait.

Wealth Daily's Weekend Edition

Welcome to the Wealth Daily Weekend Edition — our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

It was this time last year that all hell broke lose. . .

Traders ran screaming — eyes shut, ears covered — toward the exits, as the Dow would lose 800 points in a single day and $1.2 trillion of shareholder value.

And it was all thanks to the House, which shot down the first version of The Emergency Economic Stabilization Act of 2008 — or as we like to call it, Paulson's Blank Check Request.

While the House would eventually pass the package aimed at cleaning up toxic assets, have we really recovered lost ground or done anything to clean up the banks or future CDO or mortgage-backed disasters? Has the bad news gone away?

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It all depends on who you ask. . .

One thing's for certain: We're almost right back to where we started, as the bulls and bears put up quite a fight. And they're far from done.

Heck, we even have perma-bears turning bullish.

But don't count the bears out just yet.

Economic Recovery in Doubt

Welcome to the Wealth Daily Weekend Edition — our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

Confusing traders and aggravating the poor bears to no end, schizophrenic markets were all over the place this week.

And while government intervention and money managers chasing performance have been suggested as the cause, it has more to do with the psychology of the herd. . .

Seems like it just takes one big "sheep" (Bernanke, for example), to yell "all clear" and the herd follows, thinking all is alright.

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But are we really recovering, as Bernanke and President Obama may have us believe?

We may not be. . . but then again, it depends on who you ask.

The Student Loan Bubble Bursts

The end is nigh for private student lenders.

A growing number of people can no longer pay their mortgages, their credit cards, or even their car notes. And then there are nearly 250,000 student loan borrowers who can't even afford to pay back their student loans.

. . . And I'm willing to bet that rate gaps even higher as we move forward.

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Even those who can pay their monthly student loan bills are stretching the loans out for years, as depressed wages and a weak economy take toll.

No Job. . . No Money. . . No Student Loan Payments.

Nineteen percent of college students can find and secure a job these days, as compared to 50% in 2007 and 25% in 2008 — meaning there's real trouble ahead for graduates who are competing in the toughest job market in years.

And according to the College Board in a report earlier this year, total student loan borrowing more than doubled between 1998 and 2008. We're talking about $85 billion in loans, as compared to $41 billion ten years ago.

Privately-funded student loans have skyrocketed, too: from 7% in 1998 to 23% of all student loans in 2008. It makes for quite a brew for cash-strapped Americans this year, who are already saddled with unemployment and loss of income. Sallie Mae, for example, had a delinquency rate of 9.4% in Q3 2008 — compared to a rate of 8.5% just a year earlier.

The student loan market has been, is, and will be riddled with trouble. We expect to see higher default rates, as students cannot pay back these loans.

And now, Congress could push through the most dramatic overhaul of student lending practices ever.

Just last week, the House approved the Student Aid and Fiscal Responsibility Act that could eliminate the role of private lenders and establish the government as the sole lender of student loans. Basically, the government will seize control of student lending, kill off the private sector, and take on an enormous amount of student-loan debt.

Democrats claim the move will save $87 billion over ten years' time, which would increase the maximum amount of Pell Grants, expand Perkins Loans, and invest in community colleges and other programs.

Still, the bill could have a rough ride through the Senate, where Obama will need 60 votes to prevent threats of filibuster.

And those in the student loan industry (where 35,000 jobs could be lost if the government seizes control of lending), aren't giving up without a fight ahead of a Senate vote that could come this week. Would you believe the lenders are already putting themselves and their interests before the students'? They argue that cutting out the middle man (the banks) will take away an important revenue stream at a time when they're already hurting. . .

This is part of the reason why the system needs an overhaul.

Good Investing,

Ian L. Cooper
Wealth Daily

P.S. We're now putting the finishing touches on a detailed report that explains how higher education and the student loan industry are inflating a massive bubble — one that's highly reminiscent of the housing bubble — and to profit from their demise. If you're ready to begin taking these imminent gains, simply click on this link to get started right away.

Recovery? What Recovery?

Just where is this recovery that every one's talking about?

Because it doesn't exist.

Bank of America and Citigroup - which make up 35% of the credit card industry - just announced that consumers are defaulting on credit cards at rates no seen since the recession began. Bank of America's charge off rate was 14.5%.

Other banks like JP Morgan, and creditors like Discover and American Express have recently revealed similar August numbers. This is reality. And we're not surprised... just shocked at the naivety of Wall Street bulls that think the worst is over.

Credit card defaults typically track unemployment, which just rose to a 26 year high of 9.7% (really 16%) in August. The jobless rate isn't expected to peak soon.

Consumers are in trouble. There is no recovery.

The Next Ticking Time Bomb

It's almost funny.

We've been warning about the coming fallout from Option ARMs and showing readers how to profit... and explaining that there's further downside for housing.

And now, after all this time, the federal government and states are just now preparing themselves for the next foreclosure crisis in our housing malaise.

Payment option ARMs are about to explode, according to the Iowa Attorney General after meeting with members of President Obama's administration. "That's the next round of potential foreclosures in our country."

Option ARMs are considered one of the riskiest loans made during the housing boom and have left many borrowers owing much more than their homes are actually worth. These underwater mortgages have and will continue to be the driving force behind defaults and foreclosures.

And you want us to believe there's a bottom in housing, or that a recovery is taking place? Come on.

As we said earlier this year.

The next phase of the real estate disaster is upon us. It's just shifted from subprime to Option ARM.

And with many economists predicting unemployment will rise into the double digits, foreclosures will only accelerate, which will add to bank losses, which will add pressure to the financial system and broader economy.

The Fed is well aware of what's coming. Why do you think they're so desperate to pump up the economy before the next fiasco?

Truth is, the amount of debt wrapped up in these Option ARMs is much worse than that of subprime.

And if the government or the banks fail to understand this, the second round we've been warning about will begin and banking instability will wreak havoc yet again.

Option ARM resets will be tougher for the economy to handle than subprime. And we will see greater numbers of bank failures, job losses, foreclosures, delinquencies, and economic hardships.

Honest.

The Year of Option ARM Resets. . . and Why There's No Foreseeable Bottom.

Just as 2007 and 2008 were the years of subprime woes, this one will go down as the year of Option ARM resets (or adjustable rate mortgage resets). With billions in Option ARM resets in 2009 and 2010, this crisis is about to unleash a fury no one's prepared for.

It won't be as bad as subprime, of course. It'll be worse.

That's because lenders created these ARMs with "teaser" features for borrowers, which included making lower minimal payments for the first few years before the loan reset to a higher payment schedule. And if that weren't bad enough, there was another feature called "negative amortization," which meant you weren't paying back any principal.

In fact, with negative amortization loans, your loan balance increased over time. Incredulously, every time you made a payment, you owed the bank even more. These are the loans that allowed consumers to buy houses they couldn't otherwise afford.

As for speculators, they may use negative amortization loans if they believe prices will increase at a fast pace. But with the opposite happening, they're out of luck.

And the banks will be left holding the bag.

What should concern you is that about $750 billion worth of option adjustable mortgages (option ARMs) were issued between 2004 and 2007. . . and will begin resetting shortly. And banks like Bank of America, JP Morgan Chase, and Wells Fargo are in for a rough ride, given their exposure to option ARMs.

Worse, as of December 2008, about 28% of option ARMs were delinquent or in foreclosure, according to reports. Compare that to the 23% default rate in September 2008. And nearly 61% of option ARMs originated in 2007 "will eventually default," according to a Goldman Sachs report.

What will happen is this: many borrowers, if they haven't already, will start throwing in the towel as they realize just how far under water they really are. And the likes of JP Morgan (JPM) could be heavily and negatively impacted.

One thing's for certain. . . we'll be paying for someone else's mistake yet again.

Is this the Next Bailout?

Here we go again...

The Federal Housing Administration has said its cash cushion will dip below mandated levels for the first time... but insists that it won't need a taxpayer rescue (where have I heard this before?).

According to the Wall Street Journal:

It isn't clear how the rising losses may affect home buyers. Options for the agency could include politically unpalatable choices, such as asking for taxpayer funds to boost reserves or increasing the premiums borrowers pay for the insurance offered by the agency. Agency officials say if there is a shortfall, they don't have to do anything except report it to lawmakers. But some mortgage and housing analysts see trouble ahead. "They're probably going to need a bailout at some point because they're making loans in a riskier environment," says Edward Pinto, a mortgage-industry consultant and former chief credit officer at Fannie Mae. "...I've never seen an entity successfully outrun a situation like this."

But hey, it's only money, right?

When you have trillions in debt, what's a few billion dollars more?

Bernanke on the Economy

Welcome to the Wealth Daily Weekend Edition — our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

The major indices staged another incredible rally this week on the heels of a very economically-optimistic Bernanke and Obama. Both believe the recession is over. . . cause for celebration, right?

Jim Cramer Said "Sell" this Stock...

Ian Cooper said "Buy!"

Of course, Cramer's mistake is Cooper's gain. In fact, Ian's readers have already cashed in for 150% and 40% gains on the Bakken oil stock that Cramer blew. (The Mad Money "genius" thought the stock was a natural gas play!)

Of course, Cooper's run doesn't end there. His other Bakken stocks have readers taking profits of 84%, 62% and 65%... with even more on the table.

Learn more on how you can join Ian's profit-hungry group of readers -- before his next winning pick is released. Click here to get his new report.

Not so fast. The dollar suffered more setbacks earlier this week, sending oil and gold through the roof.

Gold raced well above $1,010. Oil was racing back to $75. . . and natural gas surged off recent lows, helping Pure Asset Trader and The $20 Trillion Report readers realize some wildly impressive gains.

Gold, Greenspan and Real Estate

Welcome to the Wealth Daily Weekend Edition - our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

Another week, another bear loses his mind. . . and Greenspan can't keep his mouth shut.

Just what has the bulls jumping for joy, and the bears ready to tear their eyes out this week?

More on that in just a moment. . .

For now, in case you've missed any of the recent top stories from Wealth Daily and our companion publications, we've included them below.

Canadian Gold Stocks: Five Canadian Gold Companies Increasing Production
Gold World's Luke Burgess talks about five Canadian gold stocks that are expecting an increase in gold production.

Solar Stocks 2010: "The Worst is Already Over" for Top Solar PV Stocks
Editor Sam Hopkins points out why it's a danger for your portfolio to only keep a short-sighted view of solar power stocks. . .

Triple-Digit Gains in Less than 2 Months
Ever since taking advantage of our latest oil report, readers have banked gains of 130% in under six weeks. That was just one of several winning Bakken picks. And the best part? They're not even close to closing the books on this play. Don't miss out on our next round of profits.

Water Infrastructure Stocks: Flows of Profits Under Your Nose
Energy & Capital Editor Nick Hodge digs through the archives to prove why investing in water infrastructure stocks is always a good idea.

Investing for Retirement: Getting Ready for the Golden Years
Wealth Daily Editor Steve Christ takes a look at investing for retirement and explains why the quality of your golden years depends entirely on you.

Higher Education Bubble: Short these Now
What's going on in education now is reminiscent of the housing bubble. The same easy credit that over-inflated the prices of homes has over-inflated the value of college education. I talk about opportunity for profit as we near this bubble's bursting for students, institutions, and lenders alike. . .

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The major indices staged quite a rally this week with the Dow racing another 300 points higher in five straight winning sessions.

As the dollar suffered, gold raced well above $1,000 an ounce. The bulls are looking for a close above this psychological barrier to confirm possible moves higher.

Barrick Gold, for one — the world's biggest pure-play gold miner — is making a huge bet on higher gold prices. The company announced that it will raise as much as $4 billion in a stock issuance, using the money to pay off gold hedges. It's extremely bullish for gold.

Multiply Your Money by TEN with Gold

Also making headlines this week. . .

Alan Greenspan: It's Still Not my Fault

Alan Greenspan is dodging responsibility for the current crisis. . . again.

Apparently, the fault lies with us Americans — not the loose money, ridiculous bailouts, lazy regulators, and huge unsupportable deficits.

In an interview with the BBC, Greenspan said:

They human beings begin to take speculative excesses with the consequences that have dotted the history of the globe basically since the beginning of the 18th and 19th century. It's human nature: unless somebody can find a way to change human nature we will have another crisis.

They [financial crises] are all different, but they have one fundamental source. That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that it will continue.

Sure, the next crisis will be different. . . but the rest of what he said seems somewhat delusional, at least to me.

He seems to forget the reckless amounts of liquidity he pumped in which created the crisis in the first place. When banks have no stake in the outcome of made loans. . . know they can be bailed out. . . know they have access to cheap capital. . . of course we'll have a bubble.

But Greenspan continues to blame everyone but himself.

The Worst Investment Ever?

There's a very real possibility that the Chinese Investment Corporation (CIC), a sovereign wealth fund, could invest in commercial real estate, which is down about 35% from the peak.

The kick in the pants: the CIC appears to be eligible to do this under the U.S. sponsored Public-Private Investment Program (PPIP), a program created to rid banks of toxic mortgages by bringing in private investors to buy assets with funding from the U.S. government.

To summarize, we're going to finance our properties for China with generations of taxes.

Real nice. This should end beautifully.

And Speaking of Real Estate. . .

Not only is the housing disaster far from over, there's a strong possibility we haven't see the worst. Remember this chart in an article I wrote this past July about Option ARMs?

There are 2.8 million interest-only mortgages, worth a combined $908 billion.
Over the next 12 months, $71 billion of them will expire, forcing borrowers to pay much bigger monthly installments toward the value of the principal.
$100 billion more will reset the year after that.
By mid-year 2011, another $400 billion will follow suit.

But, hey, it's tough to argue with a 350-point Dow gain on hopes for recovery.

Good Investing,

Ian L. Cooper
http://www.wealthdaily.com

The Higher Education Bubble

Students have had to drop out of school because they can't afford tuition.

Others, like Michelle B., are simply looking for answers to the question, What more do the schools want?

The rise of tuition is not included in the loan package, leaving students like myself not only paying an incredible balance, but the loan does not include living expenses. The amount of money I receive from both loans is a joke! There is a bubble alright, and the pop of that bubble is on us and them.

Is it any wonder why we as students can't pay our loans back? The banks don't set us up to pay them. They contribute to the problem; the way the loans are set up, we're set up to fail. I want to finish school. If you're wealthy, no worries. For the rest of us, we're out of luck.

Jim Cramer Said "Sell" this Stock...

Even parents, who once questioned the value of spending $1,000 a square foot for a home, are now asking whether it is worth spending $1,000 a week to send their kids to college.

And this isn't an isolated scenario. . . it's happening everywhere.

Truth is — for college students and educational institutions alike — times are likely to get even worse as the higher education bubble just begins to pop.

And it will pop. . .

Joseph Marr Cronin, secretary of education in Massachusetts, and Howard E. Horton, president of Boston's New England College of Business and Finance, think so, too.

No doubt about it.

What most people who are not involved directly in higher education fail to understand is that institutions and lenders are sharing the same sinking boat as banks and other financial companies.

Assets are drowning. . . and debt and costs are rising.

Under-capitalized colleges are also staring down threats to solvency (just as banks are), as penny-pinching students and parents go for cheaper alternatives (community college, online colleges, etc.), and sources of funds dry up.

Worse, Cronin and Horton comment:

The middle class, which has paid for higher education in the past mainly by taking out loans, may not be precluded from doing so as the private student loan market has all but dried up. In addition, the endowment cushions that allowed colleges to engage in steep tuition discounting are gone.

Yep, when you think about limited access to credit — no more using your house as a piggy bank — coupled with higher college costs, we could end up with students finding college simply out of reach.

So is it really surprising to then learn that applications for community colleges and other public institutions have skyrocketed some 440%? Or does it surprise you that non-traditional online colleges are becoming successful at challenging higher-priced private schools?

According to Forbes, college tuition has increased by more than three times the rate of inflation over the last 20 years, despite flat-lining U.S. wages. The College Board reports the average tuition in at a private four-year school is now up 6.6% yearly from 2007, ringing up at $23,712. . .

And it could haunt students and America for years to come.

When students (and in most cases, parents), couple tuition with living expenses, we are looking at about $50,000 for a year of school. For the bubble to not pop, tuition must drop. . . or there will be limited demand at pricey schools.

But the schools aren't the only ones suffering from this education meltdown.

The Lenders Could Get Crushed, Too. . .

First and foremost, the education bubble — fueled by easily-lent money and over-borrowing — has created yet another bubble: student loans.

The last days of college are supposed to be the happiest time of year for thousands of students. Instead, there's trouble ahead for graduates who are competing in the toughest job market in years.

Only 19% of them can find a job, as compared to 50% in 2007 and 25% in 2008.

And then there are those graduates, like my friend Mikey, who will have to start paying back $1,150 a month for student loans — on top of a mortgage and mounting credit card debt — and who simply can't find a job.

And thousands more are in the same sinking boat; thousands more that won't be able to pay back student loan debt.

As usual, the numbers tell the whole story. According to the College Board in a report earlier this year, total student loan borrowing more than doubled between 1998 and 2008. The numbers are staggering. We're talking about $85 billion in loans, as compared to $41 billion ten years ago.

Privately funded student loans have risen, too: from 7% in 1998 to 23% of all student loans in 2008. It makes for quite a brew for cash-strapped Americans this year, who are already saddled with unemployment and loss of income. Sallie Mae, for example, had a delinquency rate of 9.4% in Q3 2008, as compared to a rate of 8.5% just a year earlier.

I'm willing to bet that rate gaps higher as the months go by.

The student loan market has been, is, and will be riddled with trouble. Expect higher default rates, as students can't pay back these loans.

Still, we'll look to profit from their demise. . .

Secondly, as President Obama urges an end to government subsidies for student loan providers, a number of education stocks could swan dive.

Putting the kabash on these subsidies, according to Education Secretary Arne Duncan, could save the U.S. billions every year. The only roadblock is congressional approval. . . but this one looks imminent.

Here's an excerpt from a recent New York Times editorial:

The [new administration's] budget rightly calls for phasing out the wasteful and all-too-corruptible portion of the student program that relies on private lenders. And it calls for expanding the less-expensive and more-efficient program that allows students to borrow directly from the federal government. That means doing away with the Federal Family Education Loan Program, under which private lenders receive unnecessary subsidies to make risk-free student loans that are guaranteed by taxpayers.

A number of stocks are going to get battered by this.

Things could get bad for students and lenders alike. . . real bad. But there is opportunity to play the downside for "tuition paying" profits. . . and Options Trading Pit has two such ways.

Good Investing,

Ian L. Cooper
http://www.wealthdaily.com

P.S. I'm putting a full report together on how you can profit from education's demise. Meantime, if you're ready to begin taking these imminent gains, simply click on this link to get started right away.

Economic Meltdown 2009

Welcome to the Wealth Daily Weekend Edition - our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

It's been another crazy low-volume market driving even the sanest of traders to the brink of insanity. Here's what's been happening. . .

Is the Recession Really Over?

Our near-term prediction: Watch for the government and its mass media puppets to soon call the recession's end, as one of the most powerful signals — the ISM Manufacturing Index — showed its biggest move (to 52.9) in August.

Couple that with news that pending home sales were up 3.2% in July, and the chances of the government declaration grow stronger. With an index score of 97.6, that's a 12% year-over-year improvement — the best read in two years, and the sixth straight month of improving conditions.

If I don't deliver 20 double-digit gains in one year. . .

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New Economic Boom? New Stock Market Boom? Not According to these Guys. . .

Goldman Sachs and Morgan Stanley may be bullish on the economy, but not every one is drinking the Kool-Aid. Paul Tudor, billionaire manager of Tudor Investment, says we're in a "bear market rally" and nothing more.

Clarium's Kevin Harrington believes, "this is more likely a ski-jump recession with short-term stimulus created a bump that will ultimately lead to a more precipitous decline later."

Brian Hicks is reallocating his portfolio for downside protection. "I don't want to get caught with my pants down, heading into — historically — the two most volatile months of the year. So, I've initiated several short positions to protect the profits I already have," he says.

And they're not the only ones feeling bearish. . .

"I think there will be at least 500 more banks fail[ing] between now and the end of the year," says legendary investor Wilbur Ross. Like us, Ross is especially worried about regional banks, which will get clobbered by the commercial real estate "Trillion Dollar Time Bomb."

Commercial real estate is a "looming problem," admitted FDIC Chairwoman Sheila Bair. Like us, she believes commercial real estate will be a major driver for bank failures this year and next.

Mortgage applications fell 2.2% last week, even as mortgage rates fell. Demand for purchase and refinance loans are down, says the Mortgage Bankers Association, despite the fall in the 30-year fixed to 5.15%. But maybe that's because people can't find work, as the unemployment number rose to 9.7%. And it won't get any better when 1.5 million Americans lose their unemployment benefits by year's end.

Worse, recovery hopes took it on the chin this week after:

The U.S. service sector contracted for the 11th month.
Retail sales fell 2.9% in August — the 12th straight month of decline.
Jobless claims came in at 570,000. . . worse than expected.
Personal bankruptcies were up 24% in August, year-over-year.
Student debt grew 25% in the 2008-2009 school year. Total student loans exceeded $75 billion during the year. And each student, upon graduation, faces an average $23,186 in student loan debt alone. We talk more about the troublesome higher education bubble here.

Don't let the "recovery bulls" fool you. We're still in deep.

Don't shoot the messenger.

Good Investing,

Ian L. Cooper
http://www.wealthdaily.com

P.S. We'd love to get your insight on the markets, and what you think of the topics we cover weekly here in your Wealth Daily Weekend Edition. . . you can talk to us directly by clicking on "Comment on this Article," and we'll feature them in the weekly articles.

P.P.S. In case you've missed any of the recent top stories from Wealth Daily and our companion publications, we've included them below.

Chinese Gold Rush: China's Gold Demand Soars amid Drop in Global Demand
Gold World Editor Greg McCoach explains how patience and opportunities from China's rising gold demand will mean profit.

The Most Exciting Gold Discovery in the Past 50 Years
Scores of geologists agree with me 100%. . . the greatest gold exploration discovery in the past 50 years is right under our noses. It's located only a few miles outside Timmins, Ontario. . . and has been churning out the yellow metal since 1907. It's a world-class deposit that mining and exploration companies don't want you to know about. . .

Portfolio Allocation Strategy: Make Fear Your Friend
Wealth Daily Editor Brian Hicks reveals how he's allocating his portfolio in the coming months and shares with readers the specific stocks he has in mind.

Investing in Lithium Batteries: Investment Nirvana with Lithium
Green Chip Editor Nick Hodge discusses lithium's coming rise to power in the battery world and how you can get ahead of the profit curve. . .

First Solar Stock: Buy, Sell, or Hold: First Solar and the Power Revolution
Wealth Daily Editor Steve Christ take a look at the solar power sector. Is First Solar a buy, sell or hold? Steve provides the answers.

Alternative Energy Growth: Renewables Sail Past Nuclear
Energy & Capital Editor Nick Hodge talks about the EIA's most recent Monthly Energy Review, which shows alternative forms of energy produced more electricity than nuclear for the first time. . . So much for the argument that alternative energy "will never make a dent."

The Housing Market's Final Collapse
The second wave of our crisis is not only unavoidable. . . it will also be much worse than the subprime disaster. If you're looking to get back even more than all the money you've lost in this market, you still have a chance. . .

The Trillion Dollar Time Bomb

For months, we've pounded the table over the risks of commercial real estate... and for good reason. It's a trillion dollar time bomb... And it's exploding as we speak.

Without a doubt, this problem has emerged as the biggest threat to our economic rebound and banks

(especially regional banks, which hold more than $1 trillion of mortgages backed by CRE that is quickly losing value).

The sector will suffer from two things, one of which is bad underwriting. CMBS owners were lent money on the assumption that occupancy and rents would keep rising. But that never happened. The opposite did. "The result is that a growing number of properties aren't generating enough cash to make principal and interest payments."

And with values sinking, vacancies soaring, and a recession making it unlikely for us to see demand pick up, banks aren't exactly jumping up to refinance deals.

Even Steve Christ will tell you that all of this is a recipe for disaster. . . and that industry leaders have estimated that 200,000 businesses and 10 percent of the nation's shopping malls will close their doors over the next year.

That means that we're maybe only in the second inning here as this crisis unfolds.

So, with roughly $530 billion in commercial mortgages coming due for refinancing in 2009-2011, and some estimates showing that as many as 68% of loans maturing during that time will fail to qualify for refinancing, you have to wonder how it will all get done, says Steve.

The brutal answer: it won't.

"Federal Reserve and Treasury officials are scrambling to prevent the commercial real estate sector from delivering a roundhouse punch to the U.S. economy just as it struggles to get up off the mat," said a recent Wall Street Journal article. But "their efforts could be undermined by a surge in foreclosures of commercial property carrying mortgages that were packaged and sold by Wall Street as bonds."

And, according to Deutsche Bank AG, "as property value declines and scarce credit continue to drive commercial property developers and investors into default, total lifetime losses on banks' $1 trillion "core" commercial-mortgage holdings, or those backed by income-producing properties, would reach between 11.6% and 15.3%, or $115 billion and $150 billion."

"So far, banks in general have been reluctant to take losses on their commercial books," says the Wall Street Journal. "This "delay and pray" strategy is preventing most banks from issuing new loans as they prepare their balance sheets for potential future losses..."

It's bad... real bad. But there are ways to profit from the coming disaster... which you can check out in Options Trading Pit.