Steve Christ - Angel Publishing

Rickards: China is "The Greatest Bubble in History"

According to an official with the China Council for the Promotion of International Trade yesterday, a rise in the yuan would be a disaster for Chinese exporters.

"If the yuan rises, these companies will face the immediate risk of going bust as their profit margin is already very narrow," said Zhang Wei, vice-chairman of the association,"So for these companies, the consequences would be disastrous."

And therein lies the rub, especially as Washington pressures Beijing to let the yuan appreciate threatening tariffs in the absence of action.

Its Chinese jobs vs. American jobs as the advantages of China's mercantilist policies reveal a tilted playing field.

And while some insist that China is holding all of the cards in this game, I'm not one of them.

Of course, how all of this acrimony ends is anyone's guess. In the short, though, it sure does seem to have the making of a trade war.

Meanwhile, James Rickards, former general counsel for Long-Term Capital Management, joined James Chanos and Kenneth Rogoff calling China one of histories biggest bubbles.

From Bloomberg by Bei Hu entitled: China in Midst of ‘Greatest Bubble in History,' Rickards Says

"China is in the midst of "the greatest bubble in history," said James Rickards, former general counsel of hedge fund Long-Term Capital Management LP.

The Chinese central bank's balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc.

"As I see it, it is the greatest bubble in history with the most massive misallocation of wealth," Rickards said at the Asset Allocation Summit Asia 2010 organized by Terrapinn Pte in Hong Kong yesterday. China "is a bubble waiting to burst."

China has pegged the yuan to the dollar since July 2008 to help exporters weather the global recession. The central bank buys dollars and sells its own currency to prevent the yuan strengthening, driving foreign-exchange reserves to a world- record $2.4 trillion as of December.

The Shanghai Composite Index of stocks jumped 80 percent last year and property prices rose at the fastest pace in almost two years in February, helped by a record 9.59 trillion yuan ($1.4 trillion) of new loans in 2009.

Rickards said leveraged speculation in the stock market, wasteful allocation of resources by state-owned enterprises, off-balance-sheet debt through regional governments and the country's human rights record are concerns.

"Take Russia and China together, neither of them is really deserving any investment" except for short-term speculation, Rickards said. India and Brazil are two of the "real economies" among the developing countries, he said"

The pressure is building.....

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The 2010 Housing Market "Shadow Inventory"

As sure as the two cardinals that are perched outside my window, I'm beginning to think that Lawrence Yun could use a lucky rabbit's foot or two.

Better yet, maybe he ought to consider spending the day combing through the grass in search of four-leafed clovers...

Either way, he can use all the help he can get this spring.

Because as any honest realtor will tell you, the next few months of activity are the ones that will set the tone for rest of the year. And given the ongoing free fall in housing, it is make-or-break time for the 2010 housing market.

As the NAR's chief economist is well aware, the open houses will either be on the quiet side this spring, or jammed with those buyers that Yun insists are still somewhere on the sidelines.

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All I know is that after hanging his hopes on these mysterious folks for the last two years, Yun's sideline buyers have yet to materialize — even though all the king's horses and all the king's men have tried to lure them out of the woodwork.

The 2010 Housing Market Teeters on Edge

Meanwhile, the pain of those trapped by the fantasy of the bubble continues to grow as REOs and foreclosures add more supply to the bloated market.

In fact, based on data from the one of the nation's biggest mortgage servicers, nearly 7.5 million loans are in some stage of delinquency or foreclosure, while an additional one million properties are already bank-owned.

That's an 8.5 million "shadow inventory" of homes that needs to close just to clear the overhang of distressed properties alone. At present sales rates, that represents a nearly two-year supply.

Keep in mind, of course, that those are static figures. Three months from now, those figures will be even worse; 346,000 borrowers became delinquent for the first time in January, adding to the burden.

What's more, with nearly one-quarter of U.S. mortgages now "underwater," almost 11 million borrowers are now trapped in loans backed by assets, the value of which is dropping like a stone.

As a result, more and more homeowners are just simply walking away from their troubles — even when they can afford the payments.

For borrowers like Wynn Bloch, walking away was nothing more or less than a business decision, plain and simple. A retired psychologist, Bloch is a renter today after defaulting on her $385,000 2006 home purchase.

"There was not a chance that house was ever going to be worth anywhere near what my mortgage was," Bloch told the LA Times after finding out that comparable homes in her neighborhood were now selling in the $200,000s.

Hardly alone, these strategic defaults accounted for about 35% of the December 2009 defaults — up from 23% in March of 2009, according to Luigi Zingales, a professor at the University of Chicago's Booth School of Business.

Think of it as a "thanks, but no thanks" on a grand scale.

We're from the Government and We're Here to Help

As for the alphabet soup of government programs designed to stem the foreclosure tide, they might as well be trying to drain the ocean with an eye dropper. Like everything else in this bust, it is extend and pretend all the way; nearly 70% of all modified loans re-default within 12 months anyways.

Take HAMP, for instance: This is the Home Affordable Mortgage Program that was supposed to save millions of homeowners from foreclosure.

According to the U.S. Treasury, just 170,000 borrowers nationwide have had their loans permanently changed under HAMP. That's a mere 5% of the 3.4 million borrowers who are eligible under the program.

But even then, that's only half of HAMP's problems. The other is — for the most part — the majority of these "saves" have only delayed the inevitable. Take a look:

Consider this: Even after receiving a permanent modification, the median HAMP borrower is still left with a debt-to-income (DTI) ratio of nearly 60%! That ratio is simply off the charts — and it's an improvement from their previous loan.

In fact, before the industry jumped the shark, a 41% DTI was considered high in a more rational time.

Just think about it... After paying the mortgage, installment debt, alimony, 2nd liens, and other fixed payments, these median borrowers are left with just $1,086.52 before taxes to pay for everything else.

That leaves about $200 a week to pay for groceries, utilities, insurance, repairs, and other expenditures.

And while that is better than the $125 a week they had before the modification, it's nowhere near enough to keep the majority of them from defaulting in the future. The numbers simply won't add up.

As a result, the foreclosure crisis will undoubtedly be with us for some time, weighing heavily on the housing market. And I haven't even brought up the prospect of the option arm debacle that will begin to bust later this year.

Meanwhile, the re-sale market continues to struggle.

Existing home sales dropped 7.2 percent in January after falling 16 percent in December — the biggest declines since comparable records began in 1999, according to figures from the National Association of Realtors.

And keep in mind that's with interest rates on a 30-year fixed rate under 5%. As the Fed pulls out of the mortgage market in the next two weeks, those rates have nowhere to go but up.

And according to my mortgage pals who have over 40 years in the business, this is the sum of all fears.

"Steve," they told me last week, "if rates go over 6%, you can stick a fork in it because at those levels, it's game over for housing." Already it is as bad as they have ever seen.

So maybe Lawrence Yun is just being optimistic when he says, "We will see weak near-term sales followed by a likely surge of existing-home sales in April, May, and June."

Personally, I think he would be better off rubbing Buddha's belly.

Your bargain-hunting analyst,

Steve Christ, Editor

Wealth Daily

P.S. Let's face it: We're nowhere near the end of the foreclosure crisis. Yet, as bad as it sounds, our own Ian Cooper has discovered three simple ways to profit from it all. We're talking about companies that profit when homes are foreclosed.

And Ian believes these companies will be quite busy — and profitable — over the next few months. In fact, one of them is already up 20% in just last few days. To learn more about this opportunity, click here.

Happy Birthday, President Madison

The author of Federalist No. 10, James Madison was born 259 years ago today in Port Conway, Virginia, the oldest of twelve children.

And while fellow Virginian Thomas Jefferson is certainly more widely heralded, the larger truth is that without James Madison, The Constitution as we know it would likely be very different.

Obscure to many, within the realm of the Founding Fathers Madison was nothing less than a giant among men.

Of course, true to form, when he was later referred to as the "Father of the Constitution," a humble Madison instead insisted the document was not "the off-spring of a single brain," but "the work of many heads and many hands."

Nonetheless, every American—whether they realize it or not—owes Madison a debt of gratitude that can hardly be repaid.

That being said here are just a few of Madison's thoughts on the Republic he helped to found:

"Each generation should be made to bear the burden of its own wars, instead of carrying them on, at the expense of other generations."

"All men having power ought to be distrusted to a certain degree."

"Americans have the right and advantage of being armed - unlike the citizens of other countries whose governments are afraid to trust the people with arms."

"I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations."

"What is government itself but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary."

"If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy."

"It will be of little avail to the people that the laws are made by men of their own choice if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood."

"No nation could preserve its freedom in the midst of continual warfare."

"The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse."

"The happy Union of these States is a wonder; their Constitution a miracle; their example the hope of Liberty throughout the world."

"War should only be declared by the authority of the people, whose toils and treasures are to support its burdens, instead of the government which is to reap its fruits."

"Where an excess of power prevails, property of no sort is duly respected. No man is safe in his opinions, his person, his faculties, or his possessions."

"Wherever there is interest and power to do wrong, wrong will generally be done."

Smart guy huh? All these years later, those words ring as true as the day they were written....sadly I suspect he now spends most of his time rolling over in his grave.

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Must See TV: Michael Lewis on 60 Minutes

Without comment, here's the Michael Lewis interview on the financial crisis that appeared on 60 Minutes last night.

This one is must see TV......

Part One

Watch CBS News Videos Online

Part Two

Watch CBS News Videos Online

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China's Growing Property Bubble

"To know the road ahead, ask those coming back"--Chinese Proverb

Now that we've had plenty of time to think long and hard about the our own housing orgy, it should be pretty easy for us to spot another one from a mile away.

That being said, here's a story about our new "capitalist" friends in China that may ring a bell or two.

From the AP by Elaine Kurtenbach entitled: Soaring China home prices thwart ordinary buyers

"The luxury apartment buildings Yang Xuhua passes on her way to work are a daily reminder of her own frustrated efforts to buy a home. Prices for even modest apartments in Shanghai have soared, putting home purchases out of reach for white collar workers and professionals.

Yang and many other young Chinese are finding their aspirations thwarted by an overheated property market that is enriching already wealthy speculators, local officials and other Communist Party allies.

It's a hard reality for a generation that views home ownership as a given after reforms more than a decade ago created a housing market open to the masses. It's also a challenge for leaders whose reliance on rising property values and land sales to property developers risks letting the market spiral out of control.

"I sigh at every fancy apartment building I see on the way to work everyday, but that won't change anything," says Yang, whose train ride to work at a trading company takes her past legions of high-rise apartment blocks. "My salary increases but it can't catch up with rising housing prices."

Rising property prices have underpinned economic growth rates, benefiting local governments that tend to be heavily invested in property development and other related businesses. Land sales often help finance construction projects that are also a lucrative source of income for many officials.

"The central government will say things to please the popular mood, but local governments have way too many vested interests in the property market to make major changes," said Ding.

Property prices have risen almost constantly since China set up a commercial housing market in the late 1990s, allowing families to buy, at deep discounts, the low-rent government-owned apartments they were living in.

Since then, real estate has burgeoned into one of the country's biggest drivers of growth, a creator of vast numbers of jobs in construction and related industries and - as elsewhere - a source of much of the country's wealth.

Rising housing prices have benefited many. But younger Chinese hoping to replicate their parents' homeowner lifestyles, and the legions of rural Chinese now moving to the cities, are priced out of the market.

A flood of bank lending meant to fend off recession pushed property sales up 75 percent to 4.4 trillion yuan ($644 billion) last year, making China the world's biggest property market, by some estimates.

In Beijing and Shanghai, residential prices soared to an average of more than 12,000 yuan ($1,700) per square meter, double the level three years ago, according to a December report by U.S. bond manager Pimco.

Expensive luxury units account for the bulk of sales; Pimco estimated that only 10 percent is to the mass market.

But broader moves are needed to reduce risks from property investments made without regard for potential returns, says Tao Wang, an economist at investment bank UBS. She puts the potential for nonperforming loans over the next few years at 2.5 trillion yuan-3 trillion yuan ($367 billion-$440 billion).

"It is critical for the government to manage its macro policy and urbanization process now to avoid runaway lending, investment, and a big land-property related bubble," she wrote in a recent report.

Hmmm.... Now let's see what we've got here:

A Mc Mansion hungry population-check
The "If I don't buy it now I'll be priced out forever" mentality-check
An abundance of property flippers -check
Huge price surges-check
Lots of risky loans-check
And rising property values that are tied to economic growth—check

It looks pretty bubblicious to me. Welcome to capitalism, comrades.

But hey, if this one blows up there's always big money for the masses in day trading.

North, South, East, and West, the human condition is the same.

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Investing in the Biotechnology Industry

In a way, every investor has the same dream: to grab a tiger by the tail and make a fortune in the blink of an eye.

And while overnight successes in the market are few and far between, there's nothing better than waking up one morning to find out that a company you own has suddenly gone parabolic.

Moonshots like those are what every investor lives for.

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The Coming Nuclear Renaissance

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Faced with shrinking pipelines and falling revenues, the old way of developing drugs through chemistry alone is giving way to modern technologies such as gene sequencing, protein analysis, biologics, DNA vaccines, and nanotechnology.

Biotech companies tend to dominate these areas of development. So acquiring a small biotech or two is one method the traditional big players have turned to these days to add to their own research and development.

And the truth is that without the cutting edge research that these biotechs bring to the table, growth at the Big Pharma level will likely hit a wall... Which is why the big boys are willing to pay a huge premium to get their hands on the right company.

A Banner Year For the Biotechnology Industry

In fact, the examples of this strategy are simply everywhere you look these days.

I'll give you an example. Just yesterday, health care heavyweight Abbott Laboratories (NYSE:ABT) announced that it was acquiring Facet Biotech Corp. for about $450 million in cash.

According to the deal, Abbott will pay $27 per share for Facet, earning its investors a 67% premium. Needless to say, shares of Facet exploded on the news rising over $10.00 in a fraction of a second.

Take a look:

Based in Redwood City, California, Facet and its partner Biogen Idec are developing a potential multiple sclerosis drug which is moving into late-stage development in the second quarter. Meanwhile, Abbott Labs also gained access to Facet's potential cancer treatments in various stages of development with other partners.

And since both companies' boards of directors have already approved the deal, it is expected to close in the second quarter.

However, not every deal has been quite so friendly.

One Biotech Buyout Turns Hostile

Last week, Astellas Pharma announced a hostile $3.5 billion offer for OSI Pharmaceuticals ( NASDAQ: OSIP) or $52 a share — a 40% premium over the previous close.

Even still, shares of OSI have continued to climb, rising more than $5.00 above the offer price in a sure sign that Astellas will likely have to raise its bid to succeed.

You see, just like every other big player, Astellas (Japan's second largest drugmaker) has been scrambling to develop new drugs as patents on its established products continue to expire.

That's why the firm has spent the last 13 months courting OSI, since Astellas believes the deal will strengthen its effort to become a global leader in oncology. OSI specializes in molecular targeted therapies addressing needs in oncology, diabetes and obesity — each and every one of them a massive market opportunity.

Specifically, Astellas covets OSI's Tarceva — an advanced lung cancer therapy — that raked in $359 million last year.

But those two deals weren't the only ones of late... A third involving Merck (NYSE: MRK) also was announced.

After weeks of speculation, the German pharmaceutical company announced that it would buy U.S. life sciences tools maker Millipore (NASDAQ: MIL) for $7.2 billion.

That deal effectively ended the wrangling over the company as Merck walked away the winner. In an earlier bid, Thermo Fisher Scientific Inc. (NYSE: TMO) had made a $6 billion offer for Millipore, only to be denied.

One way to Catch the Biotech Wave

As a result of these three huge deals — and many more before them — shares of the SPDR S&P Biotech ETF (NYSE: XBI) have jumped by nearly 10% over the last month.

That's a trend that will undoubtedly continue as the biotech bull market gathers more steam. And for investors who would rather spread out their risk across the sector, XBI is the perfect way to ride this wave higher.

Its holdings include stakes in Amgen Inc. (NASDAQ: AMGN), Celegene Corp. (NASDAQ: CELG), and Cubist Pharmaceuticals Inc. (NASDAQ: CBST), to name just a few...

But whether you decide to invest in a potential moonshot or make a bet across the sector, one thing is for certain: This is a trend that has plenty of room to run.

After all, these three deals are just the tip of the iceberg.

Your bargain-hunting analyst,

Steve Christ, Investment Director
The Wealth Advisory

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Elizabeth Warren Skewers GMAC

Here is Elizabeth Warren making too much sense again as she pulls back the curtain on the disaster that is GMAC.

From CNBC this morning....

By the way, Elizabeth Warren is not the smart woman with the courage to call these folks out onto the carpet.

Another is Janet Tavakoli who perfectly describes how the system went wrong and why nothing has really changed in this sit down with C-Span's Brian Lamb.

If you really want to understand the economic collapse, this is must see TV....

Great stuff ladies....

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The Vocabulary of The New Normal

Needless to say, the new normal has turned quite a few things on their collective heads.

Not surprisingly, along with this mess has come a whole new way to describe it.....

From the Christian Science Monitor by Tracey D. Samuelson and Taylor Barnes entitled: Recession Slang: 10 new terms for a new economy

"The recession may be technically over but its effects on our life and language are far from it. In fact, some recession words have become so ubiquitous - staycation, for one (see below) - that they just might be here to, ahem, stay.

Recession language isn't a new phenomenon. Thanks to the Great Depression we have terms like: Okie, dirt poor, and baloney (to mean ridiculous, not the mystery sandwich meat). Even the term "depression" has been attributed to Herbert Hoover, who is thought to have wanted to avoid using the more common, but more alarming terms "panic" or "crisis" to describe what subsequently became known as the Great Depression.

So, in the spirit of trying to laugh at our collective condition, we've compiled a lexicon of our Top 10 favorite words birthed by the recession. Laugh, cry, and submit your favorite new-economy words in the comments below."

10. Funemployment, n. The practice of enjoying one's unemployment.

9. Insource, v. To do oneself what one previously paid others to do.

8. Staycation, n. Vacationing at home or near home because traveling further would be prohibitively expensive.

7. Intaxication, n. A sense of delight mingled with the perception of instant wealth that one feels upon receiving a tax refund.

5. Recessionista, n. A consumer who has historically paid big bucks to look like a million bucks and who, unwilling to quit his/her fashion habit in the face of the recession, has found alternative ways to maintain a certain standard of wardrobe.

4. Mancession, n. A recession, such as this most recent one, which hits men harder than women.

3. Povo, adj. A two-syllable "abbreviation" for poor, often with a mocking or self-defacing tone that lacks any serious derision or the class implications associated with "poor" or "poverty."

2. Permatemp, n. The condition of being permanently employed as a temporary worker.

1. Decruited, adj. To be fired from a position one has not even started yet.

Sad but true....

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Public Pension Funds Head to Vegas

Here's another great article on the brewing pension crisis.

In fact, the article is so eye-opening that you should read it in its entirety...this has debacle written all over it.

From The New York Times by Mary Williams Walsh entitled: Public Pension Funds Are Adding Risk to Raise Returns

"States and companies have started investing very differently when it comes to the billions of dollars they are safeguarding for workers' retirement.

But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.

"In effect, they're going to Las Vegas," said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. "Double up to catch up."

Though they generally say that their strategies are aimed at diversification and are not riskier, public pension funds are trying a wide range of investments: commodity futures, junk bonds, foreign stocks, deeply discounted mortgage-backed securities and margin investing. And some states that previously shunned hedge funds are trying them now.

Government pension plans cannot beef up their bonds that mature many, many years from now without dashing their business models. They use long-range estimates that presume high investment returns will cover most of the cost of the benefits they must pay. And that, they say, allows them to make smaller contributions along the way.

Most have been assuming their investments will pay 8 percent a year on average, over the long term. This is based on an assumption that stocks will pay 9.5 percent on average, and bonds will pay about 5.75 percent, in roughly a 60-40 mix.

The problem now is that bond rates have been low for years, and stocks have been prone to such wild swings that a 60-40 mixture of stocks and bonds is not paying 8 percent. Many public pension funds have been averaging a little more than 3 percent a year for the last decade, so they have fallen behind where their planning models say they should be.

A growing number of experts say that governments need to lower the assumptions they make about rates of return, to reflect today's market conditions.

But plan officials say they cannot.

"Nobody wants to adjust the rate, because liabilities would explode," said Trent May, chief investment officer of Wyoming's state pension fund.

The $30 billion Colorado state pension fund is one of a tiny number of government plans to disclose how much difference even a slight change in its projected rate of return could make. Colorado has been assuming its investments will earn 8.5 percent annually, on average, and on that basis it reported a $17.9 billion shortfall in its most recent annual report.

But the state also disclosed what would happen if it lowered its investment assumption just half a percentage point, to 8 percent. Though it might be more likely to achieve that return, Colorado would earn less over time on its investments. So at 8 percent, the plan's shortfall would actually jump to $21.4 billion. Contributions would need to increase to keep pace."

The hits just keep on coming....

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CBO's Elmendorf: The U.S. is Entering Unfamiliar Territory

According to the Congressional Budget Office (CBO) President Obama's proposed budget will add more than $9.7 Trillion to the national debt by 2020.

In fact, these shortfalls are so huge that they will force the U.S.to continue borrowing at these levels, pushing the national debt to 90 percent of U.S. GDP by 2020, the CBO said.

What's more, interest payments on the debt would also skyrocket by $800 billion over the same period as the Uncle Sam continues to mortgage the future.

"The U.S. is entering unfamiliar territory in its level of public debt," said CBO Chief Douglas Elmendorf recently.

"It will be larger over the next decade than it's been in half a century," Elmendorf continued, "The choice is not whether to change course from current policy but how quickly and in what way."

Meanwhile, the native are getting restless.

Here's one thing I do know—the status quo cannot possibly be maintained.

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Baby Boomers Take a Back Seat in The Great Recession

According to the Labor Department this morning, the U.S. unemployment rate held steady at 9.7 percent and payrolls fell less than forecast.

Per the report, payrolls fell by 36,000 last month indicating—to some at least—that the labor market has strengthened even as East Coast snowstorms forced some employers to temporarily close.

Even still, that is only a small consolation to the 8.4 million people that have their lost jobs since December 2007.

Of course, it goes without saying that for baby boomers...the Great Recession couldn't have come at a worse time.

From CNBC entitled: Aging boomers face stark economics

"Not so long ago, Michael Blattman lived in the upscale Washington, D.C., suburb of Potomac, Md., earning $225,000 a year as senior vice president for a student loan company. As he reached his 50s, it never really occurred to him that his job wouldn't last forever.

"To be perfectly honest, I didn't really go there," he said. "Yeah, there was always a risk. Everything in business is a risk."

In January 2008, Blattman, along with 500 other employees, was laid off by his company. With an $188,000 severance, he wasn't worried at first.

"The barometer was always something like five or six months until you landed something comparable," he said. "So I figured, ‘Oh, OK, six months?' OK, I could do this for six months. And find the next one. Well, there was no next one."

As his generation confronted an economic storm of historic proportions, Blattman found himself humbled - and living in a one-room apartment. After applying for 600 openings and getting only three interviews, he was still looking after two years.

His old boss recently gave him a stark assessment of his prospects.

"He said, ‘How's it going?'" Blattman recalled. "I said, ‘Nobody's talking to me.' And he says ‘That's because you're an old white guy.' And that stopped me in my tracks."

Blattman gets some solace from the knowledge that he's far from alone. More than 4 million baby boomers are unemployed, according to the Bureau of Labor Statistics. For many, retirement at 65 is no longer an option.

Facing shrinking nest eggs and mounting bills, they need to work, but they wonder if anyone will hire them again.

"The hardest thing each day is to get up and say, ‘OK, what am I going to do today?' It's a constant cheerleading effort every day. The thing is, I'm the cheerleader. And I am the team. So I'm all in one."

It's a double whammy: no job and no health insurance. Many boomers are in far worse shape than Blattman. Some have turned to free clinics. It's just one indication that the health care crisis is really an economic crisis. And for the boomers it's only going to get tougher, according to Harvard financial historian Niall Ferguson.

"If they've done their homework, then they'll be afraid," he said. "Very afraid."

Ferguson says it won't be easy to care for a generation with ailing bodies and many more years to live.

"The baby boomers have set us on a path towards a massive fiscal crisis," he said. "Which is going to hit as the baby boomers retire."

Ouch.

By the way, according to a new survey by CareerBuilder, 72 percent of workers over the age of 60 who are considering retirement are putting it off because they can't afford to retire financially.

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By Tomorrow Morning, It Could Be Too Late!

Within the next 24 hours, our international gold guru Greg McCoach will reveal to you shocking news that could flip the entire gold industry on its head...

... and triple your money inside of a month!

In fact, the news is so ground breaking that scientists and geologists from around the world are already calling it, "The most exciting gold story in the past 50 years!"

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Underwater Homes Trap Borrowers into Higher Rates

According to the Mortgage Banker's Association (MBA), U.S. residential mortgage originations will plunge 40 percent this year to the lowest level in a decade.

Per the downgraded forecast, lenders will underwrite only $1.28 trillion in home loans in 2010, down considerably from the $2.11 trillion originated in 2009. That would be the lowest volume figure since loan officers cranked out $1.14 trillion in 2000.

Even still, new purchase originations are expected to rise slightly to $776 billion from $742 billion in 2009. That leaves refinance originations as the market that will likely take the biggest beating.

In fact, according MBA projections, the dollar volume of loans being refinanced this year will fall to just $502 billion from $1.372 trillion in 2009.

That equates to a 63% drop in refinance originations alone—-a massive downturn.

The reason for this is simple: Low rates or not, millions of homeowners can't refinance....

From The Wall Street Journal by Nick Timiraos entitled: Borrowers Miss Out on Billions in Savings

"The Federal Reserve has pushed mortgage rates to near half-century lows, but millions of U.S. homeowners haven't benefited from that because they can't-or won't-refinance.

Falling home prices have left many owners with little or no equity, making it harder to qualify for refinancing. Moreover, stricter lending standards and higher fees by banks and mortgage giants Fannie Mae and Freddie Mac and declining incomes have made it tougher and less attractive for borrowers to seek new loans.

Around 37% of all borrowers with 30-year conforming fixed-rate mortgages-who collectively hold about $1.2 trillion of home loans-have mortgage rates of 6% or higher, according to investment bank Credit Suisse. Many could reduce their rates by a full percentage point if they refinanced at current rates, about 5%. More than half could lower their rates nearly three-quarters of a percentage point, according to Credit Suisse.

But new refinance applications in January stood near their lowest levels in the past year. Weekly data compiled by the Mortgage Bankers Association also show that refinance activity has been muted, considering that rates are so low.

"Traditionally, these borrowers would be aggressively refinancing," said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse.

One indicator of the economic impact of refinancing: Loans that refinanced in 2009 will result in $3.4 billion in savings for consumers this year, according to a report by First American CoreLogic, a research firm based in Santa Ana, Calif. That will return an additional $17.2 billion in savings to borrowers over the next five years. That's money consumers can potentially use to help spur economic recovery.

About a quarter of all mortgage holders are "underwater"-they owe more on the house than it's worth-which normally makes it impossible to get refinancing: Banks want collateral to back the value of home loans they make.

Some people are so far underwater, refinancing ends up being out of the question. John Albright, a retired Navy officer in Manassas, Va., hasn't been able to refinance because the value of his home has plunged. He figures its market value is now around $275,000, but he and his wife still owe more than $500,000 on their mortgage.

Their refinance application was turned down last year because they lacked equity in the home. He says his lender told him he could refinance only if he could come up with about $200,000 to pay down his mortgage. So they are stuck with an interest rate of about 6.5% at a time when his wife's income has declined. "We're going from paycheck to paycheck, but what can you do?" Mr. Albright says."

Let's face it, bubble gum and duct tape is the only thing holding this market together.....

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Warren Buffett's Annual Letter to Shareholders

Whether you are bullish, bearish, or somewhere in between, the odds are that when Warren Buffett talks... you will be listening.

A real life E.F. Hutton, the grandfatherly Buffet is still the best brand in the business.

But then again, there aren't many investors in the world that can turn $1200 from a paper route into one of the greatest fortunes of all time. In that regard, Buffett's reputation came the old fashioned way: he earned it.

The reasons behind this iconic image, however, are two-fold, since Buffett is not exactly your run-of-the-mill billionaire.

Instead, he's an American everyman that not only exudes common sense, but dines primarily on hamburgers, chips, and Cherry Coke.

But buried beneath that cuddly, down-home exterior is something else entirely: the cold and calculating mind of man who is quick to make decisions and has a serious nose for money — a market shark if there ever was one.

And the larger truth is that if you really want to know something about the road ahead, it pays to listen to someone that has been there before.

That's true now more than ever as investors wrestle with the ghosts of the Great Depression and ponder the possibility of a double-dip recession.

By Tomorrow Morning, It Could Be Too Late!

Within the next 24 hours, our international gold guru Greg McCoach will reveal to you shocking news that could flip the entire gold industry on its head...

... and triple your money inside of a month!

In fact, the news is so ground breaking that scientists and geologists from around the world are already calling it, "The most exciting gold story in the past 50 years!"

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Warren Buffett's Annual Letter to Shareholders

Every year, Berkshire Hathaway (NYSE: BRK-A) releases Warren Buffett's Annual Letter to Shareholder's and investors everywhere are eager to hear what the "Oracle of Omaha" has to say.

With that in mind, here are a few of the highlights...

Warren Buffett on Bailouts:

We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire. Instead, we will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity.

When the financial system went into cardiac arrest in September 2008, Berkshire was a supplier of liquidity and capital to the system, not a supplicant. The $20 billion-plus of cash equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.

Warren Buffett on His Biggest Mistake:

And now a painful confession: Last year your chairman closed the book on a very expensive business fiasco entirely of his own making.

For many years I had struggled to think of side products that we could offer our millions of loyal GEICO customers. Unfortunately, I finally succeeded, coming up with a brilliant insight that we should market our own credit card... We got business all right — but of the wrong type.

Our pre-tax losses from credit-card operations came to about $6.3 million before I finally woke up. We then sold our $98 million portfolio of troubled receivables for 55¢ on the dollar, losing an additional $44 million.

Warren Buffett on Utilities and Railroads:

We see a "social compact" existing between the public and our railroad business, just as is the case with our utilities. If either side shirks its obligations, both sides will inevitably suffer. It is inconceivable that our country will realize anything close to its full economic potential without its possessing first-class electricity and railroad systems. We will do our part to see that they exist.

Overall, we expect this regulated sector to deliver significantly increased earnings over time, albeit at the cost of our investing many tens — yes, tens — of billions of dollars of incremental equity capital.

Warren Buffett on Construction:

Every business we own that is connected to residential and commercial construction suffered severely in 2009. Combined pre-tax earnings of Shaw, Johns Manville, Acme Brick, and MiTek were $227 million, an 82.5% decline from $1.295 billion in 2006, when construction activity was booming. These businesses continue to bump along the bottom, though their competitive positions remain undented.

Warren Buffett on Housing:

The industry is in shambles for two reasons, the first of which must be lived with if the U.S. economy is to recover. This reason concerns U.S. housing starts (including apartment units). In 2009, starts were 554,000, by far the lowest number in the 50 years for which we have data. Paradoxically, this is good news.

People thought it was good news a few years back when housing starts — the supply side of the picture — were running about two million annually. But household formations — the demand side — only amounted to about 1.2 million. After a few years of such imbalances, the country unsurprisingly ended up with far too many houses.

There were three ways to cure this overhang: (1) blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the "cash-for-clunkers" program; (2) speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers or; (3) reduce new housing starts to a number far below the rate of household formations.

Our country has wisely selected the third option, which means that within a year or so residential housing problems should largely be behind us...

Warren Buffett on Corporate and Municipal Bonds:

We told you last year that very unusual conditions then existed in the corporate and municipal bond markets and that these securities were ridiculously cheap relative to U.S. Treasuries. We backed this view with some purchases, but I should have done far more. Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble.

As for Berkshire Hathaway shareholders, they received a whole lot more than just some folksy wisdom. Bouncing back from a tough 2008, Buffett and his partner Charlie Munger guided the company to another great year.

On Saturday, Berkshire Hathaway reported that net earnings ballooned 61% last year to $5,193 per share, while the company's book value jumped by 20% to a record high.

Meanwhile, Berkshire's Class A shares — which fell to almost $70,000 a year ago — have rebounded to over $123,000.today, boasting a net gain of 75%.

In true Buffett fashion, he shrugs off the risks of what has been a pretty busy year for the investment icon.

"Most major companies will be setting new profit records 5, 10, and 20 years from now," Buffett wrote in the New York Times. "If you wait for the robins, spring will be over.''

This time the story probably won't be much different; in a way, it is almost like he has seen this movie before.

After all, they don't call him the Oracle of Omaha for nothing...

When he speaks, people listen.

Your bargain-hunting analyst,

Steve Christ, Managing Editor

Wealth Daily

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China's 2012 Crisis

Here's the latest story on the economic truth from behind the Great Wall.

As you might expect, it tends to be at odds with the official party line.

From Bloomberg entitled: China's Hidden Debt Risks 2012 Crisis, Northwestern's Shih Says

"China's hidden borrowing may push government debt to 96 percent of gross domestic product next year, increasing the risk of a financial crisis in the world's third-biggest economy, Professor Victor Shih said.

"The worst case is a pretty large-scale financial crisis around 2012," said Shih, a political economist at Northwestern University in Evanston, Illinois, who spent months researching borrowing transactions by about 8,000 local-government entities. "The slowdown would last at least two years and maybe longer," the author of the book "Factions and Finance in China" said in a phone interview March 1.

Surging borrowing by local-government entities, uncounted in official estimates of China's debt-to-GDP ratio, is the key reason for Shih's concern. Harvard University Professor Kenneth Rogoff said Feb. 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while hedge-fund manager James Chanos has predicted a Chinese slump after excessive property investment.

By Shih's count, China's debt may reach 39.838 trillion yuan ($5.8 trillion) next year. His forecast for debt-to-GDP compares with an International Monetary Fund estimate for China of 22 percent this year, which excludes local-government liabilities. The IMF sees Spain at 69.6 percent, the U.S. at 94 percent, Greece at 115 percent and Japan at 227 percent.

Chinese officials allowed lending to explode from late 2008 to fight off the effects of the global financial crisis. In 2009, new loans rose to a record 9.59 trillion yuan ($1.4 trillion).

In the fourth quarter of 2009, the Chinese economy grew 10.7 percent from a year earlier.

The economy faces "a slow grinding down of all this debt and there's no easy way out," Beijing-based Pettis, a finance professor at Peking University, said in a Feb. 24 interview."

Is is just me or does it seem like everything is going to slam into the fan in 2012?

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An Urgent National Priority

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Biotech Update: Astellas Targets OSI Pharmaceuticals

As I wrote in an earlier story entitled, The Brewing Bull Market in Biotech, the fast growing market for new drugs is one that "Big Pharma" just can't keep it hands off of.

The reason for this, of course, is pretty simple. Faced with shrinking pipelines and falling revenues, the old way developing drugs through chemistry alone is giving way to modern technologies such as gene sequencing, protein analysis, biologics, DNA vaccines and nanotechnology.

In these areas, biotech companies dominate.

And the truth is without the cutting edge research and development that these biotechs bring to the table, revenues at the Big Pharma level will likely hit a wall.

So acquiring a small biotech or two is one method the traditional big players have turned to these days to add to their own research and development.

The examples of this strategy are simply everywhere you look.

In fact, just this morning, Astellas Pharma , announced a hostile $3.5 billion offer for OSI Pharmaceuticals ( Nasdaq: OSIP) or $52 a share, which is a 40% premium over Friday's close.

Like every other major drug company Astellas, Japan's second largest drugmaker, has been scrambling to develop new drugs as patents on its established products continue to expire.

That's why the firm has spent the last 13 months courting OSI since Astella believes the deal will strengthen its effort to become a global leader in oncology. OSI specializes in molecular targeted therapies addressing needs in oncology, diabetes and obesity—each and every one of them a massive market opportunity.

"We firmly believe in the compelling strategic rationale behind the combination and the opportunity it provides to the OSI stockholders to realize full and fair value, in cash, immediately," Masafumi Nogimori, Astellas' chief executive, said in a statement.

But that wasn't the only big M&A deal to break of late in the biotech world.

After a week of speculation, German pharmaceutical company Merck (NYSE:MRK) said today that it would buy U.S. life sciences tools maker Millipore (Nasdaq:MIL) for $7.2 billion.

That effectively ended the wrangling over the deal as Merck walked away the winner. Of course, it was just last week when Thermo Fisher Scientific Inc.(NYSE:TMO) had made a $6 billion offer for Millipore, only to be denied.

As a result of these two big deals, shares of the SPDR S&P Biotech ETF (NYSE: XBI) have jumped 6.5 % in just three sessions. Take a look:

Its holdings include stakes in Amgen Inc. (NASDAQ: AMGN), Celegene Corp. (NASDAQ: CELG), and Cubist Pharmaceuticals Inc. (NASDAQ: CBST), to name just a few.

That allows investors to spread out their risk across the entire sector—in what has become a brewing bull market.

After all, these two deals are just the tip of the iceberg.

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Blue States Bleed Red Ink

Hmmm.....Why doesn't this surprise me?

From Forbes Neil Weinberg entitled: Political Litmus Test: Bluest States Spilling the Most Red Ink

"Want to know which states are in the worst financial condition? One telling indicator that might not immediately come to mind is whether most of its citizens identify themselves as Democrats.

The five states in the worst financial condition—Illinois, New York, Connecticut, California and New Jersey—are all among the bluest of blue states. The five most fiscally fit states are more of a mix. Three—Utah, Nebraska and Texas—boast Republican majorities and two—New Hampshire and Virginia—skew Democratic.

Why do Democratic states appear to be struggling more than Republican ones?

It comes down to stronger unions and a larger appetite for public programs, according to Kent Redfield, professor emeritus of political studies and public affairs at the University of Illinois' Center for State Policy and Leadership.

"Unions in general have more influence in Democratic-controlled states," he says. "This isn't to say that unions are bad, but where they're strong you have bigger demands for social services and coalitions with construction companies, road builders and others that push up debt."

Of the 10 states in the worst financial condition, eight are among a total of 23 defined by Gallup as "solidly Democratic," meaning the Democrats enjoy an advantage of 10 percentage points or greater in party affiliation. These states include the ones listed above as making up the bottom five, plus Massachusetts, Ohio and Wisconsin.

The majority Republican states ranked among the financially healthiest are Utah, Nebraska, Texas, North Dakota and Montana. All told, seven of the 10 most Republican states rank in the top half in terms of fiscal fitness."

Cue the hate mail...

In the meantime, though, all I can say is that both parties stink.

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Big Pharma's Survival Strategy

$7.5 billion a year in research and development is simply too big a pill for Big Pharma to swallow.

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The Hummer Collides With the New Normal

H1, H2, or H3, I can't say that the Hummer brand ever did much for me.

Too big......too boxy....and way too much money. Personally, I'm more of a CJ7 kind of guy...the old one with the big round headlights.

Even still, they sold far more Hummers than I ever would have imagined. But when the price gas shot through the roof and housing bubble popped the Hummer's days in the sun suddenly became numbered.

Now even the Chinese have said "no thanks"...

From the BBC News by Jorn Madslien entitled: Hummer's demise a sign of the times

"Hummer's suffering is about to be ended.

The lumbering giant is being put down by patriarchal General Motors, the American motoring giant 61%-owned by the US government.

It is a sign of the times.

The former favourite of Moscow's moneyed, and the wheels once favoured by California Governor Arnold Schwarzenegger, has been hit by a double whammy of tighter belts in some of its markets and a dramatic shift in public opinion in others.

Large gas-guzzlers are increasingly being shunned by frugal, environmentally aware, or simply fashion conscious punters eager to downsize their modes of transport.

As a symbol of conspicuous consumption, or of a lack of regard for the environment, the Hummer makes its owners look distinctly out of touch with the current public mood.

It seems even the Chinese authorities are steering clear of the beast.

"The brand proposition of Hummer itself goes against the strategic outline of the Chinese government, which is mainly that they want to produce energy-efficient vehicles," explains Klaus Paur, North Asia director for market research company TNS.

Which might go some way to explain why Chinese firm Sichuan Tengzhong Heavy Industrial Machines pulled the plug on an earlier agreement to buy the brand, having failed to gain clearance from Chinese regulators."

Hummers, granite counter tops, trips to Mexico, and your own cement pond out back.

Boy those were the days. Too bad they aren't coming back anytime soon.

Welcome to the new normal my friend.

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H1N1 Swine Flu Panic

What a difference a few months makes.

Last fall, nearly all of the kids at my wife's school had the flu and the phone in the doctor's office was ringing off the hook with calls from frantic parents. Everywhere you went, people eyed you suspiciously as they reached for the hand sanitizer.

The country was firmly in the grips of an H1N1 swine flu panic — even without coming close to the projected 90,000 fatalities.

Today, though, it as if it never even happened. The same clinics at which people used to stand all day in line for a dose of vaccine are now practically begging people to come in to get their shots.

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In a turn of events, one clinic in New York has even hired a fellow to stand at an intersection and wave a giant sign announcing ''FREE TODAY: H1N1 Flu Shots for All'' to dig up some prospects. Last fall, the line at the same clinic was stretched a quarter mile down the street.

The H1N1 Swine Flu Retreats — For Now

Apparently free from the hysteria of the moment, the public has returned to its slumber — leaving roughly 50 million vaccine doses to expire on the shelves.

Out of the 126 million doses shipped since October, only about 75 million vaccines have actually been delivered to patients.

Thankfully, this flu season ended with something of a whimper, claiming ~17,000 American lives, according to the Centers for Disease Control and Prevention. In an average year, about 36,000 people die from seasonal flu-related causes, according to the CDC.

Tragic as that sounds, it is victory of sorts. Compare these numbers to the death count 91 years ago, when the Spanish Flu wreaked havoc on the world in 1918. Amazingly, this particularly virulent strain killed some 20-40 million people worldwide before ending in 1920.

Today, numbers like those are simply unfathomable.

But don't believe for a second that because this calamity happened in the days of black and white, something of that magnitude couldn't happen today...

"A Super Nightmare for the Whole World"

In fact, flu researcher Yi Guan would argue this case — and he should know.

After earning a Ph.D. in swine flu under renowned flu expert Robert Webster of St. Jude Children's Research Hospital, Yi has seen virulent influenzas close up. After all, it was Yi and his team that helped stop the SARS outbreak in China dead in its tracks in 2003.

During an interview last May, Yi recounted an eye-opening story of his own to Science Insider about the dangers these viruses may one day present.

From the Q&A

Science Insider: Is it surprising how quickly H1N1 adapted?

Yi Guan: All viruses, after interspecies transmission, will evolve fast. But why this H1N1 could become successful at efficient human-to-human transmission is still unknown. We have a knowledge gap about how influenza A viruses build up their pandemicity in humans. As swine H1N1 has being circulating in pigs since 1918, it has accumulated [many] differences from human H1N1 virus. So, for human beings, it looks like a novel subtype, as most human individuals lack immunity to this swine-like H1N1. This is one of the most important conditions for pandemic emergence. Whether the novel virus will develop into a more virulent strain-just like the Spanish flu did in the fall of 1918 to kill more people-we still don't have any idea.

SI: It depends on further mutations?

YG: It depends on mutations and whether the virus further reassorts with other viruses-like H5N1. That could be a super nightmare for the whole world.

SI: If the nightmare comes true?

YG: If that happens, I will retire immediately and lock myself in the P3 lab. H5N1 kills half the people it infects.* Even if you inject yourself with a vaccine, it may be too late. Maybe in just a couple hours it takes your life.
*editor's emphasis

Now in case you didn't take the time to read what he said there, I'll paraphrase it for you:

One of the most knowledgeable flu researchers in the world is prepared to run for his life if a mutated version of the H5N1 virus shows up.

Scary stuff.

That leaves the rest of us possibly teetering on the brink of a potential calamity, since The World Health Organization says it's too early to confirm that the current H1N1 pandemic has peaked or won't mutate — despite panic subsiding.

Because the larger truth here is that we've placed our fate in the hands of an 80-year-old method of vaccine production that may never be able to meet the demands of the worldwide market.

Which is exactly what happened last fall: By the time the vaccines arrived in the clinics, this year's virus had already spread like wildfire — especially among children.

I know this because all three of my kids caught it in the blink of eye, as did all of their little friends.

That's why developing a universal flu vaccine to protect people against all flu strains is the "holy grail" of flu researchers. They work by targeting the elements of the virus that do not change from season to season. In short, it is the elusive new paradigm.

If successful, these DNA-based vaccines would represent a disruptive technology that would allow governments to build long-term stockpiles against the threat of flu pandemics — like H5N1 swine flu — vastly limiting the threat those dangers may eventually pose.

Until they arrive though, I suppose we would be wise to count our blessings and hope that we can beat the clock on this one.

After all, figuring out how to dispose of a glut of vaccines beats the daylights out of the alternative.

The next time we may not be so "lucky." As we've been witness to, a lot can change in just a few months.

Your bargain-hunting analyst,

Steve Christ, Investment Director
The Wealth Advisory

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U.S. "Problem" Banks Surge by 27%

Like a gigantic ooze from some horror movie the number of "problem" banks continues to grow...

From Bloomberg by Phil Mattingly entitled: U.S. ‘Problem' Banks Soar, Lending Drops, FDIC Says.

"U.S. "problem" lenders climbed to the most in 17 years in the fourth quarter, and the Federal Deposit Insurance Corp. fund protecting customers against failures posted a wider deficit, the agency said.

The FDIC included 702 banks with $402.8 billion in assets on the confidential list as of Dec. 31, a 27 percent increase from 552 banks with $345.9 billion in assets at the end of the third quarter, the regulator said today in a quarterly report. "Problem" banks account for 8.7 percent of all U.S. lenders.

"The growth in the number and assets of institutions on the problem list points to a likely rise in the number of failures," FDIC Chairman Sheila Bair said today at a Washington news conference. "Both the problem list and bank failures tend to lag behind economic recovery."

Regulators are closing banks at the fastest pace since 1992, seizing 20 lenders through seven weeks this year after shutting 140 institutions in 2009 amid loan losses stemming from the collapse of the home and commercial mortgage market. A total of 28 banks failed in 2007 and 2008 combined.

"The pace is going to pick up this year and is going to exceed where we were last year," Bair told reporters.

The insurance fund deficit widened to $20.9 billion from $8.2 billion in the previous quarter, when the account had its first negative balance since 1992. The FDIC last year required banks to prepay three years of premiums, raising $46 billion on Dec. 30, the agency said today. The fourth-quarter balance doesn't reflect the payments, as premiums are to be phased in each quarter during the next three years, the agency said."

To date, the FDIC has closed 20 U.S. banks this year and 185 since January 2008.

To read the FDIC's entire annual report on the banking industry click here.

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