Steve Christ - Angel Publishing

Commercial Hotel REITs

Apparently, the allure of free coffee and musty rooms has lost its appeal for Red Roof Inns.

Behind on their check-ins, the popular budget hotel chain defaulted on $367 million worth of mortgage debt. It's the the latest hotel casualty since Extended Stay Hotels filed Chapter 11 a month ago.

Along with the rest of the sector, numerous commercial hotel REITs are now staring into the same abyss that dimmed Red Roof's lights. In other words, Misery will be having plenty of company.

In a preview of what's to come, Red Roof's owners missed scheduled payments on four mortgages with 131 Red Roof Inns pledged as collateral. Meanwhile, the chain is heavily weighed down by nearly $1.2 billion in debt, including mortgages, mezzanine loans, and other notes.

The culprit, naturally, is the economic downturn which has put a major league crimp in hotel revenues, since both businesses and consumers tighten up like clams and rethink their travel plans.

As a result, occupancy at Red Roof's properties — which averaged 62% at the market peak — has fallen to 50.7% this year. That matches the downturn of the U.S. budget hotel industry, which registered a 9.7% decline in occupancy in the first five months of this year from the same period last year, according to Smith Travel Research.

That has created a cash flow crunch and left the chain unable to meet its debts. When that happens, bankruptcy is not usually far behind.

Commercial Hotel REITs Teeter as Customers Check Out

Unfortunately, Red Roof Inns is hardly alone. Money is getting tighter everywhere.

"Cash-flow performance issues and default concerns in 2009 have extended themselves to that of budget-priced, limited-service hotels," said Frank Innaurato, a managing director of Realpoint, in a recent interview. "We would expect to see more instances of this type of default as borrowers continue to struggle with diminished cash flow from their properties in the not too distant future."

The growing problems for commercial hotel REITs, however, are two fold.

First is a shrinking RevPar, which only exacerbates the cash flow issue of lower occupancy. RevPar, or revenue per available room, is the metric used by the industry to indicate the overall financial performance of a property.

Not surprisingly, RevPar has taken a beating this year.

In fact, according to the most recent data, while the industry's occupancy fell 11.5% year-over-year, revenue per available room decreased by 20.5% as room rates fell.

As expected, it will get worse before it gets much better.

"The good news is that the bottom of the current cycle for the U.S. hotel industry is soon to arrive," R. Mark Woodworth, president of Atlanta-based PKF Hospitality Research, said recently. "The bad news is that 2009 will be the weakest year on record for the domestic lodging industry, and 2010 is going to be disappointing as well. If you are wondering when we'll start to see actual growth in RevPar, then you'll have to wait until 2011."

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However, aside from a shrinking RevPar, property valuations in the industry are also taking a nose dive.

For example, earlier this month, Sunstone Hotel Investors Inc. revealed it planned to walk away from its 258-room W. San Diego property, turning the hotel over to its lender, Gatehouse Capital Corp.

Meanwhile, in a national telephone conference call, Sunstone president and CEO Arthur Buser told hotel industry analysts that other Sunstone properties may also be deeded back to various lenders if they fail to modify loan balances.

But here's where it gets really interesting. . .

Buser also said even though Sunstone had enough cash to make the June 1, 2009 mortgage payment, he decided to walk away from the W. San Diego property after the market value of the hotel today fell below the $65 million due on the note.

Of course, that is considerably less than the purchase price in 2006, when Sunstone bought the hotel for $96 million. So, they basically handed the keys over to lender, even though they could presumably service the debt. Three years later, Sunstone said no deal.

Meanwhile, Sunstone owns 43 other hotels totaling 14,755 rooms that are generally operated under nationally recognized brands such as Marriott, Hilton, Hyatt, Fairmont, and Starwood. However, given the circumstances, you would have to wonder how attached Buser is to any one of them.

Since then, the news within the hotel industry has only gotten worse.

Welcome to the Hotel California

In that regard, I bring your attention to a story that was published just last week in Hotel News Now. Aside from a massive budget shortfall, the hotel industry in the Golden State is also struggling to stay afloat.

The story was entitled California to see record number of hotel foreclosures.

It read:

The number of California hotels in default or foreclosed on jumped 125% in the last 60 days. The state now has 31 hotels that have been foreclosed on and 175 in default, according to California-based Atlas Hospitality.

Initially, the wave of distress in California was seen by the smaller, non-flagged hotels in secondary and tertiary markets. As the hotel economy worsened, we have seen it impact all property types. The properties range from the luxurious St. Regis Monarch Beach Resort in Dana Point to the more economical Extended Stay and Red Roof Inn chains.

No market or brand is immune in this downturn. In reviewing the hotels in default or foreclosed on, we found that over 75% of the loans originated from 2005 to 2007. During this period, over 2,500 California hotels either refinanced or obtained new purchase loan financing.

Unfortunately, based on today's market values, we estimate that none of these hotels have any equity remaining. The unprecedented decline in room revenues (California is down 21.5% year-to-date) combined with the jump in cap rates has resulted in a massive loss in values.

We estimate that values are currently 50-80% lower than at the market's peak in 2006-2007. (Emphasis mine.)

Now, if that doesn't spell trouble for commercial hotel REITs, nothing does.

As for the state of California, all I can say is I'm haunted by something a teacher said to me a long time ago. . .

"Steve," he said, "if you want to know what's going to happen next, just keep your eye on California."

"Everything," he warned, "happens there first."

That's why I believe this is a trend that is just getting started as "jingle mail" now moves into commercial real estate.

By the way, my Hawaiian contact tells me that hotels on the Big Island are running at about 25% occupancy, which, if true for all the islands, would be devastating. Meanwhile, just last month, the Sheraton on the Big Island went into foreclosure after the resort's owner defaulted on its mortgage.

Your bargain-hunting analyst,

Steve Christ, Investment Director

The Wealth Advisory

P.S. Struggling hotel REITs are only one part of the rickety tower in commercial real estate these days. Unfortunately, it's only a matter of time before the whole sector comes tumbling down. But that doesn't mean you have to be just a bystander to it all. I've identified 4 ways to earn big profits as it happens. To learn more about these opportunities, click here.

Consumer Debt Struggles Reach New Heights

Here's the latest on the state of U.S. consumers.

Not surprisingly, they're still struggling to keep it all together as job losses mount.

From Bloomberg by Margaret Chadbourn entitled: Delinquencies on U.S. Home-Equity Loans Reach Record

"Late payments on home-equity loans rose to a record in the first quarter as 18 straight months of job losses and a slumping economy left more borrowers unable to pay their debts, the American Bankers Association reported.

Delinquencies on home-equity loans climbed to 3.52 percent of all accounts from 3.03 percent in the fourth quarter, and late payments on home-equity lines of credit climbed to a record 1.89 percent, the group reported today. An index of eight types of loans rose for a fourth straight quarter, to 3.23 percent from 3.22 percent in October through December, the group said.

"The number one driver of delinquencies is job losses, which we've seen build and build," James Chessen, the group's chief economist, said in a telephone interview. "Delinquencies won't come down without a dramatic improvement in the economy and businesses will have to start hiring again."

The U.S. economy lost an average 691,000 jobs a month in the quarter, and more than 6.5 million positions have been shed since the recession began in December 2007. The economy this year will shrink the most since 1946, according to a Bloomberg survey of 61 economists last month. President Barack Obama predicted last month unemployment will reach 10 percent this year. The rate was at a 26-year high of 9.5 percent in June.

Delinquent bank-card accounts jumped to a record 6.60 percent of outstanding card debt in the first quarter from 5.52 percent in the previous period, a signal unemployed borrowers are relying on cards as falling prices erode the equity in their homes. More borrowers are using cards to meet daily expenses after losing their jobs, the ABA said."

The ABA's survey tracks data from 300 banks, monitoring late payments on eight types of closed-end loans that are used as a benchmark for typical consumer delinquencies. The composite index rose to the highest level since the group began collecting data in October 1974. Loans are considered delinquent when a late payment is 30 days or more overdue.

Of the closed-end accounts, delinquencies rose on five: home-equity loans, direct auto loans, recreational vehicle, mobile home and personal loans, the group said. Auto loans are 45 percent of all consumer closed-end loans, the ABA said."

Ouch.

By the way, here's a great video on the state of the markets from CNBC's Art Cashin. An old hand, Cashin has seen it all in his days working the markets. That makes what he has to say worth watching.

Roll the tape....

Great stuff Art.

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The U.S. housing market's 800 lb gorilla

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Prime Mortgage Delinquencies Double

To learn more about Wealth Daily click here

Win Big When the Next Domino Tumbles

First there was housing... then the banks. And after that it was the automakers that came crashing down. Next up is a Commercial Real Estate Crash.

And unfortunately - just like the rest of them - the government's last-ditch efforts to prop up this domino are all doomed to fail.

But a 372-year-old investing technique is the answer to it all. And it might not only save your portfolio during this $1 trillion crisis... but also make you a fortune!

To learn more about this moneymaking opportunity click here.

Happy 4th of July America!

Since the markets are closed today and I have a date with a beach and a cold beer, I thought I publish a rerun of last year's 4th of July story.

After all, it's as true today as it was 12 months ago.

It read....

If you ask practically any American today about their country they will likely tell you that it is the greatest nation on earth.

In fact, I would even take it a step further by saying that the United States is the greatest country there is, ever was, or ever will be. But then again, I bit of a homer.

Maybe it was all those World War Two movies I watched when I was kid with my great uncle. He was an old sailor that was big on Admiral "Bull" Halsey and by extension so was I.

Or maybe it's just because I'm much older now, and I realize just how dark and brutish the world would be without her. That much I am sure of.

But what I love most about my country is that it was founded on the idea all men are created equal and are born with unalienable rights, among them are life, liberty and the pursuit of happiness.

Now that is something worth fighting for.

Of course, Thomas Jefferson put down those words much better than I ever could on this day some 233 years ago when he penned the Declaration of Independence.

And along with some other great men and their ragtag militia they defeated the greatest power of the day and founded a nation the likes of which the world had never seen. A nation that gave us men like Halsey, Patton, the boys of Pointe Du Hoc, and so many others too numerous to mention.

And while I know that no nation is perfect, I also know that America at least tries to get it right. That's good enough for me.

Here then is how it all began, when 56 men sat down and pledged their lives, their fortunes, and their sacred honor for a cause called freedom. I hope you enjoy it as much as I did. Happy Birthday America!

Wal-Mart Stores Stock

As the world's biggest retailer with a market cap of over $190 billion, Wal-Mart is more than just a discount store.

With its fingers in nearly every area of the economy, the retail behemoth is the ultimate consumer spending bellwether — which by the way accounts for over 70% of U.S. GDP.

That being said, what goes on in the store after folks pass the greeter tells us more about the state of Consumerville than any other piece of data. That's how important the king of the big box has become to the U.S. economy over the years.

In fact, the Bentonville-based company is now so big that it's the 6^th largest Chinese importer and the world's largest grocery chain. And that doesn't even take into account the fact that it is also the largest publicly-held U.S employer.

So, when the CEO of the discounter talks about the state of the economy, people tend to notice. And through it all, shares of Wal-Mart Stores stock rise and fall with these same economic tides.

Wal-Mart's Economic Outlook

However, when the CEO of Wal-Mart Mike Duke took out his crystal ball two months ago, green shoots weren't anywhere in it.

Battered consumers, according to Duke, were buying cheaper cuts of meat, spending more on vitamins to avoid trips to the doctor, and buying flat-panel televisions instead of taking vacations.

"In talking to our customers all across the country," Duke said, "I think there is still a lot of stress." Moreover, the CEO predicted, "It's not a V recession, where we'll just bounce out and come back. This is one that is going to take a sustained change in the way that families live."

Duke, who took charge of the world's largest retailer on Feb. 1, also said Wal-Mart shoppers are buying in cycles, spending more when they get paid and cutting back when money runs low. On top of that, he said more customers are using cash, which supports the recent uptick in consumer savings.

Shrinking Oil Investments Can Be Your Gain

Royal Dutch Shell's CEO Jeroen van der Veer recently warned us that, "If the oil prices stay volatile I'm afraid there will be too much slowdown in investment."

And so far he's been right on the money. You see, the IEA reported that oil and gas budgets have plummeted 21% in 2009. That comes out to almost $100 billion less than last year! Even the Saudis believe another price spike will send crude oil rushing back to last summer's record of $147 per barrel.

But here's the dirty little secret, you don't have to miss out on the profits this time around. Of course, taking advantage of oil's next price spike can be easier than you think, just let me show you how...

Learn more here.

So, welcome to the new frugality.

In case you haven't heard, it's all the rage these days, as consumers even skimp at the big box with the smiley face.

That has cast a cloud over the retail giant, leaving investors to worry how Wal-Mart's sales will measure up. It's always about winning the expectations game on Wall Street.

And in a new, free six-page report, The Wealth Advisory research team has broken down the tech giant, answering the question on every investor's mind these days. . .

Is Wal-Mart Stock (WMT) a Buy, Sell, or Hold?

In this free report, Wealth Daily subscribers will receive:

· The results from The Wealth Advisory's proprietary scoring model

· A buy, sell, or hold recommendation

· A 12-month Price Target along with a current Stop/Loss

· A technical and fundamental analysis of the company's share price

· And much more. . .

To receive a free download of this report and our Buy, Sell, or Hold recommendation for Wal-Mart Stores Inc., click here.

I hope you enjoy your free Wal-Mart Inc. stock report. I'll be publishing many more of these in the weeks to come. . .

By the way, according to the data released on Tuesday, U.S. consumer confidence took an unexpectedly steep slide in June. The index fell to 49.3 in June from 54.8 in May, while economists were expecting a healthier reading of 55.0 for the month.

Meanwhile, even the President has predicted the unemployment rate will be north of 10% this year.

So much for the idea that the recession will be ending anytime soon.

Your bargain-hunting analyst,

Steve Christ, Investment Director

The Wealth Advisory

P.S. Given the deteriorating state of the consumer, Wal-Mart isn't the only retailer staring down slower sales. In fact, the entire commercial real estate sector is on the verge of the abyss. To learn how to protect your portfolio as these businesses go belly up, click here.

Prime Mortgage Delinquencies Double

This may be starting to sound a bit like a broken record, but please, don't shoot the messenger. I don't make the news. I just report it.

And while I'd much rather write something positive for a change I also know that recognizing the negative is just as vital. It is what is—even if I come off as something of a Debbie Downer.

But denial is tens times as dangerous as the truth.

In that regard, Case-Shiller released their monthly look at exisiting home prices today and they were awful yet again. The closely watched gauge of U.S. home prices, continued to post declines in April.

In all, real-estate values in 20 major cities decreased by 18.1 percent for the month from a year earlier. The only good news is that it was the smallest decline in six months.

However, that wasn't the only bad new on the day because by comparison the Case-Shiller news was kind of tame.

Instead, the worst news of the day came in a Bloomberg story on skyrocketing delinquencies in prime mortgages.

It was written by Margaret Chadbourn entitled: Delinquencies Double on Least-Risky Loans, U.S. Says

"Delinquency rates on the least-risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure.

Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. First-time foreclosure filings on the loans rose 22 percent from the fourth quarter, the report said.

"I'm very concerned about the rise in delinquent mortgages and foreclosure actions," Comptroller of the Currency John Dugan said in a statement with the report. President Barack Obama's plan to create "sustainable, payment-reducing modifications is a positive step that should show significant benefits in the coming months," Dugan said.

Obama's program, unveiled Feb. 18, aims to help as many as 4 million homeowners by modifying loans and calls for Fannie Mae and Freddie Mac to refinance mortgages for as many as 5 million borrowers who owe more than their houses are worth. Foreclosure filings surpassed 300,000 for a third straight month in May, according to RealtyTrac Inc., and the U.S. economy has shed about 6 million jobs since the recession began in 2007.

"Job losses have mounted and even those with good credit that were able to get a prime mortgage are having a harder time making monthly payments with a loss of income," said Celia Chen, an economist at Moody's Economy.com in West Chester, Pennsylvania.

Serious delinquencies on prime loans, which account for two-thirds of all U.S. mortgages, rose to 661,914 in the first quarter from 250,986 a year earlier, according to the report. Overall, mortgages 60 days or more past due rose 88 percent from last year, the report said.

Mortgages modified to help struggling borrowers stay in their homes fail within nine months more than half the time, the report said. About 53 percent of mortgages modified in the first quarter of 2008 were 30 or more days delinquent after six months; 63 percent were in default after a year. "

The good news is this is the last of the dominos. After prime mortages there nothing left to fail. Unfortunately, this is the biggest domino of them all.

Someday, this war has got to end.

The downward spiral continues....

Until then, here's a chart listing the individual declines in the 20-city index. Phoenix takes top honors with a 35% decline. Ouch.

Metro Area	April 2009	Change from March	Year-over-year change
Atlanta	105.36	0.3%	-14.8%
Boston	146.45	0.4%	-7.7%
Charlotte	118.69	-0.5%	-10.0%
Chicago	122.3	0.0%	-18.7%
Cleveland	98.07	1.2%	-10.5%
Dallas	114.39	1.7%	-5.0%
Denver	122.17	1.5%	-4.9%
Detroit	69.92	-1.5%	-25.4%
Las Vegas	112.39	-3.5%	-32.2%
Los Angeles	159.37	-0.9%	-21.3%
Miami	145.77	-2.0%	-27.3%
Minneapolis	108.63	-0.7%	-22.1%
New York	170.33	-1.7%	-12.5%
Phoenix	104.45	-2.2%	-35.3%
Portland	146.85	-0.6%	-16.0%
San Diego	144.43	-0.1%	-20.0%
San Francisco	118.46	0.6%	-28.0%
Seattle	149.38	0.2%	-16.8%
Tampa	140.41	-0.7%	-21.3%
Washington	167.3	0.8%	-16.9

Related Articles:

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The U.S. housing market's 800 lb gorilla

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How You Could Collect 500% From Oil's Violent Rally

We first alerted you back when it traded for $33. We proved to you why there would be no ceiling of $147 this time as oil erupted through $40... then $45... and again at $55.

But now, with oil rapidly approaching $70 - and about to BURST a lot higher - find out exactly how one group of traders is loading up now, while the game is still early, to collect DOUBLE THE GAINS!

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Insiders Sell the Rally

Green shoots or yellow weeds. That's the battle being waged on Wall Street these days. However, for the people who should know the answer to this eternal question the verdict is already in.

According the "insiders" now is the time to sell stocks-not buy them.

That's because according to InsiderScore.com, CEOs, directors and senior officers have accelerated their sales to the highest level since June 2007, two months before credit markets froze.

In fact, insiders of S&P 500 companies have been net sellers of their own stock for the last 14 weeks even as the broader markets have delivered the biggest stock rally in 71 years.

"If insiders are selling into the rally," Joseph Keating, the chief investment officer of RBC Bank said, "that shows they don't expect their business to be able to support current stock-price levels." Instead he told Bloomberg, "They're taking advantage of this bounce and selling into it."

That is something to keep in mind as you break out the magnifying glass to search for those green shoots.

After all, to quote an old Englishman, lilies that fester smell far worse than weeds.

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International Companies are Dominating the Cleantech Space

Many of the world's new energy technologies are being developed in countries outside the United States. Germany, for example, is mother to the modern solar industry. The Danes have all but cornered the wind industry with the now-famous Vestas Wind Systems. Green Chip International is taking full advantage of this phenomenon. Its latest German solar recommendation is up about 11% in under two weeks. Everyday, international renewables companies are delivering monster gains.

Learn more.

The Free Market is Nothing More Than a Fairy Tale

Here is a great clip from CNBC that gives further light to what I wrote about two weeks ago in a story entitled: How the Invisible Hand Moves the Markets

In the video, every single member of the panel admits that the government is skewing the markets to the upside on purpose-even Steve Liesman.

Unfortunately, buried beneath it all is the faulty premise that the free market still exists, which as we now know it does not.

Of course, what happens to the markets when the government hand is taken away is another story entirely.

As for the video, it's a great look at what is moving the markets today and trader Larry Levin absolutely nails it.

Roll the tape....

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Alternative Energy Myths Report

Jeff Siegel's Alternative Energy Myths report is currently available at no charge for his Green Chip Review members. Green Chip Review is a daily e-letter that offers market analysis in alternative and renewable energy, organic foods, green building, and all associated LOHAS segments. For a free membership to the Green Chip Review and to reserve your copy, click here.

Condo Zombies Haunt Miami

Here is the beginning of a blog post I wrote some time ago about the oversupply of condos. It dealt with an impending condo collapse in Miami.

It reads...

"Ah condos. Don't you just love them?

I mean what with all of that concrete and blacktop what's not to love?

Throw in the elevators, the creepy hallways, and that collection of busy bodies otherwise known as the condo association and its hard to see why we don't all live stacked up on one another in a neat little box.

It kind of makes you wonder how the condo market could be so down these days. After all if a 1200 sq ft condo isn't worth at least 500K what is?

In fact, as hard as it is to believe, things have gotten so bad in Miami lately that a local bank has "blacklisted" 191 new condo projects there, refusing to make any loans in any of those buildings.

Of course, if you were one of the unfortunate folks that bought one these units before the bank pulled up the ladder you're probably going to have the pool all to yourself now.

That's because it won't be long now before all of the other banks follow suit, and when they do you'll have the place all to yourself, sort of like Jack Nicholson did in "The Shining."

But at least you can solace in this as you race around the empty halls on your Big Wheel—-your losses will be nothing compared to what the banks that funded these empty towers are going to lose now.

After all, how can they possibly get all of those millions back now if nobody else will make the loans needed to sell all of those units?

That's why commercial real estate is pretty much the next shoe drop in this mess."

I bring it up because 17 months later, my sarcasm has turned out to be pretty close to reality.

From the Miami Herald by James H. Burnett III entitled: Condo dwellers finding empty buildings

"Joshua Hamann jokingly compares himself to the last human in a city overrun by zombies. He's not suggesting his neighbors are zombies. The problem is, he has no neighbors.

Hamann dwells in a newly opened condo. And in the six weeks since moving into the gleaming new Everglades on the Bay in downtown Miami, he has felt pretty lonely. Hamann occupies one of only about 50 sold condos in his 49-story tower, out of 409 units.

A couple miles north at Midtown Miami, Alisha Marks knows the same feeling. ''It was pretty much a ghost town when I got here,'' she says.

It's an odd time for South Florida's condo market. Over development compounded by the credit crunch and a sluggish economy created an abundance of condo units.

So, what is life like for the few residents whose lights are on?

''Weird,'' says Hamann, a 28-year-old project manager for a window shading company, who rents the $400,000 one-bedroom, one-bath unit on the fifth floor. Everglades on the Bay opened in April and offers residents great views, clean white walls, spotless carpets, stainless steel appliances, a well-equipped gym, a pool, and even party rooms. Hamann moved in immediately.

Since then, he has one neighbor on his floor. It took two weeks before his first experience of sharing an elevator ride with a neighbor. ''He didn't know how to react,'' Hamann notes.

''I'm a sociable guy, but you can't socialize with what isn't there,'' says Hamann, who commutes on weekends to the Gulf Coast where his wife lives. He jokes that before he moved in, he saw brochures featuring smiling ''crowds'' hanging around the pool.

On a recent Friday morning, Hamann encountered exactly three people over the course of several hours — two security guards, and a concierge.

Several stops in the fitness center? Empty.

Several visits to the pool? Empty.

Several visits to the laundry room? Empty.

The building is emptier than the cheap seats during a Marlins game at LandShark stadium.

''This is how it goes every day,'' Hamann said, adding that he interacted with more neighbors growing up in rural Kentucky, where farms were spaced a mile apart."

You just can't make this stuff up.

I wonder if Josh has taken the Big Wheel out for a ride lately.

Have a great weekend.

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Roubini Sees Significant Risk of a "Double-Dip" Recession

Prechter: U.S. to Lose AAA Rating

Green Shoots? Not According to Richard Russell

To learn more about Wealth Daily click here

How You Could Collect 500% From Oil's Violent Rally

We first alerted you back when it traded for $33. We proved to you why there would be no ceiling of $147 this time as oil erupted through $40... then $45... and again at $55.

But now, with oil rapidly approaching $70 - and about to BURST a lot higher - find out exactly how one group of traders is loading up now, while the game is still early, to collect DOUBLE THE GAINS!

Click Here For Your Free Report Now

Cap and Trade = Cripple and Rob

"History doesn't repeat itself, but it does rhyme."-Mark Twain

Staring down the barrel of the worst economy since the 1930's, the events of the Great Depression have taken on a new found significance.

And as every school kid knows, the Smoot-Hawley Tariff Act of 1930 is one of the ways that the government made the economic situation of the time tragically much worse.

In fact, the bill was so bad that Henry Ford urged President Hoover to veto it calling it "an economic stupidity".

Even still, despite the objections of over 1,000 economists who agreed with Ford, U.S. tariffs on over 20,000 imported goods rose to record levels. And in an instant, an economic war began as everyone else in world decided to lay down the same card.

Go figure.

Soon after, an economy that was merely teetering on the edge went completely over the cliff. A recession quickly turned into a depression.

In the bill's wake, unemployment rose dramatically for years jumping to 16.3% in 1931, 24.9% in 1932, and 25.1% in 1933. Meanwhile, before the bill unemployment was only 7.8%.

All of which brings us back to the present and an abyss of our own.

However, some 90 years later, it's not new tariffs that will put us over the edge, but a 1,201 page boondoggle called cap and trade. Its purpose is save us from a warm winter's day while simultaneously picking our pockets clean.

Why we put up with the BS, I'm not sure.

And in the insanity of the times it's headed for a vote in the House as early as tomorrow since the folks on Capitol Hill desperately need to find new ways to soak us all.

However, just like Smoot-Hawley it may be the straw that breaks the camel's back.

From the Wall Street Journal entitled: The Cap and Tax Fiction

"House Speaker Nancy Pelosi has put cap-and-trade legislation on a forced march through the House, and the bill may get a full vote as early as Friday. It looks as if the Democrats will have to destroy the discipline of economics to get it done.

The hit to GDP is the real threat in this bill. The whole point of cap and trade is to hike the price of electricity and gas so that Americans will use less. These higher prices will show up not just in electricity bills or at the gas station but in every manufactured good, from food to cars. Consumers will cut back on spending, which in turn will cut back on production, which results in fewer jobs created or higher unemployment. Some companies will instead move their operations overseas, with the same result.

When the Heritage Foundation did its analysis of Waxman-Markey, it broadly compared the economy with and without the carbon tax. Under this more comprehensive scenario, it found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill's restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Even as Democrats have promised that this cap-and-trade legislation won't pinch wallets, behind the scenes they've acknowledged the energy price tsunami that is coming. During the brief few days in which the bill was debated in the House Energy Committee, Republicans offered three amendments: one to suspend the program if gas hit $5 a gallon; one to suspend the program if electricity prices rose 10% over 2009; and one to suspend the program if unemployment rates hit 15%. Democrats defeated all of them.

The reality is that cost estimates for climate legislation are as unreliable as the models predicting climate change. What comes out of the computer is a function of what politicians type in. A better indicator might be what other countries are already experiencing. Britain's Taxpayer Alliance estimates the average family there is paying nearly $1,300 a year in green taxes for carbon-cutting programs in effect only a few years.

Americans should know that those Members who vote for this climate bill are voting for what is likely to be the biggest tax in American history. Even Democrats can't repeal that reality."

By the way, if you enjoyed the tech bubble and the housing bubble, be aware that cap and trade may eventually kick off an even bigger bubble in time-sort of like Enron but on much larger scale.

That's because a cap-and-trade law would create a market - including derivatives- for carbon emissions and would multiply the trading opportunities for emitters, traders, brokers and investors.

As such, you will be happy to know that among those who want to buy these credits are a collection of investors that aren't major emitters at all. They include the trading units of Barclay's Plc (BCS), Goldman Sachs (GS) , JP Morgan Chase & Co (JPM), Merrill Lynch, now a unit of Bank of America (BAC) , and Morgan Stanley (MS).

Gee I wonder why those guys want in on this one?

I guess we haven't learned our lesson after all.

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To learn more about Wealth Daily click here

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The U.S. Housing Market

Unfortunately for the green shoots crowd, the trend in residential real estate continues its downward spiral.

It's so out of control now, not even Sully Sullenberger could land this one safely.

And while sales may have turned up a tad in May according to the National Association of Realtors (NAR), the 800 lb. gorilla in the room is being largely ignored.

But there he sits, huge, hairy, and mean. And the bad news for the U.S. Housing Market is he's getting hungrier by the minute.

That's because the much bigger problem — for borrowers of all stripes — is actually the continuing decline in values that could reach as high as 36% from peak to trough.

The U.S. Housing Market's Heavy Chains

In fact, according to the NAR on Tuesday, the median price of an existing home fell to $173,000 in May from $207,900 only a year earlier.

That $34,900 drop in price left every single "median buyer" so deep underwater, their ears will soon pop.

So, sure, while low rates and tax credits may have brought some buyers in from the sidelines this spring, it will also chain a fair share of them to that big gorilla — an asset whose value is dropping like a rock.

For those willing to take on those heavy chains, the price of "ownership" is that some of them will find themselves hopelessly upside down as prices continue to slide. But at least they'll have plenty of company, since Zillow estimates 22% of all Americans are underwater on their mortgages.

That, of course, is a no-win situation for everyone involved, and it's the big reason why falling prices drive far more foreclosures than higher payments ever will.

After all, who wants to be chained to a gorilla?

In fact, according to a report last week from Fitch, home prices will fall by an additional 12.5% nationally and 36% in California, with home prices not exhibiting stability until the second half of 2010 — over a year from now.

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Lawrence Yun's Latest Boogeyman

That is a prospect that keeps the NAR's chief economist (read: shill) Lawrence Yun awake at night rubbing a Buddha's belly while clutching a rabbit foot. Even still, he hears noises under the bed and sees terrifying figures in the closet.

Yun's latest boogeymen are those awful appraisers who are now doing their jobs without the threat of coercion.

You see, when the housing market was still a land of winks and nods, an appraisers ability to "hit the number" was the only thing that kept the new orders rolling in. You either delivered the goods, or you were blackballed by the loan officers who hired you.

Because of that, appraisal fraud ran rampant, causing a portion of the big losses taxpayers are now being asked to eat.

This obvious conflict of interest has been corrected by new appraisal rules that went into effect on May 1. With a dose of sanity, the new rules now simply require lenders who sell loans to Fannie Mae or Freddie Mac to order their own appraisals, taking loan officers out of the crooked loop completely.

Restoring Integrity Means a Lower U.S. Housing Market

However, restoring actual integrity to the mortgage process is bad for both sales and home prices. And Yun knows it.

So, when honest appraisals start gumming up the works, Yun begins to scream bloody murder, forgetting that an independent price opinion is the cornerstone of sound lending.

"It's pointing to thousands of delayed or canceled transactions," Yun whined yesterday in response to low appraisals. "We've had a massive inundation from members saying this is a big problem."

To which the Appraisal Institute rightly responded, "We take offense with the notion that an appraisal is only good if it happens to come in at the sales price. That mentality helped cause the mortgage meltdown to begin with."

All of which reminds me of a nursery rhyme about an egg that fell from a pretty large height. No matter how hard they tried, all the king's horses and all the king's men couldn't put Humpty Dumpty back together again!

It really is that simple. Unless, of course, you are an insomniac named Lawrence Yun.

For some reason he still thinks he can tame an 800 lb. gorilla.

By the way, things have gotten so bad in the housing market lately that yesterday the S&P lowered its ratings on 102 classes from 33 U.S. prime jumbo residential mortgage-backed securities issued from 1998 to 2004. That's notable because these securities were previously thought to be safe, due to when they originated.

"The downgrades reflect our opinion that projected credit support for the affected classes is insufficient to maintain the previous ratings, given our current projected losses," S&P said in a statement.

Translation: Look out Below.

It kind of makes you yearn for the days when all this mess was supposedly confined to sub prime. Up the ladder the gorilla goes. . .

Your bargain-hunting analyst,

Steve Christ,
Investment Director, The Wealth Advisory

P.S. The collapse of residential real estate is just a preview of what is headed down the pike on the commerical side. Eighteen months later, it's lining up to be the next shoe to drop. To learn more about the brewing trouble in commercial real estate — and how to profit from it — click here.

Buffett: Economy is in a "Shambles"

Here is the latest word from Warren Buffett. He's been talking today on the state of the economy with his favorite CNBC reporter, Becky Quick.

And as usual, it has made for plenty of headlines ahead of the Fed's meeting today.

As it turns out, he doesn't see any of Ben Bernanke's green shoots either, despite recent cataract surgery.

In fact, according to the Oracle of Omaha, the reality if just the opposite. The economy he says, in a "shambles"

Here's today's headline making video...

Great stuff Warren.

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Shrinking Oil Investments Can Be Your Gain

Royal Dutch Shell's CEO Jeroen van der Veer recently warned us that, "If the oil prices stay volatile I'm afraid there will be too much slowdown in investment."

Learn more here.

Kodak Dumps Kodachrome

At the ripe old age of 45, becoming a living and breathing anachronism is something that is kind of hard for me to admit. But the truth is, this far into it the world has left me in its dust.

Anything and everything is different these days. They call it all progress but sometimes I'm not real sure if I agree with them.

Take TV, for instance. Now that is something that's gotten considerably worse, not better.

In fact, it has gotten so bad that I can't even let my kids watch the commercials anymore for fear that they will ask me about the dangers of a four hour long erection— whatever that is.

By the way, is it just me or does anyone else ever wonder why they have to broadcast that little tidbit at dinner time? Some things are better off left for the fine print.

But that's not to say that everything new isn't worthwhile because what's new is what entrepreneur capitalism is all about. After all, if you build a better mouse trap the world really will beat a path to your door.

Of course, one of those better mousetraps is the digital camera. It's an invention so good it has sent the film of my youth the way of the buggy whip. And when I think about my Uncle's old Polaroid camera I just have to laugh.

Thirty years later, it is not exactly as cutting edge as I thought it was back in the day.

Neither, evidently was the Polaroid Corporation. After over 80 years of making instant film cameras, Polaroid went bust in 2008.

Even still, Polaroid's biggest rival managed to adjust and adapt to it all. Kodak survives, but in a slightly different form.

Kodachrome, however, has bitten the dust.

From the AP entitled: Sorry, Paul Simon, Kodak's Axing Kodachrome

"Sorry, Paul Simon, Kodak is taking your Kodachrome away.

The Eastman Kodak Co. announced Monday it's retiring its oldest film stock because of declining customer demand in an increasingly digital age.

The world's first commercially successful color film, immortalized in song by Simon, spent 74 years in Kodak's portfolio. It enjoyed its heyday in the 1950s and '60s but in recent years has nudged closer to obscurity: Sales of Kodachrome are now just a fraction of 1 percent of the company's total sales of still-picture films, and only one commercial lab in the world still processes it.

Those numbers and the unique materials needed to make it convinced Kodak to call its most recent manufacturing run the last, said Mary Jane Hellyar, the outgoing president of Kodak's Film, Photofinishing and Entertainment Group.

"Kodachrome is particularly difficult (to retire) because it really has become kind of an icon," Hellyar said.

The company now gets about 70 percent of its revenue from its digital business, but plans to stay in the film business "as far into the future as possible," Hellyar said.

Because of the complexity, only Dwayne's Photo, in Parsons, Kan., still processes Kodachrome film. The lab has agreed to continue through 2010, Kodak said.

Hellyar estimates the retail supply of Kodachrome will run out in the fall, though it could be sooner if devotees stockpile."

Someday it will all be gone.

Even still, watching that film develop before your very eyes was pretty cool.

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20% Wind Energy by 2030

The U.S. Department of Energy has released a report stating that the U.S. could get 20% of its electricity from wind power by 2030.

For that to happen, $20 billion needs to be invested every year for the next 20 years, bringing the two-decade U.S. wind investment total to well over $400 billion.

In Europe, over one third of all new electrical generating capacity will come from wind for the next 10 years. After that, wind's share will grow to 46% of all new generation capacity.

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Roubini Sees Significant Risk of a "Double-Dip" Recession

Here are the lastest economic leanings from Nouriel Roubini.

As you might expect, he's not really a card carrying member of the green shoots club.

From Reuters by Pedro da Costa and Ros Krasny entitled: Roubini sees weeds amid green shoots

"The U.S. economy will not recover until the end of this year, and even then growth will remain meek and vulnerable to higher interest rates and commodity prices, economist Nouriel Roubini said on Tuesday.

Roubini, who rose to prominence for predicting the global credit crisis, tore down the "green shoots" theory that a rebound is imminent, saying there was a significant risk of a "double-dip" recession where the economy expands slightly only to begin contracting again.

"In addition to green shoots there are also yellow weeds," he told the Reuters Investment Outlook Summit in New York.

He pointed to the growing divergence between business sentiment surveys, which have been improving in recent months, and industrial production, which is down sharply and receded another 1.1 percent in May.

Roubini, the head of economics research firm RGE Global Monitor, said the U.S. jobless rate, already at a 26-year high of 9.4 percent, would reach 11 percent before it begins to ease. He added that he saw few engines for growth given that U.S. consumers are tapped out

As a result, Federal Reserve policy-makers, whom Roubini says completely missed the magnitude of the crisis at its inception, face an unenviable set of policy choices.

He said weak growth would allow the U.S. central bank to leave interest rates near the current rock-bottom levels for the foreseeable future. Eventually, however, trillions of dollars of unprecedented emergency measures to heal the financial system will need to be mopped back up to prevent an upsurge in inflation.

Rampant inflation could lead to negative economic cycles like the ones that plagued much of the industrialized world in the 1970s.

"That's the challenge the Fed is facing," Roubini said.

He said the central bank did the right thing to avoid an outright depression, but is left with emergency lending programs that are clearly not sustainable."

Either way, it looks like the bears will taking over the driver's seat soon...

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The Outlook for Commercial Real Estate

According to the Federal Reserve, U.S. household net worth fell by $1.3 trillion in the first quarter, proving that green shoots are something of a fairy tale for the U.S. consumer, at least.

In fact, since its peak in the third quarter of 2007, household wealth has decreased by 21.6%, or more than a fifth. That is the most dramatic fall in the series since reporting began more than 50 years ago.

Yet somehow, the bulls keep pounding the table, saying there is light at the end of the tunnel, even though consumer spending is over 70% of the U.S. GDP.

Now, I don't understand how anyone could possibly think the consumer is coming off the mat given that type of wealth destruction.

Instead, I'm firmly in the camp that believes a "new normal" has begun, and it's based upon frugality more than frivolity.

Meanwhile, caught between a rock and a hard place during this change is a worsening outlook for the commercial real estate market.

Unfortunately, it gets worse everyday. . .

Commercial Real Estate... in the Crosshairs

That's because as unemployment surges, home prices continue to drop, and more wealth evaporates, consumers are more likely to slam their wallets shut rather than open them.

As a result, without an uptick in jobs and income, another debt-financed binge like the one we just lived through is as likely as a blizzard on the 4th of July in Key West. It simply isn't going to happen.

It can't be re-created either — even though the Fed is trying its best to do just that.

So, what we're essentially left with is a classic case of overcapacity, since the massive demand all that cheap money pulled forward can really only happen once.

As a result, we have too many cars, we have too many houses, and we have too many places to buy $5 cups of coffee. The list is endless.

What we don't have — or what we have a lot less of — are people who can support it all. Sure, money still exists, but it has very little velocity when the game suddenly turns frugal.

That has the effect of turning our consumption-driven society on its head, leaving household names staring down the barrel of bankruptcy. And believe me when I tell you it is going to get worse before it gets better.

Along the way, though, so many things we have accepted as "absolute givens" are going to be stressed to the breaking point.

April 16, 2009: The Day the Mall Died

One of them is the Mall — that icon of consumption itself. In fact, on April 16, 2009, "The Mall" as we know it actually died.

That was the day Chicago-based General Growth Properties (GGP) — the second-largest mall owner in the United States — filed for bankruptcy in federal court.

After all, GGP's bankruptcy filing was simply the tip of the iceberg. With more than $530 billion in commercial mortgages coming due in the months ahead, we could be facing another real estate collapse as dangerous as the one in housing.

That makes GGP the equivalent of a dead canary in a coal mine, as this cycle of distress will undoubtedly take others down. General Growth Properties will certainly not suffer alone.

"This is kind of the beginning of the end," Dan Fasulo of Real Capital Analytics said recently. "This bankruptcy will drive down the values of mall assets in the United States. It's going to put, I believe, more supply on the market than can be absorbed by investors."

In short, it is a complete re-run of what just happened in residential real estate, but this time it's on the commercial side. The only difference in this case is the timing, which shouldn't surprise anyone.

After all, commercial real estate typically lags what is going on in residential by about 18 months. And 18 months ago, Freddie Mac and Fannie Mae were trading over $30. Today, they are wards of the state.

That leaves us with a commercial real estate market that has much further fall.

Here's why.

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The Outlook for Commercial Real Estate: Why This Market Has Further to Fall

At this very moment, there are four critical elements to this crisis — and they're all bad news.

1. Commercial property values are in a free-fall — In fact, according to the Wall Street Journal, four years worth of gains in value have been wiped out since the beginning of 2008. And it's possible property values could fall by as much as 50% from their peak when all is said and done. Take a look:

2. Vacancies are soaring — You don't even need me to tell you about this truth. Just take a look around your local mall, shopping plaza, or office complex. In many cases, it's like an absolute ghost town. In fact, vacancies are expected to reach 13.5% for retail and 17% for office buildings by year's end, eliminating a portion of the income necessary to make the mortgage.

The end results are defaults and delinquencies, as was the case with General Growth Properties. Moreover, delinquency and default rates for securitized commercial real estate loans are expected to continue soaring at an astonishing rate, according to research firm Reis Inc.

Here's what I mean:

3. Refinancing is NOT an option — The vast majority of commercial real estate mortgages are designed differently than the mortgage you might typically use to buy a home. In most cases, commercial mortgages are actually designed to be refinanced after a period of 5 to 10 years.

But because of the recession, banks have made the underwriting standards much more difficult these days. Sound familiar?

And as for securitized commercial mortgages? Forget it — as this graph proves, that game is over.

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. The short answer is... it won't.

As Federal Reserve Bank of Atlanta President Dennis Lockhart said earlier this week, the mortgage bonds due this year and next "are coming up against capital markets not active enough to deal with those maturities." When that happens companies go under.

Unfortunately, as you can see, there's no shortage of paper that needs to be rolled over.

4. Numerous interest-only loans are about to reset — Principal is now coming due on about $179 billion of interest-only loans that were written between 2005 and 2007. As in residential real estate, these loans were designed to give commercial borrowers lower monthly payments to boost cash flow. That allowed them to push the envelope in terms of the amount of money they financed. However, principal payments eventually come due, boosting the mortgage cost.

Now, with soaring vacancies and falling rents, some of these cash-strapped borrowers will undoubtedly have to default. About 87% of mortgages sold in 2007 were interest onlys, compared with 48% in 2004.

And in another mirror image of the housing bubble, loose underwriting and dangerous loan products will only lead to increasing defaults.

Taken together, that makes a commercial real estate collapse the next shoe to drop in this long decline — especially given the massive loss of household wealth.

Your bargain-hunting analyst,

Steve Christ, Investment Director

The Wealth Advisory

PS. The government's last-ditch efforts to prevent a $1 trillion collapse in commercial real estate are just like all of rest— doomed to fail. The math on this one simply can't be overcome. To learn more about how to profit as commercial real estate tumbles click here

Credit Card Companies Say "Let's Make a Deal!"

As my old pal Ian Cooper has been writing about for some time, credit card companies now have one foot on the edge of the abyss and the other on a banana peel.

In fact, according to reports this week credit card losses are continuing to accelerate with Capital One reporting that write-offs have reached 9.4% with no end in sight. Meanwhile, American Express Co., the largest U.S. credit-card company by purchases, wrote off 10 percent of it own loans.

That has morphed into an environment where banks are much less eager to hand out the plastic since the business isn't exactly what it used to be.

As a result banks sent out only about 500 million credit card solicitations in the first quarter. That is fewer than in any year since 2000 as overall available credit shrinks.

But wait, it gets even better than that.

Things have gotten so bad for these companies that they are also ready to play Monte Hall with these days with anyone that will ask. Apparently, you can cut your balance in half with a phone call.

From the New York Times by David Streitfeld entitled: Credit Bailout: Issuers Slashing Card Balances

"The banks were bailed out last fall, the automobile companies last winter. For Edward McClelland, a writer in Chicago, deliverance finally arrived a few days ago.

Mr. McClelland's credit card company was calling yet again, wondering when it could expect the next installment on his delinquent account. He proposed paying half of his $5,486 balance and calling the matter even.

It's a deal, the account representative immediately said, not even bothering to check with a supervisor.

As they confront unprecedented numbers of troubled customers, credit card companies are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed.

The practice started last fall as the economy worsened. But in recent months, with unemployment topping 9 percent and more people having trouble paying their bills, experts say this approach has risen drastically.

They say many credit card issuers have revised internal guidelines to give front-line employees the power to cut deals with consumers. The workers do not even have to wait for customers to call and ask for a break.

"Now it's the card company calling you and saying, ‘Let's talk turkey,' " said David Robertson, publisher of the credit industry journal The Nilson Report.

Only a few creditors are willing to confirm the practice. Bank of America and American Express say they decide on a case-by-case basis whether to accept less than the full balance. Other card companies refuse to discuss the subject, but their trade group, the American Bankers Association, acknowledges that settlements are becoming more common.

Revolving credit, a close approximation of credit card debt, totaled $939.6 billion in March. The Federal Reserve reported that 6.5 percent of credit card debt was at least 30 days past due in the first quarter, the highest percentage since it began tracking the number in 1991. The amount being written off was also at peak levels.

After a balance has been delinquent for six months, regulations require the card company to reduce the value of the debt on its books to zero. If a borrower has not paid by this point, chances are he never will.

"The creditors would rather have a piece of something now instead of absolutely nothing down the road," said Adam K. Levin, the founder of the consumer education Web site Credit.com."

I guess a bird in the hand really is worth two in the bush...

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Get In for Less Than the CEO

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Prechter: U.S. to Lose AAA Rating

With the S&P 500 now pushing nose-bleed heights at the 950 level, the markets have suddenly gone from worries about the next Great Depression to talk of "green shoots" and "glimmers of hope."

And in an uptrend that has seemed to defy gravity every step of the way, fear has given way to greed, causing one bad tape after another for the bears.

But despite these market miracles, it is safe to say that aren't exactly out of the woods yet—-not by a long shot.

That's an opinion I share with Robert Prechter, who was named the Guru of the Decade back in the 80's.

Apparently, he doesn't believe in green shoots either.

From Reuters by John Parry entitled: U.S. likely to lose AAA rating: Prechter

"Technical analyst Robert Prechter on Monday said he sees the United States losing its top AAA credit rating by the end of 2010, as he stuck by a deeply bearish outlook on the U.S. economy and stock market.

Prechter, known for predicting the 1987 stock market crash, joins a growing coterie of market heavyweights in forecasting the United States will lose its top credit rating as the government issues trillions of dollars in debt to fund efforts to bail out the economy.

Fears about the long-term vulnerability of the prized U.S. credit rating came to the fore after Standard & Poor's in May lowered its outlook on Britain, threatening the UK's top AAA rating. That move raised fears that the United States could face a similar risk, with the hefty amounts of government debt issued in both countries to pay for financial rescues causing budget deficits to swell.

Prechter, speaking at the Reuters Investment Outlook Summit in New York, said he sees investors' confidence in an economic rebound fading, a trend that will drag the S&P 500 stock index .SPX well below the March 6 intraday low of 666.79 by the end of this year or early next.

"There will be a leg down in stock prices, and it will affect all other areas," including corporate bonds and commodities, said Prechter, who is executive officer at research company Elliott Wave International, based in Gainesville, Georgia.

Prechter, who is known for his bearish views, has repeatedly forecast a steep decline in stocks this year, even as the stock market has rebounded from 12-year lows set in March as optimism about an economic recovery has risen.

Despite the government and Federal Reserve's massive rescues for financial companies and securities markets, Prechter expects credit markets to clam up again as they did in the first phase of the global financial crisis and for the U.S. economy to sink into a depression.

The economy "is obviously heading toward a depression," despite the government's efforts to dodge one, said Prechter

By the way, Prechter also famously said, "after I decided to make markets a career, I realized that mass psychology is what they're all about."

That being said, when everyone begins to realize that the government's efforts have been a colossal failure, the markets are going to sing a different tune.

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20% Wind Energy by 2030

The U.S. Department of Energy has released a report stating that the U.S. could get 20% of its electricity from wind power by 2030.

For that to happen, $20 billion needs to be invested every year for the next 20 years, bringing the two-decade U.S. wind investment total to well over $400 billion.

In Europe, over one third of all new electrical generating capacity will come from wind for the next 10 years. After that, wind's share will grow to 46% of all new generation capacity.

The personal profits made from the wind industry will be more than legendary. Green Chip has composed an extensive report on how you can get your share of the profits.

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The True Cost of "Cheap Goods"

Here's a story on unemployment that speaks for itself.

It's about what happens when you sacrifice your soul on the altar of money.

Because when you do, the lives of good people get trampled on every step of the way.

And while I don't happen to have the answer on this one, my gut has always told me that it is all horribly wrong.

Meanwhile, don't think for a minute that those cheap goods from overseas don't come at a significant cost.

From the AP by John Moreno Gonzales entitled: Ailing factory towns face tougher road to recovery

"Tim Holt was among the men and women who wove fabric and prosperity here for generations, until the textile factories left town in a global manufacturing shift that the rest of the country hardly seemed to notice.

Fifty-one years old and pushing through his second federally funded job-training program in six years, he names the departed companies like a list of suspects. Gold Toe, which introduced its durable socks during the Great Depression, found cheaper labor in Mexico. Culp Weaving, an upholstery giant that may have covered your parents' sofa, left for China. And the town's namesake, Burlington Industries, abandoned its sprawling compound after a 2001 bankruptcy, the remnants bought by the conglomerate International Textile Group but still vacant.

What most frustrates Holt and others in ailing industrial towns across the country is that their communities began their tailspin long before sub-prime mortgages failed and stocks plunged. And compared with places where the housing crisis has done most of the damage, their prospects for rebounding are dim.

According to the Associated Press Economic Stress Index, an exclusive county-by-county measurement of foreclosures, bankruptcies and unemployment that shows the relative impact of the recession, smaller industrial cities that were already reeling from decades of job losses have been among the hardest hit in the current economic crisis.

"We worked 40 or 50 years in textiles. Then, that was gone," said Holt, whose retraining at a community college is designed to help workers displaced by the North American Free Trade Agreement. "People talk about a five-year plan, a 10-year plan. You could do that then. Now it's a moment-to-moment plan."

"It really hurts your heart when you have a grown man in your office who has worked all his life, crying," said Tracy McKinney, an intake specialist at the Alamance County Department of Social Services who processes applications for public assistance. "People try to keep up appearances for as long as they can, until there's no options left."

Holt's classmate, Charles Andress, 61, is trying to avoid McKinney's desk as he balances the loss of a job he held for 25 years and obligations that he never expected to have as a grandfather. Andress was laid off from Culp Weaving in May 2007. His wife Brenda, 39, a former line supervisor at Gold Toe, lasted a year and half longer before her job was eliminated.

Another blow came when the couple took guardianship of Brenda's 2-year old grandson and 1-year-old granddaughter. They used $50,000 of their 401(k) funds, two-thirds of what they had left after Wall Street's plunge, to meet court requirements of building the children separate rooms. Their unemployment benefits expire next month, and they say they will never accept welfare.

"Once you get on that, you're dependent," Brenda Andress said in the living room of a home they can no longer afford.

As he nears the end of his job training, Holt is concerned that he will have to swallow some pride. A friend who graduated from the same course in programmable electronic controllers-the mechanical brains of everything from factory machinery to traffic lights-became a janitor at an interstate truck stop. It was all the Triangle had for a former mill worker in his 50s."

Sad....but true.

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The Plunge Protection Team

To the millions of tourists who have driven down San Francisco's Lombard Street, it is easily the "crookedest street in the world."

Steep and full of sharp turns, it's an oddity as recognizable as the city's Golden Gate Bridge.

But as familiar as that street is to everyone who has driven it or seen it in a movie, Lombard Street has nothing on the winding road that has been built between Washington and Wall Street.

Bailouts and back-room deals— it's as crooked as it gets.

And in a financial crisis that is by all accounts the worst of our generation, the deep connection between the two has become even more tightly twisted.

It's pretty obvious that the survival of one depends wholly on the survival of the other.

And while I've never been a big fan of conspiracy theories, this twisted alliance of power and greed has made me reconsider at least one... It's called the Plunge Protection Team.

The Plunge Protection Team Is No Myth

And according to the lore, it has been propping up the markets for the last 20 years.

And the truth is, if it didn't already exist, the current crisis is big enough to give birth to it, in my opinion.

But before I go any further, let me get something straight. . .

The Plunge Protection Team (PPT) is not some urban myth or Oliver Stone-style conspiracy theory.

The truth is it's hidden in plain sight, even though the U.S. Government prefers to be tight lipped about it.

Born out of the 1987 crash, the team is formally known as the Working Group on Financial Markets. It was created by Executive Order 12631, signed on March 18, 1988 by President Reagan.

And under Sec. 2 of the order, its "Purposes and Functions" were stated as follows:

(2) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider:

the major issues raised by the numerous studies on the events (pertaining to the) October 19, 1987 (market crash and consider) recommendations that have the potential to achieve the goals noted above; and
. . . governmental (and other) actions under existing laws and regulations. . . that are appropriate to carry out these recommendations.

Working in secret, the group consists of

the President
the Treasury Secretary as chairman;

the Fed chairman;
the SEC chairman;
and the Commodity Futures Trading Commission chairman.

The seeds of the Plunge Protection Team were first planted by Robert Heller, a former Fed governor. Heller was a first-hand witness to the '87 crash, later writing:

Everybody's attention was tightly focused on containing the damage and preventing a spread of the financial disruptions throughout the financial system. Do not forget that at that time we were also dealing with a severe S&L crisis and almost 200 bank failures per year. Without swift supportive action on behalf of the Fed, the stock market crash could well have been the straw that broke the back of an already weak camel.

Now, if that doesn't sound a wee bit familiar, then you just haven't been paying attention.

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Twenty-two years later, it's like a bad rerun— only this time, it's much worse.

Heller later left what some believe to be the calling card of the Plunge Protection Team, writing in the Wall Street Journal:

Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole.

Heller's plan, in short, was really quite simple— the government could bid up the futures until the market plunge reversed.

Since then, the PPT has been the number-one suspect in generating one "stick save" after another, especially at moments when all seemed lost.

Keep in mind, this type of manipulation is entirely possible if the bid beneath these futures is strong enough. Moreover, just imagine the type of reversal Goldman Sachs and JP Morgan could generate with a concerted effort to buy S&P 500 index futures late in the day.

Needless to say, it would be more than enough to turn the markets from red to green in the blink of an eye— which is an outcome that would undoubtedly work for both parties if it headed off a total collapse.

And if it buries a few shorts along the way, so be it.

The (In)Visible Hand

Given the dramatic bounce off of the March lows, the latest crisis has only raised more suspicions.

In fact, as recently as April, a number of observers noticed some unusual patterns in the "program trading" on the New York Stock Exchange, suggesting someone may indeed be working to "prop up" the market with large amounts of buying.

Even more suspicious was the fact that the largest trader — with a volume 5X higher than anyone else — was none other than Goldman Sachs. . . a firm that shares an extremely cozy relationship with the boys in D.C.

Never mind that unemployment is headed higher, foreclosures are still skyrocketing, and housing is nowhere near the bottom. That would only put a damper on things.

Instead, the markets have been sent higher on very light volume. Any trader will tell you that makes them even more susceptible to manipulation.

All of which bring us back to the Bernanke Fed and the current crisis. All along the way, the Fed has promised to "employ all available tools to promote economic recovery and to preserve price stability."

Is it really that hard to believe they would stick their hands into equities, after attempting to jawbone everything in their path in an effort to "fix" the crisis? I don't think it is— even though no one has proven it.

After all, desperate times call for desperate measures. And for these folks, the end justifies the means.

So, whether you believe in the Plunge Protection Team or not, at least recognize that markets are a lot less free than you imagine. At times, power and greed do work to goose the outcome, and this is likely one of those times.

Unfortunately, for us and for them, this is not exactly a sustainable condition— no matter how crooked the road may get.

Eventually, the markets will straighten it all out. And when they do, certain sectors are going to take an absolute drubbing.

Unfortunately, commercial real estate is one of them. I'll have more on that brewing story next week. . .

Your bargain-hunting analyst,

Steve Christ, Investment Director

The Wealth Advisory

Editor's Note: We may be in "the worst market since the Great Depression," but readers following my Wealth Advisory portfolio are profiting nonetheless. In fact, we're now 25-8 in closed postions over the last 12 months, with net gains of 554%. To learn how Wealth Advisory members are earning reliable gains week after week, click here.

Jim Grant: Citi was a "Rogue Bank"

Here's a great interview from Jim Grant, the famous editor of Grant's Interest Rate Observer.

Among the zingers Jim let loose was his belief that the Federal Reserve balance sheet is so backwards that it couldn't possibly survive an audit.

"If the Fed examiners were set upon the Fed's own documents-unlabeled documents-to pass judgment on the Fed's capacity to survive the difficulties it faces in credit, it would shut this institution down," he said. "The Fed is undercapitalized in a way that Citicorp is undercapitalized."

Citigroup he later continued is " a rogue bank" in his opinion....

Of course—as always with Jim—there's a whole lot more.

Roll the tape....

Great stuff Mr. Grant

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TARP Loans to be Repaid as Stress Test Questions Linger

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Don't look now, but according to government regulators, everything is just wonderful now for ten of the major U.S. banks that collected billions in TARP money. Go figure.

In fact, things are so great at these institutions that the government has decided to allow them to begin to repay nearly $68 billion in TARP loans. Lord knows we need the dough.

Among them are JPMorgan, Goldman Sachs, and Morgan Stanley, freeing them from added oversight that came along as part of the price tag.

Apparently for them, happy days are here again. Yippee...

Nevermind that unemployment is headed higher, foreclosures are still skyrocketing and housing is nowhere near the bottom. That would only put a damper on things.

In the meantime, reality is doing its best to poke on through as more people are beginning to question how stressful the stress tests really were in the first place.

From the AP by Anne Flaherty entitled: Investigators warn bank stress test not enough

"A government test of whether 19 major banks could survive a further downturn in the economy may have relied on too rosy a scenario and should be repeated, independent investigators say.

In a report released Tuesday, the Congressional Oversight Panel for the government's $700 billion financial rescue effort found that the Federal Reserve used a "conservative and reasonable" approach to assessing the health of the nation's biggest banks.

But, the panel added, the Fed's worst-case scenario does not go far enough. For example, the "stress tests" conducted by the Fed were based on the 2009 unemployment rate average of 8.9 percent. Unemployment in May climbed to 9.4 percent. (Emphasis mine)

"While no one should gainsay the potentially positive results of the tests, it would be equally unwise to think that those results reflect a diagnosis of all of the potential weaknesses or create a necessarily sufficient buffer against future reverses for the banking system," the panel wrote.

Asked about the findings of the oversight board, Treasury Secretary Timothy Geithner defended the stress tests, saying they were rigorous and used projected loss estimates for the banks that were worse than any two-year period during the Great Depression.

Geithner told a Senate Appropriations subcommittee that the stress tests had been "very carefully designed" and had played an important role in restoring confidence in the system.

Elizabeth Warren, the Harvard University law professor who heads the panel, told lawmakers on Tuesday that the Fed should release more details about how it conducted the tests.

"Without this information, it is not possible for anyone to replicate the tests to determine how robust they are or to vary the assumptions to see whether different projections might yield very different results," Warren told the Joint Economic Committee.

The Congressional Oversight Panel says that additional capital held by the banks should not be interpreted as an end to the financial crisis."

So it looks like Nouriel Roubini was right again.

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