Steve Christ - Angel Publishing

Happy Birthday America!

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 232 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!

Buffett's Berkshire Goes Bear

The Dow Jones Industrial Average isn't the only one in bear market territory these days.

Even Berkshire Hathaway has fallen on hard times of late.

Here is the skinny on Berkshire's fading fortunes.

From Bloomberg by Josh P. Hamilton entitled: Buffett's Berkshire Has Worst First Half Since 1990

"It must be a bear market because even billionaire Warren Buffett's Berkshire Hathaway Inc. has slumped almost 20 percent since December.

The decline exceeds the drop of the Standard & Poor's 500 Index and marks the worst first half for the Omaha, Nebraska- based investment and holding company since 1990. Price competition has driven down revenue at Berkshire's insurance units, which account for about half of its income.

Berkshire is ``close to getting more fairly priced,'' said Charles Hamilton, a Nashville, Tennessee-based analyst at FTN Midwest Securities Corp., who has a ``neutral'' rating on Berkshire. ``I wouldn't say it presents a buying opportunity right now.''

After reporting record 2007 earnings of $13.2 billion, the 77-year-old Buffett told shareholders in February that profit margins from insurance will drop.

``That party is over,'' Buffett wrote in his annual letter to shareholders in February. ``It is a certainty that insurance industry profit margins, including ours, will fall significantly in 2008.''

Berkshire also has been hurt by the declines of Wells Fargo & Co., American Express Co. and U.S. Bancorp, three of the company's 10 biggest equity holdings at the end of March. Wells Fargo, Berkshire's second-largest holding, dropped 18 percent in the second quarter, while American Express and U.S. Bancorp slipped 14 percent.

Buffett says the U.S. is mired in ``stagflation,'' a period of slowing economic growth and accelerating inflation.

``We're right in the middle of it,'' Buffett said in a June 25 interview. ``I think the `flation' part will heat up, and I think the `stag' part will get worse.''

An economic recovery isn't ``going to be tomorrow, it's not going to be next month, and may not even be next year,'' he said."

Buffett is right. The road ahead is going to be a bumpy one-especially for the financials.

After all, the banks can't bottom until housing does and that could be a long time now.

But hey, at least they're not General Motors. GM plunged yesterday to its lowest level since September 1954 on cash concerns.

Auto Sales Plummet, SUV's Hit Hard

Back in the day my pal Will had the coolest car on the lot. It wasn't a Camaro, a Trans Am, or even a Firebird.

It was a Checker, and there was nothing like it in any zip code that I was familiar with.

He called it his lead sled and it was a name that was well earned. It was massive. In fact, it was so big that you could literally stretch your legs out in the back seat as far as you could and never get anywhere close to the front seat.

As for the trunk, well you could practically live in it.

But the Checker had become something of dinosaur by the late 70's and the last one rolled off the assembly line on July 12, 1982. Poor gas mileage and new governmental regulations had basically sealed its fate.

But the Checker Motors Corp. was hardly alone. The market had changed them all. And by the mid-80's cars were never quite the same.

Now some 30 years later high oil prices have returned once again with a vengeance. But the story really isn't any different—the automakers have been caught flat-footed again.

That was the underlying story in yesterday's report on new car sales.

Aside from that the numbers across the board were just plain awful. It looks like it will be another painful transition for the industry.

Here's the skinny.

From AP by Tom Krisher and Dee-Ann Durbin entitled: June car sales plummet; more declines expected

"A last-minute no-interest financing offer and strong sales of some cars helped General Motors Corp. keep its U.S. sales over Toyota Motor Corp. last month, but it was still the worst June for the industry in 17 years and a harbinger of more misery ahead.

"We're going to continue to see declines for the rest of the year," predicted Jesse Toprak, chief industry analyst for auto information site Edmunds.com.

All major automakers but Honda Motor Co. reported steep sales declines for June as buyers continued to flee from trucks and sport utility vehicles to more fuel-efficient models. High gas prices and a sluggish economy helped keep sales low.

Even Toyota, with its flexible, efficient factories, couldn't make the shift from trucks to cars as quickly as American drivers. Its sales for June shrank 21 percent from a year earlier, and it fell far short of some analysts' predictions that it would overtake GM.

I think the gas price rise that we've seen from March through June was so fast and so dramatic that even Toyota, which is known to really forecast consumer demand, was caught off guard," he said.

As the market shifted, some automakers were caught with too few of the smaller cars.

That includes Toyota, which didn't have enough of its fuel-efficient Prius, Corolla or Yaris cars at dealerships to keep up with demand. Prius sales were hurt by a battery shortage, while sales of the Corolla and Yaris suffered because of plant capacity.

"That just shows the market forces changed extremely fast. No automaker was ready for it," Toprak said."

And neither for that matter was the Checker.

Man that was one great car.

Sentiment Indicators

"Be brave when others are afraid, and afraid when others are brave."- Warren Buffett

I'll admit watching the markets turn blood red is troubling. After all, like most investors I'd rather have the color green any day of the week.

Unfortunately, green is a color that hasn't been on the menu much with the bears firmly in charge of the markets. In fact, since the May 19^th intraday high on the Dow of 13170, the bellwether average is down 15.53% in only six weeks.

For the average investor that means that fear has suddenly become an unwelcome bedfellow in the long dark night.

To the contrarian investor, however, that same fear often becomes a market opportunity rather than a reason to stare at the ceiling all night. That's because when the herd is stirred too strongly in one direction it often gives experienced traders the green light to begin to nibble.

Of course, it is in these times of extremes that contrarians begin to closely watch the sentiment indicators known as the VIX indicator and the put to call ratio. Between them, they provide a look at how extreme those sentiments—either bullish or bearish—have become.

Then they simply bet against "the crowd".

The idea here is that if the wide majority believes that one bet is such a sure thing, they pile on. But by the time that happens, the market is usually ready to turn the other way.

Of course, as usual "the crowd" hardly ever gets its right. (So much for the rational market theory). So the smart money simply uses these two indicators as a sign to bet against them all.

It's counter-intuitive for sure, but it works nearly all of the time—especially in volatile markets.

Market Sentiment and The VIX Indicator

The more popular of these two sentiment indicators is the VIX indicator.

Using short-term near-the-money call and put options, the VIX measures the implied volatility of S&P 500 index options over the next 30 day period.

But because it is basically a derivative of a derivative, it acts more like a market thermometer more than anything else.

And like a thermometer, there are specific numbers within the VIX that tell the market's story.

A level below 20 is generally considered to be bearish, indicating that investors have become overly complacent. Meanwhile, with a reading of greater than 30, a high level of investor fear is implied, which is bullish from a contrarian point of view.

The smart thing to do then is to wait for peaks in the VIX above 30 and let the VIX start to decline, before placing your buy. As the volatility declines, stocks in general will rise and you can make big profits. You see it time and time again

In fact, the old saying with the VIX is, "When the VIX is high, it's time to buy." That's because when volatility is high and rising, that means the crowd is scared. And when the crowd is scared, they sell, and stock prices fall dramatically, leaving bargains for money making traders.

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The Put to Call Ratio

The put to call ratio (PCR), meanwhile is quite similar since it is also a measure of options activity. This correlation is why traders read the put call ratio along with the VIX to provide greater insight into market sentiments. Together, these two gauges are known on the Street as the "fear gauges".

The put to call ratio simply measures how many put options are bought versus call options.

Put options are bought by bearish speculators who expect falling stock prices, while calls are purchased by those who believe that prices will rise. Between them they provide a real time measure of the daily wars between the bull and the bears.

The formula for the PCR then is simple: it is the raw number of puts is divided by the corresponding number of calls. For instance, if there are 50,000 puts sold versus 100,000 calls the ratio is a tame 0.5. That to traders is neutral.

What they are looking for in this case are the more extreme numbers that belie the excessive market sentiments that can be used to bet against the herd.

The most authoritative number naturally comes right from the source, Chicago Board Of Exchange(CBOE) The exchange's equities put call ratio is what most options traders are referring to when talking about put to call ratios.

A low reading of 0.4 is bearish, while a high reading of 0.8 or better is typically bullish.

This is based upon the notion that option buyers are not the most successful traders, because those buyers typically lose about 80% of the time. That gives contrarian investors a bit of an edge since the options crowd is usually wrong.

The equity put to call measure, however, can be extremely volatile. As a result, traders typically smooth out this number out by using a 10 or 21 day moving average as a guide.

"Fear Gauges" the Market Crystal Ball

So that naturally the begs this critical question: What exactly are those "fear gauges" telling us now?

Well, with the VIX currently at 23.88 and the equity PCR at .77 neither index is giving off a strong sign that the markets are about to reverse course in the short term.

Conversely, during the March meltdown the VIX peaked at 35.60, while the equity PCR went as high as 1.35. That is a far cry from where we are now even though the overall declines this go round have been bigger.

That means that the broader market sell off could continue until these gauges tick much higher.

That's what contrarian traders will be looking for in the future as they try to forecast what could be a tradable market bottom.

Unfortunately, however, the herd isn't quite there yet.

Your bargain-hunting analyst,

Steve Christ

Chief Investment Analyst

The Wealth Advisory

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BIS: Global Economy Near a "Tipping Point"

According to a report released today by the Bank for International Settlements (BIS) the global economy has reached a "tipping point". The result says the group may be a far deeper crisis than is expected and a bout of deflation in the world's biggest economies.

The BIS, widely known as the central bankers' bank, said that food and energy inflation, high household debt, and a pullback in credit could lead to a slowdown in global growth.

Moreover, according to the BIS, deflation may be the ultimate worry after an episode of high inflation.

Nonetheless, its prescription calls for higher rates to tackle inflation said BIS General Manager Malcom Knight.

"Clearly, the downside risks for future growth complicate the task of monetary policy," he said in a speech to the BIS annual meeting. "But there must in the end be a forceful response to confront the danger that inflation expectations could rise appreciably, with all the attendant problems that would bring."

Here the skinny on the report.

From the Telegraph by Ambrose Evans-Pritchard entitled: BIS slams central banks, warns of worse crunch to come

"A year ago, the Bank for International Settlements startled the financial world by warning that we might soon face challenges last seen during the onset of the Great Depression. This has proved frighteningly accurate.

The venerable body, the ultimate bank of central bankers, said years of loose monetary policy had fuelled a dangerous credit bubble that would entail "much higher costs than is commonly supposed".

In a pointed attack on the US Federal Reserve, it said central banks would not find it easy to "clean up" once property bubbles have burst.

If only we had all listened to the BIS a long time ago. Ensconced in its Swiss lair, it has fired off anathemas for years, struggling to uphold orthodoxy against the follies of modern central banking.

Bill White, the departing chief economist, has now penned his swansong, the BIS's 78th Annual Report, released today. It is a disconcerting read for those who want to hope the global crisis is over.

"The current market turmoil is without precedent in the postwar period. With a significant risk of recession in the US, compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point," it said.

"These fears are not groundless. The magnitude of the problems yet to be faced could be much greater than many now perceive," it said. "It is not impossible that the unwinding of the credit bubble could, after a temporary period of higher inflation, culminate in a deflation that might be hard to manage, all the more so given the high debt levels."

Given the constraints under which the BIS must operate, this amounts to a warning that monetary overkill by the Fed, the Bank of England, and above all the European Central Bank could prove dangerous at this juncture.

Dr White says the US sub-prime crisis was the "trigger", not the cause of the disaster. This is not to exonerate the debt-brokers. "It cannot be denied that the originate-to-distribute model (CDOs, CLOs, etc) has had calamitous side-effects. Loans of increasingly poor quality have been made and then sold to the gullible and the greedy," he said.

Nor does it exonerate the watchdogs. "How could such a huge shadow banking system emerge without provoking clear statements of official concern?"

But there have always been excesses in booms. What has made this so bad is that governments set the price of money too low, enticing the banks into self-destruction.

"The fundamental cause of today's emerging problems was excessive and imprudent credit growth over a long period. Policy interest rates in the advanced industrial countries have been unusually low," he said.

The Fed and fellow central banks instinctively cut rates lower with each cycle to avoid facing the pain. The effect has been to put off the day of reckoning.

They could get away with this as long as cheap goods from Asia kept a cap on inflation. It seduced them into letting asset booms get out of hand. This is where the central banks made their colossal blunder.

"Policymakers interpreted the quiescence in inflation to mean that there was no good reason to raise rates when growth accelerated, and no impediment to lowering them when growth faltered," said the report.

After almost two decades of this experiment - more or less the Greenspan years - the game is over. Debt has reached extreme levels, and now inflation has come back to life."

To read the full BIS Report click here.

But don't do it before you go to bed.

The introduction is entitled: The unsustainable has run its course.

That about sums it up in a nutshell

Warren Buffett is Worried

With the market sell off now in officially in bear market territory, let's check in with what Warren Buffett is thinking these days.

The Dow, by the way, is now 20% off of its highs.

Buffett's worry? It's stagflation—That nasty combination of slow growth and high inflation

From Bloomberg by Josh P. Hamilton and Erik Holm entitled: Buffett Says He's Concerned About U.S. ‘Stagflation'

Billionaire investor Warren Buffett says he's concerned about ``stagflation,'' or slowing in the U.S. economy while inflation accelerates.

``We're right in the middle of it right now,'' said Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., in an interview on Bloomberg Television today. ``I think the `flation' part will heat up and I think the `stag' part will get worse.''

Buffett, the world's richest person, runs a company with a $72 billion stock portfolio and businesses ranging from candy to corporate jet leasing and insurance. He's said the U.S. housing slump has been a drag on Berkshire's earnings, adding today he's unsure when the economy will recover.

``It's not going to be tomorrow, it's not going to be next month, and may not even be next year,'' said Buffett, 77.

The U.S. economy will expand 1.4 percent in 2008, the weakest performance since 2001, according to a survey by Bloomberg. The Federal Reserve today left its benchmark interest rate at 2 percent, saying ``uncertainty about the inflation outlook remains high.'' Consumer prices rose 4.2 percent in the 12 months ended in May, the fastest pace since"

Of course, the last time we struggled with stagflation was in the 70's

So break out the bell bottoms, the black lights, and the Jiffy Pop. Climb into the magic bus and crank up the Doors. Chef Bernanke is driving.

He says we're just detouring the 30's but I don't believe him. The truth is he's got the wrong map.

This bus is headed back to the 70's.

Buckle your seat belts though... it could be a wild ride.

Mozilo Abdicates the Throne

At a shareholder meeting yesterday it all came to an end. Countrywide Financial slipped beneath the waves.

Meanwhile, CEO Angelo Mozilo rowed quietly away hoping to be left alone to spend his millions.

But inside he just had to be laughing—all the way to the bank.

After all, he has come along way from making sausages and sweeping floors.

Here's the skinny on yesterday's shareholder vote.

From BusinessWeek by Christopher Palmeri entitled: At Countrywide's End, an Emotional CEO

"A subdued Angelo Mozilo got choked up at the last shareholder meeting for Countrywide Financial (CFC). Nearly 70% of Countrywide shareholders approved the firm's sale to Bank of America (BusinessWeek.com, 1/11/08) at the June 25 meeting. The deal-now valued at $2.8 billion-is expected to close July 1.

Mozilo, a butcher's son who co-founded Countrywide nearly 40 years ago, called the event "clearly an end of an era" and promised Bank of America (BAC) shareholders they would "reap the benefits of what we have sowed." At one point Mozilo got emotional, reached for a water bottle and said "Excuse me, this is one of the drawbacks to being Italian." Then after taking a drink, he added, "the only one."

At the end of his speech Mozilo received a short and somewhat hesitant standing ovation from the few hundred people in the auditorium, most of whom appeared to be Countrywide employees.

The entire meeting lasted barely 18 minutes and guests were promptly escorted from the meeting room. The haste of the event left some shareholders disappointed. "It would have been nice to give shareholders a little more meat," said William Rehwald, an investor from Santa Monica, Calif. "Tell us what the synergies are. Pitch the sale."

Scott Adams, a regional coordinator with the American Federation of State, County and Municipal Employees's pension fund, came prepared with a speech he did not get to read. Adams said the union had unsuccessfully pushed for resolutions giving shareholders the ability to vote on executive pay packages. Adams scoffed at Mozilo's claim that Countrywide's efforts had kept 143,000 troubled borrowers in their homes. "He said they made 22 million loans; 143,000 is not a whole lot," he said."

So I guess congratulations are in order for Bank of America and CEO Ken Lewis. They finally grabbed the brass ring.

It's comical I tell ya.

The approval came as two states sued Countrywide and its chief executive, Angelo Mozilo, accusing the firm of systematically deceiving borrowers to get them to take on risky products the couldn't really afford.

By the way, here's a chart of Bank of America. Apparently, this is only a deal a CEO could love.

Nuclear Energy Stocks

Whether you agree with him or not, you have to admit that John McCain is the best friend that the U.S. nuclear power industry has these days.

In fact, the entire industry had to have been practically bowled over with glee recently when he called for a crash program to build 45 new reactors by 2030 along with a long-term goal of building 100 such plants.

It was enough to make the "no-nukes" crowd wince. Meanwhile, holders of nuclear energy stocks applauded.

But McCain's love of nuclear power isn't just some newfound crush in the wake of $4 a gallon gasoline. McCain has always been aglow about nuclear power.

Maybe it was all of that time he spent in the Navy aboard ships that never had to be refueled. Or maybe it is just because he recognizes that there is no realistic solution to our energy problem that doesn't include nuclear power — especially when you factor in the possibility that cap and trade could become reality.

Either way, McCain has put the U.S. nuclear industry back on the front page again. And this time, the public seems to agree with him.

The Nuclear Revival: Paving the Way for Nuclear Energy Stocks

In fact, according to a recent poll by Zogby, about 67 percent of Americans support building more nuclear power plants to expand the nation's energy portfolio.

Those figures represent a stunning reversal of fate for an industry that was dead and buried only a few years ago.

Even Barack Obama has joined in, saying that while nuclear power was "not a panacea", it is worth investigating its further development.

So in true campaign style, he's all for nuclear power, except of course when he's against it. Go figure.

Now before any of you political junkie types decide to send me some nasty email about what I have said so far, don't even bother. I don't have a horse in this race. My political idealism was crushed a long time ago under a mountain of broken promises.

To me government is nothing but a giant and corrupt black hole. In it, light doesn't stand a chance.

Even still, putting your political viewpoint aside, it would be hard to argue that nuclear power doesn't have a certain amount of inertia going for it these days.

The shadow of those cooling towers has definitely dimmed and thirty years later nuclear power in the U.S. is back. And in the wake of Three Mile Island, the U.S. is now playing catch up with the rest of the world where nuclear power never left.

Of course, that is something of a larger theme here lately. While the rest of the world has been doing everything in their power to find and develop more energy sources, we have done nothing but twiddle our thumbs.

So here we sit, in an economy pushed to the brink by high energy prices and inaction. And if you want to know why I'm so cynical about politicians that's part of it—they do absolutely nothing until there is a crisis.

As a result, no nuclear power plants have been built in America in more than 30 years, and few U.S. companies have invested in the technology to build new plants. That's true even though the U.S. draws about 20% of its electricity from 104 working commercial reactors.

The Oil Industry's Unlikely Hero

The world's oil titans are running from the reaper. From Venezuela to Nigeria to Iraq, the situation is grim.

Now, Libya's Col. Muammar Qaddafi has come in from the diplomatic cold and brought the cleanest oil in the world with him.

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High Energy Prices Add Up to More Nuclear Power

Now I admit part of the reason for this has been economic. Twenty years of cheap oil and natural gas has certainly played a role. But those days are over now, leaving only the fear of nuclear power to conquer to complete the comeback.

Now consider this the next time you open up your power bill...

The US Department of Energy reports nuclear power costs 1.72 cents per kilowatt-hour (including operations and maintenance costs). Now compare that to:

Coal at 2.37 cents per kilowatt-hour;
Natural gas at 6.75 cents per kilowatt-hour; and
Oil at 9.63 cents per kilowatt-hour

That's part of the economic math that has seventeen companies preparing license applications for as many as 31 new reactors. That's in addition to the 15 construction and operating permits already under review by the US Nuclear Regulatory Commission.

In fact, four to eight new nuclear plants are on track to be in operation by 2016-17.

Of course that doesn't exactly match the 112 new nuclear reactors that were built between 1957 and 1990, but it is a start. Moreover, it is a far cry from the 124 reactors that were cancelled partially as a result of Three Mile Island.

So clearly the tide on this issue is turning.

2 Ways to Win with the Nuclear Energy Stocks

For investors that means a following a growth trend that is already firmly in place in the rest of the developing world. All told, about over 30 new reactors are under construction in 12 countries with over 100 new plants currently being pursued.

Here are two easy ways to play the trend by buying shares of these two exchange traded funds:

Market Vectors-Nuclear Energy ETF (AMEX:NLR)-This fund is down off of its uranium based highs in 2007. But with uranium prices now projected to go as high as $90 a pound this heavily materials weighted EFT is rising.
PowerShares Global Nuclear Energy (NYSE:PKN) - A relative new fund, PKN allocates 47% to industrials, 24% utilities, 15% to mining along with an almost 10% weight to technology. That makes this less susceptible to uranium prices than NLR, which devotes 33% of its holdings to mining.

But no matter how you decide to invest in this trend, I think its pretty obvious that the nuclear renaissance has begun—no matter who wins the election.

Your bargain hunting analyst,

Steve Christ

Chief Investment Analyst

The Wealth Advisory

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Dow Does it Again...Tack on Another 25%

Heading into today's FOMC meeting on interest rates, there is a least one CEO of a major American company screaming for rate hikes.

He is the CEO of Dow Chemical Company, Andrew Liveris.

The last time I wrote about Liveris was less than a month ago, when he decided that his company had no other choice but to raise prices 20% across the board. His input costs (read the price of oil), he complained had simply become too high crushing his margins.

Needless to say he was not in good mood, even though he was now passing some of those costs along to consumers.

Since then it has only gotten worse for Mr. Liveris. His costs continue to rise.

So he hit the news again yesterday, announcing yet another 25% increase in his prices across the board.

Now for those of you counting at home that makes for a 45% increase in prices handed down to the consumer by Dow Chemical in about three weeks.

That has Liveris talking also about rate hikes today.

Here's what he told the Nightly Business Report's Suzanne Pratt on the matter yesterday. The full transcript can be read here.

PRATT: As you know, the Federal Reserve is meeting in Washington to discuss interest rate policy today and tomorrow and there's expected to be an announcement. Do you think a hike in interest rates if that were to come, maybe not at this meeting, but at a future meeting would help with the inflation problem in this country right now?

LIVERIS: Well, I think that's the only thing monetary policy can do whether it's here or overseas. Frankly, there's very few levers left and that's the only one. You really got to look at the whole interest rate thing as saying it went down all the way down to really help the financial crisis. Now that this energy crisis is affecting consumers and sheer wallet is affecting demand. People aren't spending. People aren't driving. Really, you need to look at ways to control what's happened in the inflationary world and really take the risk that by raising rates, you may actually cause some demand to go week weaker. I think it's back to where Paul Volcker was in the early '80s. There's a real risk here and we've got stagflation. You can only break out of it one way and you better take on inflation head-on.

But whether or not Liveris gets his wish today (not likely), hiking prices is nothing more than a business decision for the chemical giant.

Here's the skinny.

From the New York Times by Abah Bhattarai entitled: Dow Chemical Raises prices for a Second Time in a Month

"The Dow Chemical Company said Tuesday that it was raising prices for the second time in a month to offset a "relentless rise" in energy costs, a sign that companies may increasingly have to pass on price increases to their customers.

The increase of as much as 25 percent - the largest in the company's history - comes after a 20 percent rise last month that the company said did not go far enough given the continuing surge in energy prices.

Dow, which makes products ranging from pesticides to plastic wraps, also said it would impose freight surcharges of $300 for each truck shipment and $600 for each rail shipment beginning Aug. 1 in the United States. In addition, it will scale back production in plants across North America and Europe.

Andrew N. Liveris, the company's chairman and chief executive, said the changes were "extremely unwelcome but entirely unavoidable" as oil and natural gas continue to set records. Oil prices are up more than 40 percent this year and have risen $9 a barrel since Dow's earlier price increase. Natural gas is up more than 70 percent this year.

"There came a point where the surge became so ridiculous that we had to raise prices," Chris Huntley, a company spokesman, said, adding that the latest price increase would affect everything from fabric and cushions to CD cases, Styrofoam and car parts.

Analysts said they expected other companies to follow suit. When Dow announced last month's increases, it spurred a series of similar increases by other chemical manufacturers, including DuPont and BASF."

It promises to be an interesting year. Let's hope the Fed gets it right

Greenspan: "We are on the Brink"

Is it just me or has Alan Greenspan become the guest that wouldn't leave?

I mean don't get me wrong. I just love the guy. He is kind of cute and cuddly in a grandfatherly way. And I hear he used to blow a pretty mean saxophone back in the day, which is a big plus in my book.

Heck, he even dated Barbara Walters for a time before he settled down with Andrea Mitchell—a total ladies man.

But here's what I really love about the guy. He bailed his banker buddies out of the tech slide by creating an even bigger bubble in housing, one that threatens to take us all into the abyss. Now that takes some real talent.

Of course, Alan won't exactly own up to but it is true—without his tenure at the Fed the biggest bubble in U.S. history never could have happened. A 1% Fed funds rate for 12 months was all that housing needed to become wildly overvalued, and Alan was more than willing.

He even managed to be completely asleep at the wheel, when the banking industry threw away 40 years of banking wisdom under his watch in an idiotic reach for more profits.

And let's not forget that he suggested that adjustable rate mortgages were the way to go at the exact time those rates bottomed.

But now that he has stepped down from the Fed, he hasn't exactly ridden off into the sunset.

In fact, on Tuesday he warned that the U.S. economy was on the brink of a recession, with the chances of that happening now at more than 50 percent.

Moreover, he remarked a quick recovery was unlikely. "A rebound at this stage is not something I think is in the immediate outlook," he said.

But that's not all. He also took the occasion as an opportunity to try to rewrite history again, saying he did not believe his low rates created the housing bubble. "As far as I'm concerned, the data do not support it. The housing bubble is clearly an international phenomenon," he said.

And you thought all housing was local.

Of course, that is little better than blaming it all on the fall of the Berlin Wall like he did a few years ago.

Meanwhile, the bubble that he created continues to unwind crushing home values every step of the way down.

In fact, here's the latest data from the Case/Shiller Index. It was released this morning and it not pretty.

From Reuters by Lynn Adler entitled: Home prices extend record slide in April: S&P

"Home prices extended their record slide in April, with every top metropolitan area now posting annual losses and many showing double-digit declines, according to the Standard & Poor's/Case Shiller home price index report on Tuesday.

However, the monthly pace of the decline showed some moderation.

The S&P/Case Shiller composite index of 20 metro areas fell 1.4 percent in April from March and slumped by a record 15.3 percent over the year.

Bigger declines of 2.0 percent in the month and 15.9 percent from April 2007 had been expected for the 20-city index, according to the median forecast of economists polled by Reuters.

The 20-city month-over-month decline was the smallest drop since the August-September 2007 period.

S&P said its composite index of 10 metro areas slid 1.6 percent in April for a record 16.3 percent annual drop.

Home prices in a dozen of the metro areas have fallen for eight straight months.

"If there is anywhere to look for possible improvement, it would be that the pace of monthly declines has slowed down for most of the markets," David Blitzer, chairman of the Index Committee at S&P, said in a statement.

Still, 13 of the top 20 metro areas are posting record annual declines and price losses are in the double digits for half of the areas, S&P said.

A slower pace of decline is encouraging, but "the bad news is that the price is still declining," said Richard DeKaser, chief economist at National City Corp in Cleveland.

"The potential is a vicious cycle which we may already be experiencing. Falling home prices are leading to more foreclosures, which cause a further decline in prices," he added.

"It's going to be a slow process, but the less overblown markets will stabilize first and we're getting a hint that that's beginning to happen," said Pierre Ellis, senior economist at Decision Economics. "Ultimately, with a very long lag, the serious bubble markets will settle down, too, but not in a time frame that is meaningful for markets now."

"The Maestro" my foot.

So is it just me or has Alan Greenspan overstayed his welcome?

I, for one, have heard enough.

What say you?

By the Way....Did you know that Alan Greenspan works for PIMCO? He does, and for some reason he always seems to show up with an arguement for rate cuts on the same day that the FED begins thier FOMC meetings. PIMCO by the way hates the idea of rate hikes.Go figure, its bad for bonds.

Here's what PIMCO's Paul McCulley has to say about them. It is an interesting read to say the least. It is entitled: A Kind Word For Inflation

Bernanke's Box

In the face of high prices for practically everything these days, the inherent evils of inflation deliver a tough lesson in every trip to the cash register.

Inflation, after all, is a pervasive danger that is hard to stop once it gets started. That's because high costs destroy the very price stability that markets thrive on.

Without them there is nothing but market chaos, since price rapid price fluctuations in one market inevitably wash over into other areas—-swamping them too.

That's why the folks of our own Federal Reserve talk tough about inflation once in a while-even if they don't really mean it.

The problem with this approach, however, is pretty simple: When the Fed chooses to ignore inflation, it opens up a Pandora's box.

Of course, you may remember the story of Pandora. She was the first woman according to the Greeks.

Zeus sent her down to earth with a box of troubles in her suitcase, to get even with those rotten men. And before she left, he told her one thing, "What ever you do, don't take the lid off of that box I gave you." With that he sent her on her way.

Of course, it wasn't long after that when Pandora opened up the box and the evil that it contained was loosed upon the earth.

Now, fast forward a few of thousand years, and the Federal Reserve has done practically the same thing. Six years of rate cuts and monetary hi-jinks have unleashed a pestilence of their own.

And with food and energy prices going now through the roof, the Fed has now given us a problem that can't be easily reversed. Price inertia, after all, has a ripple effect.

Here's a perfect example of what I'm talking about.

It comes from the grocery aisle, where the pain now promises to become much worse.

From AP by Stevenson Jacobs entitled: Record corn prices mean more expensive meat, dairy.

"Raging Midwest floodwaters that swallowed crops and sent corn and soybean prices soaring are about to give consumers more grief at the grocery store.

In the latest bout of food inflation, beef, pork, poultry and even eggs, cheese and milk are expected to get more expensive as livestock owners go out of business or are forced to slaughter more cattle, hogs, turkeys and chickens to cope with rocketing costs for corn-based animal feed.

The floods engulfed an estimated 2 million or more acres of corn and soybean fields in Iowa, Indiana, Illinois and other key growing states, sending world grain prices skyward on fears of a substantially smaller corn crop. The government will give a partial idea of how many corn acres were lost before the end of the month, but experts say the trickle-down effect could be more dramatic later this year, affecting everything from Thanksgiving turkeys to Christmas hams.

Rod Brenneman, president and chief executive of Seaboard Foods, a pork supplier in Sawnee Mission, Kan. that produces 4 million hogs a year, said high corn costs were already forcing producers in his industry to cut back on the number of animals they raise.

"There's definitely liquidation of livestock happening," and that will cause meat prices to rise later this year and into 2009, said Brenneman, who is also the vice chairman of the American Meat Institute.

Even before the floods, Tyson Foods was complaining that high grain prices would drive up its costs by $600 million this year. The world's largest poultry company has already raised its prices over the past year, and expects to keep raising them, CEO Dick Bond told analysts at a conference in May.

Higher feed prices will eventually filter through to the cost of milk, cheese and yogurt, too, since 65 to 75 percent of a dairy farmers' production costs are for feed, said Chris Galen, a spokesman for the National Milk Producers Federation.

"If we all feed less corn and get less production, then the price at the grocery stores are going to go up," said Rice, who supplies milk to grocery stores in Omaha and around Kansas City.

Without easy ways to cut costs, many livestock producers will have little choice but to slaughter more animals and send them to market.

"We're in survival mode now," said Paul Hill, chairman of West Liberty Foods, a turkey processor based in West Liberty, Iowa. He estimated U.S. turkey producers will reduce their flocks by 10 to 15 percent nationwide, a cutback that will send consumer prices dramatically higher.

"The cost of Thanksgiving and Christmas turkeys will go up this year, and maybe even more next year," said Hill, who is also the chairman of the National Turkey Federation.

If corn were to rise to $10 a bushel, Richard Lobb, spokesman for the National Chicken Council, said recouping costs through higher retail prices may not be possible.

"Can you possibly charge enough for the chicken to recoup that investment?" he said. ‘That's a question no one can answer yet because it's never been done.'"

Now that is one scary statement.

But that is the kind of market wrenching unpredictability that you turn loose with inflation.

By the way, in common terms, to open a Pandora's Box means to unwittingly unleash chaos on yourself and those around you.

The inflation box is one that Bernanke should have never opened.

But even in Pandora's story there was still Hope left in the box.

Let's hope the Bernanke gets it right this week—battling inflation has to start somewhere.

Energy Bull Market

With the cost of gasoline skyrocketing and practically every politician in America on the drilling bandwagon, it would seem as though Peak Oil is finally beginning to dawn upon all of its doubters.

It was as if crossing the $130 mark on oil was akin to crossing the Rubicon.

You may remember the story...

It was the 49 BC crossing of a small stream in Northern Italy by Julius Caesar and his army that made a bloody civil war all but inevitable for ancient Rome. Crossing the stream, Caesar remarked, "A lea iacta est," or, "The die is cast."

Otherwise known as... the point of no return.

That, in a way, is what the energy markets are pricing these days as people come to the realization that Peak Oil isn't the work of some lunatic fringe. It's real, and it's here.

Case in point:

Just last month the Paris-based International Energy Agency (IEA) made an announcement that shook the energy complex. The group stunned the markets when it revealed that it's preparing a sharp downward revision of its oil-supply forecast.

And while its findings won't be released until November, the message of the group was crystal clear: Crude-oil supplies are far tighter than previously thought!

That was a stunning reversal for a group that had basically said supply would meet demand on into the year 2030.

The group predicts 116 million barrels a day are in demand, but worries that oil supply will struggle to break over 100 million barrels a day over the next two decades... due to oil production declines.

So, then, how much investment does the IEA think it will take to smooth out this huge supply and demand imbalance?

Well, here's what they said last year, in response to the Peak Oil crisis. According to their World Energy Outlook report, "Some $22 trillion of investment in supply infrastructure is needed to meet projected global demand."

Now think about that figure for a moment, because it is as enormous as it is mind boggling.

And now consider this.

That was long before this shocker from Fatih Birol, the IEA's chief economist. In its most recent report, Birol said, "One of our findings will be that the oil investments required may be much, much higher than what people assume," he said. "This is a dangerous situation."

So $22 trillion is just the starting point on a journey that could easily double this astonishing figure.

Either way, that's enough needed investment in the energy complex to keep it going for many, many years to come. That's why we're so bullish on energy in general, including natural gas.

Let's face it. When the price of oil doubles in a year, and natural gas jumps by 136% in 10 months... the business of finding and drilling for energy becomes white hot.

That's why all of the unconventional shale plays in the Bakken, Haynesville, Fayetteville, the Barnett, and more recently the Marcellus shale, have all gone hyperbolic. You see, they're ready to produce energy right now... not in some time frame so far down the road that the market can't even see it!

Consequently, shares of the majors like ExxonMobil and Royal Dutch Shell have barely budged, while smaller players like Continental Resources Inc (NYSE:CLR) have jumped out of the box.

But don't just take it from me. Give these charts a quick look, and tell me which one you'd rather have bought a year ago.

It's no contest.

But it's not just the exploration and production companies in unconventional oil that have seen their shares rise. The oil services companies that work with them-the ones extracting all the energy-have benefited as well.

You see, shale is "tight rock," making it difficult to extract without some serious help. As a result, the rock itself needs to be fractured or cracked all along the well before the oil or natural gas can flow from it.

Moreover, before the fracturing can take place, it takes 3-D seismic mapping and horizontal drilling techniques to hit the energy-rich layers of shale buried deep underground.

However, when these techniques are successful, the result is an oil or gas well that can basically print money.

That's what Richard Findley and his partners ended up with eight years ago in their Elm Coulee site. Findley and his group were the first to successfully tap what has become known as "The Bakken"... long after Big Oil gave up and went home.

Since then, the Elm Coulee area is believed to contain some 250 millions barrels of oil, making it the biggest find in the lower 48 states in the last 56 years.

Now let's do the math on that one.

It would be 250 million X 130.00, or $32.5 billion. That's 325 followed by eight zeroes... not a bad haul for an area abandoned by the big boys.

So it's no surprise that the share prices of the companies involved in all the new drilling are firmly in a bull market.

Still, there are many other profit plays that the majority of investors aren't privy to.

In fact, I've closed 10 positions in The Wealth Advisory with seven winners averaging a 29.69% gain. Here's what we've done so far:

Adobe Systems Inc. (ADBE: NASDAQ) closed with a 32.28% gain in 11 weeks.
Converted Organics Inc. (COIN: NASDAQ) closed with a 42.11% gain in two weeks.
FXP UltraShort FTSE/Xinhua China 25 Proshare (FXP: AMEX) closed with a 27.23% gain in four weeks.
Morgan Stanley China - SHORT POSITION (CAF: NYSE) a 32.51% gain in four weeks.
PowerShares DB Commodity Idx Trking Fund (DBC: AMEX) a 14.26% gain in eight weeks.
PowerShares DB Energy (DBE: AMEX) a 15% gain in nine weeks.
VMware Inc. (VMW: NASDAQ) a 44.44% gain in eight weeks.

And that's just the tip of the iceberg, considering what's going on in the energy markets.

Make no mistake... The energy bull market still has room to run. After all, when you cross the Rubicon, there is no telling what might happen.

Your energy-loving analyst,

Steve Christ

Chief Investment Analyst
The Wealth Advisory

PS. The Wealth Advisory team has uncovered a new oil and gas play with a fast-growing business model that's taking the unconventional O&G world by storm.

The Bakken, Barnett, Haynesville, Fayetteville, the Marcellus... and even Russia. You name the hot spot, and its products and services are being used there.

The best part is... The company's share price is on the verge of a major break out that could give it a 25% gain or better... even in this down market.

Click here to find out more about this company, and to learn how you can grab your slice of the $22 trillion pie.

http://www.angelnexus.com/o/web/6369

The Market Storm Returns

With the Dow now down over 200 points today, I thought that it would be a good idea to review exactly how we got here.

But since its Friday I have decided to take a big short cut.

Here's a bit that I found on YouTube. I hope you enjoy it.

Any Questions?

FBI Nails 400 Mortgage Fraudsters

With the housing market now a smoking ruin, the Feds have had their hands full lately with mortgage fraud.

But the wheels of justice are slowly turning as the Feds close in on housing crimes. And while it may not exactly be Bonnie and Clyde or Bin Laden, the dragnet is getting tighter.

Here's an update on what the G-men have been up to lately.

From Bloomberg by Robert Schmidt entitled: U.S. Charges 400 in Mortgage Frauds, Justice Department Says

"More than 400 people have been charged in a federal roundup targeting mortgage fraud, the Justice Department said.

FBI Director Robert Mueller and Deputy Attorney General Mark Filip will announce the national crackdown, dubbed Operation Malicious Mortgage, this afternoon in Washington. Nearly 300 people have been arrested thus far in cities ranging from Chicago to Dallas to Miami, department officials said.

The sweep began in March and authorities estimate that victims lost more than $1 billion as a result of the frauds, which include schemes to cheat lenders, rip-off people facing foreclosure and the filing of fraudulent bankruptcy claims. Targets include real-estate agents, lawyers, appraisers and borrowers.

``Mortgage fraud and related securities fraud pose a significant threat to our economy, to the stability of our nation's housing market and to the peace of mind of millions of American homeowners,'' Filip said in a statement.

Also today, two former Bear Stearns Cos. hedge-fund managers were arrested at their homes after being indicted by a federal grand jury in Brooklyn. They face conspiracy, wire fraud and securities fraud charges for their roles in the collapse of hedge funds that helped ignite the subprime meltdown.

The Federal Bureau of Investigation has opened more than 1,300 mortgage-fraud cases, many related to subprime loans made to people with poor credit. The credit collapse has forced hundreds of thousands of people from their homes because of foreclosures and triggered almost $400 billion in losses and writedowns on Wall Street.

The FBI has struggled to keep pace with the growing number of mortgage cases and earlier this month ordered 26 field offices to stop opening some financial fraud investigations so its agents could focus on the subprime crisis."

I wonder if Angelo Mozilo is starting to get nervous yet.

Bakken Oil Drilling

You may have never heard of a man named Richard L. Findley, but without him the Bakken oil formation might be nothing but a big dry hole.

At least that's what the majors such as Royal Dutch Shell, Gulf Oil, and Texaco Co. believed in the mid- 90's.when they packed up their gear and headed home.

But that didn't stop Findley. Undeterred, the geologist and "wildcatter" pressed on. And after scrutinizing years old drilling records, it finally hit him— the big oil companies were simply drilling in the wrong direction.

According to Findley, instead of drilling into the oil rich layer of the Bakken formation, they had mistakenly gone right through them. In the process, they missed an underground river of high quality crude that was by his estimation 50 miles long and 12 miles wide.

That left a mother lode of oil that had yet to be pumped, leaving billions of dollars underground.

The bigger question though was how to actually get at it.

After all, drilling the Bakken oil formation was unconventional to say the least. That's why the giants gave up on it after sticking their straws in the ground and coming up with little more than a trickle.

However, working with Lyco Energy Corp and the drilling expertise of Halliburton, the Findley group finally managed to solve that puzzle too. In May 2000 they hit pay dirt using computer-controlled rigs, horizontal drilling techniques and hydraulic fracturing.

The rest as they say is history. The Bakken formation had finally been successfully tapped.

What has followed in the region since then has been a mad rush to pump more of that oil—especially in the face of $130 plus a barrel crude. According to some estimates, the Bakken Formation could hold more than 400 billion barrels of recoverable oil.

And with the hue and cry of $4.00 a gallon gas beginning to grow louder and louder unconventional oil shales like those in the Bakken formation have become drilling hotspots.

In fact, according to industry experts, unconventional oil like—that in the Bakken and other fields— is expected to supply more than 20% of global demand by 2025. Moreover, according to the forecasts, unconventional gas will account for over 40% of U.S. gas supply by 2010

The Only Way to Wean Ourselves Off Oil

Expert energy investment banker Matt Simmons recently said that ocean energy could "become the only real way to begin weaning ourselves from what will soon become clear peaking of global oil and gas." And he would know; Simmons served as energy advisor to Bush during his first term.

As ocean energy makes its way into the mainstream, a few companies stand to make a fortune. One small Canadian company, in particular, has the potential for fivefold growth in the next year.

Read all about the profitable details in this report.

Drilling in the Bakken Oil Shale and Beyond

But whether that unconventional energy comes from the Bakken, Haynesville, Fayetteville, the Barnett, or more recently the Marcellus shale, successfully extracting the oil and gas from these regions is done primarily with the same basic techniques that Findley's group used to great success in 2000.

First the formations are mapped. Using 3-D seismic technology, layers of gas and oil are located and defined, giving the drillers solid targets and fewer dry holes.

Once mapped, the formation is drilled vertically first and then horizontally into the target layers rather than through them. That gives the well access to thousands of feet of resource rather than the hundreds of feet typically encountered in a vertical well.

The result, is increased production rates and higher rates of return on capital. More oil and gas simply means more dough.

Moreover, the combination of the seismic mapping and horizontal drilling gives companies access to resources in places where drilling is unwelcomed, such as under shopping centers and stadiums. In fact, much of action in the Barnett Shale is actually in and around Fort Worth, Texas, accessible only through horizontal directional drilling.

Zilch without Hydraulic Fractures

Even still despite the advances in mapping and directional drilling, coaxing oil and gas out of formations like the Bakken and Barnett is loser without hydraulic fracturing techniques.

That's because shale is a "tight rock", making it difficult to extract without some serious help. As a result, the rock itself needs to be fractured or cracked all along the well before the oil or natural gas can flow from it.

In hydraulic fracturing, a water and sand mix is typically is injected into the well under very high pressure. The pressure eventually exceeds the strength of the rock and it shatters, sort of like a broken windshield. That not only releases the oil and gas, but gives it a path to the production well.

Once fractured, a "propping agent" such as sand or ceramic beads is pumped into the fractures to keep them from closing up once the pumping pressure is released. After all, at such great depths and pressures, the fractures would slam shut without the proppant defeating its purpose.

The result is an oil or gas well that can basically print money if the combination of these techniques is successful.

That's what Richard Findley and his partners ended up with in their Elm Coulee eight years ago. Since then the area is believed to contain some 250 millions barrels of oil, making it the biggest find in the lower 48 states in the last 56 years.

Hmmm. Now let's do the math on that one. It would be 250 million X 130.00 or $32.5 billion. That's 325 followed by eight zeroes, not a bad haul for an area abandoned by the big boys.

For investors that means that profiting in unconventional oil and gas plays like the Bakken and the Barnett can be accomplished with investments in the exploration and production companies that are working these regions. They include: Continental Resources Inc (NYSE:CLR), XTO Energy Inc. (NYSE:XTO), and Chesapeake Energy Corp. (NYSE:CHK)

But don't forget to consider investments in drilling services. Because it is companies like Allis-Chalmers Energy Corp. (NYSE:ALY) , Superior Well Services Inc.(NASDAQ:SWSI) and others that coax all of that oil and gas out of those "tight rocks" to begin with. Not surprisingly, sales in this segment of the business are booming.

And to think it all began in part, with a dream and guy named Richard Findley.

It's amazing what you can find when you think out side of the box.

Your energy-loving analyst,

Steve Christ

Chief Investment Analyst

The Wealth Advisory

PS. The Wealth Advisory team has uncovered new oil and gas play with a fast growing business model that is taking the unconventional oil and gas world by storm.

The Bakken, the Barnett, Haynesville, Fayetteville, the Marcellus and even Russia. You name the hotspot, and its products and services are being used there.

The best part is the company's share price is on the verge of a major break out that can give it a 25% gain or better-even in a down market. To buy this company before the break out click here.

Wall Street Fraud

One of the great canards in the fall out from the mortgage debacle is the idea that no one charge could have known that this was going to happen.

A canard incidentally is a French word meaning duck.

It is used in English to refer to a story that is deliberately false or misleading. Its use originates from an old French idiom, "vendre un canard à moitié," meaning "to half-sell a duck."

In other words, it's a fancy way to say something is BS.

Of course, the real truth about who might have known is otherwise. Lots of people saw this coming from a mile away.

In fact, most of them knew it long before the term "sub prime" became the word of the day.

But in the shark infested waters of Wall Street, closing the beaches simply wasn't an option.

So the con game went on long after it should have ended—even though everyone knew what was beneath the waves.

But when there is so much money involved in the game, greed trumps common sense every time.

Here, by the way, is a great story on the mortgage mess from NPR. It points the blame towards those on the Street that kept the game going.

It is by Chris Arnold entitled: Auditor: Supervisors Covered Up Risky Loans.

"Tracy Warren is not surprised by the foreclosure crisis. She saw the roots of it firsthand every day. She worked for a quality-control contractor that reviewed subprime loans for investment banks before they were sold off on Wall Street.

It was her job to dig into the loans and ferret out problems. By 2006, they were easy to find.

"I'd see people who were hotel workers saying that they made, in California, making $15,000 a month so that they could qualify for a $500,000 home," Warren says. "If a hotel worker is making $15,000 a month changing sheets at the Days Inn, everybody would want to do it. It just really made no sense."

Warren has worked in the mortgage business for 25 years, the past five in quality control. Most recently, she was a contract worker for a company called Watterson-Prime, which did loan audits for investment banks. She says their biggest client was Bear Stearns, which recently all but collapsed because of its exposure to bad loans.

Warren thinks her supervisors didn't want her to do her job. She says that when she would reject, or kick out, a loan, they usually would overrule her and approve it.

"The QC reviewer who reviewed our kicks would say, 'Well, I thought it had merit.' And it was like 'What?' Their credit score was below 580. And if it was an income verification, a lot of times they weren't making the income. And it was like, 'What kind of merit could you have determined?' And they were like, 'Oh, it's fine. Don't worry about it.' "

After a while, Warren says, her supervisors stopped telling her when she had been overruled. She figured it out by going back later and pulling the loans up on her computer.

"I would look every couple of days, and just see, if it was a loan that I thought was a bad loan, I'd go back and see if it was pulled."

About 75 percent of the time, loans that should have been rejected were still put into the pool and sold, she says.

Some legal experts say it's a pretty big deal that people like Warren are willing to talk.

"This is a smoking gun," says Christopher Peterson, a law professor at the University of Utah who has been studying the subprime mess and meeting with regulators. "It suggests that auditors working for Wall Street investment bankers knew how preposterous these loans were, and that could mean Wall Street liability for aiding and abetting fraud."

Peterson said auditors like Warren basically were hired to find the bad apples in the barrel and pull them out: borrowers with payments they couldn't afford, houses with inflated appraisals, people lying about their income.

But Warren says her bosses were taking a lot of those bad apples and putting them back in. And Peterson says he thinks the investment banks had a strong financial incentive to do that.

"They put the bad apples back in the barrel because they knew that they could sell the bad apples along with the good apples and, at least in the short term, nobody would know the difference. That's why they put them back in - because they made more money that way," Peterson says.

"There's a name for this - it's called 'passing the trash,' " says David Grais, an attorney getting ready to sue Wall Street firms on behalf of investors - big pension funds and others - who bought the bad loans."

This was no boating accident.

Homebuilders Remain Gloomy

Here's the latest reading on how the the homebuilders themselves are feeling about their industry these days.

It turns out they are gloomy lot.

Here's the skinny.

From Bloomberg by Timothy R. Homan entitled: Homebuilder Confidence Index Unexpectedly Fell to 18

"Confidence among U.S. homebuilders unexpectedly dropped this month, signaling the housing slump may worsen.

The National Association of Home Builders/Wells Fargo sentiment index fell to 18, matching a record low, from 19 in May, the Washington-based group said today. The index first reached that level in December. Readings under 50 mean most respondents view conditions as poor.

Stricter lending rules and rising foreclosures are hurting sales, prompting construction companies to cut back on new projects. Declining demand may also force builders to drop prices even more, adding to mounting losses.

``The imbalance between housing demand and supply has grown as sales continue to fall and inventory remains high,'' Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York, said before the report. ``We expect residential investment to be a drag on growth though year-end.''

The measure of current single-family home sales was unchanged at 17, also the lowest ever. Projections for sales six months from now were also unchanged at 28 in June.

``Housing still occupies a major place in this ongoing, rather unique and rather strange economic slowdown,'' David Seiders, chief economist at the builders' group, said in a conference call. ``I do expect the sales volume to erode somewhat further in the months ahead.''

Tomorrow, a Commerce Department report may show housing starts in the U.S. dropped 0.5 percent to an annual pace of 980,000 in May, according to the median forecast in a Bloomberg survey of economists. Starts reached a 17-year low rate of 954,000 in March."

So are the home builders attractive buys at thier current levels?

Well not hardly if you take a realistic look at their future numbers.

In fact, at this point they still look like they are nothing more dead money value traps.

By the way, here are my 2009 projections for the share prices 6 of the biggest homebuilders in the country: Home Builder "Value Trap" Stocks

Foreclosures Soar...Again

Here's the latest news from the foreclosure front. The number of homes in default continues to worsen.

Here is the skinny.

From AP by Alan Zibel entitled: US foreclosure filings surge 48 percent in May

"Soaring foreclosures are continuing to raise questions about the mortgage industry's claims that lenders are making a dent in the housing crisis.

Foreclosure filings last month were up nearly 50 percent compared with a year earlier. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month last year and up 7 percent from April, foreclosure listing service RealtyTrac Inc. said Friday.

According to the RealtyTrac report, one in every 483 U.S. households received a foreclosure filing in May, the highest number since RealtyTrac started the report in 2005 and the second-straight monthly record.

Foreclosure filings increased from a year earlier in all but 10 states. Nevada, California, Arizona, Florida and Michigan had the highest statewide foreclosure rates.

Metropolitan areas in California and Florida accounted for nine of the top 10 areas with the highest rate of foreclosure. That list was led by Stockton, Calif. and the Cape Coral-Fort Myers area in Florida.

Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions. Nearly 74,000 properties were repossessed by lenders nationwide in May, while more than 58,000 received default notices, the company said.

In Nevada, one in every 118 households received a foreclosure-related notice last month, more than four times the national rate. In California, one in every 183 households faced foreclosure.

Rick Sharga, RealtyTrac's vice president of marketing, said foreclosures are unlikely to peak until sometime this fall, as more loans made to borrowers with poor credit records reset at higher levels. "I don't think we've seen the high point," he said.

About 50 to 60 percent of borrowers who receive foreclosure filings are likely to lose their homes, Sharga said. The rest are likely to be able to sell or refinance.

As foreclosed properties pile up, they add to the inventory of homes on the market and drag down home prices. The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously.

Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, according to Moody's Economy.com."

Unfortunately, the trend in foreclosures is one that will continue to tick higher as interest rates rise.

Freddie Mac, reported yesterday that 30-year fixed-rate mortgages averaged 6.32 percent this week, the highest level in nearly eight months and up sharply from 6.09 percent last week.

That's because home mortgages rates are largely tied to the the yield on 10 yr. Treasury notes. As those yields rise, mortgage rates rise with them.

Here's a look at the yield on 10 yr notes. It's the road to higher home mortgage rates.

And if there is one thing that the housing market can't stand right now it is higher rates.