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Monday, April 20, 2009 Another big bank surprise for the markets...the rally sputters out... Consumer sentiment is improving - but don't get too excited just yet... Unemployment numbers are up in the majority of the country... The Mogambo Guru on demand for gold and silver...and more! --- Richebächer Society Invitation FINAL 2 DAYS --- The Good Doctor Lives On... We lost an economic heavy weight in 2007: Dr. Kurt Richebächer. Many of you heeded his warnings and insightful forecasts about the coming housing bubble burst and subsequent credit crisis, and your portfolios were the better for it. Well, we would like to give you another chance to use the Good Doctor's warnings to avert or even recover from the later stages of financial catastrophe. We've just formed a brand new "wealth-protection" society, and named it in honor of Dr. Richebächer. For a limited time, we will waive your membership to the Richebächer Society for a full year...a total of $9,554 of benefits - free of charge. But you must act by Tuesday, April 21 at 5 PM. Click here for all the details. --------------------------------------------------------------- The Rally Takes a Breather by Kate Incontrera Baltimore, Maryland No word from Bill again today, so we will power through without him. Today, the markets had another big bank surprise...Bank of America joined the ranks of Wells Fargo, JP Morgan Chase and Citigroup - all banks that reported earnings that went above and beyond Wall Street's expectations. The Charlotte, North Carolina-based bank, which received $45 billion in government assistance, reported a first quarter profit of $4.2 billion, after logging a $1.8 billion loss last quarter. The bank attributes their results in part to the purchase of Countrywide last year, saying that they were better able to capitalize on the latest surge in mortgage lending and refinancing activity. However, despite the positive growth for the first quarter, Bank of America's stock fell sharply this morning after BoA's chairman and CEO, Ken Lewis, noted that the bank's credit division was facing growing problems...imagine that. "We understand that we continue to face extremely difficult challenges, primarily from deteriorating credit quality driven by a weakness in the economy and growing unemployment," Lewis said in a statement. Investors are growing increasingly wary of BoA's - and the other major banks' - earnings. Worries about the sustainability of these earnings are weighing heavily on the financial stocks. After a six-week rally, stocks fell this morning, with all of the major indices down around 2%. The AP reports: "Investors are looking for signals that a rally from 12-year lows in March can continue. Wall Street has been emboldened by early signals that the economy could be stabilizing, but after a 24 percent surge in the Dow, some investors are asking whether the market has risen too quickly." Strategic Short Report's Dan Amoss tells us he believes the rally is "getting tired." "In most sectors of the stock market, I see signs that buyers lack conviction. Volume is weak in most rallies, and heavily shorted stocks are going up the most. Who in their right mind owns Citigroup as an investment at $4 (other than short sellers covering)? Especially considering the low odds that Citi stock will survive 2009 without going to zero in a restructuring or getting diluted by billions more common shares. "Even the CEO of NYSE Euronext, Duncan Niederauer, was quoted in the Financial Times opining that this rally 'was driven by short-term traders trying to take advantage of high volatility, and not by large institutional or other long-term investors.' You'd think the NYSE would be biased to be bullish, so this says a lot about the sustainability of this rally." Dan's certainly isn't convinced by this rally - but he does know the best way to play these markets. You don't have to take our word for it, see his track record for yourself by clicking here. And now, we turn to our friends at The 5 Min. Forecast for a closer look at the sucker's rally on the NYSE: "In spite of the end of the world as we know it, consumer sentiment is improving," writes Addison in today's issue of The 5 Min. Forecast. "The Reuters/University of Michigan measure of consumer feelings registered a preliminary score of 61.9 for April. That's a notable bump from 57.3 in March and far better than the 57.5 score the Street expected. "If you're curious why, look no further than the sucker's rally on the NYSE. "But a strong word of caution from Rob Parenteau, now dean of The Richebächer Letter: "'To be sure,' Mr. Parenteau writes, 'the larger theme we believe will dominate consumer attitude is the need to reduce leverage, which will require a higher savings rate than households previously achieved. "'We recently made the case that $1.2 trillion of household debt would need to be paid down over the next three years to return the household debt-to-income ratio to pre-housing bubble levels. French banking group Societe Generale, however, estimated that a return to the trend of the past five decades would require nearly twice that much... over $2 trillion. "'The key point: American consumer's contribution to any future recovery is likely to be muted, regardless of the fiscal and monetary stimulus coming from Washington. Stock investors using the regular playbook and running into companies that rely on consumer spending should make sure their long-run earnings expectations reflect this new trend." Be sure and check out Rob's latest report for The Richebächer Letter. In it, you'll find a definitive guide to seven "super shields" against the most toxic economic events of 2009-2010, each one of them easy to follow and spelled out in full detail. And if you act before tomorrow, April 21, at 5 PM, we will slash $200 off your annual member dues. Learn all about it here. And back to Kate in Baltimore: The Conference Board's Leading Economic Index - which is seen as a key gauge of future economic activity - fell for the third month in a row, and has not risen once in the last nine months. An economist at the Conference Board said the "The recession may continue though the summer, but the intensity will ease." Hmmm... And today, the government released more negative data, this time in the form of unemployment numbers. The national unemployment rate rose in March, up to 8.5%. The data showed that unemployment rose in 46 states - and in Michigan and Oregon, it pushed past 12%. The high unemployment rate is pretty self-explanatory in Michigan, where the long, slow death of the U.S. automakers has clearly taken its toll. And in Oregon, employment relies heavily on the lumber industry, which has taken a major hit because of the decline in homebuilding...especially in California. "We produce a substantial amount of wood products used for residential construction, so many of our lumber and wood products are shipped to California for the housing market," said David Cooke, economist for the Oregon Employment Department. "California's economy is so large - it's 10 times the size of Oregon - so anything that's happening in California has a direct impact on the state." As Bill pointed out a couple weeks ago: As California goes, so goes the rest of the country. But not if Obama has anything to do with it. His stimulus package intends to save or create 3.5 million jobs through 2010. Outstanding Investments' Byron King says, "Here's what's going to happen with a lot of that stimulus money. The state and local governments and agencies will get the federal money. Then they'll put out bids and ask for proposals to build or repair roads, bridges, government buildings, etc. They'll get back lots of bids and proposals, and for surprisingly low prices. "And in relatively short order, the work will start and the steel and concrete will begin to move. OK, that'll stimulate things. Welding rebar and pouring concrete will help the economy and put a lot of laid- off construction workers back on somebody's payroll. "But will government spending rebuild and strengthen the private sector? It will take a lot of private investment and spending to build out the economy of the future. I just don't see that private investment happening on a large scale. "It gets back to why I don't trust this stock market. I don't see some critical fundamentals, especially private sector investment." And finally, before we let you get your weekly dose of the Mighty Mogambo, we have one last word from Addison, on Obama's most senior economic advisor: "For better or worse," said the octogenarian Paul Volcker yesterday, "we are at a point where the Federal Reserve Act is going to be reviewed." "None of us has seen a decline in economic activity at the rate of speed seen late last year," he stated the former Fed Chair in a speech at Vanderbilt University - a noteworthy observation from the guy who was credited with slaying the rampant inflation of the late '70s. "Volcker was one of the few members of the Nixon administration who argued that dismantling the Bretton Woods exchange rate system in 1971 - effectively removing gold as the guarantor of the dollar's value and replacing it with 'the full faith and credit' of the U.S. government - was a bad idea," said Addison. "Now, it looks like the powers that be are openly discussing, not just the dollar's role as reserve currency of the world, but the role of the Fed as set forth by the Federal Reserve Act of 1913 itself. "Our late friend Dr. Richebächer was an outspoken critic of the Federal Reserve throughout his 40-year career as a credit and currency analyst. 'Sometimes I think it's the role of the chairman of the Federal Reserve to prove Kurt Richebächer wrong,' Paul Volcker once said. "Kurt was hot on corporate America's lack of attention to their own balance sheets, too. They'd become a 'cult of shareholder value' he decried. Many of Kurt's own critics, including Volcker, cautiously dismissed Kurt's work as gloom and doom... and yet, he was right on so many levels. "We only wish Kurt were here to participate in the cleanup." In meantime, we aim to honor the man by doing our best to uphold the high level of critique he labored over. Please join us. But quickly, our open invitation to join the new Richebächer Society ends tomorrow evening. Please read the following. Until tomorrow, Kate Incontrera The Daily Reckoning --------------------- Special Offer --------------------------- Use This 2,309-Year-Old Edge To Build a Fast Fortune 150% gains in just 14 days, plus 168.75% gains in only 7 days are common for this ancient strategy that still works like gangbusters even in today's market... Better yet, it doesn't require any special knowledge or skills on your part. In fact, you can get started with Edge gains in as few as 3 minutes... To learn all the details, and to start building your own fortune, read on... --------------------------------------------------------------- The Daily Reckoning PRESENTS: Well, he finally did it... The Mighty Mogambo must have gotten through to a few people, because according to the U.S. Mint, recently, "Demand for gold and silver has been unprecedented". Now if only the price of these metals would start reflecting that sentiment. The Mogambo Guru explains... Demand for Gold is in Mint Condition by The Mogambo Guru Tampa Bay, Florida MoneyNews.Newsmax.com had the interesting headline "Mints Rush to Meet Gold Coin Demand." It starts off with a blockbuster statement, namely that the world is in "crisis mode". In fact, a report by The Independent in the United Kingdom notes, "With the world economy now in crisis mode, gold coin production is rising" all over the place, with the result that, "As investor appetite for gold increases worldwide, nations which mint coins of the precious metal have hiked production to satisfy the growing demand." In fact, demand for gold is so high that "Sales in the United States of the one-ounce gold American Eagle coin, minted from gold bullion, soared more than 400 percent in 2008 over previous sales to 710,000 ounces" which seems like a lot until you remember that the gold mines of the world produce about 80 million ounces of new gold per year, and so 710,000 ounces ain't really squat, in the Big Scheme Of Things (BSOT). “...there are over 300 million people in the USA and, although demand for gold is up 400 percent in the last year to 710,000 ounces, this is still only accumulating 0.00237 ounces each!” Even so, a spokesperson for the U.S. Mint said, "Demand for gold and silver has been unprecedented", although you would hardly know it from my field research, where I randomly accost people on the street and ask them, "Hey! You! Are you buying and/or holding large quantities of gold as a defense against the ruinous inflation in prices that your own stupid government is causing by deficit-spending almost $2 trillion this year alone, when the GDP of the Whole Freaking Country (WFC) is only about $14 trillion, or are you some kind of moron that can't even answer a simple question?" The results of my research are pretty dismal, which explains why there are over 300 million people in the USA and, although demand for gold is up 400 percent in the last year to 710,000 ounces, this is still only accumulating 0.00237 ounces each! A fifth of one percent of an ounce of gold per capita! Hahaha! An interesting sidelight is that when people write and ask me, "Dear Mogambo, Probably because I am gullible and I take a lot of medications, I believe you when you say that I should buy gold in some kind of tangible form that I can hold in my hand, instead of being suckered into that whole 'paper gold' scam, but tell me; which specific gold should I buy? (signed) Listening in New York". My impulse is to reply "Dear Listening in New York, Why in the hell are you asking me? How the hell should I know? By actually doing some more work and finding out? Ha! Don't make me laugh! I work plenty hard around here already, regardless of what a bunch of backstabbing coworkers say behind my back and write on the wall in the bathroom! And anyway, 24 karat gold is 24 karat gold, you moron! (signed) Mogambo." Now, instead, I can quote this newsmax.com article, and save a lot of time by just telling them that the best-selling gold coin in the world is the Austrian Philharmonic (which is named after the Vienna Philharmonic Orchestra) 24K coin. And in fact, sales of "the world's best-selling gold coin, climbed 544 percent this year to the end of February" which means that its sales growth is higher than the American Eagle! And speaking of gold, Bill Bonner here at The Daily Reckoning quotes Stewart Dougherty, of "Theft of a Nation", as saying, "The United States of America, or, more precisely, the American people, are said to own 261 million ounces of gold, supposedly stored in the same Fort Knox vault that Goldfinger found so appealing. At $1,000 per ounce, the people's gold has a value of $261 billion dollars. TARP 1 alone has cost 270% of the entire value of that singular, tangible American asset. The total $13 trillion bailout cost thus far is 4,980% of the value of America's gold asset. Fort Knox has been robbed." Bill Bonner himself does some quick figuring and finds that, put another way, "They're squandering $13 trillion...or nearly 49 times the U.S. gold supply"! Astonishing! Until next time, The Mogambo Guru for The Daily Reckoning P.S. This is where I stand up, look around, and make crude and rude gastronomic sounds to express my complete disbelief that people are not buying gold, silver and oil against this kind of monstrous expansion of the money supply; a behavior which I have promised to no longer do at the dinner table, either at home or someplace else, ever again. But the good news is that you can buy gold, silver and oil and save yourself that kind of embarrassment! Whee! This investing stuff is easy! Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page. --------------------- Special Offer --------------------------- The $2.5 Trillion Gorilla in the Room This is vital. Because, you see, a lot of Americans - and a lot of people in the rest of the world - are counting on credit-card carrying American shoppers to jumpstart the global economic engine all over again. But it isn't going to happen. And you don't want to bank your investments on the idea that it will. Or you'll risk even bigger losses than many Americans have suffered already.