Rick’s Picks Weekend Edition

Gloomy Picture Perhaps Worse Than It Seems

Gloomy forecasts have generally held sway at the Committee for Monetary Research and Education’s annual spring dinner, but this is the only time we can recall when there were no optimists on the dais bold enough to challenge a consensus now gloomier, probably, than at any time since the 1930s. Jim Grant’s off-the-cuff talk was about as sunny as the evening’s presentations got, and even he was unwilling to allow much more than a ray of hope that everything would somehow turn out all right. Bob Hoye, on the other hand, was unequivocally bearish: “The chances of anyone fixing this mess,” he told the crowd, “are literally zero.” But the scariest talk of the night came from Bill Beach, director of the Heritage Foundation’s Center for Data Analysis. If you find today’s economic news too depressing to imbibe, he said, “things are even darker than they seem.”

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Take the Odds Against Banks

The bear rally that wouldn’t die frolicked once again yesterday, leaving shorts badly bloodied and hanging from the ropes. The Dow Industrials, for one, opened sharply higher on a 100-point gap, then just kept going with only tepid pullbacks along the way. The buying spree had been telegraphed the night before when the E-mini index futures appeared to struggle to reach a minor pullback target off Friday’s highs. Because of this, around 1 a.m. Monday, with the June E-Mini S&Ps trading around 878, we warned subscribers with short positions to brace for more insanity: “Bears would be wise to run for the hills if the futures pop above 897.00 today,” we advised, “since that would turn the hourly chart unambiguously bullish. A subtler bullish signal would occur on the 15-minute chart at 885.00.” Not long afterward, both of these Hidden Pivots gave way, overpowered by short-covering on thin volume.

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R.I.P., California

As California goes, so goes the nation? Let’s hope not, since voters looked all but certain on Tuesday to force the deepest spending cuts since statehood was achieved in 1850. We have no qualms endorsing spending cuts over tax increases, but in this case the cuts will be so severe that it’s possible only basic services will survive. A certain casualty will be the state’s once-vaunted higher education system, which looks set to take a $2.3 billion hit on top $3 billion in reductions already baked in the cake. At the grade-school level, 27,000 teachers have already been laid off, but another 25,000 would face joblessness if tax-and-spend measures on the ballot are voted down. That would represent 15% of the state’s public-school teachers and a possible boost in class size from 35 to 50 students from 20 to 35.

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A Moon-Shot Scenario in Gold

(Although our long-term outlook for precious metals remains bullish, we doubt that gold is ready to leap beyond the $1000 barrier the next time it touches it — especially if this occurs within the next few weeks. However, with today’s commentary by our friend Chuck Cohen, we skip ahead to the not-so-distant future, when junior mining shares are likely to make dot-com mania seem relatively subdued in comparison. Below is Chuck’s rousing forecast for gold and gold stocks. RA)

Advice from Shaq, Canseco

Can you remember back in what seems now like ancient history–1998-2000, when making money in stocks seemed absurdly easy. Stocks only went up, some of them to ridiculous levels. Testimonies of instant millionaires were everywhere. CNBC was on in every barbershop. Even Shaq and Jose Canseco were dishing out advice. But then it was over, with almost everyone being taken to the cleaners. Even though we associate this period with pain and loss, we tend to forget that this fantastic move went on for almost eight years. There were actually some who foresaw the move, and for those who got aboard in the early 1990s, fortunes were made. What if you had a shot at buying an equivalent opportunity, perhaps even far greater than that of the dot-com era?

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FAZ Shares Offer Carny Game Odds

We scratched a bearish position in the financial stocks yesterday, exiting some options we’d purchased in a vehicle that leverages the downside in the Russell Financial 1000. There were a few reasons why we decided to bail out for a slight profit, even though we’d held the position for just a couple of days. For one, the trading vehicle itself – the Financial Bear 3x, or FAZ, as it is known – appears to be an unbeatable game, at least for the retail customer. Before this week, we had never offered a trading recommendation in FAZ even though it seemed to be popular among regulars in the Rick’s Picks chat room.

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