Weekend Edition

The pound dropped to a record low against the euro and breached $1.40 for the first time since 2001 after Prime Minister Gordon Brown said he will spend an extra $142 billion to support England's banks and increase its stake in Royal Bank of Scotland (RBS). RBS said on Monday it expects a $41 billion loss for 2008, the largest in its history. RBS shares fell 68% on the day. Lloyds TSB Group fell 54%, and Barclays dropped 40%.

 

 With the pound and U.S. dollar under scrutiny, where are currency traders putting their money? In the countries with the largest trade surpluses – Japan, Norway, and Switzerland.

 

European banking giant BNP Paribas forecasts the yen will appreciate about 14% against the dollar by June. Norway's krone is one of Goldman Sachs' top picks for 2009 (it's one of Jim Rogers' top picks, too). And Bank of America says the Swiss franc will gain against every major currency.

 

Maybe as speculations, these are good ideas. Me? I prefer gold to any paper currency.

 

 Speaking of gold, S&A Short Report editor Jeff Clark just told his readers about "the perfect gold trade."

 

Jeff has put together a special gold position that will make you money if the price of gold rises, goes nowhere, or even falls a bit. It costs you zero cash to enter the trade (you actually get paid $290 per contract upfront). If gold is stagnant, you'll collect the $290 per contract. If gold hits $1,000 an ounce in the next year – which it already did last March – you'll make an additional $2,000 per contract. It would take a large decline in gold for you to lose a penny on the trade.

 

Again, you'll put up no cash to profit, and you'll immediately add cash to your brokerage account. You can learn how to make this trade with a subscription to the Short Report, which we're currently offering at a deep discount. Click here to learn more.

 

 Jim Rogers told a crowd in Hong Kong that holding U.S. government bonds is a "big mistake" and will "end badly."

 

"If I were you, I would be worried about the U.S. dollar," said Rogers. "The Americans are printing U.S. dollars. The Americans are going to do whatever they can to revive their economy, even if it means destroying the U.S. dollar." Rogers favors holding agriculture, power generation, Chinese stocks, and the yen.

 

 In his latest PSIA, Porter told readers how he feels about Treasuries – his thesis shouldn't surprise you. His latest trade allows you to make a risk-free 11.5% a year while waiting for the inevitable. When the trade hits, he expects you'll make at least 50% in one year. Porter believes his latest recommendations are "two of the best" of his career.

 

Considering his spot-on calls of Fannie Mae, Freddie Mac, GM, Goldman Sachs, etc... that's a large claim. Personally, I think this is one of the smartest and safest ways to generate huge income while profiting on government stupidity. To learn more about PSIA, click here.

 

 While Americans are right to worry about the stability of the dollar, at least we don't have to worry about our currency disappearing overnight.

 

Over in Euroland, spreads on different European government debts are widening sharply, revealing the markets believe the euro will come unraveled as countries exit the currency union. Bonds issued from Greece are now trading at nearly 300 basis points over similar German bonds – the widest spreads between euro-member government bonds since the currency was introduced in 1999.

 

 Less than four months ago, the 10 largest U.S. banks by asset size had a combined market capitalization of $722.73 billion, according to American Banker. As of January 20, it stood at just $237.83 billion, a drop of approximately two-thirds.

 

I wonder which of those numbers is closer to the real intrinsic value of those banks? It's probably good for the banks and the people who run them that nobody knows exactly what they own or has any clue what it's all worth.

 

 At the end of 2007, the five largest U.S. securities firms paid their employees $66 billion in bonuses. All of it came from "profits" that we've since learned were horrendous losses. With the writeoffs from just these five firms now totaling much more than $100 billion, at what point do you begin to judge what these people did as not merely reckless and negligent, but calculating and criminal?

 

They had to have known by at least the end of 2007 that most of their mortgage securities were cooked. And yet, they took the biggest bonuses in the history of Wall Street, leaving taxpayers to pick up the mess.

 

Regards,

 

S&A Research

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• Weekend Edition
  By S&A Research Saturday, January 17, 2009