When Bank Stocks Fall, Buy “Antibanks”

By Andrew Mickey

The housing market is in a rapid state of decline. Aggressive lenders are imploding because they overextended themselves by making risky loans to borrowers without the means to pay them back. The mortgage industry is in decline following a multiyear boom.

The combined weakness in all of these sectors is dragging down the entire economy and stock market with them. However, a few “antibank” stocks are about to heat up.

Overall, the current situation seems pretty familiar, right? Is it the Savings & Loan crisis or the subprime crisis? Tough to tell them apart; they’re both eerily similar.

The causes are the same, impact is the same, and the medium-term outcome is going to be the same… a recession and years of lack of confidence in the economy. Two conditions that do not bode well for the slowing bull market we’ve enjoyed for years.

And just like the S&L crisis, the more we learn about how deep subprime-related problems reach, the more it’s looking like it’s going to take years to get out of this mess. Two decades ago, it took years for banks and banking stocks to recover from the S&L crisis. Meanwhile, the antibanks flourished.

There’s always a good investment opportunity, even in the United States, regardless of how gloomy things look. All we have to do is look back to see what to do now.

Following the S&L crisis, it took U.S. economy about five years to fully recover. And just about the same amount of time for the stock market.

Some of the best-performing investments during that time were in, of all places, the financial services sector. Right now, bank stocks are falling apart. The plummeting share prices of widely held Citigroup, Bank of America, Washington Mutual and dozens of other banks have cost investors a lot of money.

The most aggressive and biggest risk-taking banks, which have been acting with a level of responsibility comparable to hedge funds or defunct Savings & Loan operations, are finally paying the price. And they’re taking the rest of the financial services sector down with them. The fallout has dragged down the S&P Financial Services Index by 20% in six weeks.

When an entire sector falls this fast, there has to be a few values that get dragged down with the rest of the crowd.

There are plenty of businesses that do well when the financial services sector is hurting. In fact, antibanks perform best when the financial markets are at their worst. Antibanks are the companies that do best when interest rates are moderate and stock market values for companies are low.

In 1985, just a couple years before the Savings & Loan crisis really started causing problems, Peter Peterson and Stephen Schwarzman, founded one of today’s top antibanks, Blackstone Group (BX:NYSE).

They started with a mere $400,000 in cash and a small office in New York City. Now, 22 years later, this antibank has amassed more than $91.8 billion in assets free and clear. When you account for additional capital infusions along the way, Blackstone has earned an average 23% annual return for the past 20 years.

Antibanking is good business… and it’s only going to get better. As the Fed keeps interest rates in a holding pattern to combat inflation yet help spur economic growth and the stock market falls, antibankers like Blackstone will seize the opportunity.

After all, in the private equity and takeover game, its about being able to borrow more money at lower costs and take over public companies with depressed, even distressed, values.

So, if we’re right and expect bank stocks to fall even further and want to take full advantage of the subprime crisis, we’ve got to look at the antibank stocks. Here are three of them:

1. Blackstone Group (BX:NYSE) – As one of the leading takeover artists in the world, falling stock prices are about to be a boon for Blackstone. And with China owning 10% of the company and sitting on well over a trillion in foreign exchange assets ready for investment, Blackstone’s not going to have much trouble raising money, either.

2. Berkshire Hathaway (BRK-A:NYSE) – The investment company headed by Warren Buffett has averaged returns of 22% over the past 20 years. This antibank’s value-minded investment strategy, long-term outlook and acquisition-mindedness are likely to keep that impressive average holding up strong. Although, the premium valuation on the shares do limit the potential upside.

3. American Capital Strategies (ACAS:NASSDAQ) – Although by far the smallest of the three, it has just as much upside as the others. A healthy balance sheet and a quickly growing revenue stream are going to pay off well for shareholders of this antibank.

All antibanks are created equal. The “Buffett Premium” is alive and well with shares of Berkshire Hathaway not giving an inch. But two other antibanks have been dragged down with the entire financial sector and offer a much better value.

Antibanks Offering Significant Value

When it comes to the subprime crisis, take a look past all the headlines, multibillion-dollar paper losses, eventual finger pointing, or when Congress will decide to step in and throw some money at the problem… and figure out who’s going to prosper.

It’s kind of tough to have so many losers without a few winners in the bunch. Those winners are going to be the antibanks.

Good investing,

Falling Dollar: The Ailing Greenback Is Eroding Your Portfolio!

by Sara Nunnally

You Need a Profit Protection Plan!

You’re seeing it in the news nearly every day now…

“Dollar Sinks to Euro”
“Dollar Drops to Record Low against Euro”
“US Economic Gloom Brings New Dollar Lows”

Over the past year, the dollar has been down against 15 of the 16 major trading currencies. And with the greenback hitting fresh lows against the young euro on Black Friday, a national consumer buying frenzy, investors have been forced to watch as their hard-earned portfolio gains lose ground in the global market.

Just how much could you be losing because of a weak dollar? Let me give you an example…

If you had invested in Exxon Mobil (XOM:NYSE) one year ago, you could have made about 16.7%. But consider this: Those gains amount to only 3.5% in euros.

On the global stage, your dollars have lost about 13% over the past year!

And things are beginning to look a lot worse. Some OPEC nations, like Iran and Venezuela are calling for oil to be denominated in a currency other than dollars. Of course, these two countries are far from friendly, but several other Persian Gulf countries are threatening to unpeg their currencies from the dollar because it’s costing them more and more to buy goods from Europe.

That could force the dollar even lower, and you can’t afford to lose any more of your portfolio gains. This quote from Peter Schiff, author of Crash Proof: How to Profit from the Coming Economic Collapse, says it all: “The dollar’s fall is now so pervasive that the world is walking away from it en masse. The story has even been given some sizzle with the announcement from Brazilian supermodel Gisele Bundchen that she will no longer accept modeling contracts in dollars… For investors, the urgency to divest themselves of U.S. dollar denominated assets has never been greater.”

We’re not saying the U.S. is on the brink of economic collapse, but the worrisome drop in the dollar has a direct effect on you, the investor.

The good news is you don’t have to sit back with your fingers crossed, hoping for a comeback in the greenback. You can do something about your slipping profits, and it’s very simple.

Millions of people are following this straightforward Profit Protection Plan to safeguard their portfolios.

Step 1: Diversify

Listen to this complicated quote from Michael Woolfolk, senior currency strategist at the Bank of New York Mellon: “As the dollar declines in value, so does the price of oil in non-dollar terms. Consequently, foreigners bid up the price of oil and other dollar-denominated commodities. The result is that the price of crude oil and other commodities rise in dollar terms as the dollar falls in value against other currencies.”

Boil that down, and you’ve got this simple phrase: “Lower dollar equals higher commodities.” Commodities like gold, oil, silver and palladium… Commodities that are easier than ever to invest in, and more profitable. Take a look.

For the past six months, oil prices have climbed some 40%, and gold and silver prices have climbed 26% and 17.5%, respectively. And though this chart doesn’t show an exact inverted correlation, you can see that in August, when the dollar rallied just a bit, oil prices, along with precious metals, tumbled sharply. But ever since September, we’ve had a falling dollar and rising oil, gold and silver prices.

I think you’ll agree, this chart says it all.

Step 2: Profit

There are a number of different ways to hedge your portfolio with oil, gold and silver. Speculators and hedge funds have made a killing in the futures market, and I’m sure there were folks running out to buy gold bullion or silver coins as soon as prices started running higher.

But there are simpler ways that don’t have as much risk as commodity futures or as much hassle as buying bullion or coins.

Let me show you how easy it’s been for investors to profit from the rise in these commodities.

This is a chart of three exchange-traded funds (ETFs): the iShares Silver Trust (SLV:AMEX), the StreetTracks Gold Shares (GLD:NYSE) and the U.S. Oil Fund (USO:AMEX).

The unique thing about these three ETFs is that they trade very closely to the price of the underlying commodity. Just look and compare this chart to the commodity futures chart and you’ll see exactly what I’m talking about.

A bare six months ago, if you had invested $500 in each of these three ETFs, you could cash out now with a wad worth $1,974.60 and average profits of nearly 32%!

That’s more than double the loss of the dollar over the past year.

As an investor, you could simply buy these ETFs as a hedge against the falling dollar, and not only recoup some of your global purchasing power, but make a nice chunk of change as well.

These are very easy ways to follow the gains higher in oil, gold and silver, and I would recommend every investor get positioned now, just for their own protection.

When to Buy the Best Value in Stocks

by Andrew Mickey

The best news we could have hoped for… isn’t coming. Even a record-setting Cyber Monday isn’t going to save this Christmas from the recessionary Grinch.

According to ShopperTrak, retail sales over the weekend came in at $16.4 billion. That’s 7.3% higher than last year and a pace more than double the 3.6% growth in total holiday sales expected by most analysts on Wall Street.

Is this weekend an indication of how much spending is going to be done this holiday season?

Not a chance. It never is. And this weekend’s sales numbers were artificially inflated. Today’s news is going to be the last bit of good news from the retail sector and the retail sector party the U.S. economy is pinning its last hopes on, is going to be quickly coming to an end. It’s all part of what I like to call “retail deflation.”

Retail deflation is a problem retailers haven’t faced since 2001. Following the tech bubble meltdown, retailers feared stock market declines and losses of paper wealth were going to cause a serious drop in consumer spending. The end result was quite a bit of competition from retailers for every consumer dollar.

Throughout every mall, big-box store and discount retailer, we saw each of them get more and more nervous with each low-traffic, low-sales day that passed. And when retailers get nervous, they cut prices. They’ve got to move their inventory. If it’s not moving fast enough, they’ll cut prices again.