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Reasons to be Bearish

Written By Brian Hicks

Posted February 28, 2010

Welcome to the Wealth Daily Weekend Edition — our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

I’m always up for a good argument.

While I agree with some of my colleague Christian DeHaemer’s bullish assessment of the economy in his “5 Reasons to Invest in the Stock Market,” I’m a bit more bearish.

Consumer confidence is down 11%. Housing is still heading down. Banks aren’t loaning money to Main Street. Insiders are selling. And we keep hearing how the Administration has saved jobs, but real unemployment is 17.3% and getting worse.

And the consumer will suffer.

But who am I to talk down about the economy? I only called the top of subprime, the 2007 recession, the breakdown of the UK economy and its banks, and the collapse of Lehman…

All is not well…

Those foolish enough to bet on a housing recovery aren’t so sure anymore. New home sales for January fell 11.2% to 309,000. This was not only weaker than expected, but hit a new low. And it’ll only get worse, thanks to option ARM resets, which could easily lead to higher unemployment, housing glut, decreased home values, and the death of the cash-strapped consumer.

Tell me, what do you think will happen when monthly payments on a $400,000 mortgage jumps from $1,287 to $2,593? We’ll see more foreclosures and less consumer spending.

Charles Munger, Warren Buffett’s business partner in Berkshire Hathaway, is warning that the U.S. is crumbling thanks to debt and poor planning. “Basically, it’s over… ” he says, putting him in direct opposition to all the economists, bankers, and politicians who tell us all is well.

And I agree with him.

Sure, we’ll both take hits from the cheerleaders with rose-colored glasses. But what you won’t see from the cheerleaders is real growth. What you’ll see is simply an illusion, a mirage. We’re screwed and don’t even know it.

And we haven’t even touched on the sovereign debt issue, as we enter the crosshairs of analysts.

Moody’s has already said its outlook on Japan would move toward negative if debt isn’t controlled. One has to think that if Japan’s debt is downgraded, it’s a big warning sign for the U.S., too. It’s not as if Moody’s hasn’t dropped hints about the health of the financial systems, debt, and debt servicing in Japan, the United Kingdom, and the United States.

Oh, and the FDIC — which has tried to tell us all is well — went $20.9 billion into the red in Q4 2009. And on top of that, the FDIC’s list of “problem banks” grew during the fourth quarter from 552 to 702.

I could go on… but think you get the point. We’re not out of the woods yet. And I see no reason to be bullish.

And you can disagree with me if you want. In fact, if you do, feel free to leave a comment below and we’ll try to feature it in next week’s Wealth Daily Weekend Edition.

While Christian and I may disagree here, our common goal is to lead you toward profits. You can read more on Christian here, and you can get more information on me here.

Of course, it’s not about being a bull or a bear; it’s being where the profits are. Here’s where they could be found this week…

  • Wealth Daily‘s Sam Hopkins reported that Areva SA (Euronext Paris: CEI) execs say they plan to take advantage of “enormous” opportunities in a reinvigorated U.S. nuclear power market while expanding their international renewable energy portfolio with hundreds of billions in investment dollars. 

“Over the next few years, we’ll see the pride of France’s power industry pivot between nuclear, solar, wind, and other resources to gain market share in the world’s biggest energy economy,” says Hopkins. “Early last week, Atlanta-based electricity Southern Company (NYSE: SO) and partners got $8.33 billion in loan guarantees to develop the first new domestic nuclear capacity in a generation. In total, Obama’s 2011 budget puts up $54 billion in financing help for new nuclear power. So when Southern Co. got that vote of confidence from the Department of Energy, Areva got excited.”

  • Options Trading Pit found a beaten-down opportunity in Thermo Fisher (TMO), helping return a 168% gain to readers in one day. Turns out that shares of Millipore (MIL) surged more than $25 on a rumor that Thermo Fisher Scientific (TMO) made an unsolicited takeover offer for $6 billion for Millipore. 

The news also sent TMO down about $3 to $4. But TMO could see a move higher, we speculated, as a Thermo spokesperson said the report was just rumor. We bought calls at 45 cents and cashed out the next day at $1.20.

  • And we could see some upside in Chinese solar companies after Deutsche Bank said they are “positive on the China solar energy sector and expect Chinese solar PV module manufacturers to be the major beneficiaries of the global demand growth in 2010E.” They also believe the risk/reward in this group is attractive, given “low-cost structure and increasing brand recognition” which will allow “Chinese manufacturers to weather a likely ASP decline and capture more market share.”

Its top picks, according to the report, are Trina Solar (TSL) and Yingli Green YGE).

Stay Ahead of the Curve,

Ian L. Cooper
Wealth Daily

P.S. In case you missed any of the week’s top-read articles from Wealth Daily and our sister publications, you can catch up on them now:

H1N1 Swine Flu Panic: The New Paradigm in Vaccine Delivery
Wealth Daily Editor Steve Christ examines the H1N1 swine flu panic and explains how scientists are working to prevent a greater tragedy.

American Biotech Stock: A Bull Market Just Beginning to Heat Up
One miniscule, all-but-ignored American bio-pharma firm owns the breakthrough that could soon render millions of deaths a thing of the past. WD brings readers the name of the company creating the vaccine that will turn your $5,000 investment into an easy $500K return.

Rare Earth Metal Supply vs. Demand: Where the Real Economic Crunch Exists
Wealth Daily Editor Ian Cooper discusses rare earth supply versus demand and why rare earth stocks are set to explode.

China Folds: The Red Dragon Loses Its Monopoly on Rare Earth Elements
A historic power shift in the energy industry took hold on New Year’s Day. That’s when a tiny, almost unheard-of mining exploration company collected its $273 billion natural resource ‘inheritance’ from the Kingdom of Denmark. We alerted our readers to this development at exactly the right time. Many of them took home triple-digit gains — almost overnight. And now, this new report from Wealth Daily brings you a second development.

SEC Mandates Disclosure of Climate Risk: The SEC’s Energy Game-Changer
Energy & Capital Editor Nick Hodge takes a look at a recent SEC ruling and divulges how it will impact energy investors.

The Last Mega-Boom: Mongolia, an Investor’s Treasure Trove
This new report from Wealth Daily outlines what you must know before China’s pantry is raided — and the door for this mega-boom opportunity closes.

Change Coming to German Solar Industry: The World’s Solar Panel Leader is Transforming
Editor Sam Hopkins separates fact from fiction in the plan to cut Germany’s feed-in tariff (FIT) this summer

Indian Road Building Boom: What Every Serious Investor Should Know
Resident Crisis & Opportunity Guru Christian DeHaemer came across some opportunities in capitalist India that he wanted to share with readers this week.