The S&A Digest: Evil traders!

Evil traders!... Clark makes 57% in one day... Oil up, paper money down... Buffett: Financial crisis to get worse...

 Oil hit $135 a barrel today. The New York Mercantile Exchange says traders covering short positions are responsible for the run-up. When a trader incorrectly bets short, he has to buy shares at the market price to cover his position. The added buying volume pushes the price even higher.

 Everyone tried to blame falling mortgage prices on traders, too. As mortgage prices fell, traders dumped shares of mortgage-related stocks, driving prices lower. It surely wasn't the mortgage lenders, though they're clearly encouraged to underwrite a lot of mortgages, no matter what the quality... Or the investment banks, which get paid to package together risky mortgages and sell them as high-quality securities... Or the ratings agencies, which get paid by the issuers of those securities to stamp "AAA" on them when they're pure garbage.

 We don't know about traders manipulating oil and mortgages. But we do know our own trading wizard, Jeff Clark, and he's been doing especially well lately. Jeff follows several indicators to make blockbuster trades. He's got the "canary in the coal mine," his mother, and most recently, Jim Cramer. "When Jim Cramer nearly wets himself talking about the strength in the stock market, it's probably a good indication of high expectations."

Jeff told his Short Report readers on Tuesday he was turning bearish as the S&P hit a four-month high of 1,440. On Wednesday morning, he recommended buying PowerShares QQQ puts. The S&P fell below 1,400, and his readers sold half their positions for a 57% gain in less than one day. He expects to close the other half at a 92% gain.

Jeff's trades are up an average of 57% this year, and he's made money on six of his seven recommendations. Click the link to learn more about the S&A Short Report.

 When oil prices are high, everyone who can't do basic arithmetic complains about the price of gasoline (though it's still the cheapest part of your cost of driving). Why aren't they complaining about the falling purchasing power of the money in their own pockets? That's something nobody seems to want to do right now: Criticize the Federal Reserve for degrading the currency. When the dollar falls, rising oil prices become perfectly timed fodder for politicians. The Fed scuttles the dollar, and politicians deflect criticism by going after oil companies' "windfall profits," and the average TV-watching twit clamors for government to "do something."

Well, they hear you, Amerika. Sen. Dianne Feinstein, from the People's Republic of California, wants to do something. Yesterday, she criticized oil companies for having "no moral compass about gasoline prices."

 The International Energy Agency is preparing a downward revision of its oil-supply forecast. The report, due out in November, will assess the condition of the world's top 400 oil fields. A pessimistic outlook from the IEA could easily send oil prices higher.

 There's something else I don't hear much lately: That the financial crisis, born of the creation of so much worthless paper, is going to get worse. And if you won't take it from me, take it from Warren Buffett, who spoke up yesterday at a press conference in Spain. Buffett thinks the financial crisis "will be longer and deeper than many people do. There could well be a lot [more pain] to come."

 The Office of Federal Housing Enterprise Oversight reported today that home prices fell 1.7% in the first three months of 2008 – the highest quarterly price decline on record. Traders again, I'm sure.

 New highs: Eni SpA (E), Exelon (EXC), Petrobras (PBR), Petro-Canada (PCZ), Royal Dutch Shell (RDS-A), Stone Energy (SGY), Sabine Royalty Trust (SBR).

 Apparently, we don't amuse you anymore, and for that we apologize. What would amuse you, dear reader?... feedback@stansberryresearch.com.

 "The daily Digest used to be interesting, entertaining, now it is plain boresome. What happened? The daily has more fluff than substance, now. I subscribed to Sir Porter’s publication for entertainment, not invest advice. All of my investments are in Canada, and that is why I reached a new high in my account. No thanks to Sir Porter and his gang of henchmen. Mr. Ferris quit wasting time and give us some meat and potatoes advice, please... Now if gold and silver would do something, I could really retire." – Paid-up subscriber Bernie Krantz

 "Upon a recommendation from your website, I bought ALT-UN.TO... or I thought I did. It turns out my broker bought ATGFF. He claims it is the same stock and that his clearinghouse (National Financial Services, part of Fidelity) says the stock is not dually traded on the Toronto exchange and U.S. OTC. My broker says that he wasn't able to buy the symbol of ALT-UN.TO and that ATGFF is the same thing. Is my broker correct or blowing smoke?" – Paid-up subscriber Neil Sargent

Ferris comment: I didn't hear the original conversation, so I can't comment on what he's telling you. But I've never heard any broker or money manager I trust tell anyone to buy the U.S.-traded pink sheet share over the locally traded foreign share.

[Editor's note: The correct ticker for AltaGas is ALA-UN.TO. Also, 12% Letter editor Tom Dyson, who originally recommended AltaGas in his July 2007 issue, strongly urges his subscribers to seek out foreign shares on their local exchanges. The U.S. over-the-counter market – i.e., the pink sheets – is thinly traded and prone to wild and suspicious price swings. You can click on the following link to read his recent DailyWealth essay about trading foreign stocks.]

 "Young Goldsmith, A single room of dimensions 8 by 4 feet does not make any apartment your subscribers can imagine. Its a total area the size of one king bed, for an entire apartment." Paid-up subscriber Bear Short

Goldsmith comment: Errr. My calculator failed me. The article I wrote about said 10.2-square-meter apartments fetch 600 euros, and I took the liberty of converting to feet and dollars. Only in my haste, I got the area conversion wrong. The apartments are about 110 square feet... which works out to a still-tiny 10-foot-by-11-foot space. Maybe they can squeeze a bookshelf in there with the king-size bed.

Regards,

Dan Ferris

Medford, Oregon

May 22, 2008

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