Another Bomb to Drop on Wall Street: The Credit Ratings Scandal -- Worst Yet?

The system by which corporate, state and municipal debt is rated is a complete and utter fraud.

The credit ratings of literally trillions of dollars of bonds and notes have inflated and meaningless ratings.

 It’s a house of cards sitting outside, and the wind is picking up. If this scandal is finally recognized for what it is, forget the threat of recession – another devastating 2,000 point nose dive on Wall Street could just be the beginning of the worst economic correction since 1929. There’s big trouble ahead.

(It’s just this type of scenario that let us rack up a 100% profit in 72 hours)

Dear Subscribers,

In recent days, I’ve been warning you about a potentially much bigger economic scandal hitting Wall Street and the U.S. economy.

Today, I’m going to fulfill that promise and hopefully alert you so you can prevent any serious losses, while at the same time put you in position to grab enormous profits of 100% – over and over throughout the coming two years. I’m doing this even after being warned by one of my attorneys...

 “James...Look the last time you stepped up and pointed to a huge fraud, you got bomb threats (featured in Barrons). Expose literally a $Trillion fraud like the one now taking place on Wall Street, and you could wind up like Jimmy Hoffa...DEAD.”  

Well, those who know me understand I’m not one to get intimidated by death threats. Between the tough New York neighborhoods I grew up in and the years I worked as a consumer advocate, I’ve received a great number of baseball bat beatings and out right death threats. They’ve come so often they just flow off my back like water off a duck.

Last week I discussed how the markets got to the juncture where Fannie Mae (FNM) has fallen from above $70 to a recent close of $10.93, and IndyMac Bank (IMB) fell from above $50 to $0 – declaring bankruptcy.  As mentioned in our previous update, it only makes sense to follow the chain of events and forecast what could lie ahead.

To recap, interest rates fell too low in the wake of the Tech Bubble (which caused lenders to throw money at consumers leading to a frenzy of house purchases).  Next, a housing bubble was created and then burst, causing many to default on their mortgages, which in turn resulted in hits to the credit market. Ultimately, this has now impacted stocks, especially the financial stocks and recently the consumer and retail stocks. Where do we go from here?

The next shoe to drop will most likely involve the very backbone of credibility on Wall Street; the Credit Rating Agencies (CRAs).

Now, the most well known CRAs are Moody’s (MCO), McGraw Hill (MHP) and Fitch Ratings. A CRA reviews the financials of an entity like a mortgage company such as Countrywide Credit, or a mortgage insurer like Ambac, and then issues a rating. These ratings agencies also rate the credit worthiness of tens of thousands of companies and their corporate bonds, notes and convertibles – that investors have placed TRILLIONS of dollars in – in large part based on these ratings.

Bottom line: Banks, Corporations, Hedge Funds and Brokerage Firms pay these companies to rate them and the securities they’re selling. Heck, they even rate the insurance companies that insure the debt instruments all for money paid by the companies that want the rating.

Get the picture? You can buy your rating!

Worse, if a rating is issued that is less than these firms expected, some of these ratings firms tell the company the rating and then hold the low rating from the public, and give the firms in some cases months to fix the problem. Meanwhile, investors have no clue there’s a potentially lower rating coming.  

Last week the Securities Exchange Commission (SEC) released its review of the CRAs. The report found bad disclosure practices, a lack of policies and procedures in mortgage related debt, with many conflicts of interest including the ratings for money. Moreover, the analysts the report noted were fully aware of the conflicts of interest, and the managements of the CRAs did nothing to alter these conflicts.

ENRON PART DUEX

Moreover, the SEC Report also noted several emails and instant messages that confirmed the above finding. In particular, we love the quote that states, “Even bigger monster – the CDO market. Let’s hope we are all wealthy and retired by the time this house of card falters.” We could call the CRA scandal Enron Part II. (As you can see, I’m not the only one calling it a “house of cards.”)

Shortly after this quote the credit market began to fall apart, as structured debt like CDOS plummeted in price.  These securities were flawed, but the analyst would not disclose this because they were being paid from the mortgage companies as well as the sell side firms who repackaged these mortgages.  The CRAs were complicit in the downfall of this “house of cards”.

So the danger with these rating agencies is already an issue. The problem is that the STINK OF RATINGS FOR MONEY doesn’t end with the current credit crisis. Unfortunately, these credit agencies also rate companies, municipalities, state governments and a myriad of hybrid corporate securities.

Once this story really gets out, and the losses start piling up for companies previously highly rated become apparent, we could see a crisis much bigger than the current one. Once this blooms we’re going to potentially see you and other smart investors making money hand-over-fist, while tens of millions of investors get severely damaged.

On the plus side, you can make the most money possible in a wild, desperate market where scandals are breaking out.

I have little doubt that this “Ratings Crisis” will create opportunities in the energy and materials market, as these flawed ratings will certainly come home to roost here as they have on the financial stocks. It is unfortunate the SEC is not going to protect your interests, even after they allowed the CRAs to help destroy the mortgage market. What market is next?

Utilities are a prime example of a pending implosion

Given the rise in oil prices, gasoline price have hit the discretionary spending habits of many Americans like you.  Payments are lagging for the utility companies and cash flows are hitting them hard. In fact, just today The Wall Street Journal noted that when Texas deregulated price six years ago, that “Prices in Texas have risen since the  industry was freed from regulation, but the recent increases have been quite a shock for America’s most audacious experiment in deregulating  electric power.”

Though this story was written in Thursday’s paper, the analysts will ignore it because their pockets are lined with money from the utility companies that they rate, like Texas Utilities – recently taken private by a large private equity firm again tied to the CRAs. 

It seems to be unending.

Unfortunately, many analysts are turning a blind eye to such facts, but we will never turn a blind eye to your interests.  No longer can you depend on Wall Street analysts or bankers, and politicians, corporate executive or even the CRAs. We are the only source that is dependable, whose only interest is to make you money.

Not Just Gold and Energy Options!

A weaker U.S. Dollar may be just one of the forces to drive oil to $200 a barrel. Other possible catalysts may also be weather or supply interruptions caused by terrorism. Regardless, the profits are going to be very healthy on both the run up to $200 and then back down.

The overall stock market is also going to swing wildly. In a market environment like this, the swings up and down could be fast and dramatic. So I am expanding the service to also in include some potentially profitable stock and stock index options, both puts and calls, that I believe will soon go BERSERK.

This means investors and speculators should be preparing themselves for some incredibly wild swings in the price of equities, stock indexes, precious metals and even oil by the end of the year.

It’s just one of several reasons I am warning about a dangerous spike in the price of oil to $200. After all, if he U.S. dollar is sent on another big decline – the price of energy is going to soar.

Last week after racking up big profits in my Gold and Energy Options Trader....

*        A 25% win in The Mosaic Company (MOS-NYSE).

• A 24% win in First Solar (FSLR-NASDAQ) in less than 24 hours.

...I made the gutsy promise of another big win - and actually named the stock I would make the big win with, Anadarko Petroleum (APC – NYSE), and it went just like clockwork, BAM!

As the market opened last Friday morning,
my subscribers grabbed a 64% windfall!

But Even Bigger Profits Lay Ahead – 
As Wall Street Swings Up and Down and the Dollar Gets Smashed!

On Wednesday we made a new trade recommendation that is designed to give subscribers a nice healthy profit by the end of the trading day on today.

100% Profit in Less than 72 hours!

We’ll soon also be jumping back in with options on APC very quickly as either a long or short– taking our profits off the table and going back to the well yet again!

We believe the U.S. Dollar is on the verge of taking a bigger and deeper nose dive. Today, the U.S. Labor Department reported that consumer prices shot up in June rose at the second fastest pace in 26 years. This is clearly showing inflation is raging.

In large part, this is due to the precipitous decline that has taken place with the U.S. dollar since 2002. The only way to battle this inflation situation, of course, is to raise interest rates like Federal Reserve Chairman Paul Volker did during the Carter and Reagan years.

The problem with that is the triple whammy of the banking, home and credit crisis.  Today’s Federal Reserve Chairman Bernanke has to focus first on re-establishing stability in the banking system before he can approach the problem of inflation. With the genuine threat of more than a 150 bank collapses (banks at risk according to some very respected banking analysts on Wall Street), Bernanke is focused on preventing a panic.

All of this turmoil is creating the kind of volatility that can really allow you to profit enormously.  I believe, (of course I can’t guarantee), we’re about to see a string of unprecedented profits in my Gold and Energy Options Trader, and that’s the sole reason I am urging you to sign up NOW!

We have a new series of trades – starting as early as Monday!

This failure will hit the U.S. Dollar like a ton of bricks. If not immediately, then in the weeks and months ahead, and that will mean another huge move up in the price of oil. If it happens and we see a huge spike in oil...to the $200 level – it must be shorted. Why?

Simply, Fannie Mae and Freddie Mac are Government Sponsored Entities (GSEs) that will have to be backed by the full faith and credit of the United States Government.  The FDIC and SIPC will also have to be backed by the full faith and credit of the United States Government. Clearly, the budget deficit could explode as the Treasury has to make investors whole. If this happens, then the dollar will see another dramatic fall in value.

Not Just Gold and Energy Options!

A weaker U.S. Dollar may be just one of the forces to drive oil to $200 a barrel. Other possible catalysts may also be weather, supply interruptions caused by terrorism. Regardless, the profits are going to be very healthy on both the run up to $200 and then back down. The overall stock market is also going to swing wildly. In a market environment like this, the swings up and down could be fast and dramatic. So I am expanding the service to also in include some potentially profitable stock and stock index options, both puts and calls, that I believe will also soon go BERSERK.

Cumulative profits of 221% in the past 11 months 
(while the Dow Jones was down about 15%)

I’ve priced the Gold and Energy Options Trader so inexpensively (just $99 a month or $995 a year ) that the cost of service should be made up by just a few small trades or even one or two trades using 6 to 10 options. Heck, we already have cumulative profits of 221% in the past 11 months (while the Dow Jones was down about 15%)!

These aren’t pie-in-the-sky promises you read about in promotions... this is our documented track record!

This amazing little service has its biggest pay days ahead – BOTH on the long and short side. But the sooner you jump on board, the more likely your chances to scoop up the profits.

Subscribe immediately, and give my Gold and Energy Options Trader a try. The profit I believe I’m going to pile on for subscribers is just too good to miss.

But you need to hurry, because new trade recommendations will start pouring out over the next 14 to 20 days. Look for my report on this NEXT crisis, and in the meantime, start preparing yourself by loading up on physical gold and platinum.

My $2,500 and $5,000 targets have a good chance of being touched by the time all the shoes stop dropping. Sign up on line right now by clicking here Gold and Energy Options Trader.  By all means, don’t let this opportunity to profit escape you.

Best Wishes,

James DiGeorgia, Editor

Gold & Energy Advisor