Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)

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Nine hundred and sixty-seven billion dollars is an awful lot of money. It’s also the amount lost by financial institutions globally on mortgage derivatives since the start of 2007. Reading this number allows one to at least imagine for a moment what it is like to see $967,000,000,000 disappear into thin air even when we have trouble comprehending how this is possible. This vivid example of capital destruction – that $967,000,000,000 was erased from the balance sheets of hundreds of institutions – while mind-boggling, explains a good chunk of why banks and financial institutions of all stripes have seen their market capitalizations plummet over the course of the past few months.

Late last weekend, the government stepped in once more to diffuse an explosive situation (they don’t like to use the term financial armageddon, but maybe they should). This time it was the turn of Citigroup and the government that had already injected $25 billion into the bank, wrote another check for $20 billion roughly matching its then-market capitalization and guaranteed up to $306 billion of its losses from troubled assets. Investors were so delighted with the 7.8% dilution they suffered, that they bid up the shares of Citigroup to double what they were selling for on the previous Friday. As for us, we are left with just two questions:

Fortunately, the government has a lot of money. And when they don’t, they just print some more. That is exactly what has been happening these past few months as the US government has promised more than $7.7 trillion ($7,700,000,000,000 – the zeros add perspective) of taxpayers’ money according to Bloomberg; an amount that closely matches half of the GDP last year. This number includes the latest bailout of Citigroup as well as TARP and every other program initiative announced by either the Federal Reserve, the Treasury, the FDIC, etc. Congress though is worried because even while Treasury Secretary Paulson and Fed Chairman Bernanke agreed that there should be more transparency and oversight with these funds, the opposite is happening as recipients have become more mysterious and collateral taken in return is guarded like state secrets.

While investors greeted this latest initiative with hearty applause, it would seem likely to us that this response will be met with the same reaction within days, weeks or months. All programs so far have been followed by other initiatives often containing larger numbers due to the inadequacy of the previous initiatives. We see no reason why it should be any different this time.

Technically Speaking

All of the major markets rebounded sharply from the previous week’s slide posting large percentage gains for the holiday-shortened week, albeit on markedly, declining volume. As the week progressed, trading volume dropped undoubtedly in direct relation to the number of brokers still working. That didn’t stop stochastics however from approaching overbought levels on the daily charts by the end of the week.

In general all markets overshot the resistance targets outlined once more last week, but they all remain in vulnerable positions where a new leg downward could begin especially when one considers the stochastics on the daily charts.

Weekly charts could provide some momentum to bulls since the stochastics here have been either touching oversold levels or bordering them but this remains more of a show-me indicator since weekly and monthly stochastics have an ability to stay overbought or oversold for very long periods of time.

New Buy Recommendations (in order of preference):

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

We covered our short trade in the Gap Inc.

Portfolio Comments:

New stops have been added in bold to the list while others have been modified. Those that have blanks are being carried unstopped for now. Please see our complete list of stops in the table below.

List of Current Stock Recommendations:

Action Ratings. The following is the legend for designating immediate action
for our stock recommendations. The first is B, meaning the stock is timely
to buy but the case for doing so right here is not overwhelming. Either the
stock may have gotten ahead of itself and may be vulnerable to a retracement or
else the stock has been performing disappointingly but may simply be
regrouping. B+ and B++ indicate stocks for which there is a technical case
to buy now, with plusses adding weight according to how many there are, up
to a maximum of two. Stocks rated H are ones to hold, awaiting confirmation
to buy more or to sell. SELL, of course, means what it says. It seldom pays
to override this designation. In the case of stocks held short, the rating is S where positions should be retained. S+ and S++ indicate stocks for which there is a technical case to add to the positions with plusses adding weight similar to long positions. The maximum number of plus signs is 2.

N.B. There are no longer restrictions on foreign stocks held in Canadian retirement savings accounts.

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price