Gold’s New Records, Audit the Fed Lives On, An Oil Spill Opportunity and More!

• Gold hits another record in U.S. dollars… two ways you can play the breakout

• Byron King identifies an oversold oil-spill stock just off “a near-term bottom”

• Government gets it right: Senate approves watered down “Audit the Fed”; SEC investigates Moody’s

• Plus, Patrick Cox offers a worthy anecdote on the power of stem cell technology

  And away we go again:

Gold shot past its old record-high of $1,226 an ounce yesterday. It’s still making history as we write, at a fresh all-time high of $1,246 and change.

“Gold’s strength,” the Wall Street Journal offers, “indicates investors view the European Union and International Monetary Fund rescue package as a short-term fix that doesn’t reduce uncertainty on how governments will reduce their high debt levels.” We might have written something similar ourselves…  

“So, is it time to sell?” the prudent investor asks. Heh, sell it for what? If you’ve had your eye on something enjoyable, sure. But for dollars? Euros? We’d still rather take our chances with the barbarous relic.

  The gold supply of the SPDR Gold Trust, better known by its ticker, GLD, rose to a record 1,185 tons, the company reported last week. The trust is now the world’s sixth-largest gold stockpile, just behind the French treasury.

  A quick chapeau to Steve Sarnoff during this gold rally. This time last month he suggested Options Hotline readers buy Barrick Gold July $42 calls. Shares of Barrick are up about 13% since then, but those calls are up as much as 165%… not bad for a month’s work, eh?

Steve has been a tireless performer since he took the service over from his father more than 10 years ago. The service isn’t for everybody, but if you’re intent on options investing, he’s a great guide. That Barrick call is actually his 150th “multiplier” opportunity — a chance to double your money or more — in his 127-month tenure as Options Hotline’s editor. Bravo.

You could do worse than adding some options to your own portfolio; read here for more on Options Hotline.

  For a more traditional way to enter the gold market, check this out: Our latest online seminar — The Untapped Gold Market That No One Is Talking About — is now available for an exclusive audience. But it’s still free. You can register here.

  “In Greek Crisis,” reads a headline in the New York Times, “Some See Parallels to U.S. Debt Woes.”

You think? What would happen to the gold price if the Treasury got the wind knocked out of it? Crazy times.

  The Obama administration’s new health care law will likely cost over $1 trillion, said an amended Congressional Budget Office (CBO) report released yesterday.

The CBO found a few extra billion in costs here and there: $10–20 for administrative costs, $39 for Native American projects, $34 for community health centers… and the end result was a $115 billion addition to the current budget projection.

The 10-year cost will now likely exceed $1 trillion. And so it goes…

  Traders are clearly having a tough time reading the new trillion-dollar bailout plan in Europe. The Dow and S&P opened down about 1% yesterday but ultimately finished higher for the day.

Stocks are back on the rise today, mostly on word that the eurozone produced blockbuster GDP growth of 0.2% in the first quarter of 2010. How a growth rate like that in such tumultuous times can be perceived as a good thing… we’re not sure.

  Volatility remains higher than normal. But the VIX has fallen by almost half after last Thursday’s crazy computer sell-off episode.

  Bank of America, Citi, Goldman Sachs and JP Morgan have each posted flawless first-quarter trading records. The trading arms of the four banks — reportedly — did not lose money a single day of the 61 trading days in the first quarter. Not one day. Each bank had trading revenue exceeding $90 million on dozens of days, to boot.

We keep hearing news outlets analogize this to four pitchers throwing perfect games in one MLB season. Yet there have only been 19 perfect games in the 134-year history of the league. That would be a stunning feat for the banks, therefore… unless they’re all chucking spitballs.  

  Totally unrelated story: Moody’s announced late Friday that it faces an SEC investigation.

In its annual report, the ratings agency says it received an SEC Wells Notice back in March. That’s the SEC’s bold, aggressive way of disclosing it is “considering a recommendation to start an administrative case against Moody’s,” the Wall Street Journal explained.

In other words, fire up the paper shredders, boys!

Strangely, the SEC’s case doesn’t involve a single mortgage-backed security, bank, U.S. municipal bond or bond insurer… ahem… the very securities Moody’s gave AAA status to when the likes of Goldman were shopping them to European investors. Instead, the focus will be on a 2007 flub of some exotic European debt products. This way, no American financial firm will have to suffer any additional scrutiny, God forbid.

In the end, Moody’s is accused of pulling the same tricks on these euro-papers as they did with everything else in the U.S. The SEC alleges the agency failed to downgrade the securities because such a downgrade would have damaged the company’s reputation and/or cause losses to other companies that do business with Moody’s.

  The SEC’s investigation is the only pending government audit or reform of the ratings agencies, by the way. Their conflicts of interest aren’t even mentioned in the current financial reform bill.

Junior Senator Al Franken has been tasked with writing up an amendment to reform the agencies. To say the least, its current rendition is a mess of new regulators and big government. We’ll keep an eye on it nonetheless.

  Ratings agencies performed a “sordid, nonsensical role in perpetrating and perpetuating the subprime craze,” Pimco’s Bill Gross wrote in his latest, seething monthly missive, “as well as reflecting the general deterioration of investment common sense during the past several decades.

“Their warnings were more than tardy when it came to the Enrons and the Worldcoms of ten years past, and most recently their blind faith in sovereign solvency has led to egregious excess in Greece and their southern neighbors. The result has been the foisting of AAA ratings on an unsuspecting (and ignorant) investment public who bought the rating service Kool-Aid that housing prices could never really go down or that countries don’t go bankrupt.

“Their quantitative models appeared to have a Mensa-like IQ of at least 160, but their common sense rating was closer to 60, resembling an idiot savant with a full command of the mathematics, but no idea of how to apply them.”

Gross later explains that he does not wish “to bury the rating services, but to dismiss them.” We vote for both.

If you’re looking for more on the raters, you’ll enjoy the coming issue of Apogee Advisory, tentatively titled “The Wall Street Fandango.” We take a hard look at the long list of financial facades that fleeced investors throughout the credit crunch… and offer a few suggestions for a profitable revenge. If you’re not on our mailing list yet, join here before this issue goes to the virtual press.

  “Transocean shares hit $65 last week, and I think that’s a near-term bottom,” writes our oilman Byron King with a post-oil spill buying opportunity. “Yes, there’s a lot of finger-pointing at Transocean, mostly by people who are immensely ignorant of how the drilling business works. Or they have a vested interest in shifting the blame.

“At the end of the day, BP hired Transocean to drill a well that BP designed. If Transocean followed the specs, you can’t pin the donkey-tail on these guys. The worst anyone can say — and they’re saying it — is that Transocean had a bad blowout preventer (BOP) that didn’t function.

“To which I say, ‘Oh really?’ We’ll find out, eventually, when the well is dead and they pull that BOP off the bottom. But let’s not beat up too hard on Transocean or the BOP. Not yet. I’m inclined to think that there’s something — some foreign object — jamming the BOP. Even the best of equipment is not designed to withstand every insult…

“It all comes back to human error. Yes, some equipment and technology should’ve worked better. But it’s mostly human factors and bad risk management. People should’ve caught what was going on. They didn’t. A series of cascading events led to a chain of failures and disaster.”

Byron gives a full rundown of the companies involved in the oil spill in the latest Outstanding Investments — who’s to blame, who isn’t, which stocks to buy and which to hold. That advice alone warrants the tiny annual subscription fee… details here.

  The Senate voted against its version of Ron Paul’s “Audit the Fed” bill yesterday by a count of 62 to 37.

A weaker version of the bill is still alive, however. Bernie Sander’s amendment to the Financial Reform Bill was passed unanimously yesterday. The amendment launches a GAO investigation into the Fed’s $2 trillion emergency credit facilities over the last few years.

The Sanders’ bid is not really transparency at the Fed, but it’s a start.

  “This last week was particularly busy for me,” a reader writes, who just so happens to be our Breakthrough Technology analyst Patrick Cox, armed with a remarkable anecdote: “My wife, who spent years in ballet, underwent her second knee surgery. Ballet, incidentally, ranks alongside football as a hazardous physical activity.

“Her surgery was vastly superior to the same basic procedure that she had done about 15 years ago. During the operation, while she was under anesthesia, blood was extracted. Blood stem cells were isolated and the rest of the extracted blood returned to her. When the surgery was completed, the concentrated platelets containing blood stem cells were injected into the area of the surgery.

“There are a lot of misconceptions regarding this procedure, which was honed by veterinarians who have used it successfully on valuable racehorses for years. Blood stem cells do not actually become anything but blood cells. They can’t become cartilage, for example. They do, however, produce growth factors. These messenger molecules seem to mobilize the production of healing agents and other stem cells appropriate to the area of the injury.

“Sooner than most people think, we will be able to inject stem cells that will become cartilage and repair damaged joints. Until then, however, stem cell growth factor therapy is the state of the art. We wouldn’t even have that if it were not the patient’s own cells that are used. This has allowed doctors to escape the most onerous aspects of FDA regulation.

“This is, by the way, basically the same procedure that Hines Ward, the Pittsburgh Steeler MVP, had before last year’s Super Bowl. At the time, he had to go to Korea to have the procedure done. It is much more widely available today.

“A number of companies in our portfolio are positioned to bring cartilage therapies to market. These will be cells programmed to become cartilage and other connective tissue.”

The 5: We recommend you check out Patrick’s work here.

Cheers,

Ian Mathias

The 5 Min. Forecast

P.S. Not only are Options Hotline readers enjoying a nice payday as gold rises to record highs, but they’re profiting on the downside this week, too. According to the WSJ, Morgan Stanley will be the next mega-bank to suffer a federal investigation. Bad news for Wall Street – great news for Options Hotline readers, who bought puts on MS Monday morning and are already up as much as 23%.

Looks like Steve and his readers are on another hot streak. Learn more about it, and how you can play along, right here.