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Date: August 26, 2008
Subject: GGIS Newsletter - "Financial Stocks Tanking...Banks Getting Hammered"

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G&G Associates Investment Society

This is a copy of the latest GGIS Newsletter for our paid subscribers. See this latest e-newsletter and see why you need to join immediately. Enjoy and move fast!


Dear GGIS Subscriber,

Credit crisis is deepening! Bank shares plunging this week! Learn how to protect yourself and convert the dangers into profits!

I told you this was coming — and that it’s going to continue. I even named the names of the weakest financial companies for you in my bank and brokers report list several weeks ago.

And yesterday, just as I warned:

>> CapitalOne fell 1.6% ...

>> Wachovia declined 3.1% ...

>> Bank of America dropped 4.1% ...

>> AIG plunged 5.5% ...

>> Washington Mutual plummeted 6%, and ...

>> Lehman cratered 6.7% ...

All in a single trading session!

It’s clear to me that Fannie and Freddie are mortally wounded and only days away from a federal bailout that will drive their common stock to zero.

Lehman is frantically trying to close a deal with a major Korean bank to come to its rescue, but it keeps running into more snags.

Washington Mutual is so desperate for quick money, it’s now bidding a whopping 60 basis points more on its one-year CDs than even the most distressed smaller banks in the country.

And with every new piece of bad news, these weak financial stocks are plunging.

The credit crisis is "not just a housing bust, but also a mortgage meltdown, not just a mortgage meltdown but also a credit crunch, not just a credit crunch, but also a dollar panic."

The credit crisis will not only strike the $824 billion subprime mortgage market, but will also bring "a tidal wave of foreclosures ... in the $722 billion Alt-A mortgage market, the $517 billion jumbo mortgage market and, ultimately, in the entire $13.5 trillion mortgage market."

The credit crisis will shatter "not only the $13.5 trillion mortgage market, but also the $2.2 trillion U.S. commercial paper market the $2.4 trillion consumer credit market the $10.1 trillion corporate bond market and, biggest of all, the $144.8 trillion in derivatives held by U.S. banks."

That's precisely what you've seen in the twelve months that have elapsed since that event. And it's what you will continue to see in the months ahead: A credit crisis that's spreading outward in concentric circles ... affecting a far broader range of debts ... wreaking increasing havoc in the economy ... and delivering more devastating losses to lenders, brokers and insurers.

In my upcoming issues, I will map out the full range of consequences and provide updates for my complete model GGIS portfolio. But this situation is too urgent to wait a day longer. So in this issue, I will give you a quick review of what's happening now and some urgent steps to take immediately.

Financial Companies Hit Hard By Collapse in Fannie and Freddie Preferred Shares.

Wall Street are finally realizing Fannie and Freddie cannot survive without a massive government bailout. And they know that in any bailout, the value of Fannie and Freddie's common shares will be wiped out. What they're still underestimating is:

1. The fact that a bailout is also bound to smash Fannie and Freddie's preferred shares ...

2. The possible damage that will be done to various types of Fannie and Freddie debt securities and mortgage-backed securities, and most importantly ...

3. The huge hits to the hundreds of banks across the country that are loaded up to their necks with Fannie and Freddie paper.

Sovereign Bancorp, for example, bought a load of Fannie and Freddie preferred shares and other paper for about $900 million, according to a recent Bloomberg report, and the value of those stakes had already declined to $623 million as of the end of June.

JPMorgan, for its part, said it was sitting on $1.2 billion in preferred shares. Their value has ALREADY plunged by half. If we see Fannie and Freddie preferred shares plunge even more, even bigger losses are going to pile up.

And remember: Banks and brokers are still bleeding from losses on residential mortgages and mortgage securities. Now, they're going to have to take even more write-downs and losses on Fannie Mae and Freddie Mac preferred shares.

The Next Disaster Now Unfolding Commercial Real Estate Mortgages

Commercial real estate will be among the next big victims of this collapse. So, unlike most other investors, the sudden explosion we're seeing in commercial properties and mortgages should come as no surprise to you.

Lehman Brothers, which has the largest exposure to this type of security, is shopping about $40 billion worth of commercial real estate assets, as well as its entire commercial real estate business.

Banks are scrambling to dispose of these loans, typically made to hotels, office developers and retail strips, before problems arrive.

Broader real estate indexes are already showing signs of trouble. Moody's/REAL Commercial Property Price Index has dropped nearly 12 percent since its peak last October

Late last year ... Morgan Stanley reported write-downs of $400 million in commercial mortgage losses. In the first quarter, Wachovia, which had transformed itself into a leading lender in the nation's commercial real estate market, said it would take write-downs of more than $1 billion for commercial loans for the second half of 2007. Investors had already begun balking at buying securities backed by these bonds, so banks like Wachovia were stuck with loans of diminished value."

How to Turn This Crisis into A Major Profit Opportunity

I could go on and on, but I think you get the point: The crisis that began in subprime home mortgages has widened and deepened, touching everything from commercial real estate to leveraged finance to consumer credit.

So expect more multi-billion dollar losses at the nation's largest financial institutions, more multi-billion write-downs and more shocking declines in their share prices, leading to more declines in the broader stock market.

Here's what to do:

Step #1. Get the heck away from these dangers. If you haven't done so already based on our earlier warnings,

- Avoid shares in banks, brokers, insurers or any financial company like the plague.

- Reduce to practically zero your exposure in nearly every other stock market sector.

- Don't trust the bond ratings from Moody's, Fitch and Standard and Poor's. I consistently find that their ratings are subject to serious conflicts of interests and that needed downgrades are often delayed until after it's too late for most investors.

- Avoid long-term bonds regardless of rating. Naturally, the low-rated bonds are bound to take the biggest hits. But supposedly "high-rated" bonds are not as safe as they appear. Moreover, as interest rates rise, the market price of all bonds, including U.S. Treasury bonds, are bound to fall.

- Avoid all commercial paper, plus money market funds that invest in commercial paper. Asset-backed commercial paper is already in the tank. Next, other forms of commercial paper could also get hit hard.

Step #2. Build cash!

If you use bank CDs, make sure your principal and accrued interest are comfortably below the FDIC's insurance limit. And, at the same time, make sure that you are using strictly high-rated banks. For the names of the weakest and safest banks, see the bank and brokers list sent out two weeks ago.

For maximum safety and liquidity, instead of bank CDs and other money markets, I recommend short-term Foreign exchange CD's outside the USD with Everbank. As the dollar loses it's value, you hedge this by diversifying your money in foreign currencies.

Step# 3. Buy Gold & Silver NOW!

If you don't already own gold or silver, I strongly suggest you buy some now. Buy gold & silver for the long-term and protect your paper dollars pronto. As I have suggested in my past newsletters, and on previous conference calls, I would seriously consider allocating 20-30% of your net worth to gold and silver investments. You might want to put 2/3 in pure gold and silver investments, and the other half in mining shares.

Visit the following site in order to purchase Gold & Silver Eagles at a 25-35% discount instantly propelling your investment into a double digit gains instantly. While others are watching their portfolios lose at double digit numbers.

Step #4. Protect yourself from losses, or better yet, go for major profits.

If you have stocks, bonds, real estate or business assets you're unable or unwilling — to sell, seriously consider buying hedges that can help offset any further losses you may incur.

I'm talking about special exchange-traded funds (ETFs) that are designed to rise when a particular stock index falls...inverse ETFs.

1. UltraShort Financials ProShares (SKF). This double-inverse ETF is designed to rise 20% for every 10% decline in the Dow Jones U.S. Financials Index comprised of major brokerage, bank, and insurance stocks.

They include:

* JPMorgan Chase the bank reeling from losses on Fannie Mae and Freddie Mac preferred shares and other esoteric securities.

* Bank of America the company whose nonperforming assets have more than QUADRUPLED in the past year ... and who recently bought Countrywide Financial, dramatically increasing its exposure to the mortgage sector.

2. UltraShort Real Estate ProShares (SRS). This ETF, also double-inverse, is also designed to rise 20% for every 10% decline in an index in this instance, the Dow Jones U.S. Real Estate Index. The index includes major commercial real estate companies like mall operator Simon Property Group, office building manager Vornado Realty Trust, and lodging firm Host Hotels & Resorts. With unemployment rising, these Real Estate Investment Trusts (REITs) are in big-time trouble. If you already own it, hold. If not, purchase some shares at the market.

3. Short Dow30 ProShares (DOG): Unlike the above two, this ETF is not leveraged. It's designed to rise 10% (instead of 20%) for each 10% decline in the Dow Jones Industrial Average. Hold, maintaining a stop-loss order at $58.50. Otherwise, buy some shares at the market now.

In all cases, of course, losses are entirely possible. If I'm wrong about these indexes and they turn higher, then these inverse ETFs will decline. Also, be aware that double-leverage is a double-edged sword. It doubles your profit when the market is moving the way we expect, but it can also double your losses when the market moves in the opposite direction.

Provided you're comfortable with these risks and you stick with my guidelines for moderation (small purchases within the context of a broader, cash-heavy portfolio), then act on each of them right now.

Then, for the balance of my recommendations, including updates on my complete GGIS portfolio in your inbox on Friday.


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Gary Gray
Tax & Financial Consultant, RFC
G&G Associates
877-817-6031 toll-free
866-361-3872 toll free fax

"A Prudent man foresees the difficulties ahead and prepares for them; the simpleton goes on blindly and suffers the consequences."
Proverbs 22:3 -- Living Proverbs

LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility. G&G Associates gets paid a commission from a membership purchase at


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