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com S&P: Bearish Nasdaq: Bearish Bonds: Neutral Most Foreign Markets: Bearish Website: www.weissresearchissues.com Email: support@weissinc.com July 2012 Issue #459

Cover Story Sovereign debt crisis end game near! Global recession spreading! Page 8 Mr. Conservative Youre on the right side of most market trends! Grab some gains then make some adjustments! Page 9 Mr. Speculator Time to focus almost entirely on protection and downside plays! Page 10 Gold and Energy Pressures on commodity prices intensify! Bag more than 25% gains in oil! Then make these other moves ... Page 13 Professor Investor EUO and SEF ... Commodity Prices ... Inverse & Leveraged ETFs ... Gold and 401(k)s ... Middle East

Sovereign debt crisis end game near! Global recession spreading!

50 weakest stocks to avoid 20 weakest U.S. and global banks 61 strongest that merit your trust
The signs are all there. All you have to do is connect the dots and the conclusion is inescapable: The sovereign debt crisis end game is rapidly approaching. The double-dip global recession is in the making.

Mike Larson

If you havent taken steps to protect yourself, you could be in big trouble. But if you select the right defensive investments, you stand to grow your money more quickly than in the best of times. Why am I so certain and dire in my warnings? Because the obvious, measurable, unimpeachable and fundamental facts are deteriorating almost across the board ... while the hopefilled interludes prompted by government interventions are getting shorter at each step of the way. In fact, theres mounting evidence that policymakers are very close to finally acknowledging the Safe Money Report has been right along that weve reached a critical crossroads beyond which nothing of substance can be done to hold back the inevitable tide of delinquencies, defaults, bankruptcies, and bank failures!

Strongest and Weakest Companies by Sector

Company Rating Strongest Basic Materials NewMarket Corp (NEU) ...............A+ Stepan Co (SCL) ..........................A+ Airgas Inc (ARG) ............................A Royal Gold Inc (RGLD) .................A Sherwin-Williams Co (SHW) .........A Weakest Basic Materials Fibria Celulose SA (FBR) ..............D Ivanhoe Mines Ltd (IVN) ................D North American Palladium (PAL) ..D Molycorp Inc (MCP) ......................D W.R. Grace & Co (GRA) ................F Strongest Communications BCE Inc (BCE) ...............................A+ Comcast Corp (CMCSA) ...............A+ Scripps Networks Interactive (SNI) A+ The Walt Disney Co (DIS) .............A+ AT&T (T) ........................................A Weakest Communications Crossroads Systems Inc (CROS) ....E+ Ciena Corp (CIEN) ........................D Crexendo Inc (EXE) ......................D Leap Wireless Intl Inc (LEAP) ........D Novatel Wireless Inc (NVTL) .........D Strongest Consumer Discretionary Costco Wholesale Corp (COST) ..A+ Family Dollar Stores (FDO) ..........A+ Home Depot Inc (HD) ...................A+ PetSmart Inc (PETM) ....................A+ Ross Stores Inc (ROST) ...............A+ Weakest Consumer Discretionary Florida Gaming Corp (FGMG) .....E Amerityre Corp (AMTY) .................DCastle Group Inc/UT (CAGU) .......DGood Times Restrnt Inc (GTIM) ..DMeritor Inc (MTOR) ......................DStrongest Consumer Staples Bristol-Myers Squibb Co (BMY) ....A+ Church & Dwight Inc (CHD) ..........A+ Coca-Cola Co (KO) .......................A+
(continued on next page ...)

Just since my last issue ... The G20s latest meeting bombed! Group of 20 policymakers met in Mexico for a two-day summit in midJune. There were high hopes they would release some grand new plan, pledge hundreds of billions in additional aid for Europe, or pull some new rabbits out of their hats. But all they did was spew empty words. No new aid was forthcoming; no new ideas were hatched. Why? Because policymakers have virtually no money left AND no political clout to sell their citizens on new bailouts! The Fed is out of bullets ... and so are central bankers around the world! Anyone looking for a helping hand from the U.S. Federal Reserve in June came away empty handed. Rather than launch a third round of QE, the Fed meekly extended its limp Operation Twist program through the end of the year. Considering that the $400-billion Twist 1 program accomplished precisely nothing for the economy, its no surprise that investors took one look at the $267-billion Twist 2 idea and started dumping stocks. Heck, even the Central bank of central banks the Bank for International Settlements (BIS) admitted what weve been saying for a long time: Policymakers are shooting blanks! In an unusually damning annual report, the BIS concluded that Central banks are being cornered into prolonging monetary stimulus as governments drag their feet ... but both conventionally and unconventionally accommodative monetary policies are palliatives and have their limits. The European Union Summit of June 28-29 was another big dud! Consider all the trial balloons that were floated ahead of this 19th Summit to Save the World: Swift issuance of eurobonds backed by all European countries. A pan-European FDIC-like organization to back the deposits of all European banks. A massive infrastructure spending boom, front-loaded to boost the European economy. None materialized. Each was shot down. And even famed financier George Soros said the failure to reach an agreement on bold new steps would prove fatal.

So what did the Eurocrats come up with? They decided to waive some conditions on a Spanish bank bailout and made a vague pledge to steer a few bailout bucks toward banks at some unspecified point down the road. But after prompting an initial pop in the euro currency and other risky assets, the effort is doomed to fail. Reason: There simply isnt enough money to go around! More empty pledges without cold, hard cash behind them arent worth the paper theyre printed on.

Strongest and Weakest Companies by Sector (continued ...) Company Rating Kimberly-Clark Corp (KMB) ..........A+ Whole Foods Market Inc (WFM) ...A+ Weakest Consumer Staples Forevergreen Wrldwide Corp (FVRG) E Dean Foods Co (DF) .....................D Jones Soda Co (JSDA) ..................DPrimo Water Corp (PRMW) ...........DTofutti Brands Inc (TOF) ...............D+ Strongest Energy Ecopetrol SA (EC) ..........................A+ Oneok Partners LP (OKS) .............A+ Western Gas Partners LP (WES) ..A+ Chevron Corp (CVX) ......................A Enterprise Prods Ptnrs LP (EPD) ...A Weakest Energy Amyris Inc (AMRS) .........................DChesapeake Midstrm Ptnrs LP (CHK) .D Penn Virginia Corp (PVA) ...............D Willbros Group Inc (WG) ...............D Transocean Ltd (RIG) ...................D+ Strongest Financial American Express Co (AXP) .........A+ Amtrust Financial Services (AFSF) ...A+ Commercial Natl Finl CP/PA (CNAF) .A+ Everest Re Group Ltd (RE) ............A+ Home Bancshares Inc (HOMB) ....A+ Weakest Financial Apollo Global Mgmt LLC (APO) ...DCIT Group Inc (CIT) ......................DBancTrust Finl Grp Inc (BTFG) ...D MBIA Inc (MBI) ...............................D MGIC Investment Corp/WI (MTG) ...D Strongest Healthcare Merck & Co (MRK) ........................A+ Novo Nordisk A/S (NVO) ................A+ Unitedhealth Group Inc (UNH) .....A+ Utah Med Products Inc (UTMD) ...A+ Young Innovations Inc (YDNT) ......A+ Weakest Healthcare Dendreon Corp (DNDN) ................D(continued on next page ...)

All the funny money in the world has failed to paper over the real-world economic slump!
As if that werent enough, the global economy is rapidly tumbling toward recession. In the U.S., retail sales have fallen two months in a row. Housing starts plunged almost 5%. Personal spending flat lined in May, the worst performance since November. June consumer sentiment sank to its lowest level this year. Meanwhile, the ISM manufacturing index sank to 49.7 in June. That was the first sub-50 reading going all the way back to the summer of 2009, signaling that the U.S. manufacturing sector is now officially contracting! Growth in the worlds largest emerging market, China, is also slowing and doing so quickly: We see Chinas fixedasset investment is growing at the slowest pace since 2011; industrial production is slumping; and record amounts of commodities, such as coal and copper, are piling up, unused at ports and depots! And never forget: Nearly all of Europe is still a basket case ... Greece, Ireland and Portugal have already used up a total of 386 billion in handouts. Spain, Europes fourth-largest economy, is in such dire straits, it officially requested a 100 billion bailout in late June. Cyprus quickly followed with its own aid request, which could total 10 billion or more. And Slovenian officials have signaled they might be next on the sovereign nation breadline.

Strongest and Weakest Companies by Sector (continued ...) Company Rating HCA Holdings Inc (HCA) ................DHealthways Inc (HWAY) .................D Sinovac Biotech Ltd (SVA) .............D Unilife Corp (UNIS) ........................D Strongest Industrial Ametek Inc (AME) ..........................A+ Grupo Aeroportuario Sureste (ASR) ....A+ J.B. Hunt Transprt Svcs Inc (JBHT) ....A+ Raven Industries Inc (RAVN) .........A+ Union Pacific Corp (UNP) .............A+ Weakest Industrial Clean Diesel Technologies (CDTI) ...D Energy Recovery Inc (ERII) ...........D Swift Transportation Co (SWFT) ..D Teekay Tankers Ltd (TNK) ............D Tsakos Energy Nav Ltd (TNP) .......D Strongest Technology Intl Business Machines Corp (IBM) ..A+ Power Integrations Inc (POWI) ......A+ Apple Inc (AAPL) ............................A Ansys Inc (ANSS) ...........................A Mediware Info Systems (MEDW) ...A Weakest Technology Mandalay Digital Grp Inc (MNDL) ...DApplied Micro Circuits Corp (AMCC) ...D Echelon Corp (ELON) ...................D MEMC Electr Matls Inc (WFR) ....D Rambus Inc (RMBS) .....................D Strongest Utilities American Elect Power Co (AEP) ....A+ Chesapeake Utilities Corp (CPK) ....A+ Consolidated Edison Inc (ED) .......A+ Duke Energy Corp (DUK) ..............A+ Scana Corp (SCG) ........................A+ Weakest Utilities Dynegy Inc (DYN) ..........................DAtlantic Power Corp (AT) ...............D Empresa Distribuidora y Com (EDN) .D Enernoc Inc (ENOC) .....................D NGL Energy Partners LP (NGL) ....D

Think about that! It means that six of the euro-areas 17 countries are already on the dole or soon will be. Meanwhile, the list of bank casualties just keeps getting longer ... Bankia in Spain is seeking 19 billion in help, joining other mega-institutions like Dexia, which needed 6 billion. Then a few days ago, Banca Monte dei Paschi di Siena of Italy said it needed 3.4 billion in government help to plug a capital hole. The bank is the worlds oldest operating bank, founded in 1472 two decades before Christopher Columbus set sail for America. Throw in Europes deepening double-dip recession I detailed here last month, and you can see why I remain bearish on Europe (despite the short-term optimism from the latest Summit to save the world) ... why I have been increasingly negative on the rest of the world ... and why weve written extensively about the growing probability of a 2008-style global disaster.

How to Avoid the Worst Stock Market Dreck!

So what can you do to protect your stock market wealth? What stocks are most likely to get hit hard in a garden variety selloff ... and even harder if Im right about a 2008-type wallop? For answers, Ive drawn heavily from our vast Weiss Ratings database, extracting lists of the most vulnerable and strongest stocks. In this gala issue, I give you the results, starting with the top and bottom five in each of 10 subsectors of the S&P 500 Index. Some highlights ... Basic materials: Molycorp (MCP) is one of the highest risks in this sector. The rare earth minerals firm lost 7 cents a share in the most recent quarter, compared to a 4-cent-pershare loss in the year-ago period. Revenue missed forecasts by roughly $30 million. Energy: Transocean (RIG) stands out as high risk. Profit at the oil services firm tanked to $42 million, or 12 cents a share, in the most recent period from $310 million, or 96 cents a share, last year.

Strongest U.S. Banks in Each State

State: Bank Rating State: Bank Rating AK: First Natl Bank Alaska ............. AAL: First Metro Bank ...................... A AR: First Security Bank .................. ACA: Farmers&Merch Bk Lng Bch ... B+ CO: FirstBank ................................ B+ CT: Prudential B&T FSB ............... B+ DC: Natl Capital Bank of WA .......... A DE: Deutsche Bank Trust Co DE .... AFL: Drummond Community Bk ..... AGA: State Bank & Trust Co ............ AIA: Hills Bank & Trust Co ............... B+ IL: United Community Bank .......... AIN: German American Bancorp .... B+ KS: Kansas State Bk of Manhtn .... B+ KY: Republic Bank & Trust Co ...... B+ LA: Citizens Natl Bank NA .............. B+ MA: Easthampton SB .................... B+ MD: Calvin B Taylor Banking Co ... AME: Franklin SB ............................ AMI: Level One Bank ....................... B+ MN: First Natl Bank of Bemidji ...... A MO: Liberty Bank ........................... B+ MS: BNA Bank ................................ AMT: Stockman Bk of Montana ...... B+ NC: Union Bank & Trust Co .......... B+ ND: Great Plains Natl Bank ........... B+ NE: Five Points Bank ..................... ANJ: Oritani Bank ............................ ANM: Citizens Bank ......................... A-

State: Bank

Rating

Strongest Banks in Each Major Country

Country: Bank Rating Australia: Aust and NZ Bank ..........BBrazil: Banco do Brasil .................B+ China: China Const BA-H ..............B Hong Kong: Hang Seng Bk ..........B+ India: ICICI Bank Ltd ......................BIndonesia: Bank Mandiri ..............AMalaysia: Public Bank BHD ..........BMexico: Grupo F Santan-B ..........B+ Qatar: Qatar National Bank ..........A Russia: Sberbank ..........................B Saudi Arabia: Al Rajhi Bank ..........A Singapore: OCBC Bank ................B South Africa: Standard Bank GR ...BTurkey: Akbank .............................AUnited Kingdom: Std Charter ........B-

NV: USAA Savings Bank ................ B+ NY: Goldman Sachs Bank USA ..... AOH: Peoples Bank Co ................... AOK: American Heritage Bank ........ B+ OR: Pioneer Trust Bank NA .......... B+ PA: Citizens & Northern Bank ........ ASC: First Piedmnt FS&LA Gaffney . ASD: First Premier Bank .................. ATN: First Citizens Natl Bank .......... B+ TX: Prosperity Bank ....................... B+ UT: UBS Bank USA ........................ B+ VA: Burke & Herbert B&T Co ......... AVI: Bank of St Croix ........................ B+ WA: Yakima FS&LA ........................ B+ WI: Natl Exchange B&T ................ AWV: City Natl Bank of WV ............... B+ WY: Hilltop Natl Bank ..................... A-

Weakest U.S. Banks

Country: Bank Rating AL: Compass Bank ........................ D DE: Chase Bank USA NA ............... D+ GA: SunTrust Bank ........................ D MA: Sovereign Bank NA ................. D+ NC: Bank of America NA ................ D+ NJ: Hudson City Savings Bank ...... D OH: JPMorgan Chase Bank NA .... D+ SD: Wells Fargo Bank NA .............. D+ TX: USAA FSB ............................... D+ VA: E*TRADE Bank ........................ D

Weakest Global Banks

Country: Bank Rating France: Crdit Agricole ................. E France: Socit Gnrale ............ DGermany: Deutsche Bank-RG ...... D Italy: UniCredit SpA ........................ E+ Japan: Mizuho Financial ............... D+ Spain: Banco Santander ............... DU.K.: Barclays PLC ........................ DU.K.: Lloyds Banking ...................... E U.K.: Royal Bank of Scotland ........ DU.S.: Bank of America .................... D+

Weiss Ratings scale: A = excellent, B = good, C = fair, D = weak, E = very weak. Plus and minus sign = upper and lower rating range. B+ or better qualifies institution for Weiss Ratings Recommended List. D+ or lower is considered vulnerable to financial difficulties, or equivalent to junk on the scale of other agencies. U.S. bank ratings are based on data from bank operating unit; global bank ratings are based on data from holding companies, reflecting all subsidiaries.

Falling energy prices are set to increase pressure on RIG, which has already seen its share price fall 27.3% in the past 12 months. Communications: Pre-paid wireless provider Leap Wireless (LEAP) has seen its shares tank 60.2% in the past year, despite recently becoming the first such firm to offer the iPhone. The reason? Concern that it wont find a merger partner and that it will have to pay too much to subsidize the phones relative to the new business generated.

Consumer discretionary sector: At Meritor (MTOR), sales dropped 1% to $1.16 billion in the most recent quarter, while cash flow from operations swung to NEGATIVE $51 million compared to $5 million in the year-ago period. I sure dont expect much improvement at the auto- and truck-parts company, now that vehicle sales are poised to slump globally. Avoiding dogs like these is key to surviving the threats to your wealth that are headed your way! So be sure to review carefully our lists on pages 2 through 4.

Strongest and Weakest Banks

What about your hard-earned savings? Which banks can you trust with your deposits? Which should you steer clear of? In this issue, we provide lists of the strongest and weakest banks both in the U.S. and globally. The strongest merit a B+ (Good) rating or higher, qualifying them for the Weiss Ratings Recommended List. As an illustration, consider one of the largest banks actively lending in the home mortgage market FirstBank (B+) headquartered in Lakewood, Colorado. Its very well capitalized with almost triple the minimum FDIC requirement. Its nonperforming loans make up less than 1% of its total portfolio. And the bank earned $43.1 million in the first quarter, following healthy profits of $174.4 million last year and $163.6 million in 2010. Overseas, Banco do Brasil (B+) is the largest among the strongest. It has total assets of $526.6 billion, with only 0.2% of those in nonperforming loans. Return on equity is 27.6%, or three times the average for global banks. And it has a nice stash of cash and equivalents 12.8 cents for each dollar of liabilities. Meanwhile, the weakest banks are those with a D+ (Weak) rating or lower, due to what we consider serious deficiencies in their capital, asset quality, earnings, reliance on hot money and/or liquidity. One of the worst: Crdit Agricole (E). Its scraping the bottom of the barrel in terms of capital only 1.2 cents in tangible common equity per dollar of assets. Its barely making a tenth of a penny in operating income per dollar of total assets. And its loaded with the sinking bonds of sovereign nations. In the U.S., SunTrust Bank (D) continues to demonstrate serious weaknesses, particularly in terms of asset quality and profitability. Nearly 40% of the banks capital is exposed to nonperforming loans about double the industry average. And after losing more than $1.5 billion in 2009, the banks earnings have never really recovered. It earned just $33.4 million in 2010 and $663.5 million in 2011, still a far cry from its pre-crisis annual earnings of nearly $2 billion.

Critical Steps to Batten Down the Hatches!

Take full advantage of the vast and unique data resources we have to offer by following these simple steps ... First, reduce your exposure to a stock market decline. If you own stocks recommended by others in recent years, and youre unwilling to sell everything, then at least unload the most vulnerable stocks usually those with our lowest ratings. The weakest stocks I just told you about give are classic examples; and those listed in the accompanying columns are in similar straits. Plus, if you cant find yours here, you can look them up at www.weisswatchdog.com. Second, recognize that ours is not a one-sided analysis. We have also identified the strongest in each sector stocks could be strong candidates for purchase when most of the smoke from this crisis has cleared. Third, check the Weiss Rating of your bank, also at www.weisswatchdog.com. If its rated D+ or lower, consider shifting to a safer institution. To find one in your area, check the Strongest U.S. Banks in Each State, or Strongest Banks in Each Major Country (page 5). Fourth, if moving your bank account is not feasible, do your best to keep your balances small, parking most of your cash in short-term Treasuries or equivalent (see page 9, item #2, Stash the cash!). Fifth, dont count on Big Government to save your bank from failure in the future, no matter how large it may be. And even if it does, remember that other bank investments, such as bank stocks, bonds, debentures and uninsured deposits, can suffer severe losses even with a bailout. Sixth, with the global economy deteriorating and so many large institutions vulnerable to financial disaster, you can see why I have ratcheted up my warnings and recommended battening down the hatches in our model positions over the past several months. Your latest move should have been to reduce stock exposure by selling all your shares of Francescas Holdings (FRAN) per my Flash Alert on June 8. Now, I recommend you bag even more gains and further reduce your exposure. (See pages 8 through 12.) I also urge you to make sure you are on board with the hedges Ive recommended recently, including ProShares Short Basic Materials (SBM), ProShares Short Financials (SEF), ProShares Short Real Estate (REK), and ProShares UltraShort Euro (EUO). Why so heavy on the hedges? Because I am very concerned that we are on the cusp of an ugly repeat of the 2008 fiasco in private credit markets only this time centered in the SOVEREIGN arena. In that kind of meltdown, the majority of stocks and other assets will get hammered in value. Bank failures will ramp up again.

Only this time, governments are out of money to enact TARP-style bailouts. That means investors are operating without a safety net exactly the kinds of conditions that can lead to a world-class wipeout! Bottom line: If ever there was a time for a strong barricade of protection against massive declines, this is it!

Youre on the right side of most market trends! Grab some gains then make some adjustments!
Were on target with three out of four of the critical trends Ive been warning you about. Only one is working against us. First, your McCormick & Co. (MKC) shares have worked out nicely. I track open gains of about 13.1% from my initial recommendation in April. Now, the spice and seasonings company hasnt done anything wrong. But risk is rising fast in the capital markets, which means even good companies could be dragged down. So I recommend you pocket that gain by selling all your MKC shares at the market. Second, your holdings in the Vanguard Short-Term Corporate Bond (VCSH) have delivered BTT Better Than Treasuries returns with minimal risk. I track gains of about 1.9% and 2.5%, including dividend distributions, since you entered your two rounds of shares in December 2010 and March 2011. Hold for more. Third, youve been doing well with your position in the ProShares UltraShort Euro (EUO). Not only has the market been moving your way (1.3% and 7% gains on our two rounds of purchases), but its also the largest holding in our model positions, helping to magnify the dollar gains. Hold this play on a lower euro currency, especially now that the sovereign debt crisis appears to be nearing an end game. But do stay alert for possible instructions to bag gains if the euro currency trades down to my first major downside target around $1.17 against the dollar. (It was recently trading at $1.26.) The bad news? Your position in the iShares International Inflation-Linked Bond Fund (ITIP) isnt working out. Taking into account monthly distributions and share price changes, its down about 7.5% since I recommended it. The loss stems from two factors that are bound to continue: The dollars rally, which hurts the value of foreign bonds of all types, and the fading fears of inflation, given the global economic slump. So I believe now is the time to cut this one loose. Sell all your ITIP shares at a price of $46 or better.

That just leaves your two small rounds of shares in the Alerian MLP ETF (AMLP). Sit tight with that higher-yielding ETF, representing only 3.7% of the overall $100,000 model investment. If youre not on board at this time, wait until you get my next buy signal. What should you do with the proceeds from the sale of ITIP and MKC? Two things ... 1. Buy 100 shares of the iShares Barclays 1-3 Year Treasury Bond Fund (SHY) at the market. This ETF holds short-term U.S. government securities. So dont expect to pick up much yield here. But its a good parking space for a chunk of your cash in light of the multiple market threats out there. 2. Stash the cash! Keep the balance of your funds, as well as your remaining cash cushion, in shorter term Treasuries. You can use 3- or 6-month Treasury bills available through your broker or the governments Treasury Direct program (800-722-2678 or www.treasurydirect.gov). Another alternative is Treasury-only money market funds. Go to www.moneyandmarkets.com/ treasury-only-money-market-funds-35754 for our updated list. Clearly, current conditions warrant significant protective action, especially for those with a conservative investment bent. When I feel its safe to wade back in to search for higher yields, Ill be sure to let you know.

Mr. Speculator
Time to focus almost entirely on protection and downside plays!
In last months regular issue, I told you to add either the ProShares Short Basic Materials (SBM) or a short position in the Market Vectors Agribusiness ETF (MOO). Then in my Flash Alert of June 8, I gave you instructions to sell your shares of Francescas Holdings (FRAN). I estimate you got about $28.72 for your shares, up 3.8% from where it was trading when I first identified the opportunity. These moves reduced your stock exposure and ramped up your hedges. Now, I recommend you go a step further and sell ALL your shares of Harris Teeter Supermarkets (HTSI). This position has been in the red, but the stock has popped back up toward our entry price. So take advantage of the rally to exit at a reduced loss.

Copyright 2012 by Weiss Research, Inc., Safe Money Report (ISSN 1086-251X), 15430 Endeavour Drive, Jupiter, Florida 33478; 561-627-3300; Sales: 800-236-0407. Subscription rate: $198 for 12 monthly issues. Single issue price: $16.50. Publisher and Contributing Editor: Martin D. Weiss. Editor: Michael D. Larson. Research Supervisor: Amber Dakar. Contributors: Marty Sleva, Jeremy Ahlrich and Leslie Underwood. POSTMASTER: Send address changes to Safe Money Report, 15430 Endeavour Drive, Jupiter, Florida 33478. Data date: July 2, 2012.

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This will leave you with a concentration in SBM and other inverse investments like ProShares Short Financials (SEF) and ProShares Short Real Estate (REK) inverse ETFs that help you shoot for gains from downside moves. SBM, for example, is designed to rise 1% for every 1% drop in the Dow Jones U.S. Basic Materials Index, which tracks companies that produce and mine chemicals, copper, fertilizer, and paper products. Similarly, SEF is set up to rise 1% for every 1% decline in the value of the Dow Jones U.S. Financials Index of banks, brokers, and insurers. Meanwhile, REK does the same with the Dow Jones U.S. Real Estate Index of major REITs in the industrial, retail, and apartment businesses. If youre not yet on board with these positions, I recommend buying 150 shares of SBM, 200 shares of SEF, and 300 shares of REK, all at the market. (This assumes total holdings, with both speculative and conservatives investments, of about $100,000. If yours are smaller or larger, seek to adjust your quantities proportionately.) Your only remaining hold should be Sirona Dental Systems (SIRO), and if we get a further rally, I may look to exit that one too.

Why Im Focusing on The Downside

My strategy to go mostly for downside plays in this column stems largely from the 2008 playbook. Back then, as now, the global economy was slowing sharply. A great credit crisis was sweeping through the markets. Like now, policymakers were trying to help by enacting unprecedented measures designed to stem the losses. But for over a year, their efforts did little to prevent a global decline in almost all asset classes. Like then, sharp intermediate rallies are also in todays script. But if theres one thing I learned trading my way through the 2008 crisis, its that you have to look at these intervening rallies as a gift! Theyre a great opportunity to unload any remaining stocks you may own. And theyre a great chance to buy inverse ETFs more cheaply. When will I switch tactics and start looking to add stock market exposure again? Not until we see ... (a) A REAL washout panic in the markets one where investors run for the hills and dump virtually everything in sight, and ... (b) A viable plan that actually attacks the underlying problems in Europe and the global economy. Theres absolutely no evidence of either at this time. So our course should be obvious: Steady as she goes!

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Pressures on commodity prices intensify! Bag more than 25% gains in bearish oil play! Then make these other moves ...
When we forecast sinking commodity prices several months ago, many observers were surprised. And when we recommended actually betting hard dollars on a commodity price decline, they were shocked! But now, our contrarian view of the commodity market is paying off. Just as expected, commodity prices are being driven lower by a global economic downturn, the credit crunch in Europe, and the growing realization that central bankers are out of bullets to save the markets. End result: The price of nearly everything from crude oil to cotton is getting crushed. So it is time for several actions to insulate and grow your wealth in the resources sector ... First, take a big profit off the table! In March, I sniffed out a potentially large slowdown in foreign economies and recommend you add a slug of the ProShares DB Crude Oil Short ETN (SZO). That recommendation has worked out extremely well, with open gains of 25.3%, assuming a purchase at $37.58 and a recent closing price of $47.10. Grab em! But with one important caution: Given the relatively light volume in this exchangetraded note (ETN), I recommend you sell SZO shares at a LIMIT price of $44 or better. Second, rotate the proceeds into a much broader commodity hedge the PowerShares DB Commodity Short ETN (DDP). This ETN is designed to rise 1% for every 1% decline in the value of the Deutsche Bank Liquid Commodity Index, which, in turn, tracks a broad basket of six commodities wheat, corn, crude oil, heating oil, gold, and aluminum. Buying 200 shares of DDP at a price of $33 or better will further hedge you against the risk of a global economic downturn. I suggest you do so now. Third, silver prices are close to breaking down from a broad topping pattern that dates all the way back to late 2010, while gold is also getting close to its own nasty break. So sell your Aurizon Mines (AZK) shares, probably at a 39.9% loss. Fortunately, our AZK holding represents only a small percentage of the overall Safe Money model holdings. So its bottom-line impact should be small. Continue to hold your longstanding position in gold bullion $5,000, assuming $100,000 to invest. But do be on alert, as I may recommend you take some of the 400%+ gains youve racked up since our initial recommendation way back in 1999.

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Fourth, the only resources position I recommend you do hold on to is Cimarex Energy (XEC). This position is down about 31.7%, because it has sold off along with crude oil. But I believe thats an incredibly short-sighted move by investors since Cimarex is much more tied to natural gas than oil. Only 29% of its production in the first quarter was petroleum, with the remainder gas and gas liquids. Crude oil also represented just 26% of total reserves as of year-end. Why is this so important? Because gas prices are now taking a sharp turn higher! After trading as low $1.90 per million British Thermal Units (BTU), gas rallied to a fivemonth high of $2.97 per BTU in late June before taking a short breather. Hot weather is driving some of the gains, with the expectation that utilities will need to burn more gas to power air conditioners. And dont underestimate the fact were going to be entering the heart of hurricane season soon, which could lead to shutdowns in U.S. production. The longer term trends in supply and demand are even more important: Troubled drillers are shutting down rigs simply because they cant profit with gas at these levels. The number of active U.S. nat gas drilling rigs just slumped to a 13-year low. Meanwhile, were seeing more large energy users, like trucking fleet and bus operators, shift to nat gas as a fuel. That should spur long-term demand. If Cimarex shares were to make a similar move as the underlying commodity already has, you could see a major turnaround in this position. So stick with this long-term potential winner.

Q. I like my gains in EUO and SEF. But at what point should I grab them? A. These are solid holds. Both the European currency, in particular, and financial stocks, in general, remain vulnerable to the sovereign credit woes buffeting the markets. Remember: Each short-term rally from each half-baked bailout plan is proving to be less powerful than the one before! So until this pattern breaks, the plan is to stick with them. Q. I have the opportunity to buy a farm. But Im concerned that with the world economy faltering, commodities prices wont stay up. Should I buy or not? A. Im not a fan of investing in farmland right now. Sure, weve seen a short-term pop in agricultural commodities, such as corn and wheat, due to drought concerns in the U.S.

13

But like you, I think the trend is lower due to slowing growth in emerging markets, Europe, and elsewhere. It doesnt help that farm prices have shot up in value over the past few years, making them too rich for my blood. Q. My broker says inverse ETFs are too risky. And he says leveraged ETFs are even riskier. What do you think? A. All investments carry risk. But I disagree that inverse ETFs are necessarily riskier. In fact, right now, I think the bigger risks are being taken by those who are playing strictly the upside! Hes right that leverage is a double-edge sword more profit potential and also more risk of loss. But we have only one leveraged ETF in the model holdings, EUO. And it targets an underlying asset (the euro currency) that usually moves in relatively small increments. So even with the 2x leverage, it should be less volatile than many 1x stock indexes. Q. I keep hearing talk of confiscation of assets like gold or 401(k) accounts. How likely is that scenario? A. I dont think thats a risk for the immediate or intermediate-term future. Its so obvious how bad it would be for the financial markets, even politicians know it would be foolish to try. Q. What do you think about the Syrian situation? Are we on the verge of another shooting war in the Middle East? What does it mean for oil? A. Perhaps. But even if the conflict overflows into neighboring countries, its very unlikely the U.S. or Europe will get directly involved. As for oil, the global economic slowdown is a much more important driver of crude prices. Until and unless growth picks back up, prices should remain under pressure.

(continued next page)

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Safe Money Open Positions

Current Initial Most Current Avg. Cost Quote ($) Purchase Recent # of Basis Per Value ($) as $ Gain/ Company Name (Ticker) as of 7/2/12 Date Trade Date Shares Share ($) Loss of 7/2/12 Total Return Current Reco (%)

What to do if you dont own it.

Mr. Conservative
Vanguard S/T Corp $79.14 Bond ETF (VCSH) Alerian MLP ETF (AMLP) $16.10 iShares International Inflation- $46.35 Linked Bond Fund (ITIP) McCormick & Co (MKC) $60.95 ProShares UltraShort Euro $21.14 (EUO) iShares Barclays 1-3 Year $84.37 Treasury Bond Fund (SHY) Metals & Energy Investments Gold Bullion $1,597.10 Aurizon Mines Ltd (AZK) $4.50 Cimarex Energy Co (XEC) $54.37 PowerShares DB Crude Oil $47.10 Short ETN (SZO) PowerShares DB $33.51 Commodity Short ETN (DDP) 12/9/2010 12/12/2011 3/5/2012 4/9/2012 5/7/2012 7/9/2012 3/7/2011 3/5/2012 3/5/2012 4/9/2012 5/16/2012 7/9/2012 100 200 150 100 600 100 $77.47 $16.59 $50.09 $53.87 $20.31 $7,916.86 $3,220.49 $6,952.79 $6,095.31 $12,684.00 $169.86 2.19 Hold (Buy 100 shares at market) ($97.51) (2.94) ($560.71) (7.46) $708.31 $498.00 13.15 4.09 Hold (No action at this time.) Sell at $46 or better Sell at market Hold (Buy 600 shares at market) Buy 100 shares at the market

11/8/1999 12/9/2010 3/5/2012 3/16/2012 TBD

11/8/1999 12/9/2010 3/5/2012 3/16/2012 TBD

4 oz. 500 50 100 200

$289.75 $7.49 $79.56 $37.58 -

$6,388.40 $5,229.40 451.20 $2,250.00 ($1,495.00) (39.92) $2,718.62 ($1,259.38) (31.66) $4,710.00 $952.00 25.33 8.50

Hold (Buy $5,000 in bullion) Sell at market Hold (No action at this time.) Sell at $44 or better Buy at $33 or better

Mr. Conservative Open Position Total Return

Mr. Speculator
ProShares Short Real $29.00 Estate (REK) Jan 2013 SPDR DJIA ETF $0.30 Trust LEAPs (DIA130119P00075000) Harris Teeter Supermarkets $40.96 Inc (HTSI) Sirona Dental Sys (SIRO) $44.77 ProShares Short Finls (SEF) $31.95 Market Vectors Agribusiness $49.66 ETF (MOO) ProShares Short Basic Materials (SBM) $37.68 6/6/2011 11/25/2011 2/21/2012 4/9/2012 5/9/2012 6/4/2012 8/22/2011 11/25/2011 2/21/2012 4/9/2012 5/9/2012 6/4/2012 300 $37.84 $8,700.00 ($2,652.00) (23.36) $120.00 ($1,440.00) (92.31) $6,144.14 $3,133.90 $6,390.00 $4,966.00 ($326.86) (5.05) ($359.80) (10.30) ($50.00) (0.78) ($446.00) (8.98) Hold Hold (Buy 300 shares at market) (No action at this time.) 4 $3.90 Contracts 150 $43.14 70 200 100 $49.91 $32.20 $45.20

Sell at market Hold Hold Hold; Buy stop order at $51.50 Hold (No action at this time.) (Buy 200 shares at market) (Sell short 100 shares at market) (Buy 150 shares at market)

6/4/2012

6/4/2012

150

$40.15

$5,652.00

($370.50)

(6.15) (11.92)

Mr. Speculator Open Position Total Return

Safe Money Report Overall Position Performance
Initial Open Positions Cost ........ $88,650.70 Open Positions Value ................ $88,042.51 Open Positions Total Return Since Initial Purchase Date (%)* 1 .......................................... (0.69) YTD Open Position Total Return(%)* .. (2.80) YTD Total Return (%)*
1

Mr. Conservative Position Performance

Initial Open Positions Cost ........ $48,791.50 Open Positions Value ................ $52,936.47 Open Positions Total Return Since Initial Purchase Date (%)* 1 ............................................... 8.50 YTD Open Position Total Return(%)* ... 0.54

Mr. Speculator Position Performance

Initial Open Positions Cost ........ $39,859.20 Open Positions Value ................ $35,106.04 Open Positions Total Return Since Initial Purchase Date (%)* 1 ....................................... (11.92) YTD Open Position Total Return(%)* .. (7.43)

SMR 2.54

S&P500 9.76

* Including dividends. Assumes reinvestment of all distributions; initial purchase and combines any subsequent purchases as an average of all shares. For any remaining funds not invested in our recommended stocks and mutual funds, we recommend a Treasury-only money market fund for safety and liquidity, so that this cash is readily available for reinvestment.

Disclaimer: Safe Money Report is strictly an informational publication and does not provide individual, customized investment or trading advice to its subscribers. The money you allocate to speculative trading should be strictly the money you can afford to risk. While every effort is made to simulate the actual experience of subscribers, all performance figures must be considered hypothetical. References to examples of past performance are not intended to provide a total picture of positions results, and past results are no guarantee of future performance. The table includes all open positions recommended in the monthly Safe Money Report newsletter or flash alerts. Entry and exit prices are based on the closing price of the security 3 days after it is recommended. Source: Bloomberg. New Subscribers: Follow the recommendations. Data date: 7/2/12

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