Strategic Investment

Sell Alert

1) Place a market order to sell PIMCO California Municipal Income Fund II (NYSE:PCK) and Van Kampen CA Value Muni (NYSE:VCV).

2) Place a market order to sell 50% of Petroleo Brasileiro [Petrobras] (NYSE:PBR)

Why We’re Selling

There are simply too many problems going on in California for us to remain comfortable with our municipal bond positions.

Municipal bond holders usually don’t lose money during a municipal or state bankruptcy. But we’re holding a fund and not the actual bonds. And investors have already begun to dump these funds.

If California goes bust – an increasing danger – there is a possibility the steady monthly income these two funds provide will disappear. Then share prices will really plummet.

Whether California goes bankrupt or not is now dependant on what the Obama administration and California’s state government does next. And we hate depending on politicians for gains – especially for an investment that is supposed to be conservative.

Over the weekend your editor, James Dale Davidson, was in San Francisco and spoke with a Stanford professor with ties at the highest levels of state government in California. And he revealed to James behind closed doors that the fiscal crisis in California is reaching the point where “they turn the lights off.”

Part of the problem is California depends on the top 1% of state income earners for between 40% and 50% of state income tax revenues. Now these revenues are plunging due to a severe shortage of rich people.

The California State Controller’s Office just posted the results for April 30. For the full month of April, income tax receipts were $7.336 billion. For April 2008, the total was $12.995 billion. This is a 44% decline. (The fiscal YTD is down 20%.)

I suspect that the April numbers reflect actual tax returns that show lower incomes and more refunds than April 2008. But it also must indicate that wages/incomes are dropping at an accelerating pace.

I also suspect we may see the Fed monetize California’s debt on a “temporary basis” as California’s state government can’t seem to agree to any concerted steps to bring its budget under control.

Put simply, we’d rather collect the gains we’ve made – 16% on PCK and 22% on VCV – then risk losing any money.

I’ll keep an eye on the situation in California. In about two months, so long as the state doesn’t go bankrupt, I’ll look to reenter our position at a better price.

Regarding Petrobras, we’ve made 30% since March 30. Most of this has been on the back of the “reflation.” This has pushed up the prices of natural resources significantly since the US equity markets rally began on March 9.

Although I still feel Petrobras is a very strong company with higher share prices ahead, we’d like to pocket half of our gains now to lower our risk in the future.

As always, send over an email to info@crisisstrategyalert.com and let us know how you did!

Take care,

Charles Delvalle

Senior Analyst,

Crisis Strategy Alert

For customer service questions, please use the following email address: info@crisisstrategyalert.com. We look forward to your feedback and questions however, the law prohibits us from giving individual and personal investment advice. We are unable to respond to emails and phone calls requesting that type of information.

Copyright 2009 Investor Media Group SRL. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter, e-letter, or promotional material may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web) , in whole or in part, is strictly prohibited without the express written permission of Investor Media Group SRL, Gorriti 4949, Buenos Aires Argentina 1007.

LEGAL DISCLAIMER: This work is based on SEC filings, current events, interviews, corporate press releases, and what we’ve learned as financial journalists. 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. Investor Media Group expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. And all Investor Media Group (and affiliated companies), employees, and agents must wait 24 hours after an initial trade recommendation is published on the Internet, or 72 hours after a direct mail publication is sent, before acting on that recommendation
.