Divided FOMC Lowers Growth Forecasts

November 24th, 2010

The dollar bulls really are having their way with the currencies, which is so weird given the fact that just two weeks ago, the negativity toward the dollar was running at a level I had not seen before… And then it turned on a dime… Here’s the skinny on this as I see it…

The negativity grew so strong toward the dollar that it simply reached an oversold level…short term that is… So, traders began to look around and noticed that the short-term profits they could book were tremendous… Then the excuse came along to buy back dollars and take those profits, and it came in the form of Irish debt problems… No… These problems in Ireland weren’t new to the markets… Remember the PIIGS, or GIIPS as I changed the name to? Well, one of those “I’s” belonged to Ireland… But, the media jumped all over the Ireland problems and the next thing we know, is it is December 2009 all over again… But this time Ireland replaces Greece…

Eventually, we’ll get back to the underlying weak dollar trend, but until then, currency owners, of which I am one, have to deal with the dollar bulls prancing and dancing in the streets, and being obnoxious to the point that you simply begin to ignore them!

The reason I say that eventually we’ll get back to the underlying weak dollar trend, is that there has been no fundamental change in the deficit picture, that put the dollar in the weak trend in 2002…

Yesterday I told you that it was strange that gold was weaker, given the geopolitical stuff going on in North and South Korea? Well, it didn’t take the US markets very long to realize that gold should be moving higher on news like that, and the shiny metal quickly erased its losses and moved higher on the day… Strange day, though… Gold was up $10, and Silver down 30-cents… Strange days indeed…

Gold is edging higher again this morning, and this time silver is coming along…

The overstuffed US data cupboard was able to loosen a belt notch, like most of us will have to do tomorrow… Some data printed in the US thus relieving the data cupboard of its overstuffing this week.

US Existing Home Sales for October took a turn for the worse, falling 2.2%, and putting a real damper on the previous month’s originally posted 10% rise… Overall resale activity remains depressed and this month’s pace of sales represents the third lowest in the series since records for total sales (both single and multiple-unit home types) began in 1999.

Third quarter GDP saw its second reading revised upward from 2% to 2.5%… I grow more skeptical of these GDP numbers all the time, folks… It took me a while, years ago, to figure out why I was always suspicious of the CPI data… And eventually I’ll find the skeleton in the closet here that proves these numbers are all trumped up! It could very well be an exercise in inventory building that pushes GDP like this… The news wires say that “increased consumer spending” pushed GDP higher… Hmmm… 23% unemployed… 43 million on food stamps… And we’re spending like crazy? I don’t buy it!

The PCE (Personal Consumption) data was stronger than expected, and that’s where I guess the government gets the idea that consumer spending was stronger…

Of course, let’s all keep in mind, that these numbers printing today are being compared to numbers a year ago, when we were mired in recession…

And then we had the FOMC meeting minutes… Federal Reserve officials downgraded their assessment of the US economy at their last meeting three weeks ago as they debated the benefits and costs of quantitative easing to support the recovery. Minutes of the Fed’s latest policy-setting meeting on November 2-3, showed that officials expect the economy to grow at a moderate pace next year, which is a nice way of saying that they lowered their growth forecasts, with unemployment staying disappointingly high and inflation uncomfortably low… And what I found interesting was that votes were divided… At least someone at the FOMC was thinking straight!

Well… The data prints in the US yesterday weren’t the only ones for the markets to view… Canada had two very interesting data prints… First, Canadian CPI rose a greater-than-expected 0.4% in the month… and Canadian retail sales rose 0.6% in September following an upwardly revised 0.7% (previously reported as 0.5%) increase in August. These are two very important pieces of data to the Bank of Canada, for the recent trend in economic data has been one of weaker/softer prints… The Bank of Canada (BOC) was ready a couple of months ago to raise interest rates again, but had to put that rate hike on the back burner with the softer data that was printing… But now, the BOC is back to square one, and if the data continues to be stronger, then we could see the BOC come back to the rate hike table.

The Canadian dollar/loonie (CAD) is stronger this morning on those data prints, and it’s the first good run the loonie has seen in the past week.

One of the people “in charge” – who normally says things that I agree with – Angela Merkel, Germany’s Chancellor, really threw a cat amongst the pigeons for the euro (EUR), yesterday… Merkel decided to tell an audience that “the euro is in [an] exceptionally serious situation”… Now… Germany was the main force for the creation of the European Union and the euro… So to hear Germany’s Chancellor say something like that, scared the bejeebers out of euro holders, and the single unit currency got taken to the woodshed… And has remained there through the overnight and morning sessions.

It does look like the European Union (EU) and the IMF will give Ireland an 85 billion-euro aid package, or “bailout” if you prefer to call it what it is! Now, back in late spring of this year, when Greece was finally given an aid package, the rally in the euro was ON! We’ll have to wait-n-see if the euro can generate a rally on this Irish news… It will be difficult to do the next three days, given that the volumes on US trading desks are thin today and Friday, with markets closing early, and totally closed here in the US tomorrow…

There is news like the strong manufacturing for the Eurozone that we talked about yesterday, and today’s news that German Gross Domestic Product expanded 0.7% in the third quarter compared with the second quarter. The government’s council of economic advisers said GDP is on track to expand 3.7% this year, the highest rate since 1991… And there is further news this morning that German Business Climate, as measured by the think tank IFO, beat expectations and posted a very strong number… Could be springboards for a euro rally… But only if the markets are interested in fundamentals and data.

The Aussie dollar (AUD) is bucking the trend of US dollar strength this morning, showing resiliency in its ability to gain with all this US dollar strength. The Aussie dollar’s fuel is coming from the thoughts that Ireland will get a bailout, which, if it happens, could get global growth back on track… So, traders that aren’t afraid of the big bad wolf (US dollar) are being courageous and going out on a limb here… And I commend them for that!

I was reading a story online last night that really struck a nerve with me, and made me sit up and say, “Now that makes sense”! The story was about how, after corporations here in the US cut back on their labor forces, they went out and figured out how to continue making profits without those employees… The government calls this “productivity”… You know that I call this nothing more than each person having to work harder and longer… But, apparently, it is more than that, and with these corporations booking profits, with wider margins, they have little incentive whatsoever to hire back those employees that were cut in the past two years.

Then there was this… OK… Maybe I didn’t explain myself very well yesterday… When I was talking about the new TSA pat-down procedures, I NEVER said that I approved of them! I said that I’ve been patted down for three years, now, through every security checkpoint, so it didn’t bother me… I didn’t say it was OK for anyone else! Geez Louise, the things that people believe they read into what I say! I simply tried to point out that this was something that happens every time in life… We go too far one way, try to correct that, and go too far the other way…

To recap… The dollar continues to pile on versus the euro and the euro alternatives, while the Aussie dollar and loonie attempt to stage rallies versus the dollar. Gold rallied $10 yesterday, and is inching up this morning. The FOMC meeting minutes were interesting in that the Fed Heads stated that they believe economic growth will be moderate next year, with high unemployment remaining a problem. German GDP and IFO surprised to the upside this morning, but the euro’s short-term movement is in the hands of those giving Ireland a bailout.

Chuck Butler
for The Daily Reckoning

Divided FOMC Lowers Growth Forecasts originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Divided FOMC Lowers Growth Forecasts




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

More Turkey Anyone?

November 24th, 2010

It is the last week in November, so naturally all our thoughts are turning to the BCS and Turkey (TUR). Here I mean not Barclays and the bird, but the Bowl Championship Series possibilities and the emerging market.

As the chart below shows, anyone who has focused on Turkey not just as a seasonal play but a long-term holding has been nicely rewarded over the course of the past year, as Turkey has outperformed broader emerging markets ETFs like EEM by 5x. As captured in the chart, over the past month or so the performance advantage of TUR has begun to narrow. This could mean it is time to take profits and it could also spur the enterprising investor to go back for a second helping. Either way, I suggest that as 2011 approaches, investors make sure to look at emerging markets at least as a portfolio side dish, if not at a main course.

Related posts:

[source: ETFreplay.com]
Disclosure(s): long TUR at time of writing



Read more here:
More Turkey Anyone?

ETF, Uncategorized

Warning: Stock Market Sentiment Is Way Too Bullish!

November 24th, 2010

Claus Vogt

In forecasting stock market movements, I’ve developed a model consisting of many components and indicators. Here’s a brief overview of where four of my five basic categories stand now:

1. The fundamental valuation of the stock market is very high.

2. The macro-economic or business cycle threatens to turn down again.

3. Liquidity indicators for the G7 countries have deteriorated sufficiently during the past 12 months to rate them as a clear negative for the stock market.

4. The overall technical picture shows some signs of a possible stock market top. But all in all it’s more or less neutral.

Have a look at the S&P 500 in the top panel of the following chart.

Prices are back to where they were earlier this year …

This chart pattern leaves us with two distinct possibilities: Either the market is ready for a breakout to new cyclical highs, or we are looking at a double-top to be followed by the next major bear market move.

Since three of my forecasting model indicators are clearly bearish, with number four — the technical picture — neutral, the latter scenario is much more probable.

Next, I want to discuss the fifth category of my overall model: Investor sentiment.

Investor Sentiment
Extremely Bullish!

The second panel from the top in the above chart shows Investors Intelligence bullish advisory sentiment. As of last week the percentage of bullish stock market advisors surpassed the threshold of 55 percent. Readings above 55 percent have historically been a harbinger for a larger stock market correction or a major stock market top.

The two lower panels — bearish advisory sentiment and the ratio of bulls to bears — are giving the same message as Investors Intelligence.

What’s more, two weeks ago, when the S&P 500 briefly exceeded April’s high, the American Association of Individual Investors reported that 57 percent of private investors were bullish, a very lofty number. At the same time the 10-day average of the CBOE put/call ratio reached the lowest reading since the April high.

Plus mutual fund cash levels are at 3.5 percent — very close to their all time low of 3.4 percent.

This brings the question: With so many investors bullish or fully invested, who is left to do the heavy lifting for further stock market gains?

Oh, and one more thing: Corporate insiders are bucking this trend … they’re selling their stock like never before! This should get you wondering if they’re paying attention to something that the bulls choose to ignore.

Best wishes,

Claus

P.S. This week we have an encore presentation of one of our favorite Money and Markets TV episodes. We take a look at an asset class that anyone buying supplies for Thanksgiving dinner is very familiar with: Soft commodities. And despite a recent drop due to concerns about slowing demand from China, soft commodities are still in the midst of a major bull market.

So tune in tomorrow night, November 25, at 7 P.M. Eastern time (4:00 P.M. Pacific). Simply go to www.weissmoneynetwork.com and follow the on-screen instructions. Access is free and no registration is required.

Read more here:
Warning: Stock Market Sentiment Is Way Too Bullish!

Commodities, ETF, Mutual Fund, Uncategorized

The Future Of Active ETFs – The Debate Rumbles On

November 24th, 2010

While far from becoming a household name, actively-managed ETFs are gaining more and more attention – both from people who think it’s the next big thing and those who think it’s a passing fad.

Sheryl Nance-Nash came out with a piece on Daily Finance, asking the perennial million dollar question – are Active ETFs the next big thing or the next big bust? In the few years that they have been around in the US since April 2008, actively-managed ETFs have been able to gather about $2.4 billion in investor assets which is only about one-third of a percent of the US ETF market. Yes, it has only been a short 2.5 years since their launch but some of the other newly launched ETFs have gained significantly more traction than Active ETFs have.

Nance-Nash confirms that this lack of traction cannot be attributed to poor performance as Active ETFs have performed decently, marginally outperforming their index counterparts on average. The more important factors that do play a part seem to be the transparency requirements and the lack of a significant track record for most of these active funds. Another article from InvestmentNews by Liz Skinner built on the latter point, quoting Ed McRedmond – SVP at Invesco PowerShares, the company behind the longest running Active ETFs in the US, who said, “We always expected actively managed ETFs would grow slower than index-based ETFs. They didn’t have a track record and there were no historical returns for such a product”. McRedmond had echoed similar views in his wide-ranging interview with ActiveETFs | InFocus . So clearly this hasn’t come as a surprise to the manufacturers of Active ETFs.

With most active fund managers reluctant to provide the level of holdings disclosure that the SEC requires of actively-managed ETFs and most investors interested actively-managed ETFs waiting for a proven performance history, these two factors have become significant hurdles for the space. However, both McRedmond and Scott Burns, Head of ETF Research at Morningstar, believe that there could be a “wave of adoption” once these funds achieve a 3-year track record and receive Morningstar ratings.

As Tom Lydon, Editor at ETF Trends, concluded when talking to DailyFinance, it is too early to make a final call on where the Active ETF space is heading. That is the conclusion that most keen observers of the space reach as well. It is still early days especially since many big players wanting to enter the industry are still standing on the fringes, waiting for SEC approval of their products. Even if a few of the giants like Legg Mason, Eaton Vance or JP Morgan make it into the market, that’ll change the prospects of the Active ETF space drastically.

ETF

5 Stocks That Could Drop in 2011

November 24th, 2010

5 Stocks That Could Drop in 2011

Throughout September and October, the market bagged impressive gains as strategists started to view the economy as healthy enough to avoid the dreaded “double-dip” recession. More recently, the market has lost a bit of that luster as investors realize that we're not necessarily set for impressive growth in 2011 either. A just released survey from the National Association for Business Economics (NABE) highlights expectations that the U.S. economy will grow just +2.7% this year and +2.6% in 2011. Their conclusion: “To a large extent, the latest NABE forecast reflects the view that the economy will struggle against financial headwinds.”

And the absence of robust growth means many companies will struggle to boost sales in 2011 and some companies may actually see sales pull back next year. With that in mind, here's a profile of five companies that are expected to see sales slump next year.



AOL (NYSE: AOL)

A year ago this week, this former Internet powerhouse came public again, and it has not been the hot stock that some had hoped. In the past four quarters it's become increasingly clear that sales growth is hurting as AOL's legacy dial-up access business shrinks, and its ad-based websites aren't showing much revenue prowess either. That's why analysts expect sales to fall -25% this year and another -10% in 2011. Profits are expected to drop at an even faster place, with forecasts calling for earnings per share (EPS) to drop -40% in 2011.

The dial-up business, which had more than 13 million subscribers in 2006, now has less than four million, and could be gone completely in three to four years. As a result, EBITDA of $2 billion in 2006 at this division should fall below $500 million by 2011.

To offset this lagging division, AOL aims to become a major player in free, ad-based web sites. Trouble is, the online ad business is not robust enough to take up the slack. Ad sales are expected to fall about $100 million a year, according to Hudson Square Research, from an expected $1.26 billion this year to around $1 billion by 2012.

Shares of AOL have rebounded recently on hopes that a link-up with Yahoo! (Nasdaq: YHOO) will improve its profile. But if a deal fails to materialize, then shares might quickly fall back to the $20 mark. Shares are also at risk from the potential realization that synergies between these two firms may have been overstated.

Alnylam Pharma (Nasdaq: ALNY)
Investors love to see a fledgling biotech company find major Big Pharma partners. The big boys have global sales teams that can turn modest market opportunities into major ones. But it cuts both ways. When Big Pharma walks away, the scope of sales can shrink. And that's happening what's with Alnylam, which just ended a five-year relationship with Novartis (NYSE: NVS). Adding insult, Roche Holdings (Nasdaq: RHHBY) abruptly terminated a drug-development deal with Alnylam.

Alnylam is researching the biological pathways within cells to identify how various genes turn on and off. By tinkering with certain genes, they could alter the way some diseases are treated. It's a promising field, though investors are left to wonder why Roche thinks it's no longer part of its long-term game plan.

The good news: Alnylam's $380 million in cash is almost as much as its market value. That's enough to fund operations for almost three years, even if milestone-related payments from partners falls to zero. So this is an unusual case where the news is bad, 2011 revenue is likely to be even lower than analysts' current forecasts, but shares still hold long-term promise.

iStar Financial (NYSDE: SFI)
The real estate sector is still feeling the heat of a slow economy. I recently took a look at iStar Financial, which is a key lender to real estate developers, and noted that the company appeared to have dodged a bullet by re-scheduling some debt obligations. [Read my analysis here]

And though you can make a compelling case that shares would sharply rebound if the economy picks up, the NABE forecast cited above may throw water on that thesis. If the economy is growing a subpar rate of just +2.6% next year, then the real estate sector will still be saddled with too much unused space. I like this stock for the potential upside, but weaker-than-expected GDP numbers in coming quarters could push shares down sharply once again.

RealNetworks (Nasdaq: RNWK)
Before there was an iPod, before there was the buzzword of “media streaming,” there was RealNetworks, which was an early pioneer in the field if digital music downloads. But this company may be headed for the dustbin, unless a new game plan can take root in 2011.

And a new plan is surely needed. Sales peaked at $600 million in 2008 and will likely fall below $400 million this year, with further declines projected in 2011. And as sales slump, the company's once-impressive cash balance has dwindled, from $780 million in 2005 to a recent $330 million. The entire company is valued at just $460 million, so investors are no longer giving the company much credit for the company's technology or its customer base.

In a bid to stay relevant, RealNetworks is hopping on the “cloud” bandwagon, with plans to launch a web-based media storage offering that allows users to access their music, videos and other files from a range of devices. It's an intriguing move, but if successful, could easily be replicated — and out-marketed — by the likes of Amazon.com (Nasdaq: AMZN), Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG).

Uncategorized

5 Stocks That Could Drop in 2011

November 24th, 2010

5 Stocks That Could Drop in 2011

Throughout September and October, the market bagged impressive gains as strategists started to view the economy as healthy enough to avoid the dreaded “double-dip” recession. More recently, the market has lost a bit of that luster as investors realize that we're not necessarily set for impressive growth in 2011 either. A just released survey from the National Association for Business Economics (NABE) highlights expectations that the U.S. economy will grow just +2.7% this year and +2.6% in 2011. Their conclusion: “To a large extent, the latest NABE forecast reflects the view that the economy will struggle against financial headwinds.”

And the absence of robust growth means many companies will struggle to boost sales in 2011 and some companies may actually see sales pull back next year. With that in mind, here's a profile of five companies that are expected to see sales slump next year.



AOL (NYSE: AOL)

A year ago this week, this former Internet powerhouse came public again, and it has not been the hot stock that some had hoped. In the past four quarters it's become increasingly clear that sales growth is hurting as AOL's legacy dial-up access business shrinks, and its ad-based websites aren't showing much revenue prowess either. That's why analysts expect sales to fall -25% this year and another -10% in 2011. Profits are expected to drop at an even faster place, with forecasts calling for earnings per share (EPS) to drop -40% in 2011.

The dial-up business, which had more than 13 million subscribers in 2006, now has less than four million, and could be gone completely in three to four years. As a result, EBITDA of $2 billion in 2006 at this division should fall below $500 million by 2011.

To offset this lagging division, AOL aims to become a major player in free, ad-based web sites. Trouble is, the online ad business is not robust enough to take up the slack. Ad sales are expected to fall about $100 million a year, according to Hudson Square Research, from an expected $1.26 billion this year to around $1 billion by 2012.

Shares of AOL have rebounded recently on hopes that a link-up with Yahoo! (Nasdaq: YHOO) will improve its profile. But if a deal fails to materialize, then shares might quickly fall back to the $20 mark. Shares are also at risk from the potential realization that synergies between these two firms may have been overstated.

Alnylam Pharma (Nasdaq: ALNY)
Investors love to see a fledgling biotech company find major Big Pharma partners. The big boys have global sales teams that can turn modest market opportunities into major ones. But it cuts both ways. When Big Pharma walks away, the scope of sales can shrink. And that's happening what's with Alnylam, which just ended a five-year relationship with Novartis (NYSE: NVS). Adding insult, Roche Holdings (Nasdaq: RHHBY) abruptly terminated a drug-development deal with Alnylam.

Alnylam is researching the biological pathways within cells to identify how various genes turn on and off. By tinkering with certain genes, they could alter the way some diseases are treated. It's a promising field, though investors are left to wonder why Roche thinks it's no longer part of its long-term game plan.

The good news: Alnylam's $380 million in cash is almost as much as its market value. That's enough to fund operations for almost three years, even if milestone-related payments from partners falls to zero. So this is an unusual case where the news is bad, 2011 revenue is likely to be even lower than analysts' current forecasts, but shares still hold long-term promise.

iStar Financial (NYSDE: SFI)
The real estate sector is still feeling the heat of a slow economy. I recently took a look at iStar Financial, which is a key lender to real estate developers, and noted that the company appeared to have dodged a bullet by re-scheduling some debt obligations. [Read my analysis here]

And though you can make a compelling case that shares would sharply rebound if the economy picks up, the NABE forecast cited above may throw water on that thesis. If the economy is growing a subpar rate of just +2.6% next year, then the real estate sector will still be saddled with too much unused space. I like this stock for the potential upside, but weaker-than-expected GDP numbers in coming quarters could push shares down sharply once again.

RealNetworks (Nasdaq: RNWK)
Before there was an iPod, before there was the buzzword of “media streaming,” there was RealNetworks, which was an early pioneer in the field if digital music downloads. But this company may be headed for the dustbin, unless a new game plan can take root in 2011.

And a new plan is surely needed. Sales peaked at $600 million in 2008 and will likely fall below $400 million this year, with further declines projected in 2011. And as sales slump, the company's once-impressive cash balance has dwindled, from $780 million in 2005 to a recent $330 million. The entire company is valued at just $460 million, so investors are no longer giving the company much credit for the company's technology or its customer base.

In a bid to stay relevant, RealNetworks is hopping on the “cloud” bandwagon, with plans to launch a web-based media storage offering that allows users to access their music, videos and other files from a range of devices. It's an intriguing move, but if successful, could easily be replicated — and out-marketed — by the likes of Amazon.com (Nasdaq: AMZN), Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG).

Uncategorized

The 6 Most Controversial Income Stocks on the Market

November 24th, 2010

The 6 Most Controversial Income Stocks on the Market

The secret is out.

Uncategorized

5 Reasons to Love Cisco in 2011 — and Beyond

November 24th, 2010

5 Reasons to Love Cisco in 2011 -- and Beyond

Tech stocks are back. A frenzy of M&A activity this summer, robust quarterly results in October and bright outlooks for 2011 have all helped bring fresh interest in this sector, which had been deep in the investor doghouse earlier this year. Yet one of the biggest tech stocks of all — Cisco Systems (Nasdaq: CSCO) — is nowhere to be found on most analysts' buy lists. The company recently announced that business has slowed, and investors have pushed its shares down to 52-week lows.

Yet this brings out the old investor maxim: you can only make money by focusing where others are not. And right now, Cisco's road ahead deserves a fresh look. When you do, you'll find a company with considerable strengths that short-term investors are overlooking. Here are five reasons why Cisco should move back into favor in 2011.

1) The best balance sheet in the business. Cisco sports $39 billion in cash. That kind of firepower provides all sorts of financial flexibility. Cisco just announced plans to buy back $10 billion in stock and also plans to issue its first-ever dividend by the end of the year. Even with those moves, Cisco will have ample money left over to make acquisitions, maintain robust R&D, and have a nice rainy day fund.

Uncategorized

The 6 Most Controversial Income Stocks on the Market

November 24th, 2010

The 6 Most Controversial Income Stocks on the Market

The secret is out.

Uncategorized

5 Reasons to Love Cisco in 2011 — and Beyond

November 24th, 2010

5 Reasons to Love Cisco in 2011 -- and Beyond

Tech stocks are back. A frenzy of M&A activity this summer, robust quarterly results in October and bright outlooks for 2011 have all helped bring fresh interest in this sector, which had been deep in the investor doghouse earlier this year. Yet one of the biggest tech stocks of all — Cisco Systems (Nasdaq: CSCO) — is nowhere to be found on most analysts' buy lists. The company recently announced that business has slowed, and investors have pushed its shares down to 52-week lows.

Yet this brings out the old investor maxim: you can only make money by focusing where others are not. And right now, Cisco's road ahead deserves a fresh look. When you do, you'll find a company with considerable strengths that short-term investors are overlooking. Here are five reasons why Cisco should move back into favor in 2011.

1) The best balance sheet in the business. Cisco sports $39 billion in cash. That kind of firepower provides all sorts of financial flexibility. Cisco just announced plans to buy back $10 billion in stock and also plans to issue its first-ever dividend by the end of the year. Even with those moves, Cisco will have ample money left over to make acquisitions, maintain robust R&D, and have a nice rainy day fund.

Uncategorized

Follow Buffett’s Lead with These "Free Money" Stocks

November 24th, 2010

Follow Buffett's Lead with These

In his 1979 letter to shareholders, Warren Buffett offered his belief that “insurance can be a very good business” to own and invest in. His belief continues to this day and Berkshire Hathaway (NYSE: BRK-B) is among the world's largest insurers in the world, which is due to Buffett's ability to ferret out solid management teams and acquire successful insurance businesses over a career that spans more than six decades.

Other money masters also single out insurance as one of the best industries in which to invest. This is due primarily to insurance float, which is a common industry term that Buffett defined in his most recent letter to shareholders as “money that doesn't belong to us but that we hold and invest for our own benefit.” Basically, it's the funds insurance companies collect from policyholders. Much of it is eventually paid out as insurance claims, but in the process the insurer gets to invest that money. This float can be very substantial and is one of the key factors cited for Berkshire's jaw-dropping growth rates over the years.

Uncategorized

Follow Buffett’s Lead with These "Free Money" Stocks

November 24th, 2010

Follow Buffett's Lead with These

In his 1979 letter to shareholders, Warren Buffett offered his belief that “insurance can be a very good business” to own and invest in. His belief continues to this day and Berkshire Hathaway (NYSE: BRK-B) is among the world's largest insurers in the world, which is due to Buffett's ability to ferret out solid management teams and acquire successful insurance businesses over a career that spans more than six decades.

Other money masters also single out insurance as one of the best industries in which to invest. This is due primarily to insurance float, which is a common industry term that Buffett defined in his most recent letter to shareholders as “money that doesn't belong to us but that we hold and invest for our own benefit.” Basically, it's the funds insurance companies collect from policyholders. Much of it is eventually paid out as insurance claims, but in the process the insurer gets to invest that money. This float can be very substantial and is one of the key factors cited for Berkshire's jaw-dropping growth rates over the years.

Uncategorized

Economics Professor Ignores Fiat Money Failures

November 23rd, 2010

Unfortunately, it is not only Robert Zoellick of the World Bank that has notoriously turned against a gold standard, but The DailyBell writes about similar sentiments from Nouriel Roubini, university professor, in their article “Roubini: Here’s Why a Gold Standard Won’t Work.”

Naturally, I can’t believe my eyes! The fact is that the gold standard is the only system that HAS worked all through history, and you would think that Mr. Roubini would know that! Wow!

I mean, look at the mess the world is in as a result of the use of a monstrously abused fiat dollar in the hands of the evil Federal Reserve, especially since 1971 when Nixon severed the dollar’s tie to gold by refusing to pay foreign central banks for their excess dollars with gold, as France was doing.

The Daily Bell summarizes Mr. Roubini’s opinions as, “A gold standard would just make business cycles more extreme, according to economist Nouriel Roubini… What’s more, a gold standard would make central banks unable to fight inflation or deflation, much less do anything to combat persistent unemployment.”

At this, I have to laugh! A fixed money supply will “make business cycles more extreme”? How in the hell would THAT work without some dumb fractional-reserve expansionist crapola in the banks, a fraud of bankers and banking that has absolutely nothing to do with gold?

And as for inflation, a gold standard would prevent inflation (absent banking and government frauds), and so nobody would have to “fight inflation” in the first place.

And as for unemployment, that’s easy to solve; as it is just a function of wages, benefits and taxes. Abolish the minimum wage and let wages and benefits drop to market-clearing slave-labor levels of $2 an hour, and jobs will start appearing everywhere, flooding into this country.

But we were not discussing how my boss has recently computed my value to the company to be a miniscule $2 per hour, while my cost to the company is much more than that, but that Mr. Roubini erroneously thinks that a world with “A fixed exchange regime, even if it is not a gold standard” is somehow so bad that (take his word on it) it “just doesn’t work.”

Apparently stung by my harsh criticism, he offers the reasoning that (get a load of this!) in a world with a gold standard, “monetary policy by definition instead of being countercyclical becomes procyclical.”

What? Hahaha! I laugh the Scornful Laugh Of The Mogambo (SLOTM), as (firstly) I am astonished to hear him say that monetary policy should always be countercyclical, and secondly that he is apparently unaware that the stability of the gold money supply is inherently countercyclical!

That’s the beauty of the gold standard! That’s the whole point of the gold standard! Overall prices don’t get far out of line, inflation-wise, and they soon revert back to “normal” as prices adjust back downward after being artificially pushed upward by a previous expansion of the money supply through the expedient of bankers lying and cheating and acting like greedy scumbags.

I thought, as a professor of economics, he would know these things!

I guess that means he does know that it’s the ugliness of the expansion of fiat money that is the real evil, the Federal Reserve using the creation of new money to be alternatively countercyclical when the cycle turns down and then again to be procyclical when the cycle turns up, the result being a terrifying, constant monetary expansion accompanied by the resultant constant, simmering inflation in prices that makes the general level of misery gradually worse and worse.

And growing worse exponentially, too, which means that one day soon prices will, for the first time, double in one day.

This, for your information, is the alarming part of the Daily Bell article where I suddenly flashed back to a panic state, like when I was in high school, and I thought that I was being given a test for which I was not only completely unprepared, but had actually forgotten all about, as the Bell went on, “The interviewer could then have asked Roubini what was the dividing line between classical and neo-classical economics.”

I gotta tell ya; I had no idea what was the dividing line between classical and neo-classical economics! I didn’t even know there WAS a dividing line! I was instantly in a panic!

In a flash of desperation, my brain instantly composed my answer, which was, “The dividing line between classical and neo-classical economics is a fascinating one, and one that has long intrigued many of the great thinkers in economics throughout history, although I can’t think of any right now except Ludwig von Mises, who was sort of the founder of the Austrian school of economics and whose brilliance is gloriously at mises.org, and who is the only one who was warning against this kind of monetary stupidity as practiced by the Federal Reserve creating so much money, and the tragic inflationary and bubble consequences of such despicable monetary excesses, such as rivalries creating a dividing line between classical and neo-classical economics.”

From there, I would have continued for a few paragraphs of other famous dividing lines, such as between the Yankee North and the Confederate South, the division between the Hatfields and the McCoys, cops and robbers, men and women, and how those relativly sharp distinctions make defining an actual dividing line between classical and neo-classical economic thought more of a qualitative exercise describing a continuum of theoretical advancements, and without a right or wrong answer.

I was breathing a sort of sigh of relief at having at least SOMETHING to put down as my answer, when I suddenly realized that it wasn’t a test question at all! In fact, they answered their own essay question by noting that the dividing line is the development of “marginal utility,” which they say “changed the nature of economics forever.”

I was just going to look up “marginal utility” in the Mogambo Big Book Of Economic Stuff (MBBOES) when again the Bell comes through for those of us who are intellectually challenged, and explains that, “Marginal utility explains how the consumption of goods and services becomes less satisfying as they are consumed; in doing so, it emphasizes how only the free-market itself can determine the prices of these units.”

This explanation shows their hopelessly pedantic nature, as the better explanation of “marginal utility” is, “The difference between how the first candy bar tastes versus how the 15th candy bar tastes after you have just consumed 14 of them, one after the other, gorging yourself like some gluttonous pig devouring the contents of the Halloween candy bowl that was meant for the Trick or Treaters.”

In their conclusion, The Daily Bell makes the hopeful note that “It would seem to us that the interviewer is aware that there is an alternative view and is eager to solicit it. It is very possible that it is becoming more fashionable for ‘mainstream’ financial journalists to acknowledge Austrian economics as a sign of a certain level of sophistication in their craft.”

They say this because they have noticed this elsewhere, mainly in “the friendly reception that hard-money proponent Congressman Ron Paul often receives in mainstream financial interviews. Honest money seems to be coming back into vogue after a 100-year hiatus. We dearly hope this is a developing trend.”

So do I! And that is yet another reason, as if you needed another reason in addition to the other trillions and trillions of reasons, to buy gold, silver and oil in response to the inflationary policies of the Federal Reserve, an investment decision that is so obvious that even to think of it is to giggle with delight, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Economics Professor Ignores Fiat Money Failures originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Economics Professor Ignores Fiat Money Failures




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

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When Emerging Market Growth Surpasses the US

November 23rd, 2010

It used to be the case that when America sneezed, the rest of the world caught a cold. We could say something about the phrase “God bless America” here…but won’t.

Increasingly, however, it is newsy tidbits from abroad taking their toll on the frail financial immune system of the United States. This very day, to cite an example close at hand, a spat along the border dividing Korea’s estranged brethren and the worsening European debt infection have markets in the US a snifflin’ and a splutterin’. And that’s to say nothing of the stirring dragon over in the Middle Kingdom. The Chinese are trying to put the lid back on their own inflationary pressures by tightening monetary policy and enforcing stricter bank lending measures.

All in all, investors in the US didn’t take kindly to the news cocktail. The Dow Jones Industrial Average dropped below 11,000 during morning trading, the first time the psychological support had been breeched in over a month. The bluest chip index was down around 150 points as of this writing…and looking a tad sickly.

Gold, meanwhile, puffed up his chest and got on with the job. Predominant buying pushed the Midas metal up by as much as $26 per ounce, although a strengthening dollar mitigated its move by about $16. Net result: gold up $10 by early afternoon.

The US’s not-so-sudden role reversal, from “sneezer” to “sneezee,” should come as no surprise. The empire’s influence has been in steady, inexorable decline for the better part of the last quarter century. Whereas her mighty GDP (leaving aside the inherent problems with that measurement for the moment) accounted for almost one third of total global output in 1987, it has since shrunk to just over one quarter. By 2030, according to World Bank projections, the States will be doing well to own a one-fifth share of the total.

Revisiting 1987 for a second, that same year the US pumped out one of every three units of production on earth, the Chinese didn’t even feature among the top ten contributors. Of the so-called BRIC nations, only Brazil made the list, coming in at number 8 with a measly 2.1% share of the total. But by 2008, China had leapfrogged Brazil (and a dozen or so other countries) to take its position behind the aging, flailing Japan. And come 2030 – again, according to the World Bank – the BRICs will have collectively surpassed the US in total output, as measured by GDP.

Of course, being projections, these figures make a great many assumptions. They take for granted, for example, that current rates of expansion can be extrapolated to the end of days and beyond. Truth be told, anything can happen tomorrow…and the day after…and the day after. The Koreans might blow up the peninsular, for instance, or Bernanke might blow up the world’s “reserve” currency. We wouldn’t rule out either…or both.

Nevertheless, we do know that the world’s productive output is still growing, along with its steadily increasing population. And, in recent years at least, less and less of that growth has tended to come from the US. Instead, the emerging markets, like teenagers at a Chinese buffet, have been gobbling up the pie chart.

To be sure, the size of the many developing nations’ economies relative to those in the west is still relatively small. In order to close the gap in total production, the BRIC nations must continue growing at rates unimaginable in the west. Still, if recent history is any guide, they could well be up to the task.

In the first eight years of this decade, for example, the four BRIC nations accounted for just shy of half (46.3%) of the world’s total GDP growth. Meanwhile, the G7 nations – US, UK, Japan, Germany, France, Canada and Italy – managed to scrape together only 19.8% between them. From now through 2014, the spread between those two figures looks set to widen, with the BRIC’s share of total global growth tipping 61.3% and the G7’s share falling to just over 12%.

Again, anything could happen during the coming months and years. And, if history is any guide, it probably will.

Joel Bowman
for The Daily Reckoning

When Emerging Market Growth Surpasses the US originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
When Emerging Market Growth Surpasses the US




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

When Emerging Market Growth Surpasses the US

November 23rd, 2010

It used to be the case that when America sneezed, the rest of the world caught a cold. We could say something about the phrase “God bless America” here…but won’t.

Increasingly, however, it is newsy tidbits from abroad taking their toll on the frail financial immune system of the United States. This very day, to cite an example close at hand, a spat along the border dividing Korea’s estranged brethren and the worsening European debt infection have markets in the US a snifflin’ and a splutterin’. And that’s to say nothing of the stirring dragon over in the Middle Kingdom. The Chinese are trying to put the lid back on their own inflationary pressures by tightening monetary policy and enforcing stricter bank lending measures.

All in all, investors in the US didn’t take kindly to the news cocktail. The Dow Jones Industrial Average dropped below 11,000 during morning trading, the first time the psychological support had been breeched in over a month. The bluest chip index was down around 150 points as of this writing…and looking a tad sickly.

Gold, meanwhile, puffed up his chest and got on with the job. Predominant buying pushed the Midas metal up by as much as $26 per ounce, although a strengthening dollar mitigated its move by about $16. Net result: gold up $10 by early afternoon.

The US’s not-so-sudden role reversal, from “sneezer” to “sneezee,” should come as no surprise. The empire’s influence has been in steady, inexorable decline for the better part of the last quarter century. Whereas her mighty GDP (leaving aside the inherent problems with that measurement for the moment) accounted for almost one third of total global output in 1987, it has since shrunk to just over one quarter. By 2030, according to World Bank projections, the States will be doing well to own a one-fifth share of the total.

Revisiting 1987 for a second, that same year the US pumped out one of every three units of production on earth, the Chinese didn’t even feature among the top ten contributors. Of the so-called BRIC nations, only Brazil made the list, coming in at number 8 with a measly 2.1% share of the total. But by 2008, China had leapfrogged Brazil (and a dozen or so other countries) to take its position behind the aging, flailing Japan. And come 2030 – again, according to the World Bank – the BRICs will have collectively surpassed the US in total output, as measured by GDP.

Of course, being projections, these figures make a great many assumptions. They take for granted, for example, that current rates of expansion can be extrapolated to the end of days and beyond. Truth be told, anything can happen tomorrow…and the day after…and the day after. The Koreans might blow up the peninsular, for instance, or Bernanke might blow up the world’s “reserve” currency. We wouldn’t rule out either…or both.

Nevertheless, we do know that the world’s productive output is still growing, along with its steadily increasing population. And, in recent years at least, less and less of that growth has tended to come from the US. Instead, the emerging markets, like teenagers at a Chinese buffet, have been gobbling up the pie chart.

To be sure, the size of the many developing nations’ economies relative to those in the west is still relatively small. In order to close the gap in total production, the BRIC nations must continue growing at rates unimaginable in the west. Still, if recent history is any guide, they could well be up to the task.

In the first eight years of this decade, for example, the four BRIC nations accounted for just shy of half (46.3%) of the world’s total GDP growth. Meanwhile, the G7 nations – US, UK, Japan, Germany, France, Canada and Italy – managed to scrape together only 19.8% between them. From now through 2014, the spread between those two figures looks set to widen, with the BRIC’s share of total global growth tipping 61.3% and the G7’s share falling to just over 12%.

Again, anything could happen during the coming months and years. And, if history is any guide, it probably will.

Joel Bowman
for The Daily Reckoning

When Emerging Market Growth Surpasses the US originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
When Emerging Market Growth Surpasses the US




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

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