4 Small Caps That Could Pop

December 12th, 2010

4 Small Caps That Could Pop

It always pays to scroll through stocks that have taken a recent pounding, Most of the time, they've deserved to take a hit. But sometimes, investors simply over-react to seemingly bad news. And that creates opportunity.

Let's take a look at four stocks from the Russell 2000, all of which have shed at least 25% of their value in the past month to see which one is the most likely to rebound.

MELA Sciences (Nasdaq: MELA)
Talk about a false dawn. This biotech lost more than half its value on November 16 after the FDA issued a preliminary report that threw doubt on MELA's skin cancer detection device. Skin cancer, or melanoma, is the fifth-most lethal form of cancer in the United States. Investors quickly understood that the FDA would be rejecting a pending application to market the device. Just a few days later, though, an FDA panel did approve the device, by a very slim 8-7 vote. Shares nearly doubled on the news.

That would have been a great time to book profits. Investors seemingly misunderstood that a positive vote from the FDA advisory panel is not the same thing as FDA approval. It still seems quite likely that the FDA will ask MELA to conduct further tests, and that will cost money the company doesn't have and moves any hoped-for sales ramp out by at least a few years — that is, if it gets to market at all.

SWS Group (NYSE: SWS)
Executives at this Dallas, TX regional brokerage would like a “do-over.” SWS thought it would be helpful to raise nearly $100 million in a convertible bond offering, which would have helped shore up a flagging balance sheet that was being weakened by stubbornly high losses on its loan portfolio. Investors started to dump the stock in late November, presumably as word circulated that a dilutive stock offering would soon be announced. That announcement finally came earlier this week, and shares took another deep hit. With shares now down nearly -50% since mid-October, management threw in the towel and announced on Wednesday evening that the capital-raise would be cancelled. Shares staged a quick +10% rebound on Thursday, but are still well below recent levels.

The question now is whether SWS can live without that $95 million. Yes, although don't be surprised to see a deal for a far smaller amount, perhaps $30 or $40 million. That means SWS may look to the PIPE market (private investment in a public equity). These deals are often done at a -5% or -10% discount to the current share price, but can be done quietly and quickly. Considering that we are probably talking about far less dilution, and also considering that SWS shares are now very cheap in relation to most other brokers, investors should be quite relieved.

DynaVox (Nasdaq: DVOX)
In keeping with the notion of regrettable management decisions, this developer of software that aids the disabled with typing and other forms of communication shouldn't have bothered going public in 2010. A $15 IPO in April now trades for just $4. By the end of the summer, it became apparent that sales were slumping badly, reversing impressive sales trends that had been seen in the quarters heading into the IPO.

When DynaVox announced on November 11 that fiscal first quarter sales were -11% below year-ago results, any remaining bullish investors finally gave up, leading to a -28% one-day plunge. And that's where we stand a month later.

The sales weakness is fairly obvious — in hindsight. DynaVox's customer base largely consists of school systems, and severe budget pressures have led schools to defer spending on non-essential items. Investors can now conclude that it will be quite some time before school systems are in spending mode again.

Even as it's unwise to expect a near-term rebound, DynaVox's cash burn is likely to be modest. So the company must now sit and wait for an eventual rebound. For those with a long-term view, this is a remarkably cheap software stock, now trading for less than half of sales. Larger software firms that are focused on the educational market would do well to snag this company on the cheap, as its products still appear to be held in high regard by educators. Put this one on your watch list.

Alnylam Pharma (Nasdaq: ALNY)
I took a look at this company in late November, and after chronicling a set of bad news in terms of Big Pharma partnerships, concluded that “shares still hold long-term promise.”

I still think that's the case. The company has a boatload of cash, and even though its focus on RNA manipulation has yet to pay off in a big way, it's still considered to be a very intriguing approach by many scientists. Even though the loss of a relationship with Roche Holdings really hurts, Alnylam still has three drugs in clinical trials and alliances with companies like Takeda Pharmaceuticals, GlaxoSmithKline (NYSE: GSK), Cubist Pharmaceuticals (Nasdaq: CBST) and Medtronic (NYSE: MDT).

At this point, the onus is on Alnylam to recapture lost buzz by providing progress reports on clinical trials. That information should be rolling on over the course of 2011. So shares may sit in the penalty box for a few more quarters, but this is certainly an intriguing name at this point for those who like cash-rich biotechs.

Action to Take –> And the winner is…

SWS for a short-term trade as shares rebound from the ill-fated capital-raising efforts. DynaVox certainly bears a placement on your watch list, although it could be a number of quarters before sales pick up. Before then, don't be surprised if the company gets some interest form strategic buyers. In the long-term, Alnylam looks to have the greatest potential upside — that is, if the clinical data in the next 18 months proves to be impressive.


– David Sterman

P.S. — When you get in on the ground floor of a promising new trend or technology, the profits that can follow can change your life forever. Andy Obermueller's Game-Changing Stocks is entirely devoted to finding the next big, life-changing investing idea. See his latest report, The Hottest Investment Opportunities of 2011, to find even more ground-breaking investment plays.

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: David Sterman
4 Small Caps That Could Pop

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Insiders Are Buying These Unloved Stocks

December 12th, 2010

Insiders Are Buying These Unloved Stocks

Once a quarter, investors take note of a wide range of buying and selling by company insiders. These folks can only buy and sell the stock of their respective company for a fixed period after earnings have been released. With many companies rolling out quarterly results about a month ago, it's been open season, and insiders have been awfully busy with their own checkbooks in recent weeks.

Insiders vs. Outsiders
A number of major investors qualify as insiders once they own 5% of a company's stock. You can track their moves as they file to build or lessen stakes in particular companies. We profiled Bill Gates' interest in AutoNation (NYSE: AN) and Carl Icahn's never-ending pursuit of Motorola (NYSE: MOT).

But that's not what I'm looking at today. Instead, I'm focusing on the insiders that actually work at these companies, or serve as directors. Here are four companies that have seen very bullish insider action recently.

1. SandRidge Energy (NYSE: SD)
This energy firm made a big bet on natural gas in the past few years. With natural gas prices in the doghouse, that was a bad move. So in the past year, management has been slowly shedding exposure to gas while increasing exposure to oil through acquisitions of Forest Oil and Arena Resources. That's been a good move. Sales and EBITDA are now sharply higher than just a few quarters ago, though debt is as well.

Yet SandRidge has few supports on Wall Street after serially missing profit forecasts. Most analysts have thrown in the towel due to this poor execution, but they concede that the stock is very cheap in the context of the company's assets. For example, UBS thinks SandRidge's proven energy reserves are worth about $5 a share, and its unproven reserves are worth an additional $8 a share. Even if half of the unproven resources fail to materialize, then the net asset value (NAV) for all of SandRidge is about $9 — roughly +50% of the current share price.

Notably, oil prices have been on the rise, and if they approach $100 a barrel, as some suspect, that NAV math would move even higher. Insiders have surely taken their lumps from a string of weak quarters, but they keep buying more shares anyway. Several officers and directors, along with a key investor, have been steadily buying shares on the open market. Despite all the ill will that SandRidge has garnered, those insider buys may prove prescient.

2. Echo Global Logistics (Nasdaq: ECHO)
It's been an up-and-down ride for this 2009 IPO, which provides shipping logistics services to a wide range of companies. By acting as a middleman between companies and shippers, Echo captures a fee that results in lower costs for companies and higher volume for shippers. Echo's customer base is rapidly expanding, which should help fuel a +65% jump in sales this year, and another +25% gain in 2011. But trucking firms have taken a lot of capacity out, so there's less room for Echo to finagle price breaks for clients and itself. As a result, profit forecasts have been coming down recently.

Company founder Eric Lefkosky is unfazed and thinks the operating environment will improve in coming periods as shipping firms add back capacity and have to play ball in terms of pricing again. He recently picked up nearly $1 million in stock on the open market. Brean Murray remains quite bullish on Echo's business model as well: “Echo's value proposition of guaranteed cost savings and dedicated service personnel combined with no-cost technology and data offerings for clients continues to gain traction in the marketplace,” wrote analysts in a report last month. They think shares will rise +50% to around $18.

3. Citigroup (NYSE: C)
Lastly, as a follow-up to recent bullish thoughts on Citigroup, it's worth noting that Manuel Medina-Mora, Citigroup's Chief Executive Officer of Consumer Banking for the Americas, recently bought more than $2 million in stock with his own money. As I noted earlier this week, Citigroup is seeing healthy growth in emerging regions such as Latin America. Mr. Medina-Mora's moves underscore that sentiment.

Action to Take –> Insiders tend to become heavy buyers of their stock when they are generally unloved by most investors. That's precisely the time that you want to be researching such companies, and all three of these names look like long-term winners.


– David Sterman

P.S. — Using the same principles that helped trounce the S&P 500 for seven years, one of our top investing gurus, Nathan Slaughter, hand-picked all 10 of the stocks featured in his latest exclusive report, The Top 10 Stocks for 2011. These 10 stocks are not only poised to deliver above-average returns throughout the 2011 calendar year, but also in the years that follow…

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: David Sterman
Insiders Are Buying These Unloved Stocks

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These 5 Dividends Are Likely to be Cut Very Soon…

December 12th, 2010

These 5 Dividends Are Likely to be Cut Very Soon...

Like most investors, I'm usually looking for the safest and most attractive income streams. I search for stocks offering the highest yields, most reliable income and best opportunities for dividend growth.

But there is a flip side to this bright picture. Some stocks look like safe income plays on the surface, but are really ticking time bombs. These stocks pay out more in dividends than they earn. Eventually, funds run out and they are forced to cut the dividend.

For this reason, every income investor should know the warning signs of a stock in danger of a dividend cut. The most obvious sign is a dividend payout at or near 100% of earnings. That means every penny the company makes is supporting the dividend – nothing is left over to re-invest in the business or pay back loans.

There are other danger signs to watch out for as well. Earnings power is key. If a company can't grow earnings, odds are that dividend growth will stall as well. Companies with large amounts of debt are especially risky, since they may end up cutting dividends to free up cash to pay creditors. A huge red flag is also companies that borrow money to fund the dividend. This may work as a temporary measure, but is unsustainable in the long-term.

With these risk factors in mind, I went in search of likely candidates for dividend cuts.

Barnes & Noble (NYSE: BKS)
Yield: 7.5%
On the surface, Barnes & Noble looks attractive. After all, it offers a $1.00 dividend and rich yield. But looks can be deceiving. This bookseller faces eroding sales and growing competition from the likes of Amazon.com (Nasdaq: AMZN). Barnes & Noble recorded consecutive quarters of operating losses and cash flow of only $29 million in the last three quarters. This fell far short of the $43 million it needed for dividend payments. Debt is high at $630 million and cash reserves are small at only $27 million. Barnes & Noble is exploring “strategic alternatives,” which usually means seeking a buyer. The most likely suitor, Borders (NYSE: BGP) would eliminate the dividend entirely.

Nucor Corporation (NYSE: NUE)
Yield: 3.6%
Steel-maker Nucor has been plagued by soft demand from construction markets in 2010. Company management says this year's fourth quarter could be its most challenging. Nucor made a token one penny increase in the annual dividend to $1.45 this month, but the current rate isn't sustainable if Nucor's markets don't rebound soon. At present, the dividend payout rate for Nucor is 225%. The company produced $448 million of cash flow in the past 12 months — less than the $500 million needed for dividend payments. Nucor has a $2 billion war chest to cover shortfalls for a while, but the dividend could be in jeopardy next year if cash flow doesn't improve.

Anworth Mortgage Asset Corp (NYSE: ANH)
Yield: 13.0%
Yields that look too good to be true usually are, and such is the case with Anworth. This investor in mortgage backed securities was hit hard by the mortgage market meltdown. Anworth's per share earnings fell to only $0.66 in the first nine months of 2010 and analysts estimate full-year earnings will be only $0.88. At that level, Anworth can't cover its $0.92 annual dividend. With payout at 102%, the risk increases for a dividend cut. Anworth has only $2.1 million of cash to cover shortfalls until the mortgage market improves and few are anticipating much of a recovery next year.

World Wrestling Entertainment (NYSE: WWE)
Yield: 10.3%
The last time World Wrestling Entertainment hiked its dividend was three years ago, and this company's financial performance has turned lackluster of late. While operating income rose modestly during the past nine months, this company's cash flow, a far better measure of its ability to pay the dividend, declined sharply to $28 million. World Wrestling has already paid $62 million in dividends this year. With payout exceeding cash flow twice over, there is a risk the $1.44 annual dividend may be cut.

Atlantic Power Corporation (NYSE: AT)
Yield: 7.5%
Independent electric power producer Atlantic Power produced income of only $6.8 million in the first nine months of 2010 and $31 million of operating losses last year. Consensus analyst estimates look for earnings of just $0.15 this year and $0.97 next year. Atlantic Power has a $1.07 annual dividend, so it won't be covering dividend payments from earnings anytime soon. Cash flow paints a slightly rosier, but still troubling picture. Atlanta reported $49.8 million of cash available for distributions this year, which just barely covers $48 million of dividend payments. But the payout rises above 100% in the fourth quarter because of an October stock offering that adds 9% to the share count.

Action to Take –> Looking at dividend payout and other danger signs can help ferret out stocks at risk of a dividend cut. If you hold any of the above stocks, beware. A dividend cut may be on the horizon, which is the last thing an income investor wants.

Portfolio risk can be reduced by diversifying your stock holdings across sectors and countries. For instance, if you held only financial stocks, your dividend income would have plummeted during the recession when once-reliable payers like GE (NYSE: GE), Bank of America (NYSE: BAC) and Citigroup (NYSE: C) were forced to cut dividends. Investors who held a mix of stocks from a variety of industries fared much better and suffered much smaller declines in income.

Lisa Springer

Lisa is a stock analyst with nearly 25 years of investment research experience. She earned a MBA in Finance from the University of Chicago in 1987… Read More.

Disclosure: Neither Lisa Springer nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: Lisa Springer
These 5 Dividends Are Likely to be Cut Very Soon…

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Ben Bernanke’s Rude Awakening

December 12th, 2010

Martin D. Weiss, Ph.D.

We’ve just posted a brand new presentation with our forecasts for 2011. With interest rates suddenly surging, the timing couldn’t be better.

Look: Fed Chief Ben Bernanke thought HE had the power to manipulate interest rates. So when he announced he was creating another $600 billion dollars out of thin air and using them to buy Treasuries bonds, he assumed he would push bond prices up and force their yields down.

That was the entire goal of “quantitative easing #2.”

But something funny happened on the way to QE2: It turns out that the REAL masters of the Treasury and bond markets — investors — had only been letting Bernanke think he was the one in charge.

Ben Bernanke's rude awakening: In the end, investors control yields — NOT the Fed!
Ben Bernanke’s rude awakening: In the end, investors control yields — NOT the Fed!

Almost immediately after the Fed chief’s announcement, investors popped the bubble in bond prices that had been growing since late 2008.

It must have been a rude awakening for Bernanke: Instead of falling as he’d expected, bond yields suddenly began rising!

So far, in the three months since Bernanke revealed his newest dollar-printing scheme, 30-year Treasury bonds have lost 9 percent of their value; and the popular iShares Barclays 20+ Year Treasury Bond ETF has declined 15 percent in value.

Worse, because many of the interest rates we pay are tied to these yields, we’re now staring down the barrel of rising rates — like poison to an economy as troubled as ours is.

So why have the Treasury and bond markets confounded the Fed?

Simple: Investors are not dumb. They know that the Fed’s out-of-control money printing can only gut the value of every dollar they invest in U.S. bonds markets — and also every dollar they earn in yield.

Adding insult to injury, the Obama Administration and Congressional Republicans have cut a deal to make the budget deficit FAR bigger, requiring even MORE money printing by Mr. Bernanke.

THIS is the key reason the Treasury market is crashing and yields are surging. And it’s also why we’ve seen enormous volatility in the U.S. dollar and in gold over the past three months:

Gold has spiked three times in the last 90 days, taking us to a new all-time high of $1,432.50. And after each of those spikes, it has corrected sharply.

The same is true for the U.S. dollar: It plummeted 8.8 percent between early September and early November … recovered some of its losses before diving again in late November.

This is precisely what we’ve been warning you about for many months: EXTREME volatility in all the markets. An explosion of profit opportunities; and with them, greater short-term risk.

And this is also why we just posted our 8 Alarming Forecasts for 2011 online:

At a time like this — with volatility rising —
everything depends on getting
the answers to these critical questions RIGHT:

  • Stocks are within a few points of setting new highs for the year: Can this rally continue? Or is it destined to suddenly reverse? Which sectors are in greatest danger now? Which seem to be the safest and most promising for 2011 and beyond?
  • Treasury yields continue to rise: Is this just a fluke? Or is it the beginning of what could be the most serious bond market catastrophe in decades?
  • The U.S. dollar is scraping bottom, flirting with its LOWEST levels of the year: Is this the beginning of the greatest dollar disaster America has ever seen? Or is it merely another blip in the market? (Hint: China holds the key!)
  • Gold is on a tear again, hitting one new all-time high after another: Will this bull market last? Or is gold overbought and overdue for a correction? How high will the yellow metal ultimately climb? When should prudent investors double down on gold bullion and mining shares? When should they take their profits and run?
  • Food prices are on a rampage: Will agricultural commodities continue to skyrocket in 2011? If so, which ones?
  • Oil prices continue to edge higher: Will we see new all-time highs in black gold in the year ahead? Or will economic woes in Europe and the U.S. send oil prices careening lower?
  • Economies and stock markets in China and other emerging markets are still exploding: Is now the time to buy emerging market stocks and ETFs? Or are these countries overdue for corrections that create major buying opportunities for you in 2011? Which ones are likely to perform the best?

In the year ahead, each of these forecasts — and the investment recommendations that come with them — could make you a bundle if you heed them … or cost you a bundle if you don’t.

8 Alarming Forecasts for 2011 has answers you need to protect and grow your wealth in the year ahead. It is online now.

Click this link and it will begin playing immediately.

Good luck and God bless!

Martin

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Ben Bernanke’s Rude Awakening

Commodities, ETF, Mutual Fund, Uncategorized

9 ETFs To Play Currency Debasement

December 11th, 2010

As developing nations continue to implement loose monetary policies, keep interest rates low and boost money supply, a nation’s debt and currency debasement should me of much concern. 

Most recently, a study indicated that the U.S. national debt has ballooned nearly 12 fold over the last 30 years.  Additionally, over this same time span the ratio of debt to GDP has gone from nearly one-third to 85%.  During this time of exploded debt, GDP has only expanded 5.3 times, indicating that debt is growing at twice as fast as the U.S. economy.  Similar trends have been seen in Europe, in particularly Greece, Spain and Portugal.

Some concerns of this exponential growth in debt include hyperinflation, as a result of printing more currency, a decline in the value of a nation’s currency, better known as currency debasement, and increased costs of borrowing, which make it difficult to chip away at deficits.

Some experts suggest that this trend in the developing world, in particularly the United States, is likely to continue as nations have become accustomed to borrowing extraordinary amounts of money and printing extra currency to stay afloat.  If this is the case, than inflation will be inevitable and currency values will diminish. 

Some possible ways to protect against currency debasement and increases in inflation include the following:

Gold

Traditionally, gold trades inversely to the U.S. dollar and has long been a traditional hedge against inflation and currency weakness.  Gold can be played through the SPDR Gold Trust (GLD), which is backed by physical gold and the most actively traded gold ETF.

Commodities

In general, as the U.S. dollar losses ground, commodities reap the benefits.  Additionally, the world is growing and demand for commodities is likely to follow.  Some broad based commodity plays include the iShares S&P GSCI Commodity-Indexed Trust (GSG) and the PowerShares DB Commodity Indexed Tracking Report (DBC), which includes exposure to gasoline, crude oil, sugar, copper and other sought after commodities. 

Emerging Markets

In particularly, Brazil and India are expected to see financial strength, which translates to a stronger currency.  Brazil continues to be flush with resources that are in high global demand and India is seeing increases in business investment, strong capital markets and boosts in consumer confidence.  Brazil can be accessed through the WisdonTree Dreyfus Brazilian Real (BZF) and India can be played through the WisdomTree India Earnings (EPI).  For exposure to both these nations, one could take a look at the iShares MSCI BRIC Index (BKF), which allocates nearly 49% of its assets to Brazil and India or the Claymore/BNY Mellon BRIC ETF (EEB), which boasts nearly 67% of its assets to these two nations. 

Fixed-Income

The key in fixed income is to sticking to short-term investment tools.  Interest rates are more likely than not to increase sometime in the near future and by utilizing short-term bonds, one limits the risk of a spike in interest rates.  A good play here is the iShares Barclays 1-3 Year Treasury Bond (SHY), which holds 50 different U.S. Treasury Notes all expected to mature sometime in 2012.  Another notable option in the fixed income world is the iShares Barclays TIPS Bond (TIP), which is a Treasury Inflation-Protected Security whose principal and interest payments grow with inflation. 

Although currency debasement and inflation remain threats, it is equally important to keep in mind the inherent risks that are involved in investing. A good way to protect against these risks is through the implementation of an exit strategy which triggers price points at which an upward trend could potentially be coming to an end.

Disclosure: No Positions

Read more here:
9 ETFs To Play Currency Debasement




HERE IS YOUR FOOTER

Commodities, ETF, Uncategorized

9 ETFs To Play Currency Debasement

December 11th, 2010

As developing nations continue to implement loose monetary policies, keep interest rates low and boost money supply, a nation’s debt and currency debasement should me of much concern. 

Most recently, a study indicated that the U.S. national debt has ballooned nearly 12 fold over the last 30 years.  Additionally, over this same time span the ratio of debt to GDP has gone from nearly one-third to 85%.  During this time of exploded debt, GDP has only expanded 5.3 times, indicating that debt is growing at twice as fast as the U.S. economy.  Similar trends have been seen in Europe, in particularly Greece, Spain and Portugal.

Some concerns of this exponential growth in debt include hyperinflation, as a result of printing more currency, a decline in the value of a nation’s currency, better known as currency debasement, and increased costs of borrowing, which make it difficult to chip away at deficits.

Some experts suggest that this trend in the developing world, in particularly the United States, is likely to continue as nations have become accustomed to borrowing extraordinary amounts of money and printing extra currency to stay afloat.  If this is the case, than inflation will be inevitable and currency values will diminish. 

Some possible ways to protect against currency debasement and increases in inflation include the following:

Gold

Traditionally, gold trades inversely to the U.S. dollar and has long been a traditional hedge against inflation and currency weakness.  Gold can be played through the SPDR Gold Trust (GLD), which is backed by physical gold and the most actively traded gold ETF.

Commodities

In general, as the U.S. dollar losses ground, commodities reap the benefits.  Additionally, the world is growing and demand for commodities is likely to follow.  Some broad based commodity plays include the iShares S&P GSCI Commodity-Indexed Trust (GSG) and the PowerShares DB Commodity Indexed Tracking Report (DBC), which includes exposure to gasoline, crude oil, sugar, copper and other sought after commodities. 

Emerging Markets

In particularly, Brazil and India are expected to see financial strength, which translates to a stronger currency.  Brazil continues to be flush with resources that are in high global demand and India is seeing increases in business investment, strong capital markets and boosts in consumer confidence.  Brazil can be accessed through the WisdonTree Dreyfus Brazilian Real (BZF) and India can be played through the WisdomTree India Earnings (EPI).  For exposure to both these nations, one could take a look at the iShares MSCI BRIC Index (BKF), which allocates nearly 49% of its assets to Brazil and India or the Claymore/BNY Mellon BRIC ETF (EEB), which boasts nearly 67% of its assets to these two nations. 

Fixed-Income

The key in fixed income is to sticking to short-term investment tools.  Interest rates are more likely than not to increase sometime in the near future and by utilizing short-term bonds, one limits the risk of a spike in interest rates.  A good play here is the iShares Barclays 1-3 Year Treasury Bond (SHY), which holds 50 different U.S. Treasury Notes all expected to mature sometime in 2012.  Another notable option in the fixed income world is the iShares Barclays TIPS Bond (TIP), which is a Treasury Inflation-Protected Security whose principal and interest payments grow with inflation. 

Although currency debasement and inflation remain threats, it is equally important to keep in mind the inherent risks that are involved in investing. A good way to protect against these risks is through the implementation of an exit strategy which triggers price points at which an upward trend could potentially be coming to an end.

Disclosure: No Positions

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9 ETFs To Play Currency Debasement




HERE IS YOUR FOOTER

Commodities, ETF, Uncategorized

The End Game for the Euro

December 11th, 2010

Bryan Rich

The euro is doomed, and the consequences of its demise are far-reaching — both in terms of the dangers for anyone who is unprepared and the opportunities for those who are.

This is so important I have created a special presentation, entitled “Currency Wars Helping Savvy Investors Make Fortunes.” It shows you not only how the currency wars are escalating but how to profit from them.

And right now, the biggest global war is against the euro, driving it to its demise.

To readers who have been following me, this should come as no surprise. I’ve made the case for some time that the euro’s days were numbered — even while most others were hailing it as “the next world reserve currency.”

But for investors and politicians who have staked their financial future on the euro — both in Europe and the U.S. — the shock could be traumatic. They’ve simply refused to recognize the flaws in the entire European Union — flaws that have been, and still are, abundantly clear.

Here’s the key: Monetary unity can only be possible with fiscal unity.

The whole idea of creating a single monetary unit — the euro — on the shaky foundation of 16 different governments, each taxing and spending at their own whim, was insane from Day One.

It created incentives to cheat the system. It encouraged certain countries to spend beyond their means and take shelter under the credit of their stronger neighbors. And it has led to precisely the kind of anomalies and disasters we should expect:

  • Wildly varying financial positions for the countries within the monetary union — some on the brink of bankruptcy, others still solvent.
  • No freedom for individual countries to determine the value of their currencies independently. For them, instead of serving as a benefit, the euro has become a curse.
  • Extreme vulnerability to any economic downturn — the ever-present danger that the union could collapse under economic or financial stress.
  • Grave political turmoil and public unrest.

As long as Europe’s economy was growing, prosperity camouflaged these fundamental failings. All that was needed to expose these flaws and set the euro’s demise into motion was a severe economic downturn.

And in 2008, that’s precisely what we got, along with a massive housing bust.

The bust, in turn, blatantly exposed everything that was wrong with the euro from the start — the fiscal irresponsibility of Portugal, Ireland, Italy, Greece, and Spain … the extreme vulnerability of stronger euro members as they are pulled down by the weak … and the invalid rulebook upon which the euro concept was built.

That’s why this crisis is far more than just an ordinary economic recession. What we have been witnessing is the progressive downward spiral of Europe itself.

Europe’s High-Risk Game of Poker

In response, Europe’s high officials have undertaken Herculean measures to stay afloat and prevent a breakup.

But despite all the rescue packages, bold promises, backstops and politicking, the sovereign debt crisis has continued to fester, spread, and accelerate.

This can mean only one thing: The outlook for the euro is bleak.

The fact is Europe’s strategy for handling the spreading sovereign debt crisis is nothing more than a grand bluff with a weak hand. Here’s how they’re playing it:

Earlier this year, the European Union and the IMF, using mostly German money, bet huge sums on insolvent countries. They put $1 trillion on the table, thinking they’d impress global investors. They didn’t.

Now, they’re talking about doubling the ante without any better cards to play. They’re hoping that this bluff will push back global investors and speculators who have staked their bets against the euro and the bond markets of the weak euro-zone members.

But all the while, they’ve known they’re holding a losing hand. They won’t admit it in public. But they’re also deathly afraid that the longer the game lasts, the more money Europe will be forced to pour into the black hole called “rescue aid.”

Games Like These Always Have an
Inevitable and Predictable End

Investors see through the bluff. Speculators can virtually smell the fear. And they attack with one simple weapon: Their ability to SELL the currency and the country’s government bonds at any time and in any amount of their choosing.

With few exceptions, no matter what the central bank says, the attacks continue relentlessly. And they typically, in the case of a currency attack, do not end until the central bank has depleted large sums of foreign exchange reserves. This, in turn, forces the central bank to fold its hand, abandon its defense of the currency, and enact a major devaluation.

But for the European Union, the bet is so large and the cards so weak, the end game could be even more Draconian: A breakup of the euro altogether.

Already the language and rhetoric is beginning to change in Europe. It’s gone from denial and political-unity speak … to admission and nationalist speak. Indeed, in just the last few days …

Talk of a Euro Breakup Has Suddenly
Begun Spilling out of the Continent!

Look at the swelling uproar …

  • The Irish Times has just run a headline “Ireland likely to leave the euro.”
  • German Chancellor Angela Merkel was said to have threatened to take Germany out of the euro. She denied it. But the swelling political pressures for a German exit are not deniable.
  • A UK official and former Bank of England member openly admitted the collapse of the euro was possible.
  • An Austrian Central Bank Governor and ECB policymaker said no country in the euro zone was safe from the collateral damage of a euro breakup.

Breakup or no breakup, anyone holding euros should be looking for the exit door. You wouldn’t own a company that’s loaded with sinking junk bonds. Likewise, you shouldn’t own the currency of the European Central Bank, which continues to buy up the junk bonds of Greece, Ireland and a growing list of weak countries — each digging itself deeper into debt despite ever harsher austerity measures.

My main point: This is far more serious than just one currency or even one continent. European banks are loaded with the seedy debt from the weakest euro- zone member countries.

If a major country like Ireland or Spain defaults or restructures its debts, it could send European banks into the tank. And those bank failures, in turn, could threaten the entire global financial system much as they did in 2008.

So the euro problem isn’t just a Europe problem. It’s a problem for everyone. World economies are highly interconnected. Those investors who aren’t closely monitoring the situation in Europe and the impact on the euro, could be caught on the wrong side of another Lehman-type event.

This is very dangerous for those who are unprepared. But it also has tremendous profit potential for those who are — with instruments any investor can buy. To see how, check out my presentation, “Currency Wars Helping Savvy Investors Make Fortunes,” which I’ve just posted online.

Click here, and it will begin playing right away.

Regards,

Bryan

P.S. This week on Money and Markets TV, we checked in on the health of the U.S. economy, and offered our prognosis for the pace of recovery in 2011. Plus viewers received some concrete investment ideas based on the economic outlook of all the Weiss Research editors.

If you missed Thursday night’s episode of Money and Markets TV — or would like to see it again at your convenience — it’s now available at www.weissmoneynetwork.com.

Read more here:
The End Game for the Euro

Commodities, ETF, Mutual Fund, Uncategorized

The End Game for the Euro

December 11th, 2010

Bryan Rich

The euro is doomed, and the consequences of its demise are far-reaching — both in terms of the dangers for anyone who is unprepared and the opportunities for those who are.

This is so important I have created a special presentation, entitled “Currency Wars Helping Savvy Investors Make Fortunes.” It shows you not only how the currency wars are escalating but how to profit from them.

And right now, the biggest global war is against the euro, driving it to its demise.

To readers who have been following me, this should come as no surprise. I’ve made the case for some time that the euro’s days were numbered — even while most others were hailing it as “the next world reserve currency.”

But for investors and politicians who have staked their financial future on the euro — both in Europe and the U.S. — the shock could be traumatic. They’ve simply refused to recognize the flaws in the entire European Union — flaws that have been, and still are, abundantly clear.

Here’s the key: Monetary unity can only be possible with fiscal unity.

The whole idea of creating a single monetary unit — the euro — on the shaky foundation of 16 different governments, each taxing and spending at their own whim, was insane from Day One.

It created incentives to cheat the system. It encouraged certain countries to spend beyond their means and take shelter under the credit of their stronger neighbors. And it has led to precisely the kind of anomalies and disasters we should expect:

  • Wildly varying financial positions for the countries within the monetary union — some on the brink of bankruptcy, others still solvent.
  • No freedom for individual countries to determine the value of their currencies independently. For them, instead of serving as a benefit, the euro has become a curse.
  • Extreme vulnerability to any economic downturn — the ever-present danger that the union could collapse under economic or financial stress.
  • Grave political turmoil and public unrest.

As long as Europe’s economy was growing, prosperity camouflaged these fundamental failings. All that was needed to expose these flaws and set the euro’s demise into motion was a severe economic downturn.

And in 2008, that’s precisely what we got, along with a massive housing bust.

The bust, in turn, blatantly exposed everything that was wrong with the euro from the start — the fiscal irresponsibility of Portugal, Ireland, Italy, Greece, and Spain … the extreme vulnerability of stronger euro members as they are pulled down by the weak … and the invalid rulebook upon which the euro concept was built.

That’s why this crisis is far more than just an ordinary economic recession. What we have been witnessing is the progressive downward spiral of Europe itself.

Europe’s High-Risk Game of Poker

In response, Europe’s high officials have undertaken Herculean measures to stay afloat and prevent a breakup.

But despite all the rescue packages, bold promises, backstops and politicking, the sovereign debt crisis has continued to fester, spread, and accelerate.

This can mean only one thing: The outlook for the euro is bleak.

The fact is Europe’s strategy for handling the spreading sovereign debt crisis is nothing more than a grand bluff with a weak hand. Here’s how they’re playing it:

Earlier this year, the European Union and the IMF, using mostly German money, bet huge sums on insolvent countries. They put $1 trillion on the table, thinking they’d impress global investors. They didn’t.

Now, they’re talking about doubling the ante without any better cards to play. They’re hoping that this bluff will push back global investors and speculators who have staked their bets against the euro and the bond markets of the weak euro-zone members.

But all the while, they’ve known they’re holding a losing hand. They won’t admit it in public. But they’re also deathly afraid that the longer the game lasts, the more money Europe will be forced to pour into the black hole called “rescue aid.”

Games Like These Always Have an
Inevitable and Predictable End

Investors see through the bluff. Speculators can virtually smell the fear. And they attack with one simple weapon: Their ability to SELL the currency and the country’s government bonds at any time and in any amount of their choosing.

With few exceptions, no matter what the central bank says, the attacks continue relentlessly. And they typically, in the case of a currency attack, do not end until the central bank has depleted large sums of foreign exchange reserves. This, in turn, forces the central bank to fold its hand, abandon its defense of the currency, and enact a major devaluation.

But for the European Union, the bet is so large and the cards so weak, the end game could be even more Draconian: A breakup of the euro altogether.

Already the language and rhetoric is beginning to change in Europe. It’s gone from denial and political-unity speak … to admission and nationalist speak. Indeed, in just the last few days …

Talk of a Euro Breakup Has Suddenly
Begun Spilling out of the Continent!

Look at the swelling uproar …

  • The Irish Times has just run a headline “Ireland likely to leave the euro.”
  • German Chancellor Angela Merkel was said to have threatened to take Germany out of the euro. She denied it. But the swelling political pressures for a German exit are not deniable.
  • A UK official and former Bank of England member openly admitted the collapse of the euro was possible.
  • An Austrian Central Bank Governor and ECB policymaker said no country in the euro zone was safe from the collateral damage of a euro breakup.

Breakup or no breakup, anyone holding euros should be looking for the exit door. You wouldn’t own a company that’s loaded with sinking junk bonds. Likewise, you shouldn’t own the currency of the European Central Bank, which continues to buy up the junk bonds of Greece, Ireland and a growing list of weak countries — each digging itself deeper into debt despite ever harsher austerity measures.

My main point: This is far more serious than just one currency or even one continent. European banks are loaded with the seedy debt from the weakest euro- zone member countries.

If a major country like Ireland or Spain defaults or restructures its debts, it could send European banks into the tank. And those bank failures, in turn, could threaten the entire global financial system much as they did in 2008.

So the euro problem isn’t just a Europe problem. It’s a problem for everyone. World economies are highly interconnected. Those investors who aren’t closely monitoring the situation in Europe and the impact on the euro, could be caught on the wrong side of another Lehman-type event.

This is very dangerous for those who are unprepared. But it also has tremendous profit potential for those who are — with instruments any investor can buy. To see how, check out my presentation, “Currency Wars Helping Savvy Investors Make Fortunes,” which I’ve just posted online.

Click here, and it will begin playing right away.

Regards,

Bryan

P.S. This week on Money and Markets TV, we checked in on the health of the U.S. economy, and offered our prognosis for the pace of recovery in 2011. Plus viewers received some concrete investment ideas based on the economic outlook of all the Weiss Research editors.

If you missed Thursday night’s episode of Money and Markets TV — or would like to see it again at your convenience — it’s now available at www.weissmoneynetwork.com.

Read more here:
The End Game for the Euro

Commodities, ETF, Mutual Fund, Uncategorized

4 Biotech ETFs Influenced By Increased M&A

December 11th, 2010

Over the past few weeks the biotechnology sector has witnessed a significant uptick in mergers and acquisitions as large cash-heavy biotech companies are looking to diversify and broaden their horizons. 

To put this activity in perspective, in a two-day span nearly $3.1 billion in biotech-related deals were announced and some suggest more activity is to come.  Big Pharma front runners such as Pfizer (PFE), Sanofi-Aventis (SNE), Amgen (AMGN) and Merck (MRK) are expected to find themselves in somewhat of a rut as expiring patents and lackluster pipelines are imminent.  In order to overcome this, Big Pharma is likely to look at smaller, more nimble companies which are focusing on specific treatments and specialties in the medical sector. 

Another force that is likely to increase M&A activity in the sector includes the ability to remain globally competitive and gain access to the ever-so-growing emerging market consumer, enabled  though the acquisition of the aforementioned group of acquisition worthy companies who are focusing on specifics like cancer treatment, gastrointestinal dysfunction and emotional disorders.

Some ETFs that are likely to be influenced by this increased activity include:

  • SPDR S&P Biotech ETF (XBI), which allocates nearly 51.5% of its assets to small-cap companies and 30.75% to medium-cap companies, which are the most susceptible to M&A activity.
  • iShares Nasdaq Biotechnology ETF (IBB), which boasts big players like Amgen  as well as small and mid-cap stocks that are prime targets for M&A
  • Biotech HOLDRs (BBH), which predominantly allocates its holdings to large-cap companies such as Amgen, Gilead Sciences (GILD) and Biogen Idec Inc (BIIB) who are likely to be the ones buying up smaller companies
  • iShares Dow Jones US Pharmaceuticals (IHE), which boasts big boys Pfizer and Merck in its top holdings.

Disclosure: No Positions

Read more here:
4 Biotech ETFs Influenced By Increased M&A




HERE IS YOUR FOOTER

ETF, Uncategorized

4 Biotech ETFs Influenced By Increased M&A

December 11th, 2010

Over the past few weeks the biotechnology sector has witnessed a significant uptick in mergers and acquisitions as large cash-heavy biotech companies are looking to diversify and broaden their horizons. 

To put this activity in perspective, in a two-day span nearly $3.1 billion in biotech-related deals were announced and some suggest more activity is to come.  Big Pharma front runners such as Pfizer (PFE), Sanofi-Aventis (SNE), Amgen (AMGN) and Merck (MRK) are expected to find themselves in somewhat of a rut as expiring patents and lackluster pipelines are imminent.  In order to overcome this, Big Pharma is likely to look at smaller, more nimble companies which are focusing on specific treatments and specialties in the medical sector. 

Another force that is likely to increase M&A activity in the sector includes the ability to remain globally competitive and gain access to the ever-so-growing emerging market consumer, enabled  though the acquisition of the aforementioned group of acquisition worthy companies who are focusing on specifics like cancer treatment, gastrointestinal dysfunction and emotional disorders.

Some ETFs that are likely to be influenced by this increased activity include:

  • SPDR S&P Biotech ETF (XBI), which allocates nearly 51.5% of its assets to small-cap companies and 30.75% to medium-cap companies, which are the most susceptible to M&A activity.
  • iShares Nasdaq Biotechnology ETF (IBB), which boasts big players like Amgen  as well as small and mid-cap stocks that are prime targets for M&A
  • Biotech HOLDRs (BBH), which predominantly allocates its holdings to large-cap companies such as Amgen, Gilead Sciences (GILD) and Biogen Idec Inc (BIIB) who are likely to be the ones buying up smaller companies
  • iShares Dow Jones US Pharmaceuticals (IHE), which boasts big boys Pfizer and Merck in its top holdings.

Disclosure: No Positions

Read more here:
4 Biotech ETFs Influenced By Increased M&A




HERE IS YOUR FOOTER

ETF, Uncategorized

One Word of Advice For Those Playing the Australian Boom

December 10th, 2010

We should have more thoughts. But to tell you the truth, many of our thoughts went out of our head on our recent round-the-world trip. You need constant air pressure in order to maintain thoughts. And regular hours. Start getting up at midnight and going to bed at noon; thoughts have a way of disappearing by late afternoon. If they were ever there in the first place.

One thought that disappeared somewhere over the pacific was this:

The suntanned country must be close to getting burnt.

Australia is booming. Prices are high. It cost $38 for breakfast in the Crown Towers hotel. Even so, you could have only one cup of café latte. You’d have to pay extra for another one.

Our total bill for 3 nights was over $2,000. Impossible? Well, we thought so too. But when you throw in a bit of laundry…transfer from the airport…and breakfast for a friend, not to mention a consumption tax of $184, you end up over 2,000 bucks – without even a single dirty movie.

The boom has been going on Down Under for the last 19 years. Not even the Great Correction is stopping it. Each year, it sells more dirt to Asia… from 40% of its exports 10 years ago to 72% today. It should probably just sell all of Western Australia to the Asians and be done with it.

Meanwhile, the Ozzies enjoy their boom…raise their glasses…and throw raw meat on the barbie. Our colleague’s house in Melbourne has risen 200% in price since we sent her there four years ago. And it’s still going up. Converted shipping containers, transformed into mobile homes, sell for as much as $1 million. And truck drivers in the mining areas earn more than $100,000 a year.

How long can this go on? We don’t know. But our advice to our colleague was simple enough:

“Sell!”

Bill Bonner
for The Daily Reckoning

One Word of Advice For Those Playing the Australian Boom 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:
One Word of Advice For Those Playing the Australian Boom




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

One Word of Advice For Those Playing the Australian Boom

December 10th, 2010

We should have more thoughts. But to tell you the truth, many of our thoughts went out of our head on our recent round-the-world trip. You need constant air pressure in order to maintain thoughts. And regular hours. Start getting up at midnight and going to bed at noon; thoughts have a way of disappearing by late afternoon. If they were ever there in the first place.

One thought that disappeared somewhere over the pacific was this:

The suntanned country must be close to getting burnt.

Australia is booming. Prices are high. It cost $38 for breakfast in the Crown Towers hotel. Even so, you could have only one cup of café latte. You’d have to pay extra for another one.

Our total bill for 3 nights was over $2,000. Impossible? Well, we thought so too. But when you throw in a bit of laundry…transfer from the airport…and breakfast for a friend, not to mention a consumption tax of $184, you end up over 2,000 bucks – without even a single dirty movie.

The boom has been going on Down Under for the last 19 years. Not even the Great Correction is stopping it. Each year, it sells more dirt to Asia… from 40% of its exports 10 years ago to 72% today. It should probably just sell all of Western Australia to the Asians and be done with it.

Meanwhile, the Ozzies enjoy their boom…raise their glasses…and throw raw meat on the barbie. Our colleague’s house in Melbourne has risen 200% in price since we sent her there four years ago. And it’s still going up. Converted shipping containers, transformed into mobile homes, sell for as much as $1 million. And truck drivers in the mining areas earn more than $100,000 a year.

How long can this go on? We don’t know. But our advice to our colleague was simple enough:

“Sell!”

Bill Bonner
for The Daily Reckoning

One Word of Advice For Those Playing the Australian Boom 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:
One Word of Advice For Those Playing the Australian Boom




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

Technology is the Best “Inflation Trade”

December 10th, 2010

As you know, we are about a month out from the Federal Reserve’s decision to pump additional funds into a slow US economy. Of course, this decision has been controversial. Many people think that it might ignite an inflation bomb. Couple this with the more recent bailout of Irish banks (and speculation about more euro dominoes about to fall) and lots of folks are pretty scared.

For the long-term technology investor, however, I don’t think it really matters. From an orbital perspective, these panics come and go. They always have. The technological arc of human history, however, can be seen to move in only one direction, and that is upward.

Granted, over the short term, it might have some negative effect, but even that remains to be seen. Breakthrough technologies, however, are an excellent way to weather an inflationary storm. We could even call breakthrough technology the ultimate hedge against inflation.

Microsoft, for example, was founded in 1975, when inflation averaged over 9%. Granted, it wasn’t publicly traded back then, but there were private investors. Imagine what a dollar invested in Microsoft in 1975 would be worth today. Just since its IPO in 1986, the company has turned a (split-adjusted) share price of 10.1 cents into over $26.

That is a gain of more than 26,000%. Even with the dollar losing about half of its purchasing power since 1986, that is still an inflation-adjusted gain of 13,000%. I can live with that. The point is that early investing in companies that will transform the market will beat any devaluation caused by inflation.

What kinds of technologies transform the market? Essentially, what we look for in Technology Profits Confidential are transformational innovators that reduce costs by making things cheaper and better. This investment theme extends to a wide variety of fields, from agriculture, to alternative energy, to computers and semiconductor fabrication. In the medical field, too, emerging technologies are going to reduce the cost of existing therapies. At the core of everything is materials science. In this, all the fields are converging on the basic building block of matter itself – the atom.

Of course, there is a double benefit in the case of breakthrough medicine, too. Even if the overall measurable economic cost of health care increases, there is an unmeasurable noneconomic windfall, and this is human life itself. Better therapies improve the quality and enjoyment of our lives, as well as extend them. It is difficult to attach a price tag to this, but isn’t all economic activity ultimately reducible to improving life in some perceived way?

The famous quote (erroneously attributed to Emerson) that applies here is: “Build a better mousetrap and the world will beat a path to your door.” This remains true during good or hard times. All that “door traffic” is lucrative, since people reward things of value. Investors that acquire ownership positions in the builders of better mousetraps stand to reap hefty profits, whether in good times or bad.

Just this week, for example, IBM’s global research labs revealed a new semiconductor technology that combines current electronic computing technology with optical technology. Optical circuitry, also called photonics, uses pulses of light, instead of electrons, to work. Photonic circuit elements can accomplish the same tasks as electronic ones while being smaller and faster. Power consumption could also be reduced to a fraction of what an equivalent electronic computer requires.

Called CMOS Integrated Silicon Nanophotonics, IBM’s tech would increase the processing speeds of the fastest computers from petascale to exascale. Petascale computers, which are currently the world’s fastest supercomputers, can execute instructions at the rate of multiple petaflops (a quadrillion floating point operations per second). For example, China’s current record holder, Tianhe-1, can do slightly more than 2.5 petaflops. Exascale computers, on the other hand, would be 1,000 times faster than that.

We’ve already seen photonics revolutionize telecommunications over the last several decades. If you are reading this alert online, the data was delivered to you via fiber-optic links over large segments of the delivery route. We wouldn’t have the modern Internet without this early photonics application.

Just as recently as last December, exascale supercomputers were not expected for another eight years. IBM, however, says that the new technology will enable it to up the ante and ship out the first exascale chips in five years. This advancement is partly because IBM has figured out how to build integrated electronic/photonic circuits using conventional fabrication technology. Both types of circuits can be built on a chip at the same time. The recent eight-year estimate may prove to be just another case of underestimating the acceleration of technological change!

Regards,

Ray Blanco
for The Daily Reckoning

Technology is the Best “Inflation Trade” 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:
Technology is the Best “Inflation Trade”




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

Technology is the Best “Inflation Trade”

December 10th, 2010

As you know, we are about a month out from the Federal Reserve’s decision to pump additional funds into a slow US economy. Of course, this decision has been controversial. Many people think that it might ignite an inflation bomb. Couple this with the more recent bailout of Irish banks (and speculation about more euro dominoes about to fall) and lots of folks are pretty scared.

For the long-term technology investor, however, I don’t think it really matters. From an orbital perspective, these panics come and go. They always have. The technological arc of human history, however, can be seen to move in only one direction, and that is upward.

Granted, over the short term, it might have some negative effect, but even that remains to be seen. Breakthrough technologies, however, are an excellent way to weather an inflationary storm. We could even call breakthrough technology the ultimate hedge against inflation.

Microsoft, for example, was founded in 1975, when inflation averaged over 9%. Granted, it wasn’t publicly traded back then, but there were private investors. Imagine what a dollar invested in Microsoft in 1975 would be worth today. Just since its IPO in 1986, the company has turned a (split-adjusted) share price of 10.1 cents into over $26.

That is a gain of more than 26,000%. Even with the dollar losing about half of its purchasing power since 1986, that is still an inflation-adjusted gain of 13,000%. I can live with that. The point is that early investing in companies that will transform the market will beat any devaluation caused by inflation.

What kinds of technologies transform the market? Essentially, what we look for in Technology Profits Confidential are transformational innovators that reduce costs by making things cheaper and better. This investment theme extends to a wide variety of fields, from agriculture, to alternative energy, to computers and semiconductor fabrication. In the medical field, too, emerging technologies are going to reduce the cost of existing therapies. At the core of everything is materials science. In this, all the fields are converging on the basic building block of matter itself – the atom.

Of course, there is a double benefit in the case of breakthrough medicine, too. Even if the overall measurable economic cost of health care increases, there is an unmeasurable noneconomic windfall, and this is human life itself. Better therapies improve the quality and enjoyment of our lives, as well as extend them. It is difficult to attach a price tag to this, but isn’t all economic activity ultimately reducible to improving life in some perceived way?

The famous quote (erroneously attributed to Emerson) that applies here is: “Build a better mousetrap and the world will beat a path to your door.” This remains true during good or hard times. All that “door traffic” is lucrative, since people reward things of value. Investors that acquire ownership positions in the builders of better mousetraps stand to reap hefty profits, whether in good times or bad.

Just this week, for example, IBM’s global research labs revealed a new semiconductor technology that combines current electronic computing technology with optical technology. Optical circuitry, also called photonics, uses pulses of light, instead of electrons, to work. Photonic circuit elements can accomplish the same tasks as electronic ones while being smaller and faster. Power consumption could also be reduced to a fraction of what an equivalent electronic computer requires.

Called CMOS Integrated Silicon Nanophotonics, IBM’s tech would increase the processing speeds of the fastest computers from petascale to exascale. Petascale computers, which are currently the world’s fastest supercomputers, can execute instructions at the rate of multiple petaflops (a quadrillion floating point operations per second). For example, China’s current record holder, Tianhe-1, can do slightly more than 2.5 petaflops. Exascale computers, on the other hand, would be 1,000 times faster than that.

We’ve already seen photonics revolutionize telecommunications over the last several decades. If you are reading this alert online, the data was delivered to you via fiber-optic links over large segments of the delivery route. We wouldn’t have the modern Internet without this early photonics application.

Just as recently as last December, exascale supercomputers were not expected for another eight years. IBM, however, says that the new technology will enable it to up the ante and ship out the first exascale chips in five years. This advancement is partly because IBM has figured out how to build integrated electronic/photonic circuits using conventional fabrication technology. Both types of circuits can be built on a chip at the same time. The recent eight-year estimate may prove to be just another case of underestimating the acceleration of technological change!

Regards,

Ray Blanco
for The Daily Reckoning

Technology is the Best “Inflation Trade” 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:
Technology is the Best “Inflation Trade”




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

Confluence and Fibonacci Levels to Watch in China Shanghai Index

December 10th, 2010

I’ve had a few requests to keep up with China’s Shanghai Stock Exchange Index, and indeed it’s trapped right now between two key confluence levels which make for an interesting chart picture.

Let’s start with the Daily Chart, note the key levels, then move to the pure Fibonacci Confluence Retracement Chart for additional clues, and finally top it off with a look at the Weekly EMA levels to watch in the week(s) ahead.

First, the $SSEC Daily Standard Chart:

I find it really interesting when price ‘respects’ key moving averages – and in all charts I use the 20 and 50 EMAs with the 200 SMA.

What’s happening now – as we’ll soon see in the weekly chart – is that a confluence resistance barrier is forming on the daily chart (shorter frame) at the 2,870 level while these same EMAs are forming confluence support on the weekly (longer) chart at 2,800.

It’s no surprise then that the price is trapped right now between those key reference levels:  2,800 as support and 2,875 as resistance.

As always, ONE of those levels has to break, which should produce a break-out style move and allow for a potential low-risk trade to play the breakout when confirmed/triggered.

From a price purism standpoint, these levels are referenced S/R levels from the consolidation rectangle that has formed since mid-November to present.

Let’s now turn off the moving averages and look at two short-term Fibonacci Retracement grids from prior lows:

The Blue Fibonacci Grid starts off the July low at 2,319 and ends at the November high at 3,186.  The two key levels to watch include the 38.2% Retracement at 2,855 and the 50% level at 2,753.

Price gave a spooky spike down to 2,750 at the end of November and then bounced off the level there, leaving it as a reference.

Beyond the intermediate Blue grid, I drew a smaller retracement grid from the August and September lows at the 2,567 level – also to the November high.

This grid reveals the 50% line at 2,876 (resistance) and the 61.8% level at 2,803 (support).

With a few exceptions of little spikes outside the green lines, the price has stayed within these boundaries.

I like to simplify prices to make it easier to remember, so again we can round the upper level of confluence to the 2,875 level (as shown above) and then the lower level down to 2,800.

Magic, right?  No – they’re just levels to watch for reference.

With those daily chart levels established as important (2,800 and 2,875), let’s now get a final glimpse at what the weekly chart reveals.

Without getting too complex, I just wanted to show first the two converging (blue) trendlines connecting past swing highs and swing lows.  Those come into play – also – at 2,800 and 2,875.

But perhaps the more imoportant reference is the dual crossing of the 20/50 EMAs at the 2,810 level as seen above, and the (so far) three weekly little doji candles off this confluence support region – at 2,800.

So, the going thought is that support is likely to hold, but of course be prepared to guard or position/re-position on a firm downside break under 2,800.

Otherwise, the index is still in a short-term rectangle range with resistance at 2,875.  To make it easy, you could use the simple levels 2,800 (key support) and 2,900 (key resistance) and determine what to do/whether to act or not in the event one of these levels firmly breaks.

As always, keep watching the charts for objective price evidence and don’t let bias get in the way – if possible!

Corey Rosenbloom, CMT
Afraid to Trade.com

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Confluence and Fibonacci Levels to Watch in China Shanghai Index

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