How To Profit From All-Time High Gold Prices

September 28th, 2010

How To Profit From All-Time High Gold Prices

As anxiety over U.S. economic performance increases, so too does the price of gold.

Surging to more than $1300 per ounce, the precious metal hit a new record the September 20th trading week, following news that the Federal Reserve may undertake quantitative easing to combat the threat of deflation.

With all-time high bullion prices, many gold mining stocks are getting a boost.

One of the most attractive gold mining stocks is Newmont Mining (NYSE: NEM). As the world's second largest gold producer, NEM is the only gold company in the S&P 500 Index.

The miner is attractive because its major properties are located in politically stable countries where taxes are low and infrastructure is solid. As a result, its mining developments are likely to continue without political disruption or turmoil. Newmont is also the most cost efficient miner of its peers, meaning that for every ounce of gold extracted, the company pockets that much more profit. These profits are helping drive up the share price.

With shares hitting a 20-year high this week, NEM still appears to have plenty of room to run.

Between January 2008 and May 2010, the stock formed an inverted head and shoulders pattern.

The left shoulder (labelled “LS” on the chart) formed between January and August 2008 as the stock bounced between $56 resistance and $41 support.

After falling through $41 support on three separate occasions between October and November 2008, NEM touched a low near $20.79. This triple bottom became the head (labelled “head”).

Surging off this low, NEM began a major uptrend. The right shoulder (labelled “RS”) formed between June 2009 and May 2010 as NEM moved to a high near $56, fell to support near $42, then once again tested key resistance near $56.

In June 2010, NEM bullishly broke resistance — and the inverted head and shoulders pattern. At this time, the stock briefly tested a small shelf of resistance near $62.50 before pulling back near $56.

However, during the summer months, NEM once again began trending higher. During the September 20th trading week, NEM successfully tested and broke resistance near $62.50. In doing so, the stock completed a long-term ascending triangle pattern.

Now testing the upper Bollinger band, which intersects at $64.64, NEM is currently above the rising 10- and 30-week moving averages.

With no recent overhead resistance in sight, NEM could test its all-time high near $76. The measuring principle — which is calculated by adding the height of the inverted head and shoulders to breakout level — projects a somewhat higher price target of roughly $84 ($52-$20 =$32; $52 +$32=$84). [Read more in detail: Principles of Technical Analysis: The Complex Head and Shoulders Pattern]

The indicators are bullish. MACD has just given a buy signal. The MACD histogram is beginning to expand in positive territory.

Relative strength index (RSI), which has been on a major uptrend since becoming deeply oversold in October 2009, is still rising. At 64.1, it is approaching deeply overbought levels, but is not yet there.

Stochastics is still on a buy signal and is approaching, but has not yet become highly overbought. However strong stocks can become and stay overbought for long periods of time.

Fundamentally, NEM appears to have strong growth potential.

In late July, Newmont reported strong second-quarter results, although, admittedly, they were below analysts' expectations. With record gold prices and higher production rates, revenue increased +37.5% to $2.2 billion, compared to $1.6 billion in the year-ago quarter.

For the full 2010 year, analysts project revenue will increase +22.1% to $9.4 billion, compared to $7.7 billion in 2009. With continued strength in gold, by 2011, analysts project revenue will increase another +3.2% to $9.7 billion.

The earnings outlook is equally upbeat.

With strong demand for gold, second-quarter earnings more than doubled to $0.77, compared to $0.35 in the year-ago quarter.

For the full 2010 year, analysts expect earnings to increase +28.7% to $3.59, compared to $2.79 in 2009. By 2011, earnings should increase an additional +11% to $3.99.

With a strong growth outlook, Newmont recently declared a +50% quarterly dividend increase. The company will now pay a quarterly dividend of $0.15 per share, for a yield of just under 1% ($0.60/$63.40).

In addition to strong growth potential, Newmont is attractively valued in comparison to its peers.

The company's price-to-sales (P/S) ratio is 3.5. Its price-to-book ratio (P/B) is 2.7. By comparison, AngloGold (NYSE: AU) has a much higher P/B of 5.5, while Barrick (NYSE: ABX) has a P/S of 4.8.

Newmont is also cash rich, with $3.7 billion in cash and equivalents. This liquidity should give Newmont the financial freedom to continue exploring new mining operations.

Action to Take–> Given NEM's attractive valuation, solid growth potential and strong technicals, I recommend

Uncategorized

How To Profit From All-Time High Gold Prices

September 28th, 2010

How To Profit From All-Time High Gold Prices

As anxiety over U.S. economic performance increases, so too does the price of gold.

Surging to more than $1300 per ounce, the precious metal hit a new record the September 20th trading week, following news that the Federal Reserve may undertake quantitative easing to combat the threat of deflation.

With all-time high bullion prices, many gold mining stocks are getting a boost.

One of the most attractive gold mining stocks is Newmont Mining (NYSE: NEM). As the world's second largest gold producer, NEM is the only gold company in the S&P 500 Index.

The miner is attractive because its major properties are located in politically stable countries where taxes are low and infrastructure is solid. As a result, its mining developments are likely to continue without political disruption or turmoil. Newmont is also the most cost efficient miner of its peers, meaning that for every ounce of gold extracted, the company pockets that much more profit. These profits are helping drive up the share price.

With shares hitting a 20-year high this week, NEM still appears to have plenty of room to run.

Between January 2008 and May 2010, the stock formed an inverted head and shoulders pattern.

The left shoulder (labelled “LS” on the chart) formed between January and August 2008 as the stock bounced between $56 resistance and $41 support.

After falling through $41 support on three separate occasions between October and November 2008, NEM touched a low near $20.79. This triple bottom became the head (labelled “head”).

Surging off this low, NEM began a major uptrend. The right shoulder (labelled “RS”) formed between June 2009 and May 2010 as NEM moved to a high near $56, fell to support near $42, then once again tested key resistance near $56.

In June 2010, NEM bullishly broke resistance — and the inverted head and shoulders pattern. At this time, the stock briefly tested a small shelf of resistance near $62.50 before pulling back near $56.

However, during the summer months, NEM once again began trending higher. During the September 20th trading week, NEM successfully tested and broke resistance near $62.50. In doing so, the stock completed a long-term ascending triangle pattern.

Now testing the upper Bollinger band, which intersects at $64.64, NEM is currently above the rising 10- and 30-week moving averages.

With no recent overhead resistance in sight, NEM could test its all-time high near $76. The measuring principle — which is calculated by adding the height of the inverted head and shoulders to breakout level — projects a somewhat higher price target of roughly $84 ($52-$20 =$32; $52 +$32=$84). [Read more in detail: Principles of Technical Analysis: The Complex Head and Shoulders Pattern]

The indicators are bullish. MACD has just given a buy signal. The MACD histogram is beginning to expand in positive territory.

Relative strength index (RSI), which has been on a major uptrend since becoming deeply oversold in October 2009, is still rising. At 64.1, it is approaching deeply overbought levels, but is not yet there.

Stochastics is still on a buy signal and is approaching, but has not yet become highly overbought. However strong stocks can become and stay overbought for long periods of time.

Fundamentally, NEM appears to have strong growth potential.

In late July, Newmont reported strong second-quarter results, although, admittedly, they were below analysts' expectations. With record gold prices and higher production rates, revenue increased +37.5% to $2.2 billion, compared to $1.6 billion in the year-ago quarter.

For the full 2010 year, analysts project revenue will increase +22.1% to $9.4 billion, compared to $7.7 billion in 2009. With continued strength in gold, by 2011, analysts project revenue will increase another +3.2% to $9.7 billion.

The earnings outlook is equally upbeat.

With strong demand for gold, second-quarter earnings more than doubled to $0.77, compared to $0.35 in the year-ago quarter.

For the full 2010 year, analysts expect earnings to increase +28.7% to $3.59, compared to $2.79 in 2009. By 2011, earnings should increase an additional +11% to $3.99.

With a strong growth outlook, Newmont recently declared a +50% quarterly dividend increase. The company will now pay a quarterly dividend of $0.15 per share, for a yield of just under 1% ($0.60/$63.40).

In addition to strong growth potential, Newmont is attractively valued in comparison to its peers.

The company's price-to-sales (P/S) ratio is 3.5. Its price-to-book ratio (P/B) is 2.7. By comparison, AngloGold (NYSE: AU) has a much higher P/B of 5.5, while Barrick (NYSE: ABX) has a P/S of 4.8.

Newmont is also cash rich, with $3.7 billion in cash and equivalents. This liquidity should give Newmont the financial freedom to continue exploring new mining operations.

Action to Take–> Given NEM's attractive valuation, solid growth potential and strong technicals, I recommend

Uncategorized

This Year’s Best Stocks You’ve Never Heard Of

September 28th, 2010

This Year's Best Stocks You've Never Heard Of

There's an old Wall Street adage: “Buy what you know.” It's not bad advice, as it points investors toward stocks they can reasonably assess. For the year so far, though, sticking with what you know would have kept most investors clear of the market's best performing industry, as none of its stocks are household names.

The good news is that it's not too late to tap into this uptrend. Indeed, given the nature of the business model, it may never technically be too late.

And what's this hot group? The Internet service, software and support providers. As a group, they're up by more than +50% this year and still going strong.

The description likely conjures up names like AOL Inc. (NYSE: AOL) or Comcast Corp. (Nasdaq: CMCSA), both of which are well-known players among casual, at-home Web surfers. Those two don't quite fall into the “Internet service software and support” category, though.

Rather, the group in question includes the likes of F5 Networks (Nasdaq: FFIV), EasyLink Services Intl. (Nasdaq: ESIC) and AboveNet (Nasdaq: ABVT). These technology specialists provide a variety of Internet-related services to organizations with some heavy-duty connectivity needs, solving problems that retail ISPs couldn't even begin to address — things such as e-commerce, traffic flow management and cloud computing security (ensuring authorized users of Internet-based software and information services are the only ones accessing it). Think of them as the backbone of corporate-level connectivity.

Now, fess up — have you heard of all, or any, of those companies?

There's no shame if you haven't, given that most investors and more than a few professional stock-pickers are in the same boat. Yet, considering their performance, it's a group all investors may want to become more familiar with very soon simply because of the numbers and nature of the business.

Making money in a robust economy is nice, but not particularly challenging. Making money in a lousy economy — like the one we were stewing in for much of 2007 and all of 2008 — is a little more impressive. Making almost as much money in 2008 as you did in 2006 is practically a miracle, but that's exactly what F5 Networks managed to do despite being smack dab in the middle of a recession. The company brought home $1.02 per share in 2006, $0.90 in 2007, and $0.89 in 2008. Those are results most other companies would have loved to been able to produce at the time, never even mind the fact that F5 posted a record-breaking EPS of $1.68 in 2009.

AboveNet wasn't up and running in 2007, but since it got the ball rolling in the first quarter of 2008, we've seen similar earnings growth trends through the middle of 2010. More of the same is anticipated through 2011.

So what is it about these two companies that allowed them to sail through the recession as if it weren't happening and then keep on soaring as the recession faded?

F5 and AboveNet, along with EasyLink and many of their peers, have effectively recession-proofed their operations by (1) entrenching themselves in their client companies' daily operations (to the point of indispensability), and (2) offering a service that draws recurring revenue for “ongoing services rendered.”

And that's the beauty of the business model. Whereas an auto manufacturer sells one car to one customer without knowing when that buyer may want to buy another vehicle, the Internet software and support providers collect predictable and recurring fees for continually managing an aspect of another corporation's operation.

F5 (which by the way is the year-to-date leading stock for the group, up nearly +94%) is a prime example of how sweet such a business model can be. While the industry as a whole has seen a general earnings growth trend, F5 Networks has sequentially upped its per-share earnings in each of its past five quarters. It's also sequentially improved per-share earnings in 10 of the past 11 quarters, the first five of which overlapped with the latter part of the recession.

It's what the old-schoolers would call a cash cow.

Action to Take –> Value-conscious investors may have a tough time getting on board F5 Networks over AboveNet. The former is sitting on a P/E of more than 60 (though it's coming down), while the latter boasts a trailing P/E of less than 6.0. In that light alone, AboveNet is the no-brainer choice. When you factor projected growth rates in, though, F5 Networks makes its way back into the mix.

As for other stocks one could use to tap into the Internet service support/software (and recurring-revenue) theme, they're out there to be sure. Some of them may even offer more attractive recent numbers. The problem is, they all either lack history, are small to the point of being shaky or are foreign equities that are tough to keep good tabs on.

Investors would be better off sticking with either AboveNet or F5. Perhaps a little of both — the best of both worlds — is the solution.

– StreetAuthority Contributor
James Brumley

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

This article originally appeared on StreetAuthority
Author: James Brumley
This Year's Best Stocks You've Never Heard Of

Read more here:
This Year’s Best Stocks You’ve Never Heard Of

Uncategorized

This Year’s Best Stocks You’ve Never Heard Of

September 28th, 2010

This Year's Best Stocks You've Never Heard Of

There's an old Wall Street adage: “Buy what you know.” It's not bad advice, as it points investors toward stocks they can reasonably assess. For the year so far, though, sticking with what you know would have kept most investors clear of the market's best performing industry, as none of its stocks are household names.

The good news is that it's not too late to tap into this uptrend. Indeed, given the nature of the business model, it may never technically be too late.

And what's this hot group? The Internet service, software and support providers. As a group, they're up by more than +50% this year and still going strong.

The description likely conjures up names like AOL Inc. (NYSE: AOL) or Comcast Corp. (Nasdaq: CMCSA), both of which are well-known players among casual, at-home Web surfers. Those two don't quite fall into the “Internet service software and support” category, though.

Rather, the group in question includes the likes of F5 Networks (Nasdaq: FFIV), EasyLink Services Intl. (Nasdaq: ESIC) and AboveNet (Nasdaq: ABVT). These technology specialists provide a variety of Internet-related services to organizations with some heavy-duty connectivity needs, solving problems that retail ISPs couldn't even begin to address — things such as e-commerce, traffic flow management and cloud computing security (ensuring authorized users of Internet-based software and information services are the only ones accessing it). Think of them as the backbone of corporate-level connectivity.

Now, fess up — have you heard of all, or any, of those companies?

There's no shame if you haven't, given that most investors and more than a few professional stock-pickers are in the same boat. Yet, considering their performance, it's a group all investors may want to become more familiar with very soon simply because of the numbers and nature of the business.

Making money in a robust economy is nice, but not particularly challenging. Making money in a lousy economy — like the one we were stewing in for much of 2007 and all of 2008 — is a little more impressive. Making almost as much money in 2008 as you did in 2006 is practically a miracle, but that's exactly what F5 Networks managed to do despite being smack dab in the middle of a recession. The company brought home $1.02 per share in 2006, $0.90 in 2007, and $0.89 in 2008. Those are results most other companies would have loved to been able to produce at the time, never even mind the fact that F5 posted a record-breaking EPS of $1.68 in 2009.

AboveNet wasn't up and running in 2007, but since it got the ball rolling in the first quarter of 2008, we've seen similar earnings growth trends through the middle of 2010. More of the same is anticipated through 2011.

So what is it about these two companies that allowed them to sail through the recession as if it weren't happening and then keep on soaring as the recession faded?

F5 and AboveNet, along with EasyLink and many of their peers, have effectively recession-proofed their operations by (1) entrenching themselves in their client companies' daily operations (to the point of indispensability), and (2) offering a service that draws recurring revenue for “ongoing services rendered.”

And that's the beauty of the business model. Whereas an auto manufacturer sells one car to one customer without knowing when that buyer may want to buy another vehicle, the Internet software and support providers collect predictable and recurring fees for continually managing an aspect of another corporation's operation.

F5 (which by the way is the year-to-date leading stock for the group, up nearly +94%) is a prime example of how sweet such a business model can be. While the industry as a whole has seen a general earnings growth trend, F5 Networks has sequentially upped its per-share earnings in each of its past five quarters. It's also sequentially improved per-share earnings in 10 of the past 11 quarters, the first five of which overlapped with the latter part of the recession.

It's what the old-schoolers would call a cash cow.

Action to Take –> Value-conscious investors may have a tough time getting on board F5 Networks over AboveNet. The former is sitting on a P/E of more than 60 (though it's coming down), while the latter boasts a trailing P/E of less than 6.0. In that light alone, AboveNet is the no-brainer choice. When you factor projected growth rates in, though, F5 Networks makes its way back into the mix.

As for other stocks one could use to tap into the Internet service support/software (and recurring-revenue) theme, they're out there to be sure. Some of them may even offer more attractive recent numbers. The problem is, they all either lack history, are small to the point of being shaky or are foreign equities that are tough to keep good tabs on.

Investors would be better off sticking with either AboveNet or F5. Perhaps a little of both — the best of both worlds — is the solution.

– StreetAuthority Contributor
James Brumley

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

This article originally appeared on StreetAuthority
Author: James Brumley
This Year's Best Stocks You've Never Heard Of

Read more here:
This Year’s Best Stocks You’ve Never Heard Of

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The Cost of Fed Incompetence

September 27th, 2010

I have grown old yelling at my neighbors and family members to buy gold, silver and oil, to little-to-no avail, and I can see that they are getting bored with my same old million reasons why they should, and how their deliberate inaction only proves their stupidity, which I never tire of pointing out, so they can’t say that they “didn’t know” that they were stupid.

So, recently, I was standing in the street outside of Griswald’s house, telling Old Man Griswald how he was an idiot for not buying gold, silver and oil as the only rational defense against the inflationary horror unleashed when his own stupid government (that he and his loathsome Leftist friends elected over and over again) was deficit-spending so unbelievably much money, dutifully created by the foul Federal Reserve, which is a complete failure as an institution if ever there was one, having destroyed 98% of the buying power of the US dollar since the Fed’s inception in 1913 by creating too much money and credit, when their original purpose was to “keep prices stable,” to which I cynically laugh in Sneering Mogambo Rebuke (SMR) “Hahahaha!”

You can probably imagine that I was, as usual, getting pretty worked up by my long harangue, and I was just getting to my famous angry summation of, “If you don’t buy gold, silver and oil with all your money, then you are making the Biggest Freaking Mistake (BFM) of your life, you moron!” when, suddenly, Griswald himself opened the door!

He hollered out how the biggest mistake he ever made was to choose to live in a place so near to me, and how I am some kind of weirdo, gun-nut, gold-bug bozo.

I am, of course, cleverly rebutting his every point by reminding him that he is an idiot for not buying gold, silver and oil because of that, you know, government deficit-spending thing, and how the Fed is creating so much new money, which increases the money supply, which makes prices go up, which makes people upset, which leads to disquieting things like the French Revolution, and the Russian Revolution, and people like him getting destroyed financially.

I even reminded him that the M2 measure of the money supply is up about $400 billion in the last 12 months, and even though the monetary base was up only about $220 billion, taking it to $1.987 trillion.

And, of course, I mentioned how the Federal Reserve is back to increasing Total Fed Credit (the fabled magical fairy-dust credit that becomes many, many times bigger when it finally becomes money, adds to the money supply and causes the misery of price inflation), which took this particular stinking load of lies and fraud up another $2.7 billion last week, taking the Fed’s total “cost of Fed incompetence” to a staggering $2.289 trillion. So far.

Well, you can take Griswald off of your list of People Scared And Buying Gold (PSABG), but there are apparently plenty more who are not, particularly Europeans, as we learn from the Northwest Territorial Mint’s newsletter that the World Gold Council (WGC) reported recently that “during the last two years there has been an ‘extraordinary increase’ in the retail demand for physical gold products in Europe,” which must be significant because “European demand represented 40% of global demand for gold in 2009.” Global!

Now, I am second-to-none in raw xenophobia, paranoia or conspiracy theorizing, especially as concerns Europeans, which is a phobia somewhere on the Mogambo list of the Top 100 Scary Things (T100ST), probably categorized somewhere below “Werewolves” but above “Total strangers who seem to hold a grudge against me, talk about me behind my back, and plot against me,” which, I note for the record, is what foreigners do!

I can’t help but notice that foreigners are always talking in some foreign language which I can’t understand, which proves – proves! – that they are talking about me and hatching ways to hurt me, or else they would speak in English so that I could understand them. Can’t you see how it all fits together? It’s obvious!

Well, I can tell by the stunned expression on everyone’s faces that they do NOT “see how it all fits together.” After an embarrassing silence that seemed like an eternity, with everyone looking at me with a mixture of disgust and disbelief on their faces, finally the spell was broken when the Mint went on that in the second quarter of 2010, Europe was still “the source of 35% of the world’s demand for small gold bars and coins,” whereas just two years ago, European demand for gold had been only a “relatively insignificant” 7% of global demand.

And since nothing in the macroeconomic environment has changed except to get worse, then the soon-to-be panicked buying of gold and silver by people and institutions worldwide will hand Huge Freaking Profits (HFP) to those who buy these magical metals now at bargain levels, which makes it so easy that you giggle with delight, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

The Cost of Fed Incompetence 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:
The Cost of Fed Incompetence




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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The (Unofficial) Beginning of the Double Dip Recession

September 27th, 2010

Today, we take a belated bow for calling the “official” end of the recession… by declaring a “double dip” to be unofficially under way.

Last week, the National Bureau of Economic Research (NBER) declared the Great Recession ended in June 2009. Turns out, looking back, we called it in real-time — relying on a single obscure indicator.

It’s called “capacity utilization” — that is, all the plant, equipment and other resources business have at their disposal, and what percentage of it businesses are actually putting to work.

On June 17, 2009, we pointed out that “over the last 40 years, a bottom in capacity utilization has marked the precise end of recessions.”

“Having no interest in real-time forecasting,” we followed up on Aug. 14, 2009, “the NBER won’t officially call an end to this recession until it’s long past. It took until December 2008 to tell us that this whole mess started in December 2007.

“Heh,” we concluded “by the time the NBER calls an end to this one, we might have begun another.

And so it goes. Today, we can hardly be precise about when it started. We can only say we believe the “double dip” is already under way.

One “tell” of the double dip: The horrible numbers reflecting private-sector investment. We brought you this last Tuesday, but it’s worth revisiting. The “growth” in GDP that’s come about since June 2009 owes almost entirely to growth in government spending — mostly in the form of transfer payments.

Meanwhile, gross domestic private investment has shrunk from 17.3% of GDP at the recession’s start to 11.3% last year. Worse still is that the majority of that figure is devoted to simply repairing and maintaining existing plant and equipment… and how it’s growing.

Investment in new plant and equipment made up an already low 40% of gross domestic private investment at the start of the recession. Last year, it was a paltry 3.5%.

Capital has gone on strike. What’s it doing instead?

“Talking heads are gushing over the piles of cash on corporate balance sheets,” grouses Dan Amoss this morning. “But how is this good for shareholder value? Since when have big corporations done intelligent things with cash?

“Most of the time, they haven’t. Instead, they overpay for their stock repurchases and overpay for acquisitions.”

And overpay the same folks who are making those decisions.

Right on cue, Standard & Poor’s reports that S&P 500 companies increased their stock buybacks during the second quarter by 221% compared to a year earlier — the fourth quarter in a row that buybacks have grown. 257 of the companies in the index — more than half — took part in buyback programs during Q2.

“No CEO wants to take the career risk of aggressively deploying capital when acquisition targets are dirt-cheap,” Dan surmises. Again on cue, there were a flurry of acquisition announcements just today…

  • Wal-Mart is offering $4.3 billion for South Africa’s Massmart
  • Anglo-Dutch conglomerate Unilever is buying Alberto-Culver, the maker of beauty products, for $3.7 billion
  • Southwest Airlines will fork over $1.4 billion to buy AirTran.

“High corporate cash balances don’t reflect a healthy economy,” Dan asserts. “Companies that hoard cash aren’t expanding. If they’re not expanding, they’re not going to hire new employees.

“It doesn’t help that Congress made hiring more expensive with the health care law and countless other layers of bureaucratic red tape. Weighed against a mountain of debt and other liabilities — both on- and off-balance sheet liabilities — corporate cash balances are much less impressive.”

The second indication we’ve already begun another recession: M3 money supply.

M3 is the broadest possible measure of money in the system including cash, savings accounts, money market funds, etc. The Federal Reserve stopped tracking M3 in 2006 because they say they no longer find it useful.

John Williams of Shadowstats.com, however, has stayed on top of it, easily collecting the data needed to make this prognostication:

“M3 rising to the upside does not necessarily signal and economic upturn,” says Williams, explaining the lines on the graph above. “Yet whenever annual growth in M3 has turned negative, a recession always has followed, usually within six-nine months.”

Real M3 generated a signal in December 2009 for a downturn. How much time has elapsed? Oh, about nine months.

“The current weakness,” says John, “will eventually gain official recognition as the second down leg of a double-dip recession.”

“We are now at a state where,” Alan Greenspan said Friday, sounding almost lucid, “excluding World War II, we are in the worst shape of relationship between borrowing capacity and debt, I suspect, since 1791…

“We don’t know at this stage why or how the markets respond to this sort of — this type of event. And I think we’re taking a very high risk… In 1979, for example, everyone expected, yes, we have a little inflation, but there is not going to be a real problem.

“Within a very short time, the bond markets broke. Interest rates went up sharply. Mortgage rates went up sharply. The economy went into a real serious depression. And my basic — I said ‘depression.’ I meant recession.

“My problem, basically, is that economists can’t make these forecasts.”

Good thing we’re not economists, eh?

Addison Wiggin
for The Daily Reckoning

The (Unofficial) Beginning of the Double Dip Recession 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:
The (Unofficial) Beginning of the Double Dip Recession




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

Opt Out of Social Security

September 27th, 2010

“The Social Security Trust Fund is misnamed. It cannot be trusted, and it is not funded.”

–Former US Comptroller General David Walker, July 2010.

If David Walker – who was essentially the US government’s accountant from 1998-2008 – can make jokes like that about Social Security, we’re in trouble. Indeed, as we noted in our essay “The End of Social Security as We Know It”, the Social Security Trust recently began paying out more than it is taking in. Over the next 75 years, the Fund will require an additional $5.4 trillion to pay for scheduled benefits.

Given the deplorable fiscal condition of the Social Security Trust Fund, some forward-looking Americans are asking, “Why can’t I just opt out?” Even middle-aged members of the Baby Boom generation are wondering if there will be any Social Security left for them when the time comes…and if they wouldn’t be better off abandoning the government’s mandatory retirement plan.

So can you opt out? In a word, yes.

How Do You Feel About a Horse and Buggy?

It’s true; you can opt out of Social Security…if you belong to a fiercely independent religious culture like the Amish.

Back in 1954, when the Social Security Administration first began taxing and covering “agricultural workers,” the Amish took issue with Social Security’s forced participation. The program, also known as Federal Old Age, Disability and Survivors Insurance, is a pretty brash affront to the Amish credo. Not only are the Amish famous for “taking care of their own,” but the whole concept of insurance goes against their faith. As people extremely serious about God’s plan, they don’t take kindly to a government-mandated hedge against His prerogative.

So in the late ’50s, the Amish started their resistance to Social Security. Naturally, they were quiet and reasonable about it. Some put money into a bank account and insisted the government place a lien on it. At least that way, some Amish thought, they weren’t voluntarily paying into the program. Others signed a petition and sent it to Capitol Hill. But, naturally, the IRS paid no attention. The IRS kept insisting that FICA taxes be remunerated…until eventually many Amish just stopped paying.

The whole conflict came to its climax in 1961 when the IRS went after one of these “delinquents,” Valentine Byler. Long story short, he owed over $300 in back Social Security taxes, so the IRS repo’ed three of his six horses. No kidding. (At one point in this fiasco, Reader’s Digest reported a judge berating the government’s representatives, “Don’t you have anything better to do than to take a peaceful man off his farm and drag him into court?” Apparently not.)

To the Amish’s credit, they kept resisting the FICA tax, insisting that it violated their 1st Amendment right to practice religion free of government interference. Byler’s story, as you can imagine, was a real hit with the media and within a few years the IRS caved under public pressure. In 1965, the government passed a law that allowed US citizens to opt out of Social Security.

Of course, only a small minority of Americans can legally stop paying Social Security taxes and strike their beneficiary status. In order to qualify for the IRS’s exemption, you must:

  • Convince them you are part of a religion that is “conscientiously opposed to accepting benefits of any private or public insurance that makes payments in the event of death, disability, old age or retirement.”
  • Have a ranking official of this religion authorize that you are a true believer
  • Prove that your religion has been established – and continually opposing insurance – since at least 1950.

So unless you are Amish, Mennonite, Anabaptist or part of another very small religious sect, odds are you’re stuck paying (and receiving) Social Security for the foreseeable future. Still, we won’t fault you for trying: Look around for Form 4029…you’ll have to file with the IRS if you seek Social Security exemption. Be careful what you wish for…exemption might be the swan song for your life, auto and health insurance, too.

Learn from the Amish

Even though your opt-out chances are slim to none, there’s plenty to learn from the Amish battle against Social Security.

1) This story should serve as a reminder of what the whole program really is: insurance. When FDR first introduced Social Security in 1935, he said it would “give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.” It was never intended to be a program in which nearly everyone paid in and nearly everyone expected to be fully paid out…even though that is what it has become today.

We suspect that kind of insurance language will return. The rich – who are so exceptionally unpopular these days – might soon be reminded they are not “average” and that Social Security was not designed to supplement their fat 401(k)s. (Whether that is in any way ethical, or even what qualifies you as “rich” in America, is a debate for another Daily Reckoning.) At the least, expect this cash-strapped government to raise the wage base for the Social Security tax or institute a benefits means test in the near future.

2) The framework of Social Security is flexible. There are plenty of people alive in America today who were around before this program even existed. Those same people saw it amended and reformed many times in the ’30s, ’40s and ’50s. Exceptions have been made along the way. And in 1983, under the Greenspan Commission, the government gave Social Security yet another dramatic reform.

Thus, there is no reason to think Social Security can’t be amended again, for better or for worse. Maybe the government, like it did in the ’80s, will change the rules and hike taxes, raise the retirement age and reduce benefits. Or if you are as persistent as the Amish, perhaps you can influence legislation in your favor. (Your odds increase dramatically if you own or control a large multinational corporation.)

3) Most importantly, like the Amish, expect a self-sufficient retirement. “The best revenge is living well,” the saying goes. Thus the best way to survive the plight of the Social Security Trust Fund is to not need it in the first place. Take a page from the Amish playbook and minimize your taxes…contribute the most you can to your company’s tax-deferred 401(k) plan. Better still, enroll in a self-directed 401(k), where you can invest in stable, dividend-yielding companies that might compound your returns. A few of those companies might even have a dividend reinvestment plan (DRIP) where you can use those quarterly payments to reinvest in the underlying stock… That’s a double serving of perfectly legal tax evasion.

There’s something to be said for the Amish way of taking care of your own, too. Their lifelong financial planning doesn’t just revolve around their individual net worth, and neither should yours. If there’s money to spare, set up some tax-deferred accounts for family members. Not only could it empower them, but depending on your situation, you might be able to alleviate your own tax burden at the same time. They’ll thank you 10-20 years from now, when David Walker’s joke isn’t quite so funny.

Regards,

Ian Mathias
for The Daily Reckoning

Opt Out of Social Security 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:
Opt Out of Social Security




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

A Historical Perspective of the Social Security Nightmare

September 27th, 2010

“The arrogance of officialdom should be tempered and controlled, and assistance to foreign hands should be curtailed, lest Rome fall.”

– Marcus Tullius Cicero, 55 B.C.

What rhymes with Cicero? Not much. But if, as the saying goes, history itself rhymes, today’s welfare-warfare state has plenty worth holding up against the soft, fading light of that long-fallen empire: Corrupt politicians…predatory bankers…ruinous military misadventures to faraway lands…a gluttonous citizenry feeding at the trough of public monies and, of course, the insidious, ridiculous illusion that any single participant could have made one jot of difference to the great charade as it unfolded before their very eyes.

The charade to which we refer is the very same phenomenon the Roman poet Juvenal referred to as “bread and circuses” in the tenth of his Satires. It is the superficial appeasement of the masses by the political class who, seeking to prevent massive uprising and revolt against their rule, doll out meager alms in the form of mass distraction. The success of this grand dupe depends on, and excels because of, the widespread assumption that the political class is working for the benefit of their employers, the taxpaying populace, rather than, as is the stark, impassionate reality, their merely effecting to do so. Nothing, not a sunrise at midnight, not a man immortal, could be further from reality. Far from serving their masters on bended knee, elected officials behave more like dogs than public servants, entirely dependent on their keepers for food and forever assuming they will be around with a doggy bag to clean up their mess.

“Government,” as Frédéric Bastiat, writing some 1,800 years after Juvenal, expressed it, “is the great fiction through which everybody endeavors to live at the expense of everybody else.”

And so we come to better understand our own predicament today. When a lending institution lends too much and is repaid too little, the poisoned olive branch of government extends. When a profligate spender – with sufficient influence in the public sphere, mind you – falters under the weight of its own obligations, the state appears with a bottomless cup. Multi-trillion dollar bailouts, and more still to come. Schemes, scams and stratagems that, we are told, are all for our own good. From the floor of Congress to the evening news, a trumpet calls all “men and women of reason” to fight against “total collapse of our system”…to lead us back from the “edge of the abyss.”

Bread and circuses…

What then, when the Treasury is spent and the Fed’s arsenal deployed? When debts sold off to once willing foreigners inevitably come due? When the children to whom this legacy of larceny is left realize the hand they were dealt and demand, with clenched fists of their own, a fair and equal opportunity, the chance to ruin or succeed based on their own generation’s cowardice or courage? What comes after the determined destruction of the nation’s currency…again?

Nowhere is Bastiat’s observation better reflected than when the looking glass is held up to Social Security. The ruse, sold to American’s under the same old banners, fraught with “safety net” misnomers and “falling through the cracks” platitudes, is up. On September 30, this Thursday, six years ahead of schedule, the “fund” officially goes into the red. What will they tell us next? What price must we pay in order that the grand charade is allowed to go on? What story must we now swallow?

Don’t fret, Fellow Reckoner. They’ll surely think of something. And that’s precisely the problem.

Joel Bowman
for The Daily Reckoning

A Historical Perspective of the Social Security Nightmare 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:
A Historical Perspective of the Social Security Nightmare




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

Be Careful Chasing Gold and Silver, Overbought Condition Could Lead to Correction

September 27th, 2010

At the end of July I published a series of articles calling an important buypoint in precious metals.  To see my archived article from that point click here http://goldstocktrades.com/blog/2010/07/21/trading-method-signals-buy-gold/.

In these articles I mentioned a target of $21 by the end of the year.  Right now silver has reached that target after making an explosive move higher.  Silver has made a 15% gain in 5 weeks.  I have found having targets and taking profits at overbought conditions is crucial in a trading strategy.  As a trader it is of primary importance to understand long term trends and in a bull market to add to positions when they are on sale and take profits when it is receiving a premium.  Using oscillators to determine warning signals to buy and sell are extremely helpful but needs to be used carefully.  Breakouts could lead a momentum indicator to stay at an extreme ratio for an extended period of time which is the case for silver and gold at the moment.

Using momentum indicators forces me to prepare for a correction or prevents me from buying into a frenzy when a stock is overextended. These indicators help me to trade against the market herd, and become contrary at extreme buying frenzies.  Many contrarians make calls too early as irrational markets tend to stay irrational too long for most investors to stay in them.   Nevertheless, when used in conjunction with other technical tools it can provide excellent market entry points that are high reward and low risk when structured correctly.

The best way to play this market is to buy gold and silver when it hits the support trend line and is oversold, and take profits as it approaches the rising resistance line.

Silver’s move has been parabolic and is very overbought.  A healthy correction or sideways consolidation may be coming to provide an opportunity to work off this rise and pullback to support.  It has had 5 up weeks with a 15% gain from my buy signal at $18.30.  It has also been overbought for an extended period so to sustain this rise without a correction is highly unlikely.  To enter at this point would not be prudent according to my strategies.

Instead there are some miners who are coming out with great news that are oversold at the moment.  I believe these miners will outperform even if bullion corrects.  Mergers and acquisitions are increasing with the recent purchases of Andean Resources by Goldcorp outbidding Eldorado Gold, Kinross buying Redback, Continental Minerals being bought out by Jinchuan Group .  A weak dollar combined with emerging market growth will cause more interest from overseas to buy natural resources.  Base metals have been performing very strong.  There have been some recent breakouts in some uranium and molybdenum plays which I will be telling my premium readers about in the next couple of days.  Most of the gold and silver miners I follow have resources with low cash costs and close to infrastructure.  A lower gold and silver price will not impact these miners as much as other miners with higher cost projects.

To find out about which specific stocks I am researching go to my website at http://goldstocktrades.com.

Disclosure: I own gold and silver bullion and mining stocks.

Read more here:
Be Careful Chasing Gold and Silver, Overbought Condition Could Lead to Correction

Commodities

When Zombies Buy Gold

September 27th, 2010

Last week it looked like the feds’ efforts to reflate the US economy might be working. Gold was hitting one new high after another. Stocks were going up too.

The Dow rose nearly 200 points on Friday. Gold hit $1,300…but couldn’t close at that level. When trading came to an end gold was $2 short of the $1,300 mark.

What’s up? It’s hard to know. If gold is going up, analysts reasoned, it must mean something. What? The obvious explanation is that inflation is coming.

So the advisors told their clients to buy gold. The economy must be improving they said. The recession ended more than a year ago. The recovery hasn’t been as strong as anyone wanted. But there must be a recovery underway…and it must mean that inflation and gold will go up.

We’re sitting in a JetBlue airplane as we write…heading back up to Baltimore. Each seat has a TV screen on the back of it. A few years ago, you could get away from TV by getting on an airplane. Now, there it is right in front to you…

…which is all part of the creeping zombification of the US. Music plays all the time. It’s in cars. It’s in shopping malls. Some people even listen to it when they work. It’s like prison…or the Orwellian future…where noise is blared out 24 hours a day, so you never have a chance to think.

And now there are all the Blackberries, iPhones, iPads…to say nothing of regular cellphones and portable computers.

And then, there’s TV. You go to a bar. In addition to the music, there’s often a TV screen.

With all these sources of distraction people don’t have any time to think. Who has time to wonder how the dollar has any value at all? Who worries that those pieces of paper could go the way of all trash…to the dump? Who thinks about it at all? Not many people…

Instead, most people go through the day like zombies – watching TV…listening to someone else’s music…surfing the Internet…chatting…schmoozing…distracting themselves…

The passengers on the plane act like zombies…watching other zombies on TV…listening to music…reading airport novels….

Then, on the screen in front of us, there’s a fellow selling…gold! He’s the second one we’ve seen. “Should you own gold,” is the caption on the screen. A man named Scott Carter is advising customers to buy the yellow metal. Apparently, his company has been in the business for 50 years…

Hmmm… This is something new. The last time we saw gold on TV was an ad for a fellow who was BUYING gold. “Got gold? You can get CASH” was last year’s ad. The advertiser told viewers that they should take advantage of high gold prices to get rid of their unwanted jewelry…exchanging it for cold, hard cash.

Only the cash wasn’t all that hard, after all. That was about a year ago. And today, the cash is worth about 20% less than the gold.

But who cares? We’re talking zombies here. Who cares what happens to them?

When the zombies start buying gold, though, the bull market enters its last stage. Ordinary people do not own gold now. They do not understand that the financial system is in jeopardy. And they cannot imagine that the dollar is not a safe place for their wealth.

As for inflation, they’re for it. They have mortgages to pay. And for many of them, those mortgages are higher than the value of their houses. They’d like to see their debts reduced, by inflation.

They’d like to see their assets lifted up by inflation too. And their earnings.

Okay… Inflationary increases are not “real”. The real value of the assets doesn’t increase, just because nominal prices go up. But the zombies don’t know that.

Bill Bonner
for The Daily Reckoning

When Zombies Buy Gold 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 Zombies Buy Gold




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

Durable Goods Fall, But Business Spending is Up

September 27th, 2010

As Chuck informed all of you on Friday, I have got the conn on the Pfennig today and tomorrow as he was called down to Jacksonville for a few meetings. As always, Chuck left me with a few tidbits to get me going, so I’ll kick off today’s missive with Chuck’s view of the markets:

On Friday, the US data printed much softer than expected, and for the first time in a long time, bad data results did not mean a dollar rally! Instead, fundamentals would have the dollar selling off from a Durable Goods Orders print that fell 1.3%, and New Home Sales that were flat… And that’s what happened!

The euro (EUR) added to its gains moving well into the 1.34 handle. And the Aussie dollar (AUD) is now within’ spittin distance of 96-cents!

Speaking of Aussie… The Australian government announced on Friday that their deficit had narrowed, and that they were sticking to their forecasts for a return to budget surpluses in 2011… Ahhh… How sweet that would be!

A narrowing budget deficit – which by the way is only $54.8 billion, a HUGE positive yield differential, and a not collapsing China – has the Aussie dollar on the rally tracks, and now there’s another broker (BNP) that’s calling for the Aussie dollar to reach parity to the US dollar in 2011… Again, take these broker calls with a grain of salt… But you do now have two large brokers that say their research teams believe the Aussie dollar will hit parity in 2011…

And gold and silver were not able to push past the levels they traded at on Friday morning at the time the Pfennig was sent out. But don’t despair… And while you can’t say that anything ever moves in one direction, I truly believe gold and silver to be positioned to move higher… Of course, that doesn’t rule out that they could very well move lower first!

Thanks to Chuck for getting us kicked off this morning. As he pointed out, the US Durable Goods orders were softer than expected, but in direct contradiction to what would be expected with the weaker data, the US stock market moved higher and the dollar slipped lower. So what happened? Let me explain. The Durable Goods orders are broken up into two different series: one with transportation and one without. This is done to smooth the volatility, which large orders in the aerospace industry bring to the overall number. In July, Boeing booked 130 orders for planes, but only booked 10 orders in August. This helped contribute to a 10% drop in transportation orders and moved the overall index down 1.3%, but the number ex-transportation actually climbed 2% in the same period. This was double what economists expected, and had the stock jockeys dancing in the streets.

The jump was mainly due to increased spending for US business equipment including computers and phone gear. Spending by businesses to replace outdated equipment could keep the US economic recovery going in spite of the reluctance of the US consumer. This positive spin on the durable goods number took the stock market higher and the dollar lower, which is more along the lines of what we have come to expect. As long as the US economy can limp along, the global recovery will continue and the dollar will get sold on poor fundamentals. The only hope for those predicting another dollar rally is poor economic data, which would generate another round of “safe haven” buying for the greenback.

As confidence in the global economic recovery rises, investors are turning back to the carry trade. But the funding currency is no longer the Japanese yen (JPY) or Swiss franc (CHF), it is the US dollar. Last week’s announcement that the FOMC would keep rates low for an “extended” period has convinced investors to borrow dollars and sell them to invest the proceeds into higher yielding currencies. The recent strength of the Swiss franc and Japanese yen have caused investors to turn away from them for funding these leveraged trades. Positioning data point to growing US dollar short positions, with investors moving funds into the high yielding commodity currencies. The carry trade can have a huge influence on the currency markets, and now that the US dollar is the funding currency of choice, further dollar weakness is inevitable.

The return of the carry trade helped push the Australian dollar over 0.96 and near a two-year high versus the US dollar. The Aussie has been the second best performer this year and as Chuck pointed out earlier, many are now predicting it will hit parity before the end of the year. Economic fundamentals certainly seem to support a $1 Aussie! The RBA will make a rate announcement next week, and many are now looking for a quarter point increase. A move higher by Aussie’s central bank could be just the thing the Aussie dollar needs to push through parity with the US dollar.

The euro has held stable over the weekend in spite of warnings about the government’s bailout of Anglo Irish Bank. The announcement later this week regarding the predicted costs of the bailout has focused the currency market’s attention back on the state of the European Union. Der Spiegel sent a shot across the bow of the euro when it reported that the European Commission lacks confidence in the viability of German regional lenders. We have warned readers that the European debt problem isn’t over yet, and this story has refocused investors’ attention onto the negative structural issues in Europe.

But the euro has shook off all of these worries and climbed all the way to $1.3506 this morning. This is the first time the euro has moved above $1.35 handle since April. I read several research reports over the weekend that are warning investors of this quick climb by the euro. Chuck pointed out last week that the euro gapped from $1.31 to $1.34 in just two days, so there certainly seems to be the basis for a short-term pull back to “fill these gaps.”

We are also seeing a bit of verbal intervention by some of the banking leaders in Europe. Europe’s largest economy, Germany, is dependent on exports, and the recent euro strength could threaten the export-led recovery. European leaders have begun to try and jawbone the markets, letting them know there are still some questions regarding the health of their financial system. These recent warnings definitely smack of a bit of verbal intervention in order to try and slow the pace of the euro appreciation.

A quick look at the economic calendar for the rest of the week tells me we should have a quiet start to the week. Today we will see some regional fed reports, and tomorrow we will get another look at the US housing market with the release of the S&P/CaseShiller numbers. We will also see September’s consumer confidence numbers, which are predicted to have slipped a bit. Wednesday is a “no data” day, but Thursday and Friday will make up for it as they are chock full of economic reports including GDP, personal income and spending, construction spending, vehicle sales, ISM Manufacturing index, Core PCE, and the weekly jobs numbers. Should make for an exciting end to the week.

To recap… US durable goods data on Friday were down, but after transportation orders were removed, the data showed that business spending actually increased. The good vibes in the US markets caused investors to take on more risk, selling the US dollar as the funding currency of the carry trade. The Australian dollar continued to rally toward parity, and the euro held stable in spite of bank warnings.

Chris Gaffney
for The Daily Reckoning

Durable Goods Fall, But Business Spending is Up 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:
Durable Goods Fall, But Business Spending is Up




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

Durable Goods Fall, But Business Spending is Up

September 27th, 2010

As Chuck informed all of you on Friday, I have got the conn on the Pfennig today and tomorrow as he was called down to Jacksonville for a few meetings. As always, Chuck left me with a few tidbits to get me going, so I’ll kick off today’s missive with Chuck’s view of the markets:

On Friday, the US data printed much softer than expected, and for the first time in a long time, bad data results did not mean a dollar rally! Instead, fundamentals would have the dollar selling off from a Durable Goods Orders print that fell 1.3%, and New Home Sales that were flat… And that’s what happened!

The euro (EUR) added to its gains moving well into the 1.34 handle. And the Aussie dollar (AUD) is now within’ spittin distance of 96-cents!

Speaking of Aussie… The Australian government announced on Friday that their deficit had narrowed, and that they were sticking to their forecasts for a return to budget surpluses in 2011… Ahhh… How sweet that would be!

A narrowing budget deficit – which by the way is only $54.8 billion, a HUGE positive yield differential, and a not collapsing China – has the Aussie dollar on the rally tracks, and now there’s another broker (BNP) that’s calling for the Aussie dollar to reach parity to the US dollar in 2011… Again, take these broker calls with a grain of salt… But you do now have two large brokers that say their research teams believe the Aussie dollar will hit parity in 2011…

And gold and silver were not able to push past the levels they traded at on Friday morning at the time the Pfennig was sent out. But don’t despair… And while you can’t say that anything ever moves in one direction, I truly believe gold and silver to be positioned to move higher… Of course, that doesn’t rule out that they could very well move lower first!

Thanks to Chuck for getting us kicked off this morning. As he pointed out, the US Durable Goods orders were softer than expected, but in direct contradiction to what would be expected with the weaker data, the US stock market moved higher and the dollar slipped lower. So what happened? Let me explain. The Durable Goods orders are broken up into two different series: one with transportation and one without. This is done to smooth the volatility, which large orders in the aerospace industry bring to the overall number. In July, Boeing booked 130 orders for planes, but only booked 10 orders in August. This helped contribute to a 10% drop in transportation orders and moved the overall index down 1.3%, but the number ex-transportation actually climbed 2% in the same period. This was double what economists expected, and had the stock jockeys dancing in the streets.

The jump was mainly due to increased spending for US business equipment including computers and phone gear. Spending by businesses to replace outdated equipment could keep the US economic recovery going in spite of the reluctance of the US consumer. This positive spin on the durable goods number took the stock market higher and the dollar lower, which is more along the lines of what we have come to expect. As long as the US economy can limp along, the global recovery will continue and the dollar will get sold on poor fundamentals. The only hope for those predicting another dollar rally is poor economic data, which would generate another round of “safe haven” buying for the greenback.

As confidence in the global economic recovery rises, investors are turning back to the carry trade. But the funding currency is no longer the Japanese yen (JPY) or Swiss franc (CHF), it is the US dollar. Last week’s announcement that the FOMC would keep rates low for an “extended” period has convinced investors to borrow dollars and sell them to invest the proceeds into higher yielding currencies. The recent strength of the Swiss franc and Japanese yen have caused investors to turn away from them for funding these leveraged trades. Positioning data point to growing US dollar short positions, with investors moving funds into the high yielding commodity currencies. The carry trade can have a huge influence on the currency markets, and now that the US dollar is the funding currency of choice, further dollar weakness is inevitable.

The return of the carry trade helped push the Australian dollar over 0.96 and near a two-year high versus the US dollar. The Aussie has been the second best performer this year and as Chuck pointed out earlier, many are now predicting it will hit parity before the end of the year. Economic fundamentals certainly seem to support a $1 Aussie! The RBA will make a rate announcement next week, and many are now looking for a quarter point increase. A move higher by Aussie’s central bank could be just the thing the Aussie dollar needs to push through parity with the US dollar.

The euro has held stable over the weekend in spite of warnings about the government’s bailout of Anglo Irish Bank. The announcement later this week regarding the predicted costs of the bailout has focused the currency market’s attention back on the state of the European Union. Der Spiegel sent a shot across the bow of the euro when it reported that the European Commission lacks confidence in the viability of German regional lenders. We have warned readers that the European debt problem isn’t over yet, and this story has refocused investors’ attention onto the negative structural issues in Europe.

But the euro has shook off all of these worries and climbed all the way to $1.3506 this morning. This is the first time the euro has moved above $1.35 handle since April. I read several research reports over the weekend that are warning investors of this quick climb by the euro. Chuck pointed out last week that the euro gapped from $1.31 to $1.34 in just two days, so there certainly seems to be the basis for a short-term pull back to “fill these gaps.”

We are also seeing a bit of verbal intervention by some of the banking leaders in Europe. Europe’s largest economy, Germany, is dependent on exports, and the recent euro strength could threaten the export-led recovery. European leaders have begun to try and jawbone the markets, letting them know there are still some questions regarding the health of their financial system. These recent warnings definitely smack of a bit of verbal intervention in order to try and slow the pace of the euro appreciation.

A quick look at the economic calendar for the rest of the week tells me we should have a quiet start to the week. Today we will see some regional fed reports, and tomorrow we will get another look at the US housing market with the release of the S&P/CaseShiller numbers. We will also see September’s consumer confidence numbers, which are predicted to have slipped a bit. Wednesday is a “no data” day, but Thursday and Friday will make up for it as they are chock full of economic reports including GDP, personal income and spending, construction spending, vehicle sales, ISM Manufacturing index, Core PCE, and the weekly jobs numbers. Should make for an exciting end to the week.

To recap… US durable goods data on Friday were down, but after transportation orders were removed, the data showed that business spending actually increased. The good vibes in the US markets caused investors to take on more risk, selling the US dollar as the funding currency of the carry trade. The Australian dollar continued to rally toward parity, and the euro held stable in spite of bank warnings.

Chris Gaffney
for The Daily Reckoning

Durable Goods Fall, But Business Spending is Up 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:
Durable Goods Fall, But Business Spending is Up




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

Movie Review of ‘Wall Street: Money Never Sleeps’

September 27th, 2010

“Wall Street: Money Never Sleeps” (2010). Oliver Stone, director. 20th Century Fox, 133 minutes.

In some ways “Wall Street: Money Never Sleeps” (2010) feels more like a remake than a sequel of “Wall Street” (1987), the iconic film that focused on the inner workings of the financial markets and the scandals involving junk bonds and insider trading of the 1980s. The film earned Michael Douglas an Oscar for his portrayal of Gordon Gekko, the ruthless insider who takes down several companies before he is finally caught. His character’s name has become so tied to Wall Street shenanigans that business schools reference him in their courses. Hedge fund manager Anthony Scaramucci called his investment memoir, “Goodbye Gordon Gekko” (2010), knowing that no one would have any trouble understanding the reference in the title. Similarly, libertarian reporter John Stossel borrowed Gekko’s most famous line, “Greed…is good” for the title of one of his best known TV specials (1998).

The new film begins with Gekko being released from prison, so we know the time frame is 15 years after the events of the first film. But it all seems so familiar, as though we have been here before. It opens with the same sweeping panorama of the New York skyline, this time with the Twin Towers conspicuously absent. Once again the story focuses on a young, ambitious investment broker trying to break into the big time and keep up with the pros, but instead of Charlie Sheen as Bud Fox, the new kid on the block is Jake Moore (Shia LaBeouf). Once again we watch the ticker tape of the young broker’s first big trade falling steadily until the thud of the closing bell at the end of the day. Once again the wise fatherly stockbroker is named Lou (perhaps because Oliver Stone’ own father, Louis, was a stockbroker). Once again the young broker is trying to get funding for a company he believes in. We even see the same real estate broker (Sylvia Miles) that Bud Fox used in the original “Wall Street.” And yes, Charlie Sheen does make a cameo appearance, with a babe on each arm, channeling his alter ego from the TV show “Two and a Half Men” more than the sadder but wiser Bud from the 1987 movie.

The story line is similar, too. Gekko wants revenge against a rival investor, and he uses the cocky young broker to help him get it done. The details are different, but the story is essentially the same. While “Wall Street” focused on the junk bond/insider trading scandals of the mid-1980s, “Money Never Sleeps” focuses on the economic meltdown of 2008. New York hedge fund trader and wunderkind Anthony Scaramucci acted as a technical advisor on the film, and the result is technically accurate, though sometimes to a fault. As the film moves from boardroom to boardroom and talking head to talking head, it is often difficult to understand and process their words before the next dialogue-heavy scene appears. At 2 hours and 13 minutes, the film is long, and the editing is a little too tight. We keep stumbling into conversations that have already started, between people who already know what is going on.

Often those conversations and talking heads are presented in split-screen projections, along with a graph or two, so while we’re still listening to one speaker, the next one has already started. It’s almost as though the editors knew they couldn’t make the movie any longer, but they couldn’t bear to throw anything out, so they presented it all at the same time. Some of the computer graphics are pretty cool, like the one that outlines London’s Tower Bridge in the background as it demonstrates a company’s rise and fall. I suspect that ten years from now those graphics will look dated and hokey, however.

I happened to attend a private screening in Manhattan with a theater full of investment brokers and financial experts. They all loved the film, even those who said they seldom go to movies. I’m sure that for them, the dialogue was as simple to follow as a primer. But at one point I just decided to stop trying to understand all the techno-jargon and just focus on the storyline: Something bad is happening. And those two attractive young lovers are caught up in it. That worked for me.

The two young lovers are Jake and Gekko’s daughter, Winnie (Carey Mulligan), who hasn’t seen or spoken to her father in several years. Jake wants to bring the two of them together again, ostensibly “to help her heal,” but really to get closer to his idol, Gordon Gekko, who, despite being a jailbird, is still packing in the crowds on the lecture circuit, where he is promoting his new book, “Is Greed Good?”

Once again, the film shines when Michael Douglas is on the screen. Yes, he is older, but he still has that great self-confident smile, that swagger. He’s still talking about greed, and he’s still just as flippant. He quips, “Once greed was good.  Now it’s legal…” and everyone laughs cynically, as though greed was ever illegal. I wanted to counter, “Theft is illegal. Fraud is illegal. Greed is human nature.”

Gekko continues, “Greed makes the bartender take out three mortgages he can’t afford … Greed makes parents buy a $200,000 house and borrow $250,000 against it to go shopping at the mall … Greed got greedier with a little envy mixed in … They took a buck and shot it full of steroids and called it leverage.” He’s right about those things happening. Many people who are underwater on their mortgages got there today by borrowing the equity out of their homes and using it to pay off credit cards, invest in businesses, or pay their children’s college tuition. Or, yes, go to the mall. Others got there because they bought at the top of the market, expecting the bubble to continue rising. But they couldn’t have done it without banks giving them outrageously unsubstantiated loans. So why are we bailing them out? Greed was always legal. It just wasn’t healthy.

And maybe the economy needed to get sick enough for us to learn that. Today people are using debit cards more and credit cards less. They’ve figured out that airline miles and rewards points aren’t really free if they come with 18.6% interest rates. It has required some belt tightening, but that’s a good thing in times like these. We’ve learned, as Gekko says, that “money is a jealous lover. If you don’t watch her carefully, in the morning she’ll be gone,” and that “speculation is a bankrupt business model.” As private citizens we are becoming more frugal and setting our own houses in order. Many businesses are building up their cash reserves instead of borrowing money, so they will have more to spend on future investments. In this economic climate, it’s in their best interest to do so. That’s called capitalism. And it works. Greed is good, but self interest is better.

Jo Ann Skousen

for The Daily Reckoning

Movie Review of ‘Wall Street: Money Never Sleeps’ 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:
Movie Review of ‘Wall Street: Money Never Sleeps’




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.

Real Estate, Uncategorized

Movie Review of ‘Wall Street: Money Never Sleeps’

September 27th, 2010

“Wall Street: Money Never Sleeps” (2010). Oliver Stone, director. 20th Century Fox, 133 minutes.

In some ways “Wall Street: Money Never Sleeps” (2010) feels more like a remake than a sequel of “Wall Street” (1987), the iconic film that focused on the inner workings of the financial markets and the scandals involving junk bonds and insider trading of the 1980s. The film earned Michael Douglas an Oscar for his portrayal of Gordon Gekko, the ruthless insider who takes down several companies before he is finally caught. His character’s name has become so tied to Wall Street shenanigans that business schools reference him in their courses. Hedge fund manager Anthony Scaramucci called his investment memoir, “Goodbye Gordon Gekko” (2010), knowing that no one would have any trouble understanding the reference in the title. Similarly, libertarian reporter John Stossel borrowed Gekko’s most famous line, “Greed…is good” for the title of one of his best known TV specials (1998).

The new film begins with Gekko being released from prison, so we know the time frame is 15 years after the events of the first film. But it all seems so familiar, as though we have been here before. It opens with the same sweeping panorama of the New York skyline, this time with the Twin Towers conspicuously absent. Once again the story focuses on a young, ambitious investment broker trying to break into the big time and keep up with the pros, but instead of Charlie Sheen as Bud Fox, the new kid on the block is Jake Moore (Shia LaBeouf). Once again we watch the ticker tape of the young broker’s first big trade falling steadily until the thud of the closing bell at the end of the day. Once again the wise fatherly stockbroker is named Lou (perhaps because Oliver Stone’ own father, Louis, was a stockbroker). Once again the young broker is trying to get funding for a company he believes in. We even see the same real estate broker (Sylvia Miles) that Bud Fox used in the original “Wall Street.” And yes, Charlie Sheen does make a cameo appearance, with a babe on each arm, channeling his alter ego from the TV show “Two and a Half Men” more than the sadder but wiser Bud from the 1987 movie.

The story line is similar, too. Gekko wants revenge against a rival investor, and he uses the cocky young broker to help him get it done. The details are different, but the story is essentially the same. While “Wall Street” focused on the junk bond/insider trading scandals of the mid-1980s, “Money Never Sleeps” focuses on the economic meltdown of 2008. New York hedge fund trader and wunderkind Anthony Scaramucci acted as a technical advisor on the film, and the result is technically accurate, though sometimes to a fault. As the film moves from boardroom to boardroom and talking head to talking head, it is often difficult to understand and process their words before the next dialogue-heavy scene appears. At 2 hours and 13 minutes, the film is long, and the editing is a little too tight. We keep stumbling into conversations that have already started, between people who already know what is going on.

Often those conversations and talking heads are presented in split-screen projections, along with a graph or two, so while we’re still listening to one speaker, the next one has already started. It’s almost as though the editors knew they couldn’t make the movie any longer, but they couldn’t bear to throw anything out, so they presented it all at the same time. Some of the computer graphics are pretty cool, like the one that outlines London’s Tower Bridge in the background as it demonstrates a company’s rise and fall. I suspect that ten years from now those graphics will look dated and hokey, however.

I happened to attend a private screening in Manhattan with a theater full of investment brokers and financial experts. They all loved the film, even those who said they seldom go to movies. I’m sure that for them, the dialogue was as simple to follow as a primer. But at one point I just decided to stop trying to understand all the techno-jargon and just focus on the storyline: Something bad is happening. And those two attractive young lovers are caught up in it. That worked for me.

The two young lovers are Jake and Gekko’s daughter, Winnie (Carey Mulligan), who hasn’t seen or spoken to her father in several years. Jake wants to bring the two of them together again, ostensibly “to help her heal,” but really to get closer to his idol, Gordon Gekko, who, despite being a jailbird, is still packing in the crowds on the lecture circuit, where he is promoting his new book, “Is Greed Good?”

Once again, the film shines when Michael Douglas is on the screen. Yes, he is older, but he still has that great self-confident smile, that swagger. He’s still talking about greed, and he’s still just as flippant. He quips, “Once greed was good.  Now it’s legal…” and everyone laughs cynically, as though greed was ever illegal. I wanted to counter, “Theft is illegal. Fraud is illegal. Greed is human nature.”

Gekko continues, “Greed makes the bartender take out three mortgages he can’t afford … Greed makes parents buy a $200,000 house and borrow $250,000 against it to go shopping at the mall … Greed got greedier with a little envy mixed in … They took a buck and shot it full of steroids and called it leverage.” He’s right about those things happening. Many people who are underwater on their mortgages got there today by borrowing the equity out of their homes and using it to pay off credit cards, invest in businesses, or pay their children’s college tuition. Or, yes, go to the mall. Others got there because they bought at the top of the market, expecting the bubble to continue rising. But they couldn’t have done it without banks giving them outrageously unsubstantiated loans. So why are we bailing them out? Greed was always legal. It just wasn’t healthy.

And maybe the economy needed to get sick enough for us to learn that. Today people are using debit cards more and credit cards less. They’ve figured out that airline miles and rewards points aren’t really free if they come with 18.6% interest rates. It has required some belt tightening, but that’s a good thing in times like these. We’ve learned, as Gekko says, that “money is a jealous lover. If you don’t watch her carefully, in the morning she’ll be gone,” and that “speculation is a bankrupt business model.” As private citizens we are becoming more frugal and setting our own houses in order. Many businesses are building up their cash reserves instead of borrowing money, so they will have more to spend on future investments. In this economic climate, it’s in their best interest to do so. That’s called capitalism. And it works. Greed is good, but self interest is better.

Jo Ann Skousen

for The Daily Reckoning

Movie Review of ‘Wall Street: Money Never Sleeps’ 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:
Movie Review of ‘Wall Street: Money Never Sleeps’




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.

Real Estate, Uncategorized

Current Market Internals and Recent Breakout in NASDAQ and Dow Jones

September 27th, 2010

I have to say the current stock market breakout has been one of the weaker technical (chart) breakouts in terms of volume, momentum, and internals.

Let’s take a look at the current picture of Daily Chart market internals on the Dow Jones and NASDAQ Indexes year-to-date.

Let’s start first with the Dow-30 Index:

Let’s break it down by indicator.

First, we have the NYSE McClellan Oscillator (a smoothed measure of Advancers minus Decliners, also known as “Breadth”) and then we have the actual “Breadth” chart underneath.

Because the daily AD-Line (Advancers minus Decliners) is volatile (it’s light gray), I smoothed out the raw data with a four-day simple moving average which we’ll use as our indicator – it’s dark blue.

Ok so what do they say?

The Dow broke above the key resistance at 10,700, held above it, then ‘re-confirmed’ the breakout on Friday.  During the breakout, Volume, Momentum, and Breadth all declined.

You can see volume if you look closely above, but the glaring picture is clear when seeing the negative divergence – shown with red arrows – in both the McClellan Oscillator and Breadth.

First, the McClellan Oscillator registered a LOWER high in the indicator currently than it did at its chart peak in July.  Notice price is higher than its respective peak in July – that’s a longer-term (external) divergence.

We also have an immediate negative divergence – or an internal divergence – as Friday’s oscillator high was not as high as that not just on Monday’s breakout, but is not as high as the peak in early September when the Dow pushed to 10,500.  Strange.

The smoothed average of breadth shows the same, only the recent peak was earlier on the break above 10,300.  Really strange.

The picture is the same on the NASDAQ using NASDAQ-specific internals:

The picture is roughly identical – down to the internal and external divergences.

Notice that Breadth (blue) also is not making a higher indicator high than the peak reached in July or the chart indicator peak in June.  Very strange.

So we’re left with the conclusion that market internals do NOT support this recent breakout.

While that’s a fact, it does not logically follow that price is required to fall down just because internals are not supporting this rally.

It’s certainly a caution signal for bulls – but the recent ‘rally at any cost’ activity is also a warning for bears.

Unless you’re an intraday trader who can trade both directions without bias, it’s probably best to wait for a corresponding breakdown signal in price before trying to short this ‘breakout’ market.

And if you’re a swing trader, this is not the typical breakout pattern situation that would compel you to jump off the sidelines aggressively and go long – if you’re not already in after the immediate break.

In other words, we may have had a price break, but if we look under the hood at the strength of the breakout, it doesn’t look like a strong one.

Dow Price Resistance is nominally 10,900, while NASDAQ resistance is 2,425 (and S&P at 1,170) – all of which come from the price swing highs in May.

Watch the market extremely close and do not bias yourself too greatly in either direction – as in, the market MUST continue its rally because it broke out… or the market MUST decline because there are divergences.

Take a moment to read my prior updates:

Measuring Current S&P 500 Market Internals in a Strong Rally

SPX Breakout – Is this Really It?  Tips on Trading Breakouts

and

SPX Levels to Watch and Realities You Must Know

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Current Market Internals and Recent Breakout in NASDAQ and Dow Jones

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