Why US Retail Sales Are Up Even as Consumers Deleverage

November 16th, 2010

We were curious about what would happen yesterday. The market sold off on Friday. The question was: are investors rejecting Ben Bernanke and his printing press money?

Another big drop in stocks yesterday would have confirmed the rejection hypothesis. A big increase in stock prices would have suggested that investors were on board with QE.

So what happened?

Nothing. The Dow was either up 9 or down 9, we can’t remember which. Gold was up $3. Nothing significant, in other words, in either direction.

So, Mr. Market is going to keep us wondering…guessing…cogitating…

…what’s going on?

And here’s something that has us wondering about. Retail sales are up. Here’s the Bloomberg report:

Sales at US retailers climbed in October by the most in seven months, brightening the outlook for holiday shopping even as unemployment holds near 10 percent.

Purchases rose 1.2 percent, exceeding the highest forecast among economists surveyed by Bloomberg News, according to data from the Commerce Department issued today in Washington. Another report showed manufacturing in the New York region unexpectedly shrank in November as orders dropped.

“We expect the holiday shopping season to really ramp up in November,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who forecast a 1.1 percent gain in sales. “The breadth of discounting” and steady income gains are “providing some support,” he said.

The improvement in spending comes as other parts of the economy show signs of cooling.

Wait a minute. Isn’t the consumer de-leveraging? Isn’t he paying down debt and defaulting on his mortgage? How can he be increasing spending?

Well, maybe with all this talk of quantitative easing has unsettled him. Maybe he thinks the world as we have known it is ending…maybe he’s decided to enjoy it. Or maybe the consumer believes that the Fed will really succeed in stirring up the economy. So, maybe he’s feeling more confident. Or maybe he thinks the Fed will destroy the value of the dollar, so he’s getting ready for inflation – spending his money as fast as possible.

Or, most likely…this is just a little, insignificant blip of information…meaningless noise, in other words.

Households are not likely to really increase spending. They don’t have more income. Their houses are worth only about 70% of what they were three years ago, and still going down. Their credit ratings are impaired. Lenders are more cautious. And so are consumers themselves.

So, we’re not going to take this news very seriously. We just didn’t want you to think that we were hiding developments that don’t seem to fit our Great Correction hypothesis. We’re not hiding them; we’re just ignoring them.

Bill Bonner
for The Daily Reckoning

Why US Retail Sales Are Up Even as Consumers Deleverage 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:
Why US Retail Sales Are Up Even as Consumers Deleverage




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

VIX Punches Through Upper Bollinger Band

November 16th, 2010

The VIX has no idea what is going on in Ireland and has no way of knowing whether the markets are underestimating or overestimating the full extent of the European sovereign debt crisis, not only in the Emerald Isle, but also in Greece and Portugal.

While it is always important to be well-informed when it comes global political and economic flash points, most VIX traders prefer to take a technically-based approach to trading volatility. In this vein, the simplest and most effective approach is to fade any VIX extremes. I have covered many ways to measure VIX extremes in this blog. One of the simplest is to use Bollinger bands to identify VIX values which are extreme enough to invite high probability mean reversion trades.

The chart below is a daily bar snapshot of the VIX, with standard Bollinger band settings (20 days, 2.0 standard deviations), showing that the recent VIX high of 23.06 is well above the 22.45 upper band level of the current Bollinger band settings. For most VIX traders, this means a short VIX play is in order, irrespective of events on the ground in Europe.

For those who are new to volatility trading, keep in mind that VIX spikes have a habit of clustering and creating a vicious cycle. One only has to scroll back six months to see what happened the last time concern about European sovereign debt soared, sending the VIX from 15 to 48 in the space of a month.

Related posts:

[source: FreeStockCharts.com]
Disclosure(s): short VIX at time of writing



Read more here:
VIX Punches Through Upper Bollinger Band

Uncategorized

SPX Update and Lesson in Trendline Breaks and Targets

November 16th, 2010

Today is a good day to brush off the old Technical Analysis 101 handbook to review a simple – yet very effective – concept regarding trends.

In a trending environment, price often retraces to the 20 day EMA to continue the move in place.

However, if ever the 20 day EMA breaks – and it certainly will eventually – the next target immediately sets up as the 50 day EMA.

It’s happened three times in the last few months – so let’s see those examples, learn the lesson, and get an update on the S&P 500 and Dow Jones Indexes.

First, the S&P 500:

Starting with the downtrend that took us into June, we had a sudden breakthrough of the falling 20d EMA which led two days later to a full retest of the falling 50 day EMA – which was the minimal target.  The 50 day held as resistance and the downtrend continued.

An identical situation occurred in July, only this time price took three days to hit the official 50 day EMA target, but this time the downtrend ended shortly after the 50 EMA held as resistance.

Flash-forward to today, where price broke solidly through the rising 20d EMA this morning which set-up an immediate fall (or test – or intraday opportunity, as I was calling for in last night’s report to members) to the rising 50d EMA.

There are two indicator convergences to be aware of – and the most important is the rising 50 day EMA currently at 1,168.  It’s an immediate target for potential support.

The other is the lower Bollinger Band at 1,163.  Thus, we have a price convergence at the 1,165 level.

It will be important to watch closely what happens there – if price bounces up off the support at this level (similar to what happened in June) or breaks right on through this level to challenge 1,150 or even the 1,130 level or lower.

Despite what people thing, uptrends – though powerful – cannot last forever, so they must end at some point.  The trick – of course – is weighing the objective evidence to see if it favors trend continuity (yes, if price supports off the 1,165 level) or not (no, if price breaks down through 1,160 then 1,150 and beyond).

To underscore the EMA targeting lesson, let’s take a look at the current Dow Jones, which officially hit its target in a single session.

I wanted to highlight the times where price was in a trending mode and the 20/50 EMAs were separated by a stable distance.

In a flat/rangebound environment, this concept has no meaning as the moving averages do not hold as support or resistance (as in the late July to mid-September periods).

When the EMAs are separated in a price trend up or down, look first for price to inflect off the 20 day EMA, but if price breaks through the 20 EMA, look for an immediate – often intraday – target move to challenge the 50 EMA.

Unlike the S&P 500, the Dow Jones Index fell 200 points today to test EXACTLY (so far) the 50 EMA. As of noon EST, the intraday low was 10,986 and the 50 day EMA was 10,987.

Of course, intraday traders can look to position aggressively if there are corresponding intraday buy signals at the target level … but that’s a whole other lesson to learn.

Join me Thursday, November 18th at 11:00am EST for a live-cast webinar from the Vegas Expo:  “Popped Stops – Profiting When Good Trades Go Bad.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
SPX Update and Lesson in Trendline Breaks and Targets

Uncategorized

Play Defense With Gold Prices – TheStreet.com

November 16th, 2010

I was just interviewed by Alix Steel from TheStreet.com – watch the video below:

Read more here:
Play Defense With Gold Prices – TheStreet.com

Commodities

Commodities Sell Off as the Dollar Rally Continues

November 16th, 2010

The commodities continue to be under the dollar’s pressure cooker these days. I have a long time friend that says he believes this commodities sell-off is stronger than I give it credit for… Hmmm… I didn’t see that coming! Sure, the commodities and commodity currencies ran fast against the dollar since June, and all for good reasons, given the FOMC’s willingness to bring inflation into the US economy, which to me would only mean that a technical correction is in store… But my friend, insists it will be more than that… So, there… You have been warned.

Quite frankly… A much cheaper gold price – especially now as we head into the Christmas season or whatever holiday season you observe – would be welcomed by yours truly, as there are more gold purchases in my future, and to get it much cheaper is like manna from heaven!

But does it all make sense, given what I mentioned above that the FOMC is looking for inflation to inject into our economy? No… But since when, going back to the financial meltdown, does anything the markets do make sense?

This morning, German Investor Confidence, as measured by the think tank ZEW, printed stronger than expected. This is the first positive print of German Investor Confidence in seven months! ZEW is a pretty interesting group of brainiacs, as they aim to project developments six months ahead… So… If they are bang on with their report, six months from now, Germany will be kicking up its heels!

The euro (EUR) attempted to rally on this data, and it did … Albeit briefly… The dollar is swinging a mighty strong hammer these days… Wasn’t it just a month ago, that I told you that I had not seen the negativity toward the dollar that bad? And look, one month later, the negativity toward the dollar is about washed under the bridge. Just shows to go you that short-term forecasts are not very dependable…

Ireland’s debt problems continue to weigh heavily on the euro, and the euro-alternatives, like Norway (NOK) and Sweden (SEK)… Again, this makes no sense, given the stronger fundamentals of these two countries versus the dollar, the euro, the yen (JPY), etc…

I looks as though the pledge to support Ireland that was made by several countries at last week’s G-20 meeting, is waning… Come on, boys! You promised! No reneging now!

Yesterday, the Aussie dollar (AUD) had a nice rally going, climbing back to 99-cents and beyond, but by the end of the day, the rally was thrown to the side of the road, and the car, driven by the US dollar, drove off! And then last night the Reserve Bank of Australia’s (RBA) minutes of their last meeting printed, and weren’t exactly “hawkish”… In fact one of the statements in the minutes were enough to drive a stake into the heart of the Aussie dollar… When discussing rate hikes, the RBA said, “a case could be made for waiting a little longer.”

Of course, those minutes were pre-RBA out-of-meeting rate hike… So, I guess that “case” didn’t hold any water! But… That was then, and now that the Aussie dollar is under pressure, the markets are focusing on “little longer” statement… UGH!

Shoot Rudy, even the Japanese yen isn’t participating in this dollar rally. The yen is back to an 83 handle, and looking like it will fall even more versus the dollar…

Yesterday, here in the US, retail sales for October were very strong… Very strong indeed! Retail spending in the US rose for the fourth consecutive month in October, up 1.2% from September. The reading was well above the 0.7% gain expected by the market going into the report and is the biggest monthly increase since March. And like I told you yesterday… We’re Americans; we spend!

I found it interesting in the report though, that autos were a big part of the rise, along with the rising gas price… Are they giving cars away again? Inquiring minds need to know, because there’s a new car in my beautiful bride’s future…

Have you ever played the game Clue? We used to say that if you lost the game you were: Clueless! Well, sometimes I have to wonder how many games of Clue are being played and lost with our friends (NOT!) in the cartel? Here’s a good example of what I’m talking about… The Cartel’s new Vice-Chairman, Janet Yellen, told The Wall Street Journal that “Quantitative Easing is justified because of low inflation and a 9.6% rate of unemployment. It shouldn’t be considered as some sort of chapter in a currency war.”

Hmmm, maybe one day she could show us all just how printing money and introducing inflation to one’s economy isn’t detrimental to one’s currency… But the real trick would be to show how printing money corrects our 22% (not 9.6%, that the government likes to use), unemployment problem…

US Treasury yields continue to rise, with the 10-year rising another 7 basis points to 2.89%… And don’t think for a minute that these rising Treasury yields are catching the eyes of foreign investors who have been champing at the bit for better yields… And these rising yields are also responsible for the current dollar rally.

You know… These rising Treasury yields are puzzling to me given the FOMC’s announced $600 billion pending purchases of Treasuries… But then, maybe not… Think about it… What’s one of the things that can get bond yields rising? The selling of the bonds… Price goes down, yield goes up… So, maybe the FOMC’s QE announcement is scaring bond holders into selling… Maybe, you just never know, eh?

The data cupboard here in the US is chock full-o-data today, including my faves, Industrial Production and Capacity Utilization… We’ll also see the color of the October TIC’s data (net security purchases by foreigners). And rounding out the main data prints will be PPI for October (wholesale inflation) I think we’ll see PPI continue to edge upward. However, the Cartel members are not concerned with this PPI increase, for they do not believe that corporations have the ability to pass along price increases.

Like I said last week… these Corporations are dummies, or Clueless… The realized that with the recession they couldn’t raise prices, so they simply shrunk the items and sold them for the same price! Something I noticed last month when I picked up a prescription for a month’s supply of a medication I take… What used to cost $20 (with insurance) now costs $40 (same insurance)…

Then there was this… I was reading my friend John Mauldin’s newsletter the other day, and came across something that really illustrated the games people play with the labor numbers… Let’s listen in…

The seasonal bar which the payroll data must jump was (inexplicably and dramatically) lowered from prior Octobers.

Thus, in October 2009, the BLS set the bar at 870,000 jobs, similar to the 840,000 it anticipated in October 2008. This year, by contrast, it lowered the bar to 768,000. Mumbo, jumbo, payrolls presented “an upside surprise” of 100,000.

According to John Williams at Shadow Government Statistics, the BLS’s fiddling with the figures via what he calls “seasonal-factor games” actually created 200,000 phantom jobs last month. John cites such finagling as the reason his prediction of an October decline and a rise in the jobless rate was wrong. It also explains why seasonally adjusted payrolls were revised upward by 110,000 in September, including 56,000 in August.

And as Ty Keough reminded me yesterday, when I shared this info with the desk… “It was an election month, right?”

Yes, Ty, it was! So… now we have to see what “seasonal adjustments” the BLS can come up with next month!

To recap… The dollar rally continues to take no prisoners, with even the Japanese yen losing ground to the dollar. The commodities and commodity currencies are taking the brunt of the dollar strength, and there are thoughts that this commodity sell-off could go deeper… German Investor Confidence surprised to the upside for the first time in seven months, and the Fed Heads are playing a game of Clue again.

Chuck Butler
for The Daily Reckoning

Commodities Sell Off as the Dollar Rally Continues 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:
Commodities Sell Off as the Dollar Rally Continues




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.

Commodities, Uncategorized

Commodities Sell Off as the Dollar Rally Continues

November 16th, 2010

The commodities continue to be under the dollar’s pressure cooker these days. I have a long time friend that says he believes this commodities sell-off is stronger than I give it credit for… Hmmm… I didn’t see that coming! Sure, the commodities and commodity currencies ran fast against the dollar since June, and all for good reasons, given the FOMC’s willingness to bring inflation into the US economy, which to me would only mean that a technical correction is in store… But my friend, insists it will be more than that… So, there… You have been warned.

Quite frankly… A much cheaper gold price – especially now as we head into the Christmas season or whatever holiday season you observe – would be welcomed by yours truly, as there are more gold purchases in my future, and to get it much cheaper is like manna from heaven!

But does it all make sense, given what I mentioned above that the FOMC is looking for inflation to inject into our economy? No… But since when, going back to the financial meltdown, does anything the markets do make sense?

This morning, German Investor Confidence, as measured by the think tank ZEW, printed stronger than expected. This is the first positive print of German Investor Confidence in seven months! ZEW is a pretty interesting group of brainiacs, as they aim to project developments six months ahead… So… If they are bang on with their report, six months from now, Germany will be kicking up its heels!

The euro (EUR) attempted to rally on this data, and it did … Albeit briefly… The dollar is swinging a mighty strong hammer these days… Wasn’t it just a month ago, that I told you that I had not seen the negativity toward the dollar that bad? And look, one month later, the negativity toward the dollar is about washed under the bridge. Just shows to go you that short-term forecasts are not very dependable…

Ireland’s debt problems continue to weigh heavily on the euro, and the euro-alternatives, like Norway (NOK) and Sweden (SEK)… Again, this makes no sense, given the stronger fundamentals of these two countries versus the dollar, the euro, the yen (JPY), etc…

I looks as though the pledge to support Ireland that was made by several countries at last week’s G-20 meeting, is waning… Come on, boys! You promised! No reneging now!

Yesterday, the Aussie dollar (AUD) had a nice rally going, climbing back to 99-cents and beyond, but by the end of the day, the rally was thrown to the side of the road, and the car, driven by the US dollar, drove off! And then last night the Reserve Bank of Australia’s (RBA) minutes of their last meeting printed, and weren’t exactly “hawkish”… In fact one of the statements in the minutes were enough to drive a stake into the heart of the Aussie dollar… When discussing rate hikes, the RBA said, “a case could be made for waiting a little longer.”

Of course, those minutes were pre-RBA out-of-meeting rate hike… So, I guess that “case” didn’t hold any water! But… That was then, and now that the Aussie dollar is under pressure, the markets are focusing on “little longer” statement… UGH!

Shoot Rudy, even the Japanese yen isn’t participating in this dollar rally. The yen is back to an 83 handle, and looking like it will fall even more versus the dollar…

Yesterday, here in the US, retail sales for October were very strong… Very strong indeed! Retail spending in the US rose for the fourth consecutive month in October, up 1.2% from September. The reading was well above the 0.7% gain expected by the market going into the report and is the biggest monthly increase since March. And like I told you yesterday… We’re Americans; we spend!

I found it interesting in the report though, that autos were a big part of the rise, along with the rising gas price… Are they giving cars away again? Inquiring minds need to know, because there’s a new car in my beautiful bride’s future…

Have you ever played the game Clue? We used to say that if you lost the game you were: Clueless! Well, sometimes I have to wonder how many games of Clue are being played and lost with our friends (NOT!) in the cartel? Here’s a good example of what I’m talking about… The Cartel’s new Vice-Chairman, Janet Yellen, told The Wall Street Journal that “Quantitative Easing is justified because of low inflation and a 9.6% rate of unemployment. It shouldn’t be considered as some sort of chapter in a currency war.”

Hmmm, maybe one day she could show us all just how printing money and introducing inflation to one’s economy isn’t detrimental to one’s currency… But the real trick would be to show how printing money corrects our 22% (not 9.6%, that the government likes to use), unemployment problem…

US Treasury yields continue to rise, with the 10-year rising another 7 basis points to 2.89%… And don’t think for a minute that these rising Treasury yields are catching the eyes of foreign investors who have been champing at the bit for better yields… And these rising yields are also responsible for the current dollar rally.

You know… These rising Treasury yields are puzzling to me given the FOMC’s announced $600 billion pending purchases of Treasuries… But then, maybe not… Think about it… What’s one of the things that can get bond yields rising? The selling of the bonds… Price goes down, yield goes up… So, maybe the FOMC’s QE announcement is scaring bond holders into selling… Maybe, you just never know, eh?

The data cupboard here in the US is chock full-o-data today, including my faves, Industrial Production and Capacity Utilization… We’ll also see the color of the October TIC’s data (net security purchases by foreigners). And rounding out the main data prints will be PPI for October (wholesale inflation) I think we’ll see PPI continue to edge upward. However, the Cartel members are not concerned with this PPI increase, for they do not believe that corporations have the ability to pass along price increases.

Like I said last week… these Corporations are dummies, or Clueless… The realized that with the recession they couldn’t raise prices, so they simply shrunk the items and sold them for the same price! Something I noticed last month when I picked up a prescription for a month’s supply of a medication I take… What used to cost $20 (with insurance) now costs $40 (same insurance)…

Then there was this… I was reading my friend John Mauldin’s newsletter the other day, and came across something that really illustrated the games people play with the labor numbers… Let’s listen in…

The seasonal bar which the payroll data must jump was (inexplicably and dramatically) lowered from prior Octobers.

Thus, in October 2009, the BLS set the bar at 870,000 jobs, similar to the 840,000 it anticipated in October 2008. This year, by contrast, it lowered the bar to 768,000. Mumbo, jumbo, payrolls presented “an upside surprise” of 100,000.

According to John Williams at Shadow Government Statistics, the BLS’s fiddling with the figures via what he calls “seasonal-factor games” actually created 200,000 phantom jobs last month. John cites such finagling as the reason his prediction of an October decline and a rise in the jobless rate was wrong. It also explains why seasonally adjusted payrolls were revised upward by 110,000 in September, including 56,000 in August.

And as Ty Keough reminded me yesterday, when I shared this info with the desk… “It was an election month, right?”

Yes, Ty, it was! So… now we have to see what “seasonal adjustments” the BLS can come up with next month!

To recap… The dollar rally continues to take no prisoners, with even the Japanese yen losing ground to the dollar. The commodities and commodity currencies are taking the brunt of the dollar strength, and there are thoughts that this commodity sell-off could go deeper… German Investor Confidence surprised to the upside for the first time in seven months, and the Fed Heads are playing a game of Clue again.

Chuck Butler
for The Daily Reckoning

Commodities Sell Off as the Dollar Rally Continues 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:
Commodities Sell Off as the Dollar Rally Continues




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.

Commodities, Uncategorized

Time to Take Profits from Corporate Bonds?

November 16th, 2010

Nilus Mattive

Back in May of 2009, I wrote an article here in Money and Markets called “Time to Start Nibbling on Corporate Bonds.”

As the name implied, I argued that investors looking for opportunities in fixed-income were better off considering corporate bonds rather than Treasuries.

For example, I said:

“I am an unabashed fan of Vanguard’s low-cost funds, and when I look at the firm’s Intermediate-Term Investment Grade bond fund (VFICX), I am intrigued … I consider a 6 percent yield from extremely high quality bonds a pretty good deal.

“[So] if the choice is good income from a reasonably safe portfolio of corporate bonds vs. FAR less from Treasuries, I think I’d go corporate at this point in time.”

And I also took things one step further, noting that even junk bonds were presenting a good risk-reward tradeoff:

“Sticking with Vanguard, you’ll see that the firm’s High-Yield Corporate bond fund (VWEHX) is yielding about 11 percent. And you’ll get that with a very low expense ratio of 0.25 percent …

“I’m left wondering if all the current — and potential future — pain is already baked into the cake now. For someone looking for big yields, junk may very well turn out to be hidden treasure!”

Now, Over the Last Year and a Half
These Corporate Bonds Have Surged!

It’s no secret that investors have been flocking to bonds lately. But to get a sense of just how aggressively they’ve been buying, let’s take a look at what’s happened to the two funds I discussed a year and a half ago.

First, here’s a chart of the Vanguard Intermediate-Term Investment Grade (VFICX) since my original column …

chart1 Time to Take Profits from Corporate Bonds?

As you can see, it’s up about 20 percent in nearly a straight line of gains!

And it’s the same story with the riskier junk bond fund, Vanguard High-Yield Corporate (VWEHX) …

chart2 Time to Take Profits from Corporate Bonds?

This fund is up a couple more percentage points, in fact!

You’d see nearly the same kind of run-up in nearly any other type of bond or fixed-income fund you looked at, too.

I’d like to point out how highly unusual it is to see such sharp moves in these investments over such short time frames. Remember, we’re not looking at individual stock charts here.

Corporations are clearly milking hungry investors and low interest rates for all their worth right now … even as many of the lower-rated borrowers are seeing their fundamentals weaken rather than improve.

No Wonder Many Professionals Are Taking Profits
And Turning Their Attention to Other Investments!

Here’s how a recent Wall Street Journal article put it:

“Mr. Makhija is among a growing number of hedge funds and other professional investors that are getting out junk bonds and buying assets like mortgage debt and stocks instead. As they exit, mom-and-pop investors are flooding in, along with mutual funds that are usually dedicated to other investments …”

This is a shift that is worth paying attention to, especially if you happened to buy into corporate bonds back when I was first writing about them here.

Sure, the party could continue for some time — especially with the Federal Reserve’s new round of quantitative easing just getting started.

However, there have been some small cracks starting to develop in the bond markets lately … and it’s better to take profits a little too early than to watch things quickly reverse.

Where to go next?

I’m not particularly excited about any corner of the bond market at this stage. I’d rather stay on the sidelines and wait for better yields down the line.

In the meantime, I think dividend stocks remain the better income investments.

I’d note that based on recent numbers, many pros are now parlaying their recent winnings into higher-yielding stocks, too!

Bottom line: If you’ve enjoyed some recent gains from more aggressive bond holdings, you might consider taking at least a little money off the table. And if you’re looking to put new capital to work, equities look like the better choice … even after their relatively strong run.

Best wishes,

Nilus

Related posts:

  1. Why I Worry So Much about Bonds
  2. Further Limiting Your Risk with CDs (or Bonds)
  3. Another Challenge for Bonds?

Read more here:
Time to Take Profits from Corporate Bonds?

Commodities, ETF, Mutual Fund, Uncategorized

Turning One – iShares’ ALT and PIMCO’s MINT

November 16th, 2010

Today, two more highly successful actively-managed ETFs celebrate their first anniversary – the iShares Diversified Alternatives Trust (ALT: 50.87 0.00%) and the Enhanced Short Maturity Fund (MINT: 101.10 0.00%) from PIMCO. Both funds were launched on November 16th, 2009 at a time when the Active ETF space was just starting to gain media and investor attention. ALT is iShares’ only actively-managed ETF, while MINT was PIMCO’s first Active ETF after which they have brought 3 more active products to market.

PIMCO Enhanced Short Maturity Fund (MINT)

MINT is essentially a money-market alternative that looks to deliver returns that are better than money-market funds through investments in short duration investment-grade debt. The average portfolio duration does not exceed 1 year under normal circumstances. The fund is actively-managed by portfolio manager Jerome Schneider who’s an Executive Vice President and heads up the money market and funding desk at PIMCO. The investment process is driven by PIMCO’s top-down secular outlook and also bottom-up strategies which drive the security selection process. The fund tries to add value over its benchmark which is the Citigroup 3-Month Treasury Bill Index.

As of the date of writing, only 9% of the fund was in government securities, whereas 70% of the fund was in corporate bonds, another 11% in the mortgage sector and even some in emerging markets. The effective duration of the fund is 0.66. In terms of performance, MINT has turned in very impressive performance relative to its benchmark. Since inception, the fund had returned 1.70% as of Oct 31, 2010 compared to the index which returned a measly 0.11%.

MINT is PIMCO’s most successful actively-managed ETF but has quite a volatile asset base dependent on general market conditions and how much market participants are allocating to cash. As such, MINT’s asset base varies inversely with the stock market. When the market does poorly and fear is in the air, cash allocations increase and investors seek out MINT as a safe haven. MINT’s assets peaked at such a time back in May 2010 when its assets crossed $800 million at one point. Once the market resumed its ramp-up, MINT’s assets dropped back down to $330 million in July. At the end of October, the fund had $440 million in assets.

MINT carries a net expense ratio of 0.35%, after a contractually agreed upon fee waiver of 0.04% effective until October 31, 2011. This is more than other passive money-market ETFs such as the iShares Barclays Short Treasury Bond Fund (SHV: 110.21 0.00%) which charges 0.15%. However, the outperformance displayed by MINT over SHV more than makes up for the expense premium charged.

Commodities, ETF

Why Gold Could Go Even Higher

November 16th, 2010

Why Gold Could Go Even Higher

Back in the late 1990s, there was a raft of books calling for the Dow to reach 30,000 or even 100,000. Looking back on it, it seems crazy. But such things are natural during bull markets. Interestingly enough, book titles can be an indicator that a bubble is about to burst.

When it comes to gold, we are starting to see something similar. For example, a recent book called Hard Money makes the bold prediction that gold will eventually hit $10,000 per ounce. It's inevitable that we will see other titles hit the market soon.

But in the case of Hard Money, the author is not a crackpot. He actually manages the GBI Gold Fund and is the head of Global Research at the Teacher Retirement System of Texas. He even convinced the pension fund to take a major stake in gold in 2007.

True, there are many top-notch analysts who have made bad calls. Not many saw the collapse of 2008, right? But in the case of gold, there are certainly strong arguments why the price can go higher. However, there will need to be some key drivers.

One factor is that the global economy will need to remain volatile. Unfortunately, this seems to be likely. With the latest round of quantitative easing from the Federal Reserve, the printing of dollars continues at an alarming rate as the budget deficit continues to expand.

The debt explosion is not just in the United States, but also in Japan and Europe. The problem is that it becomes nearly impossible to pay off these debts with onerous tax hikes. In its place, governments will instead rev up the printing presses and monetize the debt.

The upshot is inflation. This is what happened to the world economy during the 1970s, in which gold spiked 23 times its value.

So if inflation does erupt in the next few years, there's a good chance that investors will see gold as a store of value — that is, an alternative to the U.S. dollar. The main reason is that governments cannot print it. In fact, global gold production grows roughly +1% to +2% per year.

Consider that this week that Robert Zoellick, the head of the World Bank, wrote an op-ed piece in the Financial Times about how the world needs a new monetary system. He thinks gold should play a role, as well as a basket of other currencies like the yen, the euro, the yuan and the pound.

If this happens, central banks would need to buy up large amounts of gold. This will be especially the case in Asian countries, which have much lower levels. For example, China only has 1.5% of its reserves in gold.

But central banks will not be the only buyers. It's likely that major institutions will get aggressive. All in all, their holdings are currently negligible — well under 1% of total assets under management. Yet if money managers increase the allocation to 1%, this would amount to a stunning $900 billion.

So if central banks and institutions boost their allocations of gold, there could easily be a major shift in assets. Of course, this is not likely to happen immediately but it could in the next few years. And while it still may not be enough to get the price of gold at $10,000, there would certainly be enough support to keep the bull market in gold fairly robust.

Action to Take –> There are various ways to play the gold trade. One is to buy mining stocks. [See: "The Best Gold Stock to Own Today"]

While this can yield good results, it can still be time-consuming. After all, you need to crunch the numbers and understand the gold reserve levels. And yes, management may wind-up making bad decisions.

An easier approach is to use an exchange-traded fund (ETF), such as the SPDR Gold Trust (NYSE: GLD). This gives you a fractional, undivided interest in gold bullion (which is warehoused in London). It is much cheaper than buying the actual commodity, which includes insurance and storage costs.


– Tom Taulli

Tom has been a stock commentator for 15 years. He has written a best-selling book, “Investing in IPOs,” and become a frequent guest on shows like CNBC and CNN. Tom has also appeared in the New York Times, BusinessWeek Online and Forbes.com. Read more…

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

This article originally appeared on StreetAuthority
Author: Tom Taulli
Why Gold Could Go Even Higher

Read more here:
Why Gold Could Go Even Higher

ETF, Uncategorized

Why Gold Could Go Even Higher

November 16th, 2010

Why Gold Could Go Even Higher

Back in the late 1990s, there was a raft of books calling for the Dow to reach 30,000 or even 100,000. Looking back on it, it seems crazy. But such things are natural during bull markets. Interestingly enough, book titles can be an indicator that a bubble is about to burst.

When it comes to gold, we are starting to see something similar. For example, a recent book called Hard Money makes the bold prediction that gold will eventually hit $10,000 per ounce. It's inevitable that we will see other titles hit the market soon.

But in the case of Hard Money, the author is not a crackpot. He actually manages the GBI Gold Fund and is the head of Global Research at the Teacher Retirement System of Texas. He even convinced the pension fund to take a major stake in gold in 2007.

True, there are many top-notch analysts who have made bad calls. Not many saw the collapse of 2008, right? But in the case of gold, there are certainly strong arguments why the price can go higher. However, there will need to be some key drivers.

One factor is that the global economy will need to remain volatile. Unfortunately, this seems to be likely. With the latest round of quantitative easing from the Federal Reserve, the printing of dollars continues at an alarming rate as the budget deficit continues to expand.

The debt explosion is not just in the United States, but also in Japan and Europe. The problem is that it becomes nearly impossible to pay off these debts with onerous tax hikes. In its place, governments will instead rev up the printing presses and monetize the debt.

The upshot is inflation. This is what happened to the world economy during the 1970s, in which gold spiked 23 times its value.

So if inflation does erupt in the next few years, there's a good chance that investors will see gold as a store of value — that is, an alternative to the U.S. dollar. The main reason is that governments cannot print it. In fact, global gold production grows roughly +1% to +2% per year.

Consider that this week that Robert Zoellick, the head of the World Bank, wrote an op-ed piece in the Financial Times about how the world needs a new monetary system. He thinks gold should play a role, as well as a basket of other currencies like the yen, the euro, the yuan and the pound.

If this happens, central banks would need to buy up large amounts of gold. This will be especially the case in Asian countries, which have much lower levels. For example, China only has 1.5% of its reserves in gold.

But central banks will not be the only buyers. It's likely that major institutions will get aggressive. All in all, their holdings are currently negligible — well under 1% of total assets under management. Yet if money managers increase the allocation to 1%, this would amount to a stunning $900 billion.

So if central banks and institutions boost their allocations of gold, there could easily be a major shift in assets. Of course, this is not likely to happen immediately but it could in the next few years. And while it still may not be enough to get the price of gold at $10,000, there would certainly be enough support to keep the bull market in gold fairly robust.

Action to Take –> There are various ways to play the gold trade. One is to buy mining stocks. [See: "The Best Gold Stock to Own Today"]

While this can yield good results, it can still be time-consuming. After all, you need to crunch the numbers and understand the gold reserve levels. And yes, management may wind-up making bad decisions.

An easier approach is to use an exchange-traded fund (ETF), such as the SPDR Gold Trust (NYSE: GLD). This gives you a fractional, undivided interest in gold bullion (which is warehoused in London). It is much cheaper than buying the actual commodity, which includes insurance and storage costs.


– Tom Taulli

Tom has been a stock commentator for 15 years. He has written a best-selling book, “Investing in IPOs,” and become a frequent guest on shows like CNBC and CNN. Tom has also appeared in the New York Times, BusinessWeek Online and Forbes.com. Read more…

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

This article originally appeared on StreetAuthority
Author: Tom Taulli
Why Gold Could Go Even Higher

Read more here:
Why Gold Could Go Even Higher

ETF, Uncategorized

This Trade Could Help You Avoid the Coming Correction

November 16th, 2010

This Trade Could Help You Avoid the Coming Correction

We are now only two weeks away from what my systems are telling me should be a major market correction. My advice to you is to raise stops and consider taking profits. That is of course, if you happen to not believe that the Federal Reserve can simply overwhelm a market that is experiencing a struggling economy and an ever growing mountain of debt.

As I discuss in far more detail in my premium service, Mastering the Markets, stock prices do not move higher or lower because of fundamentals, technicals, geo-political events or global economies. Share prices fluctuate because of one thing and one thing only: investor demand for shares or lack thereof.

So, let me ask you a question… Let's say you gaze into one of my time-cycle forecast charts and see that the market is getting prepared to plummet. You know these forecasts are right about 80% of the time, so you are thinking, “Maybe I should get back to cash, just in case Mike Turner and his time-cycle charts are right.” And you might be thinking, “The risk is just too high to stay fully invested.”

But, let's say you happen to have $100 billion and you need to get it invested this month — and another $100 billion next month. You know that whatever equity you buy, you will be driving the price higher. And, it takes a LOT of work to get that much money into the market. Now you have another set of risks — the risk of not investing the money that you are required to put into the market.

So, just to keep things on the safe side, where would you put that money to work? Odds are, you would be buying hard assets — things that have intrinsic value — things that will hurt you if you drop them on your foot — those kinds of investments. That would be gold, silver, copper, iron and even oil. You might not be able to sell shares of XYZ Services Company, but you can always sell bars of gold or silver or barrels of oil.

This is why commodity prices continue to move higher. There is too much money chasing too few shares of commodity-based stocks. This dramatically increases demand. And the higher the demand, the higher the share price for commodity-based stocks.

So, even though the market (including commodity stocks) should have a normal correction and my analysis says a correction is long overdue, I suspect hard asset stocks will continue to move higher as long as Ben Bernanke keeps feeding the market with an unlimited bank account.

With all of the above in mind, let's look at the gold miner index:

As you can see, a small pullback is likely for the next week or so, and then the chart explodes higher.
One of my favorite gold stocks is Agnico-Eagle Mines Ltd (NYSE: AEM). This is a Canadian based gold and silver miner that has a raw gold production cost of about $400 per ounce (according to the CEO). With gold now selling for more than three times that number, the odds that AEM can produce substantive profits into the future are very high in my opinion.

As you can see above from my Demand Fundamentals and Demand Technicals, this is a strong stock with all the right indicators.

But with the expected pullback this week, I do not want to trade up for it. As such, I am putting my limit order well below this past Friday's closing price. Hopefully, we can pick up a bargain and even more hopefully, the time-cycle chart for the next 90 days proves to be accurate.

The two tables above are new to you even though I often refer to my “Demand” fundamentals. I go into quite a bit of explanation in my Mastering the Markets letter this week regarding the significance of each of these indicators. Please read that letter for a more detailed explanation of the above two tables. [Click here to find out how to get my premium letter each week.]

In short, I have found a dozen key indicators regarding a stock's fundamentals that I believe have the biggest impact to driving the demand of investors to own more or to sell more shares of a company. Demand drives prices — both up and down.

In my rules-based trading methodology, I have developed a scoring and rating process whereby I can score a stock's Demand Fundamentals and Demand Technicals. Each component has a relative value to what I believe are the most important aspects of each stock and has the greatest impact on driving demand for shares.

Take a look at these two tables. I think you will find the information extremely valuable and will give you a very quick assessment of the merit of the company and the stock.

Action to Take–> Based on the analysis above, I believe AEM is a good trade to put on now with a limit order at $77.03 and stop loss at $71.94. My target price for this trade is $96, which would give traders a +24.6% profit.


– Mike Turner

Uncategorized

This Trade Could Help You Avoid the Coming Correction

November 16th, 2010

This Trade Could Help You Avoid the Coming Correction

We are now only two weeks away from what my systems are telling me should be a major market correction. My advice to you is to raise stops and consider taking profits. That is of course, if you happen to not believe that the Federal Reserve can simply overwhelm a market that is experiencing a struggling economy and an ever growing mountain of debt.

As I discuss in far more detail in my premium service, Mastering the Markets, stock prices do not move higher or lower because of fundamentals, technicals, geo-political events or global economies. Share prices fluctuate because of one thing and one thing only: investor demand for shares or lack thereof.

So, let me ask you a question… Let's say you gaze into one of my time-cycle forecast charts and see that the market is getting prepared to plummet. You know these forecasts are right about 80% of the time, so you are thinking, “Maybe I should get back to cash, just in case Mike Turner and his time-cycle charts are right.” And you might be thinking, “The risk is just too high to stay fully invested.”

But, let's say you happen to have $100 billion and you need to get it invested this month — and another $100 billion next month. You know that whatever equity you buy, you will be driving the price higher. And, it takes a LOT of work to get that much money into the market. Now you have another set of risks — the risk of not investing the money that you are required to put into the market.

So, just to keep things on the safe side, where would you put that money to work? Odds are, you would be buying hard assets — things that have intrinsic value — things that will hurt you if you drop them on your foot — those kinds of investments. That would be gold, silver, copper, iron and even oil. You might not be able to sell shares of XYZ Services Company, but you can always sell bars of gold or silver or barrels of oil.

This is why commodity prices continue to move higher. There is too much money chasing too few shares of commodity-based stocks. This dramatically increases demand. And the higher the demand, the higher the share price for commodity-based stocks.

So, even though the market (including commodity stocks) should have a normal correction and my analysis says a correction is long overdue, I suspect hard asset stocks will continue to move higher as long as Ben Bernanke keeps feeding the market with an unlimited bank account.

With all of the above in mind, let's look at the gold miner index:

As you can see, a small pullback is likely for the next week or so, and then the chart explodes higher.
One of my favorite gold stocks is Agnico-Eagle Mines Ltd (NYSE: AEM). This is a Canadian based gold and silver miner that has a raw gold production cost of about $400 per ounce (according to the CEO). With gold now selling for more than three times that number, the odds that AEM can produce substantive profits into the future are very high in my opinion.

As you can see above from my Demand Fundamentals and Demand Technicals, this is a strong stock with all the right indicators.

But with the expected pullback this week, I do not want to trade up for it. As such, I am putting my limit order well below this past Friday's closing price. Hopefully, we can pick up a bargain and even more hopefully, the time-cycle chart for the next 90 days proves to be accurate.

The two tables above are new to you even though I often refer to my “Demand” fundamentals. I go into quite a bit of explanation in my Mastering the Markets letter this week regarding the significance of each of these indicators. Please read that letter for a more detailed explanation of the above two tables. [Click here to find out how to get my premium letter each week.]

In short, I have found a dozen key indicators regarding a stock's fundamentals that I believe have the biggest impact to driving the demand of investors to own more or to sell more shares of a company. Demand drives prices — both up and down.

In my rules-based trading methodology, I have developed a scoring and rating process whereby I can score a stock's Demand Fundamentals and Demand Technicals. Each component has a relative value to what I believe are the most important aspects of each stock and has the greatest impact on driving demand for shares.

Take a look at these two tables. I think you will find the information extremely valuable and will give you a very quick assessment of the merit of the company and the stock.

Action to Take–> Based on the analysis above, I believe AEM is a good trade to put on now with a limit order at $77.03 and stop loss at $71.94. My target price for this trade is $96, which would give traders a +24.6% profit.


– Mike Turner

Uncategorized

The Quiet Revolution That’s Sent One Stock Up +49% Since July

November 16th, 2010

The Quiet Revolution That's Sent One Stock Up +49% Since July

You are taking part in a revolution.

If you pay to drive through a toll booth, or you travel abroad, or in some cases use your credit card, you're a willing participant. But this handful of actions is just a sliver of what's to come.

In fact, it's just a tiny fraction of what's already taken place. Everything from manufacturing, to retail, to energy production has felt the impact of this revolution. Despite the broad application this technology has already seen, however, there's no doubt we're still in the early innings.

And if you're an investor like me who is always looking for game-changing ideas, I think I've found one. It's RFID.

RFID is an acronym for radio frequency identification. The technology comes in the form of tags that emit a radio signal as they pass a scanner. This signal is pretty much the same as a bar code — a long number that can provide a ton of information. But unlike bar codes, you don't have to scan each one individually with a laser; you can use a radio receiver, which makes it much easier to scan items that are densely packed or are moving quickly.

And while the technology has been in use behind-the-scenes, it is just now moving into our daily lives. RFID tags are used in your E-ZPass — the device tollbooth scanners read as you drive by and “magically” charge you. Some credit cards have RFID tags, allowing users to simply wave their card across a reader, instead of handing a card to a cashier, swiping it through the scanner, and then signing a receipt. And all newly issued passports contain an RFID chip that is used to cross-check the information printed in the passport for improved security.

Hundreds of practical, profitable applications
But I don't classify a few million chips put into passports or toll tags as a game-changer. No, the real opportunity is with this technology's application for industry.

RFID is fascinating from an industrial standpoint. In short, the product helps improve efficiency. That might not sound like the sexiest goal on the planet, but there isn't a business manager in the world that wouldn't gladly spend cold hard cash if it means saving tons of money down the line. And that's exactly what's happening in all sorts of places. Take a look for yourself at how expansive the usage of RFID truly is…

Manufacturing: It used to take seven workers to transfer, unload, and manually enter the shipping/receiving data for parts and material shipments at a Boeing (NYSE: BA) plant in Washington. It took two hours a day per employee to read and record all the bar codes from each shipment. And there was no guarantee of accuracy.

Enter RFID. Boeing put RFID tags on these goods. The tags are automatically read by a scanner on the door frame, the data is sent to the warehouse management systems, which automatically generate a wire transfer to the supplier when goods are received. Now Boeing needs one worker, the system is perfectly accurate, and the savings in labor costs alone paid for the hardware investment in just six months.

Asset management: The Texas Tech University Health Sciences Center has tons of state-of-the-art equipment for its students and faculty. A lot of them, of course, are small, and the school needed a way to keep tabs on everything.

Bar codes were onerous to use and ultimately proved error-prone and ineffective. But installing RFID scanners and tagging the equipment could create a real-time picture of what devices were where. This application has hundreds of other uses, from law firm files to inventory control on car lots.

Loss prevention: Airline passenger volume is projected to hit four billion people by 2019, which will, at current levels of loss, generate nearly 70 million lost bags a year.

Fun fact: Each lost bag costs the airline about $130. That means in just the span of a few years lost baggage will be a $9.1 billion problem each year.

Fitting bags with RFID tags is a simple solution to a complex problem. The tags can be read at dozens of points throughout the underbelly of an airport as they move from point to point, ensuring that they are routed and loaded correctly. The more bags loaded quickly and correctly, the better an airline's on-time performance and customer satisfaction. That's dollars and cents — billions of them — that can be bought back and added to the carrier's bottom line with a relatively modest RFID investment.

Retailing: Beginning with jeans, Walmart (NYSE: WMT) is testing the technology, which can help a customer see if the jeans they want are in stock and literally where they are. The company could add this capability to thousands of products in its stores.

Action to Take –> When it affects this many areas (and believe me, this is just a taste), it's not a question of if RFID will catch on, but which stocks are going to profit the most from the revolution.

There are a number of options in the space, and to be honest, I'm still researching the field to pin down my favorite. But if you want to start your own search, you might start with a company called Zebra Technologies (Nasdaq: ZBRA).

The shares have been on a tear recently — they're up +49% since July. I'm keeping an eye on them and doing some further hunting elsewhere as well.


–Andy Obermueller

P.S. — There's no doubt RFID is a game-changing idea. But when you really start digging, as I do on a daily basis, you find there are enough game-changing opportunities to make you a millionaire several times over. With that in mind, I recently put together some of my favorites in a special report called The Hottest Investment Opportunities for 2011. Click here for details on this report.

Andy spent a decade as a financial journalist writing for some of the largest newspapers in the nation. His acumen helped guide the financial news read by over a million people each day. Read more…

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

This article originally appeared on StreetAuthority
Author: Andy Obermueller
The Quiet Revolution That's Sent One Stock Up +49% Since July

Read more here:
The Quiet Revolution That’s Sent One Stock Up +49% Since July

OPTIONS, Uncategorized

The Quiet Revolution That’s Sent One Stock Up +49% Since July

November 16th, 2010

The Quiet Revolution That's Sent One Stock Up +49% Since July

You are taking part in a revolution.

If you pay to drive through a toll booth, or you travel abroad, or in some cases use your credit card, you're a willing participant. But this handful of actions is just a sliver of what's to come.

In fact, it's just a tiny fraction of what's already taken place. Everything from manufacturing, to retail, to energy production has felt the impact of this revolution. Despite the broad application this technology has already seen, however, there's no doubt we're still in the early innings.

And if you're an investor like me who is always looking for game-changing ideas, I think I've found one. It's RFID.

RFID is an acronym for radio frequency identification. The technology comes in the form of tags that emit a radio signal as they pass a scanner. This signal is pretty much the same as a bar code — a long number that can provide a ton of information. But unlike bar codes, you don't have to scan each one individually with a laser; you can use a radio receiver, which makes it much easier to scan items that are densely packed or are moving quickly.

And while the technology has been in use behind-the-scenes, it is just now moving into our daily lives. RFID tags are used in your E-ZPass — the device tollbooth scanners read as you drive by and “magically” charge you. Some credit cards have RFID tags, allowing users to simply wave their card across a reader, instead of handing a card to a cashier, swiping it through the scanner, and then signing a receipt. And all newly issued passports contain an RFID chip that is used to cross-check the information printed in the passport for improved security.

Hundreds of practical, profitable applications
But I don't classify a few million chips put into passports or toll tags as a game-changer. No, the real opportunity is with this technology's application for industry.

RFID is fascinating from an industrial standpoint. In short, the product helps improve efficiency. That might not sound like the sexiest goal on the planet, but there isn't a business manager in the world that wouldn't gladly spend cold hard cash if it means saving tons of money down the line. And that's exactly what's happening in all sorts of places. Take a look for yourself at how expansive the usage of RFID truly is…

Manufacturing: It used to take seven workers to transfer, unload, and manually enter the shipping/receiving data for parts and material shipments at a Boeing (NYSE: BA) plant in Washington. It took two hours a day per employee to read and record all the bar codes from each shipment. And there was no guarantee of accuracy.

Enter RFID. Boeing put RFID tags on these goods. The tags are automatically read by a scanner on the door frame, the data is sent to the warehouse management systems, which automatically generate a wire transfer to the supplier when goods are received. Now Boeing needs one worker, the system is perfectly accurate, and the savings in labor costs alone paid for the hardware investment in just six months.

Asset management: The Texas Tech University Health Sciences Center has tons of state-of-the-art equipment for its students and faculty. A lot of them, of course, are small, and the school needed a way to keep tabs on everything.

Bar codes were onerous to use and ultimately proved error-prone and ineffective. But installing RFID scanners and tagging the equipment could create a real-time picture of what devices were where. This application has hundreds of other uses, from law firm files to inventory control on car lots.

Loss prevention: Airline passenger volume is projected to hit four billion people by 2019, which will, at current levels of loss, generate nearly 70 million lost bags a year.

Fun fact: Each lost bag costs the airline about $130. That means in just the span of a few years lost baggage will be a $9.1 billion problem each year.

Fitting bags with RFID tags is a simple solution to a complex problem. The tags can be read at dozens of points throughout the underbelly of an airport as they move from point to point, ensuring that they are routed and loaded correctly. The more bags loaded quickly and correctly, the better an airline's on-time performance and customer satisfaction. That's dollars and cents — billions of them — that can be bought back and added to the carrier's bottom line with a relatively modest RFID investment.

Retailing: Beginning with jeans, Walmart (NYSE: WMT) is testing the technology, which can help a customer see if the jeans they want are in stock and literally where they are. The company could add this capability to thousands of products in its stores.

Action to Take –> When it affects this many areas (and believe me, this is just a taste), it's not a question of if RFID will catch on, but which stocks are going to profit the most from the revolution.

There are a number of options in the space, and to be honest, I'm still researching the field to pin down my favorite. But if you want to start your own search, you might start with a company called Zebra Technologies (Nasdaq: ZBRA).

The shares have been on a tear recently — they're up +49% since July. I'm keeping an eye on them and doing some further hunting elsewhere as well.


–Andy Obermueller

P.S. — There's no doubt RFID is a game-changing idea. But when you really start digging, as I do on a daily basis, you find there are enough game-changing opportunities to make you a millionaire several times over. With that in mind, I recently put together some of my favorites in a special report called The Hottest Investment Opportunities for 2011. Click here for details on this report.

Andy spent a decade as a financial journalist writing for some of the largest newspapers in the nation. His acumen helped guide the financial news read by over a million people each day. Read more…

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

This article originally appeared on StreetAuthority
Author: Andy Obermueller
The Quiet Revolution That's Sent One Stock Up +49% Since July

Read more here:
The Quiet Revolution That’s Sent One Stock Up +49% Since July

OPTIONS, Uncategorized

4 Surging Small Caps That Could Go Higher

November 16th, 2010

4 Surging Small Caps That Could Go Higher

We're now in a “stock picker's market.” The major averages are now moving sideways after a sustained two-month upward move, which means that stock selection becomes ever more crucial.

In this kind of trading environment, it pays to see what's working. Insights into why certain stocks are sharply rising while most stocks stay in a range can help sharpen your understanding of investor psychology and sector catalysts. [Read our free course: "Catalyst Investing Secrets"]

With that in mind, here's a look at four small cap stocks (members of the Russell 2000 Index) that have risen at least +50% in the past month.

iStar Financial (NYSE: SFI)
When you're carrying more than $8 billion in debt, it's crucial that your cash flow stays strong to cover principal and interest payments. So when iStar, a major lender to commercial real estate developers, noted this summer that more than 40% of its clients had stopped making payments, short sellers started to smell trouble. By September, iStar conceded that it may need to seek bankruptcy protection. That's like manna from heaven for short sellers. But they'd soon be disappointed: iStar announced in late October that it was able to raise cash by selling some major loans it held, and that in turn would keep its own lenders at bay for a while longer.

The course is still tricky. A June 2012 bond was recently paid off, but iStar still needs to come up with roughly $3 billion more to pay off debts in 2011. Alternatively, the company could seek to extend the expiration of its 2011 obligations, a task that is now much easier in light of a somewhat stronger balance sheet. That move appears increasingly likely, so the bankruptcy risk should go away. But is the stock undervalued after the recent rebound? Yes — with caveats.

iStar's real estate loans were worth more than $11 billion a few years ago, but the company has had to write off roughly $5 billion of that amount. If the commercial real estate sector starts to rebound (a real possibility if employment picks up and companies need more office space), then much of those write-downs could be written back up. iStar's equity is now worth just $500 million, and a $2 billion to $3 billion write-up in the next few years could push the company's equity value back up to $1 billion or even $2 billion (iStar's equity was worth $4.5 billion before the economy tanked). Any fruitful discussions about loan extensions could push shares up +50% toward $8, and a materially stronger economy could push this stock to $15 or $20.

Broadsoft (Nasdaq: BSFT)
Start with a fairly unknown company, toss in a fairly limited trading float, and then sprinkle in an impressive quarter. Those ingredients are the recipe for a very strong stock surge for Broadsoft, which helps standardize data streams across a range of hardware platforms. The company is now on track to boost sales +30% this year, and at least another +20% next year, as major network operators are currently investing in data flow improvements.

Trouble is, this stock is now in the hands of momentum investors who have pushed up shares for six straight sessions for a tidy gain of about +66%. Daily trading volume has surged, but as soon as it cools, momentum investors are likely to book profits, especially since shares now trade for more than 30 times upwardly-revised 2011 profit forecasts. If you like Broadsoft's business model, you need to wait for a pullback.

Motricity (Nasdaq: MOTR)
When I looked at this wireless software vendor company back in August when shares traded for less than $8, I thought they looked undervalued. Now with shares approaching $30, they clearly look overvalued. And we have stock cheerleader Jim Cramer to thank for that. He's been talking up the stock recently, even though it now trades for more nearly seven times projected 2011 sales and more than 30 times next year's profits. Needham's Mark May, who has been a booster of the stock since its June, 2010 IPO, thinks it's worth only $23 — roughly -20% below current levels.

Cheniere Energy (AMEX: LNG)
Back in 2006 and 2007, this company was a key member of many energy-focused portfolios. Cheniere was building specialized energy terminals that could receive and house imported liquefied natural gas (LNG) in the Gulf of Mexico to help the United States address a looming shortage of natural gas. But by 2008, dozens of untapped new gas fields were found, creating a sudden glut and removing the need for natural gas imports. Shares subsequently lost -90% of their value.

Yet Cheniere is turning lemons into lemonade by repositioning its energy depots to export LNG. The move makes sense. The U.S. is now the world's largest producer of natural gas, exceeding output in places such as Russia, Iran and Australia. And the price of natural gas in Asia is 150% higher than here in the U.S.

Cheniere initially planned to build three LNG terminals but was stopped in its tracks after the first one was built. Those stalled second and third plants may get the green light — if the company can secure a range of long-term supply agreements. China has already signed on, and other Asian nations may follow suit. Despite the recent pop, this could quickly become an even hotter stock if new contract agreements are announced.

Action to Take –> Both iStar and Cheniere are high-risk/high-reward plays that could merit a small speculative position. It would be nice to see a pullback (which should be a rule of thumb with any hot momentum plays), but a clear case can be made for significant further upside. Motricity and Broadsoft surged last month for justifiable reasons, but they've gone too far, too fast.


– David Sterman

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
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