My 3 Favorite Small Cap Stocks for 2011

December 8th, 2010

My 3 Favorite Small Cap Stocks for 2011

Off the radar — but only for a little while longer. That's the investment thesis I look for when searching for stock ideas. Good companies, doing all the right things, getting set to pop up on more investors' radars in the coming year.

These three companies look set to garner appreciation in 2011 for steps they are taking in 2010.

A holiday season play — and then some
Roughly a decade ago, Leapfrog (NYSE: LF) was the hottest name in the children's toy space, thanks to a line of products called LeapPad, a tabular reading software platform that allowed children to read along syllable by syllable. The product was an instant smash, quickly selling millions of units. Word of mouth among moms proved at least as important as advertising. But the company was never able to follow up on that success: from 2003 to 2009, sales fell by more than -40%, and shares, which were once richly-valued, lost more than -95% of their value.

Yet as any parent that has recently browsed the toy aisles will tell you, Leapfrog is quickly becoming relevant again. In recent quarters, LeapFrog's newest products are again gaining traction with parents and kids. Sales, which fell below $400 million in 2009, should exceed $450 million this year and top $500 million next year.

The seeds of a turnaround appeared in 2008 when the company introduced Tag, a pen-based computer system that can upload and download information. That summer, management also rolled out three new product lines, including an upgraded version of the original LeapPad. Those products are finally finding appeal with consumers.

That sales momentum should be in evidence this holiday season as Leapfrog's products have been gaining all kinds of buzz among industry watchers. Most importantly, this shouldn't be a one-time fad. As analysts at Imperial Capital recently noted, “The Leapster Explorer has been an early success thus far, generating the highest presale orders of any LeapFrog product in its history. Since its launch, it has been featured on many top holiday gift lists and has created significant buzz amongst retailers and consumers. We believe this bodes well for the holiday season and the long-term brand positioning and growth of LeapFrog.” Shares have rebounded from $4 to $6 as word of the rejuvenated Leapfrog has spread, but shares could hit $8 or even $10 if the holiday season is as strong as some suspect it will be for this erstwhile highflyer.

eResearch (Nasdaq: ERES)
This company would like to put 2010 behind it. It pulled off a savvy acquisition that is boosting sales and profits, yet its stock has drifted lower as investors have seemingly lost interest. In coming quarters, though, investors in eResearch are likely to re-visit this impressive growth story, pushing back the stock up to and beyond its 52-week high of $9.

I first profiled this clinical testing data provider back in May, soon after it pulled off a big acquisition. [See my article here]

Shares have fallen -20% since then. Though it's wise to cut your losses on stock ideas that don't pan out, an investment in eResearch in 2010 simply looks like bad timing, not a bad stock idea.

So what went wrong? The company announced in November that it filed a shelf offering to raise an additional $150 million. Management has subsequently told investors that it has no interest in raising fresh capital after its shares lost -25% of their value in the last month. In addition, the company has been operating without a permanent CEO, though that post is likely to be filled in the next few months.

If and when those issues move off the table, investors will again squarely focus on what is a solid growth story. The above-noted acquisition is set to boost revenue nearly +50% this year and another +30% in 2011. More importantly, EPS is rising at a +50% clip. Beyond 2011, eResearch will likely need to pull off another deal — perhaps in the field of “Automated Algorithms,” which has become a new testing approach among Contract Research Organizations (CROs) — as it further extends its platform to become a one-stop shop for Big Pharma customers. While CRO rivals such as Covance (NYSE: CVD) and Charles River Labs (NYSE: CRL) trade for more than eight times projected 2011 EBITDA, eResearch fetches just 4.5 times 2011 EBITDA.

KVH Industries (Nasdaq: KVHI)
Once a ship is out at sea, a phone call home — or simply watching satellite TV — can be quite costly. After many years selling navigation equipment to commercial and military ships, KVH is using its expertise to also deliver a full suite of reasonably priced communications and entertainment services for those out at sea. The company's TracPhone is being used on an increasing number of ships, generating high-margin recurring revenue streams. And that steady ramp up in customers looks set to coincide with an impressive rebound in its core navigation business.

KVH doesn't run a network of satellites. Instead, its expertise lies in its antenna technology that can help pull in weak signals and deliver voice and data at prices lower than other satellite-intensive firms. The company's high-bandwidth, low-cost approach could be facing a potentially large target market: Marisec.org estimates that there are more than 50,000 ships at sea in any given month. The International Maritime Organization's estimate is closer to 100,000.

KVH's 2010 results can be summarized quite easily: strong defense-related business for its FOG (fiber optic gyroscope) navigation equipment and more modest results for that nascent TracPhone business. Total sales are likely to finish the year about +25% above 2009 levels. Looking into next year, the stars appear aligned for both cylinders to be firing, leading to a further +20% to +30% gain in sales.

The TracPhone business should finally build a head of steam now that KVH has a truly global footprint in place. The Coast Guard just signed up for a 10-year, $42 million contract, and KVH is expected to secure other key wins over the next few quarters.

Yet this remains as a “show-me” stock, as shares have largely moved sideways in the past year. As both cylinders start to fire, shares could finally move up toward the $20 mark, reflecting the long-term view of strong growth and rising recurring revenue streams.

Action to Take –> These three stocks remain below the radar, even as they are steadily building out their product lines to capture more customers and bag higher profits. Next year could shape up to be a breakout year for these names.


– 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
My 3 Favorite Small Cap Stocks for 2011

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My 3 Favorite Small Cap Stocks for 2011

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How to Buy Gold for Only $159 an Ounce

December 8th, 2010

How to Buy Gold for Only $159 an Ounce

Since reaching a multi-decade low of $251.70 in August 1999, gold has been a top performing investment. Even during the 2008 financial crisis, it was only one of the few assets that increased in value (up +5.8%).

While top-notch investors like John Paulson are still bullish, gold still appears to be overheated. It certainly would be nice to be able to buy gold at, say, $800 or even $900 an ounce, but it's not possible to find such opportunities.

Or could it? OK, it does sound as fanciful as alchemy. But there is a clever way to buy gold at a discount. In fact, it's even possible to get it at a discount to the 1999 low.

How? You can buy stocks of miners. Take Gold Fields Ltd. (NYSE: GFI). The company has mines in far-off places like South Africa, Ghana, Australia and Peru. The total reserves of the company come to about 78.9 million ounces of gold.

Yet the market value for Gold Fields is roughly $13 billion. In other words, if you bought all the shares, you would be getting the gold deposits at about $164.77 per ounce ($13 billion / 78.9 million = $167.77 per ounce).

This is not an anomaly. Here's a list of other top miners:

Why the gap between Gold Fields' cost per ounce and the other miners? There are several key reasons. For example, it will take many years to extract the gold. Thus, the value of this future cash flow is lower. Also, there are risks of extracting the gold. After all, Gold Fields is not the only mining company with operations in dicey countries.

Despite all this, an investor is still getting a nice deal on the overall value of the deposits. Although, just like any investment, this should not be the only factor.

In light of the spikes in gold prices, it makes sense to find a company that is accelerating its production and is also trading a low valuation. An example is Yamana Gold (NYSE: AUY). Based in Canada, the company has properties relatively stable countries like Brazil, Argentina, Chile, Mexico and Colombia.

According to the latest earnings report, revenue spiked +36% to $454 million in the quarter, and mine operating earnings were up +48% to $201.2 million. Production has been increasing steadily and the positive trend should continue. Keep in mind that the company will see new mines come online in 2012 and 2013.

Yamana also has a low cost structure. The company has a cash expense of $104 per gold equivalent ounce (GEO). As a result, Yamana has been producing substantial cash flow.

Action to Take –> There are certainly strong forces propelling the price for gold. With the debt explosion — especially with the Federal Reserve's easy money policy — there are legitimate fears that inflation will eventually come roaring back. [For more on why gold could go higher, check out my recent piece, "Why Gold Could Go Even Higher"]

If so, investors will seek an alternative to the dollar. Traditionally, this has been gold.

Moreover, central banks and institutional investors are already buying up gold, and there is much room for more. (Keep in mind that China has less than 2% of its reserves in gold.)

But as with any investment, there needs to be caution. Gold has had a big run-up and it will inevitably have corrections. Just look back to the 1970s, when gold shot up 23-fold. During this period, there were severe painful price drops.

Yet, there are a variety of solid gold mining companies, like Yamana, which are selling at compelling valuations when compared to the current price of gold., The company's shares are even reasonable using the traditional price to earnings (P/E) ratio, at 28 times earnings. And more importantly, the company has mines in fairly stable jurisdictions and is likely to see growing production over the long haul.


– 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
How to Buy Gold for Only $159 an Ounce

Read more here:
How to Buy Gold for Only $159 an Ounce

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How to Buy Gold for Only $159 an Ounce

December 8th, 2010

How to Buy Gold for Only $159 an Ounce

Since reaching a multi-decade low of $251.70 in August 1999, gold has been a top performing investment. Even during the 2008 financial crisis, it was only one of the few assets that increased in value (up +5.8%).

While top-notch investors like John Paulson are still bullish, gold still appears to be overheated. It certainly would be nice to be able to buy gold at, say, $800 or even $900 an ounce, but it's not possible to find such opportunities.

Or could it? OK, it does sound as fanciful as alchemy. But there is a clever way to buy gold at a discount. In fact, it's even possible to get it at a discount to the 1999 low.

How? You can buy stocks of miners. Take Gold Fields Ltd. (NYSE: GFI). The company has mines in far-off places like South Africa, Ghana, Australia and Peru. The total reserves of the company come to about 78.9 million ounces of gold.

Yet the market value for Gold Fields is roughly $13 billion. In other words, if you bought all the shares, you would be getting the gold deposits at about $164.77 per ounce ($13 billion / 78.9 million = $167.77 per ounce).

This is not an anomaly. Here's a list of other top miners:

Why the gap between Gold Fields' cost per ounce and the other miners? There are several key reasons. For example, it will take many years to extract the gold. Thus, the value of this future cash flow is lower. Also, there are risks of extracting the gold. After all, Gold Fields is not the only mining company with operations in dicey countries.

Despite all this, an investor is still getting a nice deal on the overall value of the deposits. Although, just like any investment, this should not be the only factor.

In light of the spikes in gold prices, it makes sense to find a company that is accelerating its production and is also trading a low valuation. An example is Yamana Gold (NYSE: AUY). Based in Canada, the company has properties relatively stable countries like Brazil, Argentina, Chile, Mexico and Colombia.

According to the latest earnings report, revenue spiked +36% to $454 million in the quarter, and mine operating earnings were up +48% to $201.2 million. Production has been increasing steadily and the positive trend should continue. Keep in mind that the company will see new mines come online in 2012 and 2013.

Yamana also has a low cost structure. The company has a cash expense of $104 per gold equivalent ounce (GEO). As a result, Yamana has been producing substantial cash flow.

Action to Take –> There are certainly strong forces propelling the price for gold. With the debt explosion — especially with the Federal Reserve's easy money policy — there are legitimate fears that inflation will eventually come roaring back. [For more on why gold could go higher, check out my recent piece, "Why Gold Could Go Even Higher"]

If so, investors will seek an alternative to the dollar. Traditionally, this has been gold.

Moreover, central banks and institutional investors are already buying up gold, and there is much room for more. (Keep in mind that China has less than 2% of its reserves in gold.)

But as with any investment, there needs to be caution. Gold has had a big run-up and it will inevitably have corrections. Just look back to the 1970s, when gold shot up 23-fold. During this period, there were severe painful price drops.

Yet, there are a variety of solid gold mining companies, like Yamana, which are selling at compelling valuations when compared to the current price of gold., The company's shares are even reasonable using the traditional price to earnings (P/E) ratio, at 28 times earnings. And more importantly, the company has mines in fairly stable jurisdictions and is likely to see growing production over the long haul.


– 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
How to Buy Gold for Only $159 an Ounce

Read more here:
How to Buy Gold for Only $159 an Ounce

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Charting the Rally to 30 in Silver and SLV Weekly and Daily

December 8th, 2010

While many investors or traders have been focused on gold prices, the Silver market has actually outperformed in a big way, but it’s come into a round number resistance level that’s worth studying more.

Let’s take a look at the (amazing) weekly chart of Silver, then turn to the Daily Chart for key levels to watch along with a few lessons on entries into breakout markets.

Silver Weekly:

If you look very closely, Silver prices have had major turns at round numbers such as $10 (the bottom in 2008), key long-term resistance at $20, and once price broke above the $20 resistance, now we’re facing a similar overhead ’round number’ resistance at $30.

I think the key to this chart – or the lesson at least – is that commodities can rally for extended periods of time with minimal pullbacks.

Also, a price breakout from a key, obvious resistance level – $20 – clears the way for upside targets that theoretically have no upper limit.  Round numbers are always interesting targets to play for, but the question is what will stop the rally?

The long-term chart pattern is that of a two-year Ascending Triangle that met its rough price projection target at the $30 level recently – so that’s something to watch too.

Triangle price projections are calculated by taking the height (from the $9 level to the $20 level) of about $11 and adding it to the breakout price at $20, which gives a target in the $30 to $31 region – here.

Let’s now turn to the Daily Chart and then focus on the SLV.

I’ll focus most of the comments on the SLV, but I wanted to provide the Silver Index (StockCharts.com) chart for reference (it looks a little cleaner than SLV).

Now let’s move to the tradeable/investable SLV ETF:

The breakout was a little unusual, in that – at least in SLV – volume did not come flooding in during the August/September 2010 breakout above resistance.  Volume started to pick up on the breakout above $20, but not in an obvious way until November and December.

Anyway, within the context of a breakout market, there are really two main types of trades to take.

The first is of course the original breakout which would be late August/early September, with an official trigger on the break above $20.  Breakout trades have theoretically unlimited targets where it’s often best to trail a stop usually under the rising 20 EMA – which would have worked wonders in this situation.

And that brings us to the second type of trade, which is the classic retracements to the rising 20 EMA in the context of a breakout or trending move.

There were three specific opportunities, namely mid-October and then twice in November when SLV’s price pulled back exactly to the rising 20 day EMA, formed a reversal candle, and then rallied back off the support line.

You can place and trail a stop conservatively under the 20 EMA or a bit more aggressively under the 50 EMA (as sometimes price can nip under the 20 EMA and resume its trend, as was the case with mid-November’s doji at the $25 price level).

In the context of a trend, always check momentum and volume – both of which have been RISING (new momentum highs often precede new price highs) until recently in December.

So putting it into context, price recently hit a major “round number” resistance area at $30 per share, which happens to be a rough price pattern projection target.  On the push to known ‘resistance,’ a negative momentum and volume divergence formed.

Divergences are not panic signals, but they are non-confirmations that clue us in to guard open positions a bit more closely and be less biased and more open to new developments in the charts/price.

What now?

Watch the $27.00 area as a key test of the strength of the rally, as it is both the rising 20 day EMA (again) and a little horizontal trendline as drawn.

As is the usual case, any sharp breakdown under the rising 20 EMA sets a short-term support target of the rising 50 day EMA at $25 which also is the lower Bollinger Band.

And of course, any sharp breakdown under $25 argues for a reversal instead of a classic retracement to rising support in the context of an uptrend.

Should be interesting!

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
Charting the Rally to 30 in Silver and SLV Weekly and Daily

Commodities, ETF, Uncategorized

Charting the Rally to 30 in Silver and SLV Weekly and Daily

December 8th, 2010

While many investors or traders have been focused on gold prices, the Silver market has actually outperformed in a big way, but it’s come into a round number resistance level that’s worth studying more.

Let’s take a look at the (amazing) weekly chart of Silver, then turn to the Daily Chart for key levels to watch along with a few lessons on entries into breakout markets.

Silver Weekly:

If you look very closely, Silver prices have had major turns at round numbers such as $10 (the bottom in 2008), key long-term resistance at $20, and once price broke above the $20 resistance, now we’re facing a similar overhead ’round number’ resistance at $30.

I think the key to this chart – or the lesson at least – is that commodities can rally for extended periods of time with minimal pullbacks.

Also, a price breakout from a key, obvious resistance level – $20 – clears the way for upside targets that theoretically have no upper limit.  Round numbers are always interesting targets to play for, but the question is what will stop the rally?

The long-term chart pattern is that of a two-year Ascending Triangle that met its rough price projection target at the $30 level recently – so that’s something to watch too.

Triangle price projections are calculated by taking the height (from the $9 level to the $20 level) of about $11 and adding it to the breakout price at $20, which gives a target in the $30 to $31 region – here.

Let’s now turn to the Daily Chart and then focus on the SLV.

I’ll focus most of the comments on the SLV, but I wanted to provide the Silver Index (StockCharts.com) chart for reference (it looks a little cleaner than SLV).

Now let’s move to the tradeable/investable SLV ETF:

The breakout was a little unusual, in that – at least in SLV – volume did not come flooding in during the August/September 2010 breakout above resistance.  Volume started to pick up on the breakout above $20, but not in an obvious way until November and December.

Anyway, within the context of a breakout market, there are really two main types of trades to take.

The first is of course the original breakout which would be late August/early September, with an official trigger on the break above $20.  Breakout trades have theoretically unlimited targets where it’s often best to trail a stop usually under the rising 20 EMA – which would have worked wonders in this situation.

And that brings us to the second type of trade, which is the classic retracements to the rising 20 EMA in the context of a breakout or trending move.

There were three specific opportunities, namely mid-October and then twice in November when SLV’s price pulled back exactly to the rising 20 day EMA, formed a reversal candle, and then rallied back off the support line.

You can place and trail a stop conservatively under the 20 EMA or a bit more aggressively under the 50 EMA (as sometimes price can nip under the 20 EMA and resume its trend, as was the case with mid-November’s doji at the $25 price level).

In the context of a trend, always check momentum and volume – both of which have been RISING (new momentum highs often precede new price highs) until recently in December.

So putting it into context, price recently hit a major “round number” resistance area at $30 per share, which happens to be a rough price pattern projection target.  On the push to known ‘resistance,’ a negative momentum and volume divergence formed.

Divergences are not panic signals, but they are non-confirmations that clue us in to guard open positions a bit more closely and be less biased and more open to new developments in the charts/price.

What now?

Watch the $27.00 area as a key test of the strength of the rally, as it is both the rising 20 day EMA (again) and a little horizontal trendline as drawn.

As is the usual case, any sharp breakdown under the rising 20 EMA sets a short-term support target of the rising 50 day EMA at $25 which also is the lower Bollinger Band.

And of course, any sharp breakdown under $25 argues for a reversal instead of a classic retracement to rising support in the context of an uptrend.

Should be interesting!

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
Charting the Rally to 30 in Silver and SLV Weekly and Daily

Commodities, ETF, Uncategorized

Ben Bernanke Seeks to Maintain His Record

December 8th, 2010

Claus Vogt

The “grand compromise” between the Obama administration and Congressional Republicans to extend the Bush era tax cuts will have two extremely severe repercussions:

First, it means that the federal deficit will EXPLODE beyond the worst estimates of the most pessimistic deficit prognosticators. And in response, interest rates are already soaring, with 10-year Treasury yields jumping nearly a quarter of a point just yesterday!

Second, it means that Fed Chairman Ben Bernanke will be under even greater pressure to run the printing presses.

Never forget his famous speech of early 2002, “Deflation: Making Sure It Doesn’t Happen Here.”

I have quoted this seminal speech ever since to make sure my readers understand the most basic monetary credo of the most powerful and influential central bank on the planet — one which still serves as a role model for the international central bank community.

I’m sure you’ve read it before. But given the latest rush of events, it behooves you to read it again:

“…the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Since then he has delivered as promised. Take a look at the following chart of the U.S. monetary base:

Chart
Source: St. Louis Fed

A Race for the Title “Worst Central Banker of All Time”

In my 2004 book, Das Greenspan Dossier, I predicted that history would identify Alan Greenspan as the worst central banker ever. Well, I’m not so sure about that anymore. Mr. Bernanke has become a serious contender for the title.

First, he fully supported Greenspan as a Fed governor. Both were reluctant to recognize the huge stock market bubble and had no clue regarding its true implications. Both deemed it the right policy to fight the aftermath of the stock market bubble by creating an even bigger bubble, this time in housing … which again both central bankers failed to discern.

When it came time for Greenspan to retire, Bernanke easily stepped into his shoes. He seamlessly continued with the same reckless policy and does so to this very day.

They followed the same reckless script Greenspan had written before, only with far higher stakes. Bailouts and money printing have been hailed as the proper remedy for a disease that would never have existed without bailouts.

Talk about “Quantitative Easing”
Obfuscates the Truth

Instead of directly talking about the government’s monetary printing press, Mr. Bernanke talks euphemistically about “quantitative easing.” He obviously wants to sound more scientific and veil the reckless core of his policies. But he keeps his track record intact.

Currently, he is on a public relations crusade to sell the second round of quantitative easing (QE2) to the public. Only a few days ago he stated for the record that if he feels the need to embark on QE3, he will not hesitate to do so.

Unfortunately, he is not alone. The entire global community of central bankers seems to agree that there is no alternative to this policy. Last week, the president of the European Central Bank (ECB) Jean-Claude Trichet made it clear that he will follow the same road Mr. Bernanke has already taken so decisively.

Bottom line: No end in sight to the money printing, the surge in gold and the profits that investors can make from that surge.

Best wishes,

Claus

P.S. This week on Money and Markets TV, we check in on the health of the U.S. economy, and offer our prognosis for the pace of recovery in 2011.

So for some concrete investment ideas, based on the economic outlook of all the Weiss Research editors, be sure to tune in tomorrow night, December 9, at 7 P.M. Eastern time (4:00 P.M. Pacific).

Simply go to www.weissmoneynetwork.com and follow the on-screen instructions. Access is free and no registration is required.

Read more here:
Ben Bernanke Seeks to Maintain His Record

Commodities, ETF, Mutual Fund, Uncategorized

What Happens When Currencies Go Bust?

December 7th, 2010

I was telling the doctor that I distinctly heard a popping sound inside my head when I saw that the foul Federal Reserve had created, last week alone, another $24.2 billion in Fed Credit, which was instantly turned into money when the Fed bought $24.2 billion of US government securities, and all in One Freaking Week (OFW)! It made a kind of “sizzling” sound.

Furthermore, a tortured howl of outrage boils up inside me (which tastes surprisingly like stale beer and pepperoni pizza) at the Sheer Inflationary Horror (SIH) of this creation of $24.2 billion in new money in One Freaking Week (OFW)!!

The doctor dismissed my complaint, but billed me anyway, although you can obviously see the seriousness of it by the use of two exclamation points, and by the use of another one at the end of this sentence used to explain the significance of the prior exclamation points! It’s self-proving! Proving!

Perhaps you are saying to yourself, “This seems to be important, as indicated by the sudden plethora of exclamation points, but for reasons which are not clear. Why am I wasting my time with this Stupid Mogambo Crap (SMC) anyway?”

If you are, indeed, asking yourself such a question, then lean forward and look deep, deep, deep into my bloodshot-yet-limpid blue eyes to see my Utter, Utter, Utter Sincerity (UUUS) when I tell you that “When the supply of money goes up, prices soon go up.”

And since prices going up is just another way of saying that a currency is doomed, a reader, Chet, wrote to Casey Research and said, “I fear that the dollar is doomed as are other fiat currencies, and time is getting short. So the question that came to mind is, what happens if one is invested in metal stocks or any vehicle that is denominated in a fiat currency, and that currency goes bust, blotto?”

As a guy who has been both bust and blotto many, many times, often at the same time, I deem myself somewhat of an expert on the topics, and so, without waiting for either David or Terry to give their response, I jumped up and replied, “What happens is that the price of everything adjusts according to supply and demand, just like everything else in the whole freaking world always does all the time, you moron!”

Chet apparently did not like my unsolicited response, and continued as if I had not just explained it, “What value does that investment retain? Does it become a total loss? Redefined into the currency of the locality that operations are in? Converted into some other New World Order monetary unit, SDR’s or nationalization of any regional assets by the locals? Is this impossible to plan for?”

Growing more frustrated by the minute, again I interrupt and politely say, “What in the hell is wrong with you, ya dimwit? The price, in the local currency, of everything will adjust. If bread is $2 a loaf, gasoline is $3 a gallon and gold is at $1,400 an ounce, will you better off if bread is $40 a loaf, gasoline is $60 a gallon and your gold is selling at $28,000 an ounce, assuming that prices adjust perfectly in proportion to the loss of buying power of the dollar due to over-issuance?”

Suddenly, I realized that the reason that Chet was ignoring me was that I was reading it on the computer, and people are looking at me while I am yelling at my computer screen, “Chet, you’re an idiot! The answer is no; thanks to gold, your financial situation will be exactly the same in terms of loaves of bread and gallons of gasoline!”

Embarrassed, I sat back down and pretended nothing happened, so that after a few minutes, everyone went back to work. I pretended to go back to work, too, but secretly I was thinking to myself, “While he will be unchanged, those who do not own gold, silver and oil will be worse off, even if temporarily offset by still having $1,400 in cash instead of an ounce of gold, and who will, in turn, be better off than the vast, overwhelming majority of the population who will be the worst off, as they do not have gold, nor silver, nor oil, and this is to say nothing of them not having $1,400 in cash!”

Unfortunately, these poor people still have to somehow pay $40 for a loaf of bread and $60 for a gallon of gasoline. Welcome to the wonderful world of inflation! Hahaha!

And the reason that you should be buying gold, silver and oil against the onslaught of the Federal Reserve and the federal government against the value of the dollar will become very clear, very soon.

In the meantime, rest your pretty head, my darling Junior Mogambo Ranger (JMR), as all you need to do is buy gold, silver and oil at your leisure, which is so easy that you, too, will happily exclaim, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

What Happens When Currencies Go Bust? 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:
What Happens When Currencies Go Bust?




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

What Happens When Currencies Go Bust?

December 7th, 2010

I was telling the doctor that I distinctly heard a popping sound inside my head when I saw that the foul Federal Reserve had created, last week alone, another $24.2 billion in Fed Credit, which was instantly turned into money when the Fed bought $24.2 billion of US government securities, and all in One Freaking Week (OFW)! It made a kind of “sizzling” sound.

Furthermore, a tortured howl of outrage boils up inside me (which tastes surprisingly like stale beer and pepperoni pizza) at the Sheer Inflationary Horror (SIH) of this creation of $24.2 billion in new money in One Freaking Week (OFW)!!

The doctor dismissed my complaint, but billed me anyway, although you can obviously see the seriousness of it by the use of two exclamation points, and by the use of another one at the end of this sentence used to explain the significance of the prior exclamation points! It’s self-proving! Proving!

Perhaps you are saying to yourself, “This seems to be important, as indicated by the sudden plethora of exclamation points, but for reasons which are not clear. Why am I wasting my time with this Stupid Mogambo Crap (SMC) anyway?”

If you are, indeed, asking yourself such a question, then lean forward and look deep, deep, deep into my bloodshot-yet-limpid blue eyes to see my Utter, Utter, Utter Sincerity (UUUS) when I tell you that “When the supply of money goes up, prices soon go up.”

And since prices going up is just another way of saying that a currency is doomed, a reader, Chet, wrote to Casey Research and said, “I fear that the dollar is doomed as are other fiat currencies, and time is getting short. So the question that came to mind is, what happens if one is invested in metal stocks or any vehicle that is denominated in a fiat currency, and that currency goes bust, blotto?”

As a guy who has been both bust and blotto many, many times, often at the same time, I deem myself somewhat of an expert on the topics, and so, without waiting for either David or Terry to give their response, I jumped up and replied, “What happens is that the price of everything adjusts according to supply and demand, just like everything else in the whole freaking world always does all the time, you moron!”

Chet apparently did not like my unsolicited response, and continued as if I had not just explained it, “What value does that investment retain? Does it become a total loss? Redefined into the currency of the locality that operations are in? Converted into some other New World Order monetary unit, SDR’s or nationalization of any regional assets by the locals? Is this impossible to plan for?”

Growing more frustrated by the minute, again I interrupt and politely say, “What in the hell is wrong with you, ya dimwit? The price, in the local currency, of everything will adjust. If bread is $2 a loaf, gasoline is $3 a gallon and gold is at $1,400 an ounce, will you better off if bread is $40 a loaf, gasoline is $60 a gallon and your gold is selling at $28,000 an ounce, assuming that prices adjust perfectly in proportion to the loss of buying power of the dollar due to over-issuance?”

Suddenly, I realized that the reason that Chet was ignoring me was that I was reading it on the computer, and people are looking at me while I am yelling at my computer screen, “Chet, you’re an idiot! The answer is no; thanks to gold, your financial situation will be exactly the same in terms of loaves of bread and gallons of gasoline!”

Embarrassed, I sat back down and pretended nothing happened, so that after a few minutes, everyone went back to work. I pretended to go back to work, too, but secretly I was thinking to myself, “While he will be unchanged, those who do not own gold, silver and oil will be worse off, even if temporarily offset by still having $1,400 in cash instead of an ounce of gold, and who will, in turn, be better off than the vast, overwhelming majority of the population who will be the worst off, as they do not have gold, nor silver, nor oil, and this is to say nothing of them not having $1,400 in cash!”

Unfortunately, these poor people still have to somehow pay $40 for a loaf of bread and $60 for a gallon of gasoline. Welcome to the wonderful world of inflation! Hahaha!

And the reason that you should be buying gold, silver and oil against the onslaught of the Federal Reserve and the federal government against the value of the dollar will become very clear, very soon.

In the meantime, rest your pretty head, my darling Junior Mogambo Ranger (JMR), as all you need to do is buy gold, silver and oil at your leisure, which is so easy that you, too, will happily exclaim, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

What Happens When Currencies Go Bust? 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:
What Happens When Currencies Go Bust?




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

Three Things You Need to Know About the Chinese Economy

December 7th, 2010

We’re starting to like this Julian Assange character, trumped-up rape charges in Sweden notwithstanding.

This morning, thanks to the diplomatic cables made public by Assange’s WikiLeaks, we’re getting a better look at GDP numbers published by China.

One of the cables tells of a dinner between the US ambassador to China and the head of the Communist Party. Li Keqiang is his name, and he’s widely expected to become the new premier in a little over two years.

Li says if he really wants the pulse of the economy, he needs to know just three things…

Li Keqiang's Real World Economic Indicator

Heh, Li must be reading from our playbook: We check in from time to time on rail volume and other real-world economic indicators that can’t be massaged by government statisticians.

“By looking at these three figures,” the cable says, “Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are ‘for reference only,’ he said smiling,”

Heh. Just like the Bureau of Labor Statistics!

Addison Wiggin
for The Daily Reckoning

Three Things You Need to Know About the Chinese Economy 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:
Three Things You Need to Know About the Chinese Economy




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

Four ETFs Supported By Copper’s Supply Woes

December 7th, 2010

The price of copper has witnessed positive support over the last few months and imbalances in supply and demand of the base metal are expected to provide further support to prices in the near future, enabling the iPath Dow Jones Copper Index ETN (JJC), the PowerShares DB Base Metals (DBB), the iShares MSCI Chile Index (ECH) and the iShares MSCI Australia Index (EWA) to reap the benefits.

According to forecasts by analysts surveyed by Bloomberg, demand for copper is expected to outpace supply by 367,500 metric tons in the coming year.  This demand is primarily being driven by economic growth around the globe.  China, the world’s largest consumer of copper is expected to continue to witness economic expansion in the coming years as is India, Brazil and other emerging markets.  In fact, according to a study conducted by Barclays Capital, copper consumption in China, India, Brazil and the Middle East is expected to increase at an average annual rate of 7% per capita through 2015. 

Although demand continues to increase for copper, the true price support is coming from supply concerns and shocks.  Global exchange inventories of copper have declined by 22% this year and stockpiles are expected to drop to an all time low.  Furthermore, mining and production of copper has been on the decline as new reserves are getting harder to find and the grade of copper that is being extracted continues to deteriorate.  In fact, production at the world’s largest copper mine, Escondida, is expected to drop by as much as 10 percent over the next year.  Production concerns can further be supported by statements made by Freeport McMoRan (FCX) stating that major copper reserves that are produced are being extracted from mines that are 100 years old and fading away. 

In a nutshell, copper is expected to witness a supply and demand imbalance in the coming years and one could capitalize on this shortcoming through the previously mentioned ETFs.

  • iPath Dow Jones Copper Index ETN (JJC), which is a pure play on copper and seeks to track the performance of copper futures contracts
  • PowerShares DB Base Metals (DBB), which allocates 33% of its assets to copper futures contracts
  • iShares MSCI Chile Index (ECH), which is a play on Chile, the world’s largest copper producer accounting for nearly one third of global copper output.
  • iShares MSCI Australia Index (EWA), which boasts BHP Billiton (BHP) as its top holding, allocating more than 15% of its assets to the diversified natural resources company who is the largest shareholder in the world’s largest copper mine.

Disclosure: No Positions

Read more here:
Four ETFs Supported By Copper’s Supply Woes




HERE IS YOUR FOOTER

ETF, Uncategorized

Profit From the Black Gold Rush with This Stock

December 7th, 2010

Profit From the Black Gold Rush with This Stock

Oil hit a fresh two-year high this past trading week, reaching upwards of $88 a barrel.
One way to profit from the current “black gold rush” is to find growing oil companies that also pay attractive dividends.

Marine Petroleum Trust (Nasdaq: MARPS)
is one of these gems.

Established in 1956 as a way to efficiently administer oil and natural gas leases off the Louisiana shore, the Texas-based royalty trust offers a healthy 5.9% yield.

As a royalty trust, the company receives revenue from its interests in oil and gas wells and is legally required to distribute at least 90% of its distributable income (revenue less expenses) to shareholders as distributions. Income and distributions vary mainly based on changes in oil and natural gas prices and production volume.

Technically, MARPS is sky rocketing. The stock is in a steep accelerated uptrend and recently bullishly broke a multi-year basing pattern.

The base began forming in February 2009 as the stock formed a downtrend line, falling from a high near $21 to a low of $12.71 by November 2009.

Quickly rising off this low, the stock broke the downtrend line in late 2009 and began forming a Major uptrend line.

Moving to a high of $17.81 by February 2010, MARPS encountered resistance at this level. The stock fell once again to support marked by the rising uptrend line, which was close to $14.

Forming a double-bottom near $14.24 — between May and July 2010 — a smaller basing pattern (labelled #2) was etched within the larger basing formation (labelled #1).

Surging off this double-bottom, MARPS blasted through $17.81 resistance in early October 2010, forming an accelerated uptrend line. Then after bullishly completing the larger basing pattern this November, the stock soared through major resistance near $21 and is continuing to trend higher.

A small shelf of resistance has formed at the stock's recent high of $23.88. However, for about the past three months, MARPS has been riding its upper Bollinger band higher. If the stock can decisively pierce its upper Bollinger band, it is not likely to encounter new significant resistance until $34.29 — a multi-year peak hit in October 2008.

In September of this year, the rising 10-week moving average bullishly crossed above the rising 30- and 40-week moving averages. The 10-week moving average mirrors the steep accelerated uptrend line.

The indicators are bullish. In mid-August, MACD gave a significant buy signal near the zero level. The MACD histogram is building in positive territory.

Relative strength index (RSI) has been in a major uptrend since 2009. At 74, it has has become overbought. However, strong stocks can become and stay overbought for long periods.

Stochastics and Williams %R, although overbought, are on buy signals.

Fundamentally, MARPS looks strong.

During the first-quarter of fiscal 2011 (for the period ending September 30th), distributable income increased +21.8% due to higher prices realized for oil and natural gas.

As a result, distributions to unit holders increased +48% to $0.37 from $0.25 in the comparable year-ago quarter. The trust may also be on track to provide higher distributions in upcoming quarters.

Action to Take–> Given that MARPS looks technically strong, and has increased distributions, I plan to go long on the royalty trust by entering a long position if the stock successfully breaks the small shelf of resistance at $23.88.

I will, therefore, place a buy-on-stop order at $23.97. This means if MARPS does not hit or go above $23.97, I will not enter the position.

My stop-loss is $20.25, below support marked by the completion of the base pattern and the 10-week moving average. My target is $34.27, near the 20-year high hit in October 2008.

The risk/reward ratio is: 2.77:1. Note: MARPS tends to trade with thin volume, so if you are planning to take a large position, it would be wise to scale into the stock.


– Dr. Melvin Pasternak

Dr. Melvin Pasternak is one of the most experienced market technicians in the nation and Chief Trading Expert behind Double-Digit Trading.

Uncategorized

Profit From the Black Gold Rush with This Stock

December 7th, 2010

Profit From the Black Gold Rush with This Stock

Oil hit a fresh two-year high this past trading week, reaching upwards of $88 a barrel.
One way to profit from the current “black gold rush” is to find growing oil companies that also pay attractive dividends.

Marine Petroleum Trust (Nasdaq: MARPS)
is one of these gems.

Established in 1956 as a way to efficiently administer oil and natural gas leases off the Louisiana shore, the Texas-based royalty trust offers a healthy 5.9% yield.

As a royalty trust, the company receives revenue from its interests in oil and gas wells and is legally required to distribute at least 90% of its distributable income (revenue less expenses) to shareholders as distributions. Income and distributions vary mainly based on changes in oil and natural gas prices and production volume.

Technically, MARPS is sky rocketing. The stock is in a steep accelerated uptrend and recently bullishly broke a multi-year basing pattern.

The base began forming in February 2009 as the stock formed a downtrend line, falling from a high near $21 to a low of $12.71 by November 2009.

Quickly rising off this low, the stock broke the downtrend line in late 2009 and began forming a Major uptrend line.

Moving to a high of $17.81 by February 2010, MARPS encountered resistance at this level. The stock fell once again to support marked by the rising uptrend line, which was close to $14.

Forming a double-bottom near $14.24 — between May and July 2010 — a smaller basing pattern (labelled #2) was etched within the larger basing formation (labelled #1).

Surging off this double-bottom, MARPS blasted through $17.81 resistance in early October 2010, forming an accelerated uptrend line. Then after bullishly completing the larger basing pattern this November, the stock soared through major resistance near $21 and is continuing to trend higher.

A small shelf of resistance has formed at the stock's recent high of $23.88. However, for about the past three months, MARPS has been riding its upper Bollinger band higher. If the stock can decisively pierce its upper Bollinger band, it is not likely to encounter new significant resistance until $34.29 — a multi-year peak hit in October 2008.

In September of this year, the rising 10-week moving average bullishly crossed above the rising 30- and 40-week moving averages. The 10-week moving average mirrors the steep accelerated uptrend line.

The indicators are bullish. In mid-August, MACD gave a significant buy signal near the zero level. The MACD histogram is building in positive territory.

Relative strength index (RSI) has been in a major uptrend since 2009. At 74, it has has become overbought. However, strong stocks can become and stay overbought for long periods.

Stochastics and Williams %R, although overbought, are on buy signals.

Fundamentally, MARPS looks strong.

During the first-quarter of fiscal 2011 (for the period ending September 30th), distributable income increased +21.8% due to higher prices realized for oil and natural gas.

As a result, distributions to unit holders increased +48% to $0.37 from $0.25 in the comparable year-ago quarter. The trust may also be on track to provide higher distributions in upcoming quarters.

Action to Take–> Given that MARPS looks technically strong, and has increased distributions, I plan to go long on the royalty trust by entering a long position if the stock successfully breaks the small shelf of resistance at $23.88.

I will, therefore, place a buy-on-stop order at $23.97. This means if MARPS does not hit or go above $23.97, I will not enter the position.

My stop-loss is $20.25, below support marked by the completion of the base pattern and the 10-week moving average. My target is $34.27, near the 20-year high hit in October 2008.

The risk/reward ratio is: 2.77:1. Note: MARPS tends to trade with thin volume, so if you are planning to take a large position, it would be wise to scale into the stock.


– Dr. Melvin Pasternak

Dr. Melvin Pasternak is one of the most experienced market technicians in the nation and Chief Trading Expert behind Double-Digit Trading.

Uncategorized

The Biggest Threat to Emerging Market Stocks

December 7th, 2010

The Biggest Threat to Emerging Market Stocks

In global economics, there are several emerging truisms. Growth is likely to be somewhat muted in the West as efforts to reverse massive budget deficits will create a drag as governments tax more than they spend. A second truism: emerging market economies have come a very long way in a very short time, and they're unlikely to revert to their old habits that stifled growth. [See: "Forget About BRIC -- Buy These Emerging Economies Instead"]

The third truism: these upstart economies are likely to stumble on their way to a higher plane. The biggest concern: inflation. It's just appearing now, and could well get much worse in 2011. And if that happens, many of the world's hottest stock markets — many of which have doubled or even tripled in the past two years — could be hit by profit-taking.

In recent days China has expressed increasing concern that inflation is starting to percolate. The government is seeking to rein in bank lending and has also started to impose price controls on key foodstuffs. But China is lucky. Its economy has so many hidden strengths, its policy planners can implement measures without pushback from independent central banks, and it is not especially reliant on imports.

Yet many other developing economies have no such luck. They have much less control over their economy and are much more exposed to the vagaries of economic activity outside their borders. Vietnam is a prime example. Its economy is likely to grow +6% to +7% this year, but inflation is likely to exceed 10%. That's why Vietnamese stocks have not participated in the global rally. The Vietnam Market Vectors ETF (NYSE: VNM) is roughly flat in the past year.

Rising inflation hurts equity investments in myriad ways, including:

1. Consumer activity slows as recent entrants into the middle class find that basic staples eat up more of their paycheck. Just this week, Brazil raised the reserve requirement for banks, which means less money will be in circulation.

2. Governments look for ways to rein in prices by raising interest rates, making higher-yielding emerging market debt more appealing than emerging market equities.

3. Higher prices lead to a weakening local currency, so investments translated into dollars lose value.

Rising inflation stems from a pair of factors. Economic activity that exceeds the infrastructure that is in place, creating bottlenecks. Think of urban traffic jams, slower factory delivery times and an increasing shortage of reasonably-priced skilled labor. The second factor is input prices. Rising costs for imported oil, fertilizer and raw materials all lead to an uptick in prices throughout the supply chain. In many emerging economies, both of these factors are coming into play. Cities such as Bangalore, Jakarta and Phnom Penh have all been in the news recently as they are starting to creak under the weight of too much commerce and too little infrastructure. Analysts at Morgan Stanley have already charted out the divergent inflation pictures, as seen below.

Yet it's the commodity action that stands to crash the emerging markets' stock market party. Crude oil for example, now approaches nearly $90 a barrel, roughly +30% higher than six months ago. [Why 2011 Could be the Year of the Oil Comeback]

If oil keeps rising — past $100 a barrel — it's hard to see how a lot of these economies, many of which are net energy importers, can escape the inflation bugaboo.

For oil and other commodities such as steel, fertilizer, copper, aluminum, etc. not to see a spike in 2011, the global economy would need to putter along at a lukewarm pace. Right now, we've got robust activity in emerging market economies and tepid economic activity in the United States, Japan and Europe. What happens if these lagging economies start to rebound? That's the nightmare scenario for emerging economies, as demand for many basic materials could quickly outstrip supply, as we saw in 2008.

Action to Take –> Emerging markets still look like a great long-term bet, as rising middle classes put their economies on a potentially far higher plane. But a lot more could go wrong than right in 2011. It's been a goldilocks scenario for several years now, with economic growth hot and inflation cold. Signs are now emerging that the hot economies are leading to hot action in prices as well.

If you're invested in any emerging market economies, you may want to book profits if monthly inflation figures start to rise. And for those not yet in emerging markets, the short side of the trade looks better these days after stunning +100% and +200% upward moves.


– 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
The Biggest Threat to Emerging Market Stocks

Read more here:
The Biggest Threat to Emerging Market Stocks

Commodities, ETF, Uncategorized

The Biggest Threat to Emerging Market Stocks

December 7th, 2010

The Biggest Threat to Emerging Market Stocks

In global economics, there are several emerging truisms. Growth is likely to be somewhat muted in the West as efforts to reverse massive budget deficits will create a drag as governments tax more than they spend. A second truism: emerging market economies have come a very long way in a very short time, and they're unlikely to revert to their old habits that stifled growth. [See: "Forget About BRIC -- Buy These Emerging Economies Instead"]

The third truism: these upstart economies are likely to stumble on their way to a higher plane. The biggest concern: inflation. It's just appearing now, and could well get much worse in 2011. And if that happens, many of the world's hottest stock markets — many of which have doubled or even tripled in the past two years — could be hit by profit-taking.

In recent days China has expressed increasing concern that inflation is starting to percolate. The government is seeking to rein in bank lending and has also started to impose price controls on key foodstuffs. But China is lucky. Its economy has so many hidden strengths, its policy planners can implement measures without pushback from independent central banks, and it is not especially reliant on imports.

Yet many other developing economies have no such luck. They have much less control over their economy and are much more exposed to the vagaries of economic activity outside their borders. Vietnam is a prime example. Its economy is likely to grow +6% to +7% this year, but inflation is likely to exceed 10%. That's why Vietnamese stocks have not participated in the global rally. The Vietnam Market Vectors ETF (NYSE: VNM) is roughly flat in the past year.

Rising inflation hurts equity investments in myriad ways, including:

1. Consumer activity slows as recent entrants into the middle class find that basic staples eat up more of their paycheck. Just this week, Brazil raised the reserve requirement for banks, which means less money will be in circulation.

2. Governments look for ways to rein in prices by raising interest rates, making higher-yielding emerging market debt more appealing than emerging market equities.

3. Higher prices lead to a weakening local currency, so investments translated into dollars lose value.

Rising inflation stems from a pair of factors. Economic activity that exceeds the infrastructure that is in place, creating bottlenecks. Think of urban traffic jams, slower factory delivery times and an increasing shortage of reasonably-priced skilled labor. The second factor is input prices. Rising costs for imported oil, fertilizer and raw materials all lead to an uptick in prices throughout the supply chain. In many emerging economies, both of these factors are coming into play. Cities such as Bangalore, Jakarta and Phnom Penh have all been in the news recently as they are starting to creak under the weight of too much commerce and too little infrastructure. Analysts at Morgan Stanley have already charted out the divergent inflation pictures, as seen below.

Yet it's the commodity action that stands to crash the emerging markets' stock market party. Crude oil for example, now approaches nearly $90 a barrel, roughly +30% higher than six months ago. [Why 2011 Could be the Year of the Oil Comeback]

If oil keeps rising — past $100 a barrel — it's hard to see how a lot of these economies, many of which are net energy importers, can escape the inflation bugaboo.

For oil and other commodities such as steel, fertilizer, copper, aluminum, etc. not to see a spike in 2011, the global economy would need to putter along at a lukewarm pace. Right now, we've got robust activity in emerging market economies and tepid economic activity in the United States, Japan and Europe. What happens if these lagging economies start to rebound? That's the nightmare scenario for emerging economies, as demand for many basic materials could quickly outstrip supply, as we saw in 2008.

Action to Take –> Emerging markets still look like a great long-term bet, as rising middle classes put their economies on a potentially far higher plane. But a lot more could go wrong than right in 2011. It's been a goldilocks scenario for several years now, with economic growth hot and inflation cold. Signs are now emerging that the hot economies are leading to hot action in prices as well.

If you're invested in any emerging market economies, you may want to book profits if monthly inflation figures start to rise. And for those not yet in emerging markets, the short side of the trade looks better these days after stunning +100% and +200% upward moves.


– 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
The Biggest Threat to Emerging Market Stocks

Read more here:
The Biggest Threat to Emerging Market Stocks

Commodities, ETF, Uncategorized

Is This Man the Next Carl Icahn? (Here’s What He’s Buying Now…)

December 7th, 2010

Is This Man the Next Carl Icahn? (Here's What He's Buying Now...)

In a recent column on billionaire activist investor Carl Icahn, I detailed that tracking the moves of a high profile investment manager can be an extremely valuable strategy for individual investors. At the end of the day, coming to your own conclusion on whether an investment makes sense is most important, but there is certainly nothing wrong with leaning on other astute money masters in getting to your own buy, hold, or sell decision.

I just spent some time getting more familiar with William Ackman, who is another activist investor that, like Icahn, has become a billionaire by managing a number of hedge funds. Ackman's investment vehicle is Pershing Square Capital Management. His results so far are nothing short of impressive, returning more than +480% since inception in January of 2004.

Pershing Square is a traditional hedge fund in that it charges a hefty performance fee, but even after subtracting that out, along with a standard management fee, his funds are still up nearly +293% — 16 times greater than what the S&P 500 has done in this period and handily outperforming all primary market indexes (Ackman lists the S&P500, NASDAQ, Russell 1000, and Dow Jones Industrial average as performance “bogeys” in his investor letters).

To briefly summarize Ackman's primary investment approach, it is generally what you would expect from a successful manager. He takes a concentrated approach to investing, as he has the confidence to select a very small handful of companies that have a high probability of beating the market and garnering high total returns for his investors. This approach is also needed as an activist investor, given the need to talk directly to and in many cases confront company management teams. Too many investments would make this activist-bias extremely difficult.

Ackman's willingness to bet big on a few names he believes in mirrors that of legendary investor Warren Buffett earlier in his career. [Read: What Buffett Says About Diversification Will Shock You ] A focus on free cash flow, or operating cash flow minus capital expenditures, and companies that are trading well below intrinsic value are also similar to Buffett and value investors in general. (“Intrinsic value” is basically the value of a company if its future cash flow could be known with certainty.)

With that, here is an overview of some of his most recent investments and a summary of his opinions on the stocks…

J.C. Penney (NYSE: JCP)
J.C. Penney is one of Ackman's more recent investments. He recently disclosed he owned nearly 17% of J.C. Penney's shares and likes the name, given “its inexpensive valuation, strong brand name and assets, and well-deserved reputation for overseas sourcing, high quality systems, and large in-house brands.” This is clearly a turnaround play: J.C. Penney has lagged key rivals, including Kohl's (NYSE: KSS) and even big-box retailers such as Target (NYSE: TGT), which Ackman also happens to hold. He sees a coming recovery as the economy improves and will undoubtedly agitate for change to make Penney's more competitive with its peers.

Fortune Brands (NYSE: FO)
Another recent investment is Fortune Brands, a conglomerate that operates in the housing materials, alcoholic spirits, and golf industries. Ackman met with the company on November 4 and has been rumored to suggest a breakup of the company to enhance shareholder value. This makes sense as the housing and golf segments have really struggled. Demand for things like faucets, windows and doors have plummeted because of the housing bubble, and golfing continues to lose popularity as a hobby for younger people. The spirits business is the crown jewel of Fortune Brands, and Ackman believes that “there is substantially greater value that can be realized” in the stock, even though it has rallied strongly since Ackman's interest became public.

Ackman was unsuccessful in convincing Target to spin the real estate its stores are on into a separate company to increase shareholder value, but he still holds a sizable position, betting on

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