Art in China Booms… Vase up 22,000 Percent

April 13th, 2011

Any way you slice it, $130 million and up is a lot to spend on a piece of art. That’s why you might expect those deals to primarily happen among the super wealthy in the US, that is, until recently. China has once more outstripped the States in an alarming wealth statistic… it’s now the biggest market for art auctions in the world.

In one noteworthy example, a Chinese vase — which began its bidding at $800 — raced up to $18 million, for a 22,000 percent increase in value. The Atlantic’s associate editor Derek Thompson sees China’s new art auction hysteria as another sign of an impending economic bubble.

From The Atlantic:

“Let’s go back to the halcyon days of our own bubble. In November 2006, David Geffen, the producer of ‘Cats’ and co-founder of DreamWorks Pictures, sold No. 5, 1948 by Jackson Pollack for $140 million, making it the most expensive painting ever sold. Two weeks later, he nearly broke his own record, unloading Woman III by Willem de Kooning for a cool $137 million. These paintings broke a six-month record set by another New Yorker Ronald Lauder, who had bought a Gustav Klimt portrait for $130 million for his Neue Galerie. It was a very good year for auctions, stocks, and CDOs.

“It was also the end of an era. It’s no coincidence that these auctions occurred near the frothy tip of a credit bubble, Mansharamani says. In fact, tracking auction records and auction house stock is one of the best ways to smell out a simmering economic crisis.

Source: The Atlantic.

“‘As one of the world’s leading art auction houses, Sotheby’s has been a beneficiary of booms in the art market,’ he writes. In the last 20 years, Sotheby’s mostly stable stock has experienced four sharp peaks. In the late 1980s, Japan had been ‘the center of gravity’ in the international art market. But its economy imploded, sending Sotheby’s stock reeling. Ten years later, the Internet bubble drove another auction boom among Silicon Valley newbies, and the bubble burst again. Ten years later, we watched the same film play out. This year could be deja vu, all over again … all over again.”

A key driver in both markets — as the frothy real estate is also described — unmentioned in the article is the dearth of relatively predictable investment alternatives in China. Ordinary bank savings accounts offer little or negative real returns, and the Shanghai and Shenzhen exchanges are considered by many to offer almost exclusively speculative opportunities. Art and real estate may be in bubble-like states, but, until the wealthy in China find other viable alternatives, they are likely to continue scrambling for anything they perceive as a reliable store of value.

You can read more details in The Atlantic’s coverage of how Sotheby’s stock price predicts bubbles in the world economy.

Best,

Rocky Vega,
The Daily Reckoning

Art in China Booms… Vase up 22,000 Percent originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
Art in China Booms… Vase up 22,000 Percent




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

Real Estate, Uncategorized

ETFs May Not Always Do What You Think: Example of Japan Nikkei and EWJ

April 13th, 2011

Exchange Traded Funds are gaining wide popularity for investors and traders alike, and for great reasons.  I need not trumpet the many benefits of trading or investing with ETFs.

However, I wanted to bring up a recent example of Japan and the spike in trading of the popular EWJ ETF which left a few invstors bewildered, especially if they were tracking along with Japan’s Nikkei Index.

Here – Let’s see what the assumption was and what went wrong on the chart:

First, let’s chart Japan’s Nikkei Index:

Although I’ve labeled a clean five-wave move up into the 10,800 level, I wanted to call your attention to what happened after mid-March’s earthquake/tsunami/nuclear crisis – namely the sharp rebound in the index from the 8,200 ‘panic’ low to the recent 9,800 resistance level.

Generally, traders like to play bounces from panic situations on charts – it’s a very risky reversal (or mean reversion) strategy that can pay-off quickly for those risk-seekers willing to step in front of terrible news (and terrible price falls on the chart) and buy while others across the globe are selling ferociously.

Even a move from 8,800 or 9,000 to the current 9,800 level was an 8% to 10% possible move that risk-seekers could have enjoyed a quick profit.

The 9,800 level is now seen as a critical resistance level that could spark the end of the rally and the beginning of a downturn… or from a more bullish standpoint, any firm breakthrough above 9,800 then 10,000  ups the odds that the Nikkei will re-test the prior highs.

But I’m getting ahead of myself.

Say you called the bounce correctly and sought to profit from it using the popular EWJ (iShares MSCI Japan index), you might have been surprised with an unexpected recent loss as the EWJ share price declined while the Nikkei remained at resistance.

This is the EWJ recent chart:

First, the EWJ did not have the clean 5-wave stair-step pattern up as the Nikkei did.  The EWJ took a more straight-line rally with almost non-existent retracements to the rising moving averages.

Second, and more significant – though the EWJ fund bounced up off the mid-March panic low (again allowing profit from aggressive/quick traders), the fund also retraced into resistance (this time the 20d EMA) but then took a sharp dive over the last two weeks while the Nikkei remained poised under its resistance level.

That meant that if EWJ traders didn’t exit their aggressive ‘mean reversion’ swing trade into the $10.60 level, their profits quickly diminished as price fell from this level – unlike the Nikkei which flat-lined at resistance.

Keep in mind, however, that the EWJ is NOT tied to the Nikkei Index, but instead to the MSCI Japan Index Fund (link via Yahoo Finance).

This is another example of how important it is to take a few extra minutes to read information on ETF structure along with composition and goals, else you could wind up with different trading (or investing) results than you intended, even though your trade thesis/logic was ultimately correct.

Also, overseas ETFs may be subject to effects from currency fluctuations (particularly the recent volatility in the Yen) moreso than ETFs based on US Indexes or Sectors.  But that’s another issue.

ETFs are a great tool to play macro-events, particularly in countries, currencies, and commodities without using the FOREX or Futures market, but always take a moment to read what the ETF is, what it seeks to accomplish, and what goals the fund seeks to accomplish (or what index the fund tracks).

Otherwise, you could get your analysis correct, but still not profit the full amount due to factors about the ETF you selected to trade.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
ETFs May Not Always Do What You Think: Example of Japan Nikkei and EWJ

Commodities, ETF, Uncategorized

ETFs May Not Always Do What You Think: Example of Japan Nikkei and EWJ

April 13th, 2011

Exchange Traded Funds are gaining wide popularity for investors and traders alike, and for great reasons.  I need not trumpet the many benefits of trading or investing with ETFs.

However, I wanted to bring up a recent example of Japan and the spike in trading of the popular EWJ ETF which left a few invstors bewildered, especially if they were tracking along with Japan’s Nikkei Index.

Here – Let’s see what the assumption was and what went wrong on the chart:

First, let’s chart Japan’s Nikkei Index:

Although I’ve labeled a clean five-wave move up into the 10,800 level, I wanted to call your attention to what happened after mid-March’s earthquake/tsunami/nuclear crisis – namely the sharp rebound in the index from the 8,200 ‘panic’ low to the recent 9,800 resistance level.

Generally, traders like to play bounces from panic situations on charts – it’s a very risky reversal (or mean reversion) strategy that can pay-off quickly for those risk-seekers willing to step in front of terrible news (and terrible price falls on the chart) and buy while others across the globe are selling ferociously.

Even a move from 8,800 or 9,000 to the current 9,800 level was an 8% to 10% possible move that risk-seekers could have enjoyed a quick profit.

The 9,800 level is now seen as a critical resistance level that could spark the end of the rally and the beginning of a downturn… or from a more bullish standpoint, any firm breakthrough above 9,800 then 10,000  ups the odds that the Nikkei will re-test the prior highs.

But I’m getting ahead of myself.

Say you called the bounce correctly and sought to profit from it using the popular EWJ (iShares MSCI Japan index), you might have been surprised with an unexpected recent loss as the EWJ share price declined while the Nikkei remained at resistance.

This is the EWJ recent chart:

First, the EWJ did not have the clean 5-wave stair-step pattern up as the Nikkei did.  The EWJ took a more straight-line rally with almost non-existent retracements to the rising moving averages.

Second, and more significant – though the EWJ fund bounced up off the mid-March panic low (again allowing profit from aggressive/quick traders), the fund also retraced into resistance (this time the 20d EMA) but then took a sharp dive over the last two weeks while the Nikkei remained poised under its resistance level.

That meant that if EWJ traders didn’t exit their aggressive ‘mean reversion’ swing trade into the $10.60 level, their profits quickly diminished as price fell from this level – unlike the Nikkei which flat-lined at resistance.

Keep in mind, however, that the EWJ is NOT tied to the Nikkei Index, but instead to the MSCI Japan Index Fund (link via Yahoo Finance).

This is another example of how important it is to take a few extra minutes to read information on ETF structure along with composition and goals, else you could wind up with different trading (or investing) results than you intended, even though your trade thesis/logic was ultimately correct.

Also, overseas ETFs may be subject to effects from currency fluctuations (particularly the recent volatility in the Yen) moreso than ETFs based on US Indexes or Sectors.  But that’s another issue.

ETFs are a great tool to play macro-events, particularly in countries, currencies, and commodities without using the FOREX or Futures market, but always take a moment to read what the ETF is, what it seeks to accomplish, and what goals the fund seeks to accomplish (or what index the fund tracks).

Otherwise, you could get your analysis correct, but still not profit the full amount due to factors about the ETF you selected to trade.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
ETFs May Not Always Do What You Think: Example of Japan Nikkei and EWJ

Commodities, ETF, Uncategorized

Government Spending and the Path to Money Printing

April 13th, 2011

Stocks down yesterday. Gold down. Oil down. Everything was down. The beginning of the end? Beats us. The Fed is still pumping in money. But investors are beginning to look beyond QE2.

If the economy really is recovering, they say to themselves, the Fed will be able to back off from money printing. Stocks, gold, commodities – everything should go down.

Did we mention a “hyperinflationary depression”?

What’s that, you’re probably wondering.

Well, it’s when you have a deflationary correction…and soaring prices too. And that’s what happens when the feds try to stop a major correction by pumping in huge amounts of money and credit.

But let’s stop and look at how an economy works.

As an expansion gets underway, first consumers spend money that they earn. Then, they spend money that they will earn in the future. And then, they spend money that they will never earn.

The private economies of many of the world’s developed nations reached the “never earn” stage in 2007. All of a sudden, lenders realized that they were never going to see their money again. Many borrowers would never earn enough money to pay off their loans.

The economy began a contraction…correcting its mistakes by writing down the value of those loans.

Markets are always discovering what things are worth. In 2007, they began to discover that a lot of the world’s credits weren’t worth as much as people had thought.

But then the feds were on the case.

While an individual person might run up debts greater than he can pay, the feds go one step further.

First, an expanding government lives on what taxpayers give it. Then, it lives on what taxpayers give it, plus what it can borrow from them. Then, it spends everything that it can squeeze out of taxpayers, plus what it plans to squeeze out of generations of taxpayers who haven’t been born yet. Finally, when it has crushed all the blood out of the turnips, current and future, it spends money that no taxpayer will ever earn or pay in taxes. It just prints money.

This creates a far bigger problem. Because, no one knows what to make of this new money. Where did it come from? Who earned it? What does it mean?

Since the economy is contracting, the new money doesn’t have much traction…at first. It is lent to hedge funds, banks, and other speculators. Soon, it finds its way into asset markets and basic commodity prices.

That’s why we’ve seen so many record setting prices in recent weeks.

But this is a special kind of inflation. Instead of stimulating people to buy, spend, borrow, and invest…it makes them feel poor. They pay more for gasoline and have less left over for other things. If they have a job, their earnings barely creep up…while prices race ahead.

Want to see the process in action? It’s happening already in the US. And it is even more advanced in England. Here’s the report from The Telegraph:

The Centre for Economics and Business Research (CEBR) said soaring inflation coupled with low pay rises means household peacetime disposable income is at its lowest since 1921.

Rising food, clothing and energy prices mean the average British family will have £910 less to spend this year than they did in 2009.

The CEBR calculates that household disposable income will fall by 2pc this year, more than double last year’s fall of 0.8pc and the biggest drop since the savage 1919 to 1921 post-First World War recession.

It forecasts inflation will average 3.9pc in 2011, its highest since 1992, as January’s increase in VAT from 17.5pc to 20pc and the rising cost of oil and other commodities continue to drive up prices.

At the same time, salaries will rise just 1.9pc as unemployment remains high and the public sector makes cutbacks.

Is this the description of a hyperinflation depression? Nope. Just an inflationary recession…so far. But wait until the feds pump some more…

Stay tuned.

Bill Bonner
for The Daily Reckoning

Government Spending and the Path to Money Printing originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
Government Spending and the Path to Money Printing




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

Government Spending and the Path to Money Printing

April 13th, 2011

Stocks down yesterday. Gold down. Oil down. Everything was down. The beginning of the end? Beats us. The Fed is still pumping in money. But investors are beginning to look beyond QE2.

If the economy really is recovering, they say to themselves, the Fed will be able to back off from money printing. Stocks, gold, commodities – everything should go down.

Did we mention a “hyperinflationary depression”?

What’s that, you’re probably wondering.

Well, it’s when you have a deflationary correction…and soaring prices too. And that’s what happens when the feds try to stop a major correction by pumping in huge amounts of money and credit.

But let’s stop and look at how an economy works.

As an expansion gets underway, first consumers spend money that they earn. Then, they spend money that they will earn in the future. And then, they spend money that they will never earn.

The private economies of many of the world’s developed nations reached the “never earn” stage in 2007. All of a sudden, lenders realized that they were never going to see their money again. Many borrowers would never earn enough money to pay off their loans.

The economy began a contraction…correcting its mistakes by writing down the value of those loans.

Markets are always discovering what things are worth. In 2007, they began to discover that a lot of the world’s credits weren’t worth as much as people had thought.

But then the feds were on the case.

While an individual person might run up debts greater than he can pay, the feds go one step further.

First, an expanding government lives on what taxpayers give it. Then, it lives on what taxpayers give it, plus what it can borrow from them. Then, it spends everything that it can squeeze out of taxpayers, plus what it plans to squeeze out of generations of taxpayers who haven’t been born yet. Finally, when it has crushed all the blood out of the turnips, current and future, it spends money that no taxpayer will ever earn or pay in taxes. It just prints money.

This creates a far bigger problem. Because, no one knows what to make of this new money. Where did it come from? Who earned it? What does it mean?

Since the economy is contracting, the new money doesn’t have much traction…at first. It is lent to hedge funds, banks, and other speculators. Soon, it finds its way into asset markets and basic commodity prices.

That’s why we’ve seen so many record setting prices in recent weeks.

But this is a special kind of inflation. Instead of stimulating people to buy, spend, borrow, and invest…it makes them feel poor. They pay more for gasoline and have less left over for other things. If they have a job, their earnings barely creep up…while prices race ahead.

Want to see the process in action? It’s happening already in the US. And it is even more advanced in England. Here’s the report from The Telegraph:

The Centre for Economics and Business Research (CEBR) said soaring inflation coupled with low pay rises means household peacetime disposable income is at its lowest since 1921.

Rising food, clothing and energy prices mean the average British family will have £910 less to spend this year than they did in 2009.

The CEBR calculates that household disposable income will fall by 2pc this year, more than double last year’s fall of 0.8pc and the biggest drop since the savage 1919 to 1921 post-First World War recession.

It forecasts inflation will average 3.9pc in 2011, its highest since 1992, as January’s increase in VAT from 17.5pc to 20pc and the rising cost of oil and other commodities continue to drive up prices.

At the same time, salaries will rise just 1.9pc as unemployment remains high and the public sector makes cutbacks.

Is this the description of a hyperinflation depression? Nope. Just an inflationary recession…so far. But wait until the feds pump some more…

Stay tuned.

Bill Bonner
for The Daily Reckoning

Government Spending and the Path to Money Printing originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
Government Spending and the Path to Money Printing




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

These 3 "Forgotten" IPOs Could Gain as Much as 50%

April 13th, 2011

These 3

It can pay to keep an eye on companies that have been public for only a few quarters. Many of them stumble out of the gate and get lost in the crowd. By the time these companies start to get back on track, you may be one of the few investors still looking at them. I specifically focus on companies that have been public for about a year. That's just enough time to iron out the kinks.

The table below highlights seven companies that went public in the second quarter of 2010, all of which are now trading below their offering price (with one exception, which I'll soon explain). For this exercise I'm looking only at companies with market capitalizations larger than $150 million, because companies with market values below that level may toil in anonymity for a long while to come. Of the group, several stand out as clear rebound candidates.

Real Estate, Uncategorized

These 3 “Forgotten” IPOs Could Gain as Much as 50%

April 13th, 2011

These 3 “Forgotten” IPOs Could Gain as Much as 50%

It can pay to keep an eye on companies that have been public for only a few quarters. Many of them stumble out of the gate and get lost in the crowd. By the time these companies start to get back on track, you may be one of the few investors still looking at them. I specifically focus on companies that have been public for about a year. That’s just enough time to iron out the kinks.

The table below highlights seven companies that went public in the second quarter of 2010, all of which are now trading below their offering price (with one exception, which I’ll soon explain). For this exercise I'm looking only at companies with market capitalizations larger than $150 million, because companies with market values below that level may toil in anonymity for a long while to come. Of the group, several stand out as clear rebound candidates.

Real Estate, Uncategorized

These 3 “Forgotten” IPOs Could Gain as Much as 50%

April 13th, 2011

These 3 “Forgotten” IPOs Could Gain as Much as 50%

It can pay to keep an eye on companies that have been public for only a few quarters. Many of them stumble out of the gate and get lost in the crowd. By the time these companies start to get back on track, you may be one of the few investors still looking at them. I specifically focus on companies that have been public for about a year. That’s just enough time to iron out the kinks.

The table below highlights seven companies that went public in the second quarter of 2010, all of which are now trading below their offering price (with one exception, which I’ll soon explain). For this exercise I'm looking only at companies with market capitalizations larger than $150 million, because companies with market values below that level may toil in anonymity for a long while to come. Of the group, several stand out as clear rebound candidates.

Real Estate, Uncategorized

The Bias to Sell US Dollars Remains

April 13th, 2011

Well, the dollar continues to dance with the wolves, and though the heavy selling has backed off…you can just tell by the way the markets react each day, that the bias to sell dollars remains.

For instance, the euro (EUR) is flirting with 1.45 this morning, after visiting that level a couple of times yesterday. The Aussie dollar (AUD) is back to $1.05, and kiwi (NZD) is 79-cents this morning! The Canadian dollar/loonie (CAD) has pulled back, as the price of oil has dropped $5 in the past two days, and the Swiss franc (CHF) has added to its $1.11 figure of yesterday… So, while not every currency is gaining on the dollar, most are… Gold and silver, after losing some large chunks of ground yesterday, are back on the rally tracks this morning…

Remember, and not that long ago either, when we used to say it was a “risk on” or “risk off” day? In those times, all of the risk assets of currencies, commodities and equities would get thrown together, and traded one way or the other depending on what type of “day” it was… And I used to tell you all the time that fundamentally, currencies and commodities don’t trade alongside equities, for they have different pricing mechanisms and low correlation to each other.

Well… My recent theme is that of a “return to fundamentals” starting with interest rate differentials coming back as a key value tool for currencies… And the next step is to have the divergence between currencies, commodities and equities carry through… We’ve seen some of that happen lately, but there are still traces of this risk on, risk off still hanging on. But, eventually, pricing equities alongside currencies and commodities will be a distant thing in our rear view mirrors!

OK… I hear that train a coming; it’s rolling around the bend; and I ain’t seen the sunshine since I don’t know when… I’m stuck in government taxation prison, and more are coming on… Yes, the increase in taxes that I keep warning you about that your kids and grandkids are going to have to deal with, are going to see their timetable pushed up, and we will begin to deal with them sooner than I thought!

As I said to a customer yesterday… “Raising the debt limit just means we’ll be issuing more Treasuries.” And we all, as Pfennig readers, know what that means… The debt servicing goes up! And who will pay for that debt servicing? You and me; our kids and grandkids… But don’t let that get in the way of arguing that deficit spending shouldn’t be seriously cut back… You wouldn’t believe all the flack I got from people the other day when I mentioned cutting government deficit spending!

Government spending is like a drug for them, and us… We just have to say “no”! Come on; everybody together now… “Just say no!”

Today, in the US, we will see the color of March’s retail sales… I told you on Monday that the BHI (Butler household index) indicated that retail sales would be OK for the month of March, as I personally made quite a few purchases. My family, and my friends who were with me in Florida, can vouch for that! HA! I don’t see this print at a 0.5% increase as anything that will push the dollar higher… But then, sometimes you have to wonder just what currency traders are doing…

OK… I saw an article last night that was issued by the Canadian Imperial Bank of Commerce (CIBC) regarding the euro… The report talked about how the European Central Bank (ECB) is going to hike rates again in either June or July, and the push by the markets to get that rate hike will see the euro rise to 1.50 this summer… But, CIBC believes that 1.50-euro is the peak… Hmmm… Interesting, don’t you think?

The reason that the CIBC people think that 1.50 euro is the peak is because the ECB will stop hiking rates this summer, and the markets will grow tired of holding on to euros that are not seeing their yield rise… Always great to get a different viewpoint, eh?

Did you see the Fed Heads that are Hawks trying to combat what the dovish Fed Heads had said the night before? Fed Heads Bullard and Fisher were trying their best to offset the dovish tone that Fed Vice-Chair Yellen had dispersed… Bullard called for a $100 billion reduction of the $600 billion quantitative easing, and Fisher said, “There are risks of inflation getting out of control”… Basically, it’s the same-ol’, same-ol’ for these two, but still, I find the singing from different song sheets interesting… You’ve also got to wonder what foreign central bankers think of this division in the Fed… It certainly can’t be good for the dollar.

I saw this and thought it best to just put it out there, and let the dear readers see the problem as I see it… I found this on the Bloomberg… “The US budget deficit this year will amount to 10.8% of gross domestic product, the biggest shortfall in the developed world, the International Monetary Fund said. As a percentage of GDP, the shortfall will outstrip that of Japan and the UK. The IMF estimated that [the] US president would have to implement in the next two years the biggest budget cut in ‘at least half a century’ to keep his promise of halving the deficit by the end of his four-year term.”

To carry it further, reader Scott, sent me this from the FT… “The US lacks a ‘credible strategy’ to stabilize its mounting public debt posing a small but significant risk of a new global economic crisis, says the International Monetary Fund.”

I shake my head in disgust… But not to worry! The president is going to announce his deficit cutting plan today… And we’ll be torn between two lovers… Paul Ryan’s austerity deficit cutting plan, or the tax increases from the president… Ooooohhhh… Where do I sign up for the tax increases? NOT!

I heard one of the sales guys talking on the phone yesterday, and saying that most of the currencies had recovered the ground they lost in 2008, and more… But that Norway and Sweden had not…yet… I would have to say that knowing that, one would be lead to the think that Norway and Sweden will outperform the rest of the currencies going forward, as they play catch-up… Either that, or they are just laggards, with no chance of ever catching up… Hmmm… The best fiscally run country in the world, and its neighbor, laggards? I hardly think so!

After 30 years of selling gold holdings or keeping reserves flat, central banks are buying gold again. In 2010, emerging markets central banks moved cash reserves to gold, becoming significant buyers of the metal. What do you make of that? I’ll tell you what I make of it… There are a couple of thoughts here… 1. They have enough dollars, and don’t want any more. 2. They know what a true store of wealth looks like, or 3. They have other plans for that gold…

And, now I know I have your attention! Hmmm, what could be their other plans for gold? Can you say, making gold a currency? I knew you could! Remember a couple of months ago, when I did the gap band thing, and dropped a bomb on you, and said that I thought China was amassing HUGE piles of gold and silver to eventually back the renminbi (CNY) when it becomes the next reserve currency of the world? Well, I just put two and two together, and emerging markets will want to follow China’s lead… WOW! Now, we have to see if that all plays out… Remember, I always see things far before they come to reality…

Then there was this… The birth/death model strikes again! From reader Scott, and The NY Post

Early this month Labor reported that 216,000 new jobs were created in March. It was better than Wall Street expected. But the figure included 117,000 jobs that the department thinks, but can’t prove, were created by newly formed companies that might not even exist. In fact, the department is getting so optimistic about the labor market that it increased this imaginary job count from just 81,000 in March, 2010.

Yes, I’ve pointed this out so many times in the past that I had given up tracking it, because it just causes me to go yell at the walls… The BLS comes out with a trumped up jobs number, the politicians all pat themselves on the back, and claim their programs are working, the markets buy dollars, and everyone thinks that all’s right in the world again… Only to find out a day or two later that the number wasn’t as lofty as reported… But the discovery of the trumped up number never, and I repeat never, causes all those things to be reversed… It’s all a game to the government, to make you feel good…

To recap… The bias to sell dollars remains, although not against all currencies. For instance the Canadian dollar/loonie has backed off versus the green/peachback due to a two-day $5 drop in the price of oil. The euro is flirting with the 1.45 figure, and CIBC thinks that the euro will peak out at 1.50 later this summer. And are you ready to pay more taxes? It’ll be the president’s plan that will be announced today…

Chuck Butler
for The Daily Reckoning

The Bias to Sell US Dollars Remains originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
The Bias to Sell US Dollars Remains




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

The Bias to Sell US Dollars Remains

April 13th, 2011

Well, the dollar continues to dance with the wolves, and though the heavy selling has backed off…you can just tell by the way the markets react each day, that the bias to sell dollars remains.

For instance, the euro (EUR) is flirting with 1.45 this morning, after visiting that level a couple of times yesterday. The Aussie dollar (AUD) is back to $1.05, and kiwi (NZD) is 79-cents this morning! The Canadian dollar/loonie (CAD) has pulled back, as the price of oil has dropped $5 in the past two days, and the Swiss franc (CHF) has added to its $1.11 figure of yesterday… So, while not every currency is gaining on the dollar, most are… Gold and silver, after losing some large chunks of ground yesterday, are back on the rally tracks this morning…

Remember, and not that long ago either, when we used to say it was a “risk on” or “risk off” day? In those times, all of the risk assets of currencies, commodities and equities would get thrown together, and traded one way or the other depending on what type of “day” it was… And I used to tell you all the time that fundamentally, currencies and commodities don’t trade alongside equities, for they have different pricing mechanisms and low correlation to each other.

Well… My recent theme is that of a “return to fundamentals” starting with interest rate differentials coming back as a key value tool for currencies… And the next step is to have the divergence between currencies, commodities and equities carry through… We’ve seen some of that happen lately, but there are still traces of this risk on, risk off still hanging on. But, eventually, pricing equities alongside currencies and commodities will be a distant thing in our rear view mirrors!

OK… I hear that train a coming; it’s rolling around the bend; and I ain’t seen the sunshine since I don’t know when… I’m stuck in government taxation prison, and more are coming on… Yes, the increase in taxes that I keep warning you about that your kids and grandkids are going to have to deal with, are going to see their timetable pushed up, and we will begin to deal with them sooner than I thought!

As I said to a customer yesterday… “Raising the debt limit just means we’ll be issuing more Treasuries.” And we all, as Pfennig readers, know what that means… The debt servicing goes up! And who will pay for that debt servicing? You and me; our kids and grandkids… But don’t let that get in the way of arguing that deficit spending shouldn’t be seriously cut back… You wouldn’t believe all the flack I got from people the other day when I mentioned cutting government deficit spending!

Government spending is like a drug for them, and us… We just have to say “no”! Come on; everybody together now… “Just say no!”

Today, in the US, we will see the color of March’s retail sales… I told you on Monday that the BHI (Butler household index) indicated that retail sales would be OK for the month of March, as I personally made quite a few purchases. My family, and my friends who were with me in Florida, can vouch for that! HA! I don’t see this print at a 0.5% increase as anything that will push the dollar higher… But then, sometimes you have to wonder just what currency traders are doing…

OK… I saw an article last night that was issued by the Canadian Imperial Bank of Commerce (CIBC) regarding the euro… The report talked about how the European Central Bank (ECB) is going to hike rates again in either June or July, and the push by the markets to get that rate hike will see the euro rise to 1.50 this summer… But, CIBC believes that 1.50-euro is the peak… Hmmm… Interesting, don’t you think?

The reason that the CIBC people think that 1.50 euro is the peak is because the ECB will stop hiking rates this summer, and the markets will grow tired of holding on to euros that are not seeing their yield rise… Always great to get a different viewpoint, eh?

Did you see the Fed Heads that are Hawks trying to combat what the dovish Fed Heads had said the night before? Fed Heads Bullard and Fisher were trying their best to offset the dovish tone that Fed Vice-Chair Yellen had dispersed… Bullard called for a $100 billion reduction of the $600 billion quantitative easing, and Fisher said, “There are risks of inflation getting out of control”… Basically, it’s the same-ol’, same-ol’ for these two, but still, I find the singing from different song sheets interesting… You’ve also got to wonder what foreign central bankers think of this division in the Fed… It certainly can’t be good for the dollar.

I saw this and thought it best to just put it out there, and let the dear readers see the problem as I see it… I found this on the Bloomberg… “The US budget deficit this year will amount to 10.8% of gross domestic product, the biggest shortfall in the developed world, the International Monetary Fund said. As a percentage of GDP, the shortfall will outstrip that of Japan and the UK. The IMF estimated that [the] US president would have to implement in the next two years the biggest budget cut in ‘at least half a century’ to keep his promise of halving the deficit by the end of his four-year term.”

To carry it further, reader Scott, sent me this from the FT… “The US lacks a ‘credible strategy’ to stabilize its mounting public debt posing a small but significant risk of a new global economic crisis, says the International Monetary Fund.”

I shake my head in disgust… But not to worry! The president is going to announce his deficit cutting plan today… And we’ll be torn between two lovers… Paul Ryan’s austerity deficit cutting plan, or the tax increases from the president… Ooooohhhh… Where do I sign up for the tax increases? NOT!

I heard one of the sales guys talking on the phone yesterday, and saying that most of the currencies had recovered the ground they lost in 2008, and more… But that Norway and Sweden had not…yet… I would have to say that knowing that, one would be lead to the think that Norway and Sweden will outperform the rest of the currencies going forward, as they play catch-up… Either that, or they are just laggards, with no chance of ever catching up… Hmmm… The best fiscally run country in the world, and its neighbor, laggards? I hardly think so!

After 30 years of selling gold holdings or keeping reserves flat, central banks are buying gold again. In 2010, emerging markets central banks moved cash reserves to gold, becoming significant buyers of the metal. What do you make of that? I’ll tell you what I make of it… There are a couple of thoughts here… 1. They have enough dollars, and don’t want any more. 2. They know what a true store of wealth looks like, or 3. They have other plans for that gold…

And, now I know I have your attention! Hmmm, what could be their other plans for gold? Can you say, making gold a currency? I knew you could! Remember a couple of months ago, when I did the gap band thing, and dropped a bomb on you, and said that I thought China was amassing HUGE piles of gold and silver to eventually back the renminbi (CNY) when it becomes the next reserve currency of the world? Well, I just put two and two together, and emerging markets will want to follow China’s lead… WOW! Now, we have to see if that all plays out… Remember, I always see things far before they come to reality…

Then there was this… The birth/death model strikes again! From reader Scott, and The NY Post

Early this month Labor reported that 216,000 new jobs were created in March. It was better than Wall Street expected. But the figure included 117,000 jobs that the department thinks, but can’t prove, were created by newly formed companies that might not even exist. In fact, the department is getting so optimistic about the labor market that it increased this imaginary job count from just 81,000 in March, 2010.

Yes, I’ve pointed this out so many times in the past that I had given up tracking it, because it just causes me to go yell at the walls… The BLS comes out with a trumped up jobs number, the politicians all pat themselves on the back, and claim their programs are working, the markets buy dollars, and everyone thinks that all’s right in the world again… Only to find out a day or two later that the number wasn’t as lofty as reported… But the discovery of the trumped up number never, and I repeat never, causes all those things to be reversed… It’s all a game to the government, to make you feel good…

To recap… The bias to sell dollars remains, although not against all currencies. For instance the Canadian dollar/loonie has backed off versus the green/peachback due to a two-day $5 drop in the price of oil. The euro is flirting with the 1.45 figure, and CIBC thinks that the euro will peak out at 1.50 later this summer. And are you ready to pay more taxes? It’ll be the president’s plan that will be announced today…

Chuck Butler
for The Daily Reckoning

The Bias to Sell US Dollars Remains originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
The Bias to Sell US Dollars Remains




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

This High-Yield Stock Gained 751% in 2 Years

April 13th, 2011

This High-Yield Stock Gained 751% in 2 Years

Income investing has an unfair stigma attached to it.

The conventional wisdom says invest in dividend payers — also known as “widow and orphan” stocks — if you're just trying to stash your money somewhere. If you actually want to earn a decent return, then look somewhere else.

Dividend payers are thought to be stodgy. They're slow movers. They're boring. They'll pay you a few percent a year but won't move anywhere.

That common wisdom couldn't be further from the truth.

Take a look at this chart:

Uncategorized

This High-Yield Stock Gained 751% in 2 Years

April 13th, 2011

This High-Yield Stock Gained 751% in 2 Years

Income investing has an unfair stigma attached to it.

The conventional wisdom says invest in dividend payers — also known as “widow and orphan” stocks — if you're just trying to stash your money somewhere. If you actually want to earn a decent return, then look somewhere else.

Dividend payers are thought to be stodgy. They're slow movers. They're boring. They'll pay you a few percent a year but won't move anywhere.

That common wisdom couldn't be further from the truth.

Take a look at this chart:

Uncategorized

Forget McDonald’s, Buy This Stock Instead

April 13th, 2011

Forget McDonald's, Buy This Stock Instead

For much of the past 18 months, it's been fair to question whether the economy is truly on the mend. Not anymore. The recent employment trends have started cement a new reality: companies are starting to rebuild their workforces and consumer spending may finally turn up to a higher plane later this year. Trouble is, many consumer stocks have already anticipated that brightening outlook. So it pays for investors to find companies that are still being viewed as victims of the lousy economy, getting no credit for an eventual upturn in demand.

For fast-food operator Wendy's (NYSE: WEN), expectations are quite low, as shares trade at a hefty discount to the peer group. Yet a recently articulated turnaround plan, coupled with the benefits that will come from rising employment, could help the company to generate better financial results. When that happens, the shares' major discount to the peer group could narrow, pushing shares up 50% — or more.

In the past few years, Wendy's has lost ground to rivals such as McDonald's (NYSE: MCD). Mickey D's wisely sought to modernize its stores and upgrade menu offerings, which helped deliver solid increases in foot traffic. Over at Wendy's, the struggling Arby's chain has gotten much of management's attention, which led the core Wendy's stores to suffer from benign neglect. As a consequence, financial results have looked pretty lousy when compared to McDonald's.

There is a key takeaway from these numbers: Investors value every dollar of McDonalds' sales much higher than every dollar of Wendy's sales (3.72 vs. 0.84). And for good reason: McDonald's knows how to really squeeze profits out of sales, so its operating margin is vastly higher than Wendy's. The key for Wendy's is to boost those margins, and when that happens, the price/sales valuation gap between these two firms is likely to narrow.

As a first step, management announced plans in early March to sell the underperforming Arby's chain. Merrill Lynch thinks the chain will fetch at least $200 million, while UBS suspects the chain will sell for $300 million. Yet this is addition by subtraction. With the proceeds of the sale, Wendy's will follow the McDonald's playbook by remodeling stores and rolling out new food offerings.

Store remodeling has shown to have a tangible effect on sales, as consumers' perceive a higher quality offering. (And that is surely required for Wendy's, which already charges slightly more for its food and needs to retain a solid brand image.)

The menu revamp is taking place in several steps. First, Wendy's will again make a big push into breakfast (with the twist that it will offer burgers and other lunch fare as well during morning hours). Wendy's has had a hard time cracking the breakfast market in the past, yet there is little risk, as the fixed costs such as utilities, rent and taxes are already covered.

More importantly, Wendy's will roll out a new “hot 'n juicy cheeseburger” this fall, with an emphasis on a more loosely packed burger that has scored very well with consumers in test trials. The burger's launch will coincide with “Wendy” as a spokesperson, the daughter of founder Dave Thomas and inspiration for the chain's name. This will mark the most serious image re-branding for Wendy's since before the recession took its toll.

Lastly, Wendy's, which currently has about 800 international stores, hopes to follow in the footsteps of McDonald's and steadily expand into countries such as Brazil and China, pushing the international store base past 5,000 within five years. Wendy's is unlikely to ever catch up and surpass McDonald's. Instead, the goal is simply to close the gap between the two.

We looked at Wendy's numbers before. Now let's look at them with the assumption that Wendy's can boost operating margins to 15% — still half of McDonald's. (I've kept all other metrics constant for the sake of simplicity).

Even if Wendy's margins rise (thanks to the leverage associated with increased foot traffic and the international expansion) to just half of McDonalds' margin levels, shares would end up being far cheaper than shares of Mickey D's, on an enterprise value (EV)-to-EBITDA (earnings before interest, taxes, depreciation and amortization) basis.

This isn't just idle speculation. It's actually the roadmap Wendy's management is pursuing. Investors remain in watch-and-wait mode and shares won't appreciate until progress begins. That is likely to play out through 2011, as breakfast, the new burger, the new ad campaign and the international expansion all begin.

Action to Take –> Optimism over plans to sell the Arby's chain in early March pushed shares above the $5 mark. That euphoria has faded and shares are now back to where they were before the Arby's announcement was made. Investors have already moved on to other ideas, but I'm betting they'll cycle right back to Wendy's, as turnaround plans start to take shape in coming quarters. The fact that another 200,000 consumers are finding work every month is just icing on the cake for this turnaround plan, as I see shares having at least 50% upside from current levels.


– David Sterman

P.S. — I don't know if you're aware of this or not, but a 20-year energy agreement between the United States and Russia is about to expire. The problem is, this deal supplies 10% of America's electricity. When the Russians refuse to renew the agreement, the U.S. will face an entirely new kind of energy crisis. This disruption could send a handful of energy stocks through the roof. Keep reading…

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
Forget McDonald's, Buy This Stock Instead

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Forget McDonald’s, Buy This Stock Instead

Uncategorized

A Sad Day for Western Civilization

April 13th, 2011

Claus VogtWhen the currency of great nations and unions sinks steadily in value — as we are seeing now with the once-mighty U.S. dollar and even the once-proud euro — one must step back from the day-to-day fray of financial markets and look at current events from a much broader, historical perspective.

What we see is a history littered with examples of horrendous crimes. But the biggest, the worst, and the most devastating have, almost without exception, been perpetrated in the name of the state.

It is this unmistakable conclusion that has led philosophers of freedom to adopt a healthy mistrust of government and its representatives.

Based on the most thorough analytical and empirical arguments, they see the government as the greatest threat to freedom, against which a society must protect itself at all costs, lest it degenerate into dictatorship.

The separation of powers is one such protective mechanism. But equally important is strict adherence to a currency that cannot be multiplied at will.

This is what forces governments to treat the nation’s finances in a responsible manner, while protecting the people from the greed of the politicians.

In principle, there are two ways freedom can be abolished and slavery introduced: Through revolution or evolution.

Investors are familiar with revolutions that have led to the rise of dictatorships. The communist revolutions, causing untold suffering and poverty across great swaths of the globe have, after all, only recently been consigned to history.

That is not the threat Western Civilization faces right now. Instead, the greater threat stems from an evolutionary process initiated long ago — a not-so-subtle, insidious progression in which the government spreads gradually like a cancerous tumor, increasingly limiting individual freedoms.

The decline in the U.S. dollar is the centerpiece of that trend. It not only threatens the freedom to spend. It also threatens a series of other freedoms.

Where did it begin? Many years and presidents ago.

For example, the administration of former president George W. Bush, despite all their rhetoric to the contrary, were, in fact, out-and-out Keynesians.

This is so obvious it should not even be worth mentioning. However, in the wake of the debt crisis, since the blame game and search for scapegoats is so ubiquitous, and since neoliberalism is first in the firing line, this observation is nonetheless necessary. It’s ironic that liberalism and free market philosophies are getting lynched, when the real culprit that deserves to stand trial is Keynesianism.

The key point here is not whether government intervention in the economy — including massive economic stimulus programs — are financed by deficits or not. We know that Keynes proposed that the government should accumulate reserves in good times so that it could afford to finance stimulus programs in bad times.

But because Keynes himself was, in large measure, a politician, it is inconceivable that even he considered the implementation of this proposal to be possible — let alone probable.

The interests of politicians who depend on votes are diametrically opposed to Keynes’s proposition of accumulating reserves in times of plenty. Voters almost invariably demand that surpluses be spent today — not in some elusive future.

To reveal a government’s hidden agenda — even behind its smokescreen of public relations — all that is typically required is to consider a few key variables: You can look at the trend in the government’s share of total economic activity, the amount of legislation passed or, more commonly, the level of national debt.

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If each of these is expanding, you can be almost certain that the government is not pursuing a liberal agenda. It is immaterial what kind of rhetoric the government is deploying. Do not let them fool you. And don’t be hoodwinked by false critics, either. Judge both sides not by their words, but by their deeds.

Classical liberalism and the Austrian School of economics stand, as we do, for freedom of the individual — with no ifs or buts. Classical liberalism and the Austrian School are the offspring of unwavering philosophers of freedom.

And these are philosophers who think ideas through to their logical conclusion with inexorable consistency, even in circumstances in which others would prefer to take a more relaxed view — to further their career or to avoid established taboos.

It should therefore come as no surprise that thinkers of this provenance have no powerful friends. They are a thorn in the side of the powerful.

In The Denationalisation of Money, F.A. von Hayek sums it up as follows: “I fear that since ‘Keynesian’ propaganda has filtered through to the masses, has made inflation respectable and provided agitators with arguments which professional politicians are unable to refute, the only way to avoid being driven by continuing inflation into a controlled and directed economy, and [the only way to] ultimately save civilization, will be to deprive governments of their power over the supply of money.”

I agree. But some of the world’s most powerful men — controlling trillions of a nation’s money supply — do not. They run their money printing presses nonstop. They drive up the price of virtually every commodity under the sun. And they place their entire national economies at risk.

My advice: Extreme caution with U.S. dollar, long-term bonds. Look for opportunities to profit from the inevitable inflation.

Best wishes,

Claus

Read more here:
A Sad Day for Western Civilization

Commodities, ETF, Mutual Fund, Uncategorized

Is the US Housing Market Making a Comeback?

April 12th, 2011

Buenos Aires is beautiful. We have been blessed with good weather.

The city is booming, too. Strong agricultural prices have done what they always do in Argentina – they’ve set off a boom.

“Property prices are up about 30% over the last 3 years,” says our BA-based colleague, Rob Marstrand. “But this is such a funny place. I love living here, because you see everything. If not in the present, certainly in the past…or the future. Booms, busts, corruption, inflation – everything.

“Only about 6% of properties are sold with mortgages. So this is a real boom – where people are paying cash. But, where does this cash come from? Much of it comes from the bull market in farm products. Argentina is one of the world’s top producers of cereals, for example. But there is probably a lot of money coming from the government too. The inflation rate is about 25%.

“Now, you’d think that a country with a 25% inflation rate would have a currency that is falling through the floorboards. But no. The authorities have been supporting the peso; it actually went up 4% against the dollar. Put the dollar’s drop and Argentine inflation together, and you get a loss of dollar purchasing power of 30%.

“People want to protect themselves. And here, they do it by buying real estate.

“Americans might want to think about it too.”

Prices are down 30% nationwide in the US. In Florida, Nevada, and most of California, they’re half off. Even if they might go down a bit more, there are some very good deals available now. A friend of ours is able to buy apartment buildings for little more than 5 times rent income. If upkeep and taxes take half of that, that still gives him a 10% return. But it could be much better. Suppose he takes out a 30-year, fixed rate mortgage. Now, suppose inflation goes up. Every percentage point that consumer prices rise is another percentage point of yield for a fully-mortgaged investor.

Rob also is in charge of our Family Office investments.

“I don’t see any way that they can unwind all this debt and spending without causing even more problems,” he says. Investors might get some protection from real estate or stocks. But the best protection is gold.

“But we’re still in a correction,” Rob continued. “It wouldn’t be surprising to see gold fall when this round of quantitative easing ends. Take away the money-printing and gold could sell off along with everything else. But people are now catching on. When the economy worsens, they expect the feds to add more stimulus…or lower rates…or more QE. So, they know that over the long run, the effect will probably be to undermine the dollar. I wouldn’t be at all surprised to see gold down 15% in the next sell-off.

“But when the feds step in with more spending, gold will be the clear winner. We already own a lot of gold. I feel like I want to buy more of it…”

Regards,

Bill Bonner,
for The Daily Reckoning

Is the US Housing Market Making a Comeback? originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
Is the US Housing Market Making a Comeback?




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

Real Estate, Uncategorized

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