Posts Tagged ‘hard assets’

Hot Off The Press: Fed To Print $470 Billion In 2013

October 24th, 2012

Jared Cummans: All of the worry about inflation and the Fed’s ability to control it has put this organization under the microscope. Markets react to their every move, and investors take cues from Bernanke for how they should position themselves. The Fed recently released its printing plans Read more…

Currency, Government

Invest Like George Soros With This Commodity Stock

October 17th, 2012

Jared Cummans: George Soros is one of the biggest names in commodities, as he is largely known for his success running the Quantum Fund with Jim Rogers. In recent years, Soros has been something of a gold bug, making huge allocations to the SPDR Gold Trust (NYSEARCA:GLD). Read more…

Agriculture, Commodities, ETF

What to Do In Case of Liquidation

June 13th, 2011

The Dow Jones Industrial Average tumbled 172 points last Friday – punctuating another thoroughly forgettable week for American capitalism. Friday’s loss submerged the Dow back below the 12,000 mark, while also producing a sixth straight losing week for the US stock market.

How rare is a six-week losing streak?

During the last twelve years, the US stock market has suffered only five losing streaks of six weeks or more – the last of which occurred in the summer of 2004. In three of those five rare losing streaks, gold and commodities also fell. In the first two such instances – September-October of 2000 and February-March of 2001 – the S&P 500 Index fell 20% or more over the ensuing year…and was still showing losses three years later.

The third of these three instances is underway at the very moment…and that’s probably not good news.

Most of the time, when stocks go zig, gold (and commodities) go zag. That’s called “inverse correlation” or “non-correlation.”…and it is one of the many reasons gold is a nice thing to own. You can usually count on it to shine when almost every other investible asset is losing its luster.

Lately, however, gold is doing very little zagging to the upside, even though stocks are zigging to the downside. In fact, there isn’t a lot of non-correlation going on anywhere in the financial markets. Many assets are correlating with stocks much more than usual. When all asset classes begin falling together, even worse declines are usually on the way. Professional investors call this a “liquidation event.”

The recent min-selloff on Wall Street hardly qualifies as a liquidation event…yet. But one thing is very clear: during the last few weeks it has been much easier to lose money than to make it…no matter what you owned.

During the last six weeks, the S&P 500 has dropped nearly 7%. During that same timeframe, gold is down 2%, oil is down 13% and silver is down 25%. Even Inflation-protected Treasury bonds [TIPs] are down. In short, there have been very few places to hide for the last month and a half.

This simultaneous selloff in stocks and commodities is not comforting. But lest we be accused of “data snooping,” allow us to advance a theory to validate the apparent connection between the six-week losing streaks of the past and the present.

The theory is pretty basic: when everything starts falling at the same time, a liquidation event is underway. Investors simply want out…of everything. In such circumstances, risk avoidance takes the place of risk-taking…and this attitude tends to persist for a while, as the examples of 2000 and 2001 illustrate.

A liquidation event may or may not be underway, but investors do not lack for solid reasons to head to higher ground…or to any ground that doesn’t act like quicksand. Past is not necessarily prologue, dear reader. But when investors become eager sellers of all assets, caution is in order.

It’s time to do one of the following things:

1) Panic and reduce your exposure to equities, just in case.
2) Think long-term and don’t worry about it.
3) Buy the stuff that holds its value long-term, no matter what the short-term noise might be.
4) Both #1 and #3.

Our vote would be #4.

Eric Fry
for The Daily Reckoning

What to Do In Case of Liquidation originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
What to Do In Case of Liquidation

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

Preparing Your Investments for an Inflationary Future

May 26th, 2011

Let the boxing match begin!…In the near corner, we find deflation, with its furious fists of debt liquidation and credit contraction… And in the far corner, we’ve got Ben Bernanke’s printing press, with its menacing inflationary uppercut.

Inflation will win this contest eventually, but the match might go the full 12 rounds.

Deflation is no slouch. He packs a mean punch. Borrowers of all types – from single-family mortgage-holders to national governments – are defaulting on their loans…or moving rapidly in that direction. As the weakest of these borrowers fails, asset prices fall and confidence wanes, both of which produce additional defaults. Once this vicious cycle gains fury, all but the strongest – or least leveraged – borrowers endure.

If Greece defaults, for example, Ireland might follow…and so might Portugal and Spain, etc. If Greece defaults, a contagion becomes quite likely, as the folks who are kicking in their tax dollars to the European Central Bank and the IMF begin to realize that their bailouts are futile. Eventually, the taxpayers from relatively solvent nations resist pouring their capital down Greek, Irish or Portuguese rat holes. Eventually, the bailouts end and the defaults – politely known as “restructurings” – begin.

Aware of this grim prospect and fearful of deflationary forces in general, the Central Banks of America and Europe have been counterpunching with various combinations of money-printing, subsidized lending and debt-financed bailouts. In other words, all the classic inflationary responses, plus a few innovations like quantitative easing.

The match between deflation and inflation looks like a draw so far. The global economy is not slipping into a deflationary abyss. On the other hand, inflationary effects are popping up in numerous inconvenient places.

Based on official US data, the Consumer Price Index (CPI) is up 3.2% over the last 12 months, while the Producer Price Index (PPI) is up 6.8%. Both numbers are higher than in recent history, but neither one seems particularly terrifying…on the surface.

When you dig down into the numbers, however, you discover that these inflation rates are accelerating rapidly. During the first four months of this year, the CPI has jumped 9.7% annualized, while the PPI has soared at a 12.8% annualized pace.

Import prices are also rocketing higher – up 2.2% in April, after a 2.6% jump the previous month. Year-over-year, import prices are up a hefty 11.1%. But once again, the trend is accelerating. For the first four months of this year, import prices have increased at a 26.7% annualized rate!

Let’s put these facts and figures into a real-world context. Based on the lowest of these various inflation data, the CPI, the average US wage earner has made no progress whatsoever during the last four years…

US average per capita weekly earnings have increased about 12% since the beginning of 2006. But since the CPI has increased the same amount, that means inflation has wiped out all the growth of weekly earnings.

If, as we suspect, the forces of inflation continue to prevail in this contest, hard asset investments should perform well, at least relative to most other options. But this analysis is not new news to faithful Daily Reckoning readers. It’s probably not even new news to unfaithful Daily Reckoning readers. (You know who you are!)

We’ve been singing the praises of hard assets like gold and silver for many, many years. In fact, we’ve been talking up had assets for so long that our analysis would be growing tiresome by now…if not for the fact that it has been profitable.

Even so, your editor does not wish to grow tiresome to anyone – not to his kids, not to his girlfriend and certainly not to his Daily Reckoning readers. So he will add a nuance to his monotonous “buy hard assets” mantra.

Here goes: If inflation takes hold as we expect, the allocations in your portfolio that are not hard asset investments should, nevertheless, possess hard asset attributes. When allocating to specific stocks, for example, insist that those stocks possess two key attributes:

1) Significant exposure to non-dollar revenues.
2) Significant pricing power, even in an inflationary cycle.

A strong balance sheet and solid cash flow also help.

Eric Fry
for The Daily Reckoning

Preparing Your Investments for an Inflationary Future originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Preparing Your Investments for an Inflationary Future

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.

OPTIONS, Uncategorized

Precious Metals Soaring on Earthquakes, Eurozone Fears and Empty State Treasuries

March 11th, 2011

Gold (SPDR Gold Shares (GLD)) is breaking into new 52-week highs and silver (iShares Silver Trust (SLV)) is at its highest point in more than 30 years as Libya, one of the largest oil producers, faces a civil war and as earthquakes and tsunamis rattle Japan. Libya is not following Tunisia and Egypt with a somewhat moderate transition; this revolt has been extremely violent and bloody. A lot of the fear at the moment is due to concern that protests could spread to Saudi Arabia. Investors are fearing the rapid rise in oil (iPath S&P GSCI Crude Oil TR Index ETN (OIL)) prices may be the spark that hurts a questionable global economic recovery as equities (SPDR S&P 500 (SPY)) sell off, bringing down some miners to extremely cheap levels considering the high price of gold and silver bullion.

Countries that have created easy monetary policies and that are still struggling with high unemployment are finding it extremely difficult to face soaring gas prices and rising fuel costs. Now eurozone debt fears are resurfacing as Spain (iShares MSCI Spain Index (EWP)), Portugal, Greece, Italy, and Ireland face soaring deficits. Within the United States you have troubled states with government workers demanding their benefits as states face empty treasuries.

The US dollar (PowerShares DB US Dollar Index Bullish (UUP)) has a hit a new low and is in danger of significantly selling off as precious metals gain safe haven appeal. The one thing that has saved the US dollar this week is eurozone debt fears. However, next week we may hear more talk of quantitative easing III (QE3) as jobless claims remain high and as eurozone fears resurface.

Investors have moved back into precious metals, however the gold miners (SPDR Gold Shares (GDX)) have not yet confirmed this move due to the weak equity market. All eyes are on the S&P 500 and maintaining the 50-day moving average. If equity markets can hold up and reverse here then some of the miners should follow bullion into new highs. There may be pullbacks and occasional sell-off days, however the precious metals market remains one of the strongest multi-year trends and one must be careful of being shaken off a secular bull trend and of misinterpreting profit-taking from institutional selling.

Gold has a lot of cash on the sidelines from investors who got shaken out in January. This should lead to a measured move to at least the $1550-$1600 area on gold and the $38-40 area for silver. I believe that gold and silver will follow a similar path of their upward moves in August of 2010, March of 2010, and July of 2009. We must ride this wave and uptrend in precious metals and not forget that there may be occasional sell-offs and profit-taking. After five consecutive weeks higher, it is only natural and healthy to have some profit-taking, but it shouldn’t make you lose sight of the big picture: the uptrend in precious metals and the danger of currencies backed by governments with soaring deficits.

Read more here:
Precious Metals Soaring on Earthquakes, Eurozone Fears and Empty State Treasuries


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