Wednesday, July 14, 2010

BIS swap operation signals wider use of gold-GFMS

(Reuters) - The 346 tonnes of gold swap operations conducted by the Bank of International Settlements (BIS) in recent months highlight gold's central role in the financial system and are unlikely to lead to dumping of the metal on the market, GFMS chairman Philip Klapwijk said.

The operations, detailed in the bank's latest annual report, show the bank was holding 346 tonnes of gold as part of swap operations in exchange for currencies.

"Here we have gold being used quite creatively," Klapwijk told Reuters Insider television. "That is in a sense a validation again of gold's centrality to the financial system." (more)

Jay Taylor: Turning Hard Times Into Good Times

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Wal-Mart: Too Cheap to Pass Up

Wal-Mart Stores, one of the world's biggest companies and by far the world's largest retailer, with $408 billion in revenue, built its discount empire on that basic promise. Now, Wal-Mart's own stock sells at a sharply discounted price, day in and day out.

While the company's executives still make appearances at growth-stock conferences, as they have for years, Wal-Mart shares are increasingly showing up in the portfolios of a classic value-investing crowd—outfits such as Harris Associates' Oakmark Funds, Tweedy Browne and Wally Weitz & Co.'s Weitz Funds.

In fact, Warren Buffett's Berkshire Hathaway doubled its position in the Bentonville, Ark.-based company last November and kept the stake at least through the first quarter, based on its most recent disclosures.

Wal-Mart's market value, at $182 billion, is now less than half its revenue, a stunningly low ratio. (more)

Moody's cuts Portugal's bond ratings by two notches to A1

(MarketWatch) -- Moody's Investors Service on Tuesday downgraded Portugal's government bond ratings by two notches, citing the likelihood of further deterioration in the nation's finances and weak economic growth prospects.

The agency cut the ratings to A1 from Aa2 and said the outlook is now stable, with the upside and downside risks evenly balanced. Moody's had placed the ratings on review for possible downgrade on May 5.

In Lisbon, the PSI-20 stock index /quotes/comstock/30t!i:psi20 (XX:PSI20 7,313, +7.50, +0.10%) turned higher after falling initially in the wake of the downgrade. The index rose 21 points, or 0.3%, to 7,326 points in afternoon trading, underperforming other European stock markets. It earlier hit an intraday low of 7,264.34 points.

In the currency markets, the euro /quotes/comstock/21o!x:seurusd (CUR_EURUSD 1.2714, -0.0008, -0.0629%) also reversed earlier losses. It gained 0.4% to $1.2641.

In a statement, Moody's said it expected the Portuguese government's debt metrics to continue to deteriorate for at least another two to three years. (more)

Don't believe a word about electric cars and the coming lithium shortage

FORTUNE -- Shai Agassi wants to put the world into electric cars whose batteries can be swapped out at one of his futuristic "gas" stations. But just as the cells in flashlights and laptops need lithium to run, so do -- swappable batteries or not -- electric cars. And some are now saying that will make lithium, in our increasingly battery-dependent society, increasingly hard to come by.

There are rumblings in the press that the auto industry switching from petroleum to lithium is simply shifting from one finite resource to another, and even that the U.S.'s real reasons for invading Afghanistan were to secure its massive deposits of the alkali metal. Also, electric skeptics think there might be trouble accessing enough lithium to fuel the shift. Agassi, unsurprisingly, is not among them. (more)

When Did The U.S. Market Really Regain Its 1929 Highs?

In real (inflation/deflation-adjusted) terms, when did the US market permanently regain the high reached in 1929? Here is a chart that illustrates two answers to the question. One uses the real price and the other uses the real total return.I've used the S&P Composite for this exercise — a splicing of the S&P 500, which was created in March 1957, and the earlier S&P 90 Stock Composite Index, a daily index that dates from January 1928. The chart is based on daily data for the price and the estimated total return calculated with daily interpolations based on quarterly dividends).

For the S&P Composite, the price didn't permanently remain above the 1929 peak until December 1985 — over 56 years later. The total return, with dividends reinvested, took nearly 20 years to achieve the same distinction.

Will the secular bear market that began in 2000 have the same total-return success when the S&P 500 eventually breaks even? Given the much lower dividend yield over the past decades, the prospects aren't encouraging. (more)

6 Tips for Investing Globally

Some do's and don’ts for investors venturing overseas with their portfolios.


Many financial advisers recommend boosting your overseas holdings to at least 20 percent of your portfolio—but no one says you have to get there overnight. By investing set amounts every month or so, you can offset the risk of putting money in at the wrong time.


Diversify into a few foreign funds, so you’re not dependent on a single style of investing, says RDM Financial’s Ron Weiner. One fund might load up on dividend-payers, while another might focus on midsize firms. Also, keep an eye on how much exposure your mix of funds has to a single country or region—and pare back if it gets too high. (more)

A Glowing Recommendation

By Chris Mayer

Chris MayerChris Mayer is a veteran of the banking industry, specifically in the area of corporate lending. A financial writer since 1998, Mr. Mayer's essays have appeared in a wide variety of publications, from the Daily Article series to here in The Daily Reckoning. He is the editor of Mayer's Special Situations and Capital and Crisis - formerly the Fleet Street Letter.

One of the best investments we can make right now is to buy into supplies of relatively secure, low-cost uranium - the feedstock for nuclear reactors. The simple story is that the uranium supply trails far behind demand. The added wrinkle is that supply cannot easily increase.

"In the world of commodities, demand is rarely the compelling reason to get long," observes Robert Mitchell, a general partner at Portal Capital, "Instead, you want to own a commodity where supply is incapable of responding to even a small bump in bids." In other words, you want to buy the commodities where it is very difficult to increase supply. Though hardly a new insight, it's one that investors sometimes forget.

One commodity that aces this simple test is uranium.

Just looking at the raw numbers, the annual mined supply of uranium provides little more than half the annual demand. Most of the balance comes from decommissioned warheads. Furthermore, uranium production is constrained, both geologically and politically. A few years ago, Cameco's enormous Cigar Lake project went "offline" due to massive flooding. This property will not come back online until 2013! (more)

S&P 500 Video Analysis for 7/13/10

BP stock rallies on sales talk

( -- BP's stock continued to run higher Monday, rising more than 6% in early trading, after reports that the company or some of its assets may be sold off.

In addition, the company indicated it is getting closer to containing the Gulf of Mexico spill.

In early Monday U.S. trading, BP shares rose $2.30, or 6.8%, to $36.35.

Multiple published reports suggested that ExxonMobil (XOM, Fortune 500) and another American oil giant, most likely Chevron (CVX, Fortune 500), have requested the U.S. government's clearance to make a bid for BP worth about $150 billion.

Spokesmen from both Exxon Mobil and Chevron said the companies don't comment on what they called rumors and speculation. (more)

Federal budget gap tops $1 trillion through June

WASHINGTON (AP) -- The federal deficit has topped $1 trillion with three months still to go in the budget year, showing the lasting impact of the recession on the government's finances.

In its monthly budget report, the Treasury Department said Tuesday that through the first nine months of this budget year, the deficit totals $1 trillion. That's down 7.6 percent from the $1.09 trillion deficit run up during the same period a year ago.

Worries about the size of the deficit have created political problems for the Obama administration. Congressional Republicans and moderate Democrats have blocked more spending on job creation and other efforts. Republicans also have held up legislation to extend unemployment benefits for the long-term jobless because of its effect on the deficit. (more)

Chart of the Day