Saturday, August 28, 2010

The Economist – 28 August 2010

The Economist is a global weekly magazine written for those who share an uncommon interest in being well and broadly informed. Each issue explores the close links between domestic and international issues, business, politics, finance, current affairs, science, technology and the arts.

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The Top 5 Reasons Gold Prices Move

By Alix Steel /,

Gold prices have risen more than 10% in 2010, closing Wednesday at $1,241 an ounce. Rising unemployment in the U.S., import slowdown in China, weak global economic data, and a struggling eurozone have triggered gold's recent surge, but those issues don't tell the whole story.

Gold prices have regained speed in the past weeks as Cisco's CEO John Chambers hinted at a double-dip recession, and a slew of economic data including rising weekly initial jobless claims have brought into question the health of the U.S. economy, which has trumped any merger news and positive earnings. Gold prices have rallied 5% in August during a typically slow buying season while the Dow Jones Industrial Average fell 4%.

Gold prices are volatile, however. When equities plummet, investors are often forced to sell gold for cash, but any significant dip triggers a wave of buying as investors purchase gold at "discount" prices resulting in a strong tug-of-war for prices. Aside from recent market jitters, there are five other fundamental factors that contribute to gold's strong price moves. (more)

World Financial Report, Aug 27, 2010

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Decoupling Now, Currency Crisis Soon

NIA believes that the decoupling we have been predicting of precious metals from the Dow Jones has now officially taken place. A year ago we would consistently see precious metals and stock market prices rise and fall in parallel. We have now seen the Dow Jones decline by 6.1% from its high on August 9th, along with both gold and silver rising by about 3.3% during this same time period.

The Dow Jones to gold ratio is now down to 8.1, near its low for 2010 of 7.9. The gold to silver ratio still remains at a historically high level of 66. However, silver was up today by $0.65 to $19.03 per ounce, its biggest one day gain since early June. We expect silver to significantly outperform gold in the months to come.

One year ago, almost all mainstream economists on CNBC were calling for either a "U" or a "V" shaped economic recovery. NIA said that prices were rising only due to inflation and there would be no economic recovery. NIA went into detail about how destructive government programs like the homebuyers tax credit were helping to artificially boost economic numbers, but as soon as these programs were over, economic activity would collapse to new lows. NIA was right. Now that the government has ended its homebuyers tax credit, we just saw sales of previously owned homes decline in July by 25.5% from one year ago, to their lowest level in a decade. We also saw new home sales in July based on the signing of new contracts decline by 32.4% from one year ago. (more)

Dow Regains 10,000 Despite Weak GDP, Dour Bernanke,

The Dow recaptured the 10,000 level and stocks surged Friday as investors accelerated bargin-hunting right into the closing bell.

The market set aside a glum outlook from Dow component Intel(INTC), and instead drew a measure of comfort from a downward revision to second-quarter gross domestic product that wasn't as deep as expected, and suitably somber comments from Federal Reserve Chairman Ben Bernanke about the nation's economic outlook.

The Dow Jones Industrial Average leapt higher by 165 points, or 1.7%, to close at 10,151. The S&P 500 finished up 17 points, also a 1.7% gain, at 1,065 while the Nasdaq rose 35 points, or 1.7% to 2,154. On Thursday, the Dow closed below 10,000 for the first time since July 6, and it sank as low as 9,936 early in Friday's trading before rebounding.

Still each of the major market averages finished to the downside for the week. The tech-heavy Nasdaq led the way, dropping 1.2%. The Dow finished lower by 0.6%, and the S&P 500 lost 0.7% since last Friday's close.

Adding to the market's calculus was a good old-fashioned bidding war in the tech space. 3Par(PAR) had decided to accept Dell's(DELL) offer to acquire the data storage company for $1.8 billion, or $27 a share, a consideration that matched Hewlett-Packard's(HPQ) sweetened bid on Thursday. (more)

Weekly Visual CFTC Commitment Of Traders Summary - August 27

But first our summary on the key COT activity: net spec long positions in wheat futures on the CBOT and the KCBOT hit fresh records, at 36.7k and 67.6k: is more food inflation on the immediate horizon? Net spec shorts in US Treasury Bonds, and LT Us Treasury Bonds, while still just negative at -5.8k, and -2.6k, respectively, are at the highest they have been in 2010: keep an eye on this metric as a positive inflection point may be the contrarian signal to sell. At least those concerned about the price of chocolate may rest easy: Cocoa ICE futures dipped to the lowest net spec total for 2010, at 8,092k. In currencies, the JPY posted the second highest net long exposure for 2010 at +51,069 Net Spec, an increase of 1,000 from a week prior, and a far cry from the -55.7k recorded on April 13. EUR net positions also droppe notably, after hitting a 2010 high of -3,731k, the net spec contracts have declined to -21.6k as of August 24.

Commitment of Traders Report

Commitment of Traders Financials

10 stocks to grow old with

Dividend investing delivers safe stocks that spin off cash and have historically beat the market.

Bill Turnbull is the living definition of the phrase “long-term investor.” The 89-year-old former bank manager has been saving money for more than 40 years — starting in the late 1960s, when his kids were young and his mortgage was new. Turnbull's investment style has evolved over the years, but since the '90s he has focused almost exclusively on blue-chip stocks that pay juicy dividends. He particularly likes Canadian banks, but each of the 20 to 30 stocks in his portfolio has some sort of regular cash payout. So far, that strategy that has served him well.

When he started investing in stocks in the early '90s, his portfolio was worth $100,000 — today, despite the market crash in late 2008, it's worth more than $650,000.

If you're interested in building a retirement portfolio like that, you may want to try Turnbull's approach. Given the extreme volatility in the markets over the past few years, many like the idea of investing in solid, reputable companies that make enough cash every year to pay a good chunk of it out directly to shareholders. Even better, historical data show that over long periods of time, stocks that pay high dividends — especially those which regularly increase their dividends — soundly beat the market. If you invest in such stocks along with the right mix of bonds, you'll get what many investment advisers say is the perfect retirement portfolio. Not only is it easy to set up and maintain, it's crash resistant, dependable, and once you're retired, it will provide a steady stream of income for years. (more)

Goldman's Technical Update: Bearish, With An "Ultimate H&S Target Of 900",
In this week's update on technical chart formations, Goldman's John Noyce has nothing optimistic to tell clients. Noyce observes that while the market may have entered a short-term consolidation period with the 1,038-1,045, "looking further out the setup on the weekly charts of the S&P and the VIX, plus those for broader asset markets - fixed income in particular – make us think that a sustained bounce is unlikely and that broader risks remain on the downside." Yet the most interesting chart formation is the imminent flattening of the 2s30s... not here, but in the UK. Will the Julian Robertson "suicide" trade shift across the Atlantic?

And other key observations on the SPX:

The setup on the weekly chart still looks very heavy - The market moving lower following the bearish weekly reversal which was posted two weeks ago:

  • As discussed previously this was the third bearish weekly reversal pattern posted this year. Each one being posted from a marginally lower high (January 1,150, June 1,131 and August 1,129). This seems to be a signal that the market has lost the momentum associated with the ‘09 uptrend. (more)

Proposing an Overnight Gold Fund

There is much debate within the precious metals industry regarding the alleged suppression, or at least manipulation to an extent, by either central banks or the proprietary trading divisions of large banks, or a combination of the two.

In April the US Commodity Futures Trading Commission CFTC fined Hedge Fund Moore Capital for manipulation of the New York platinum and palladium futures market, as the firm was found to be “banging the close”, which involves entering orders in a manner designed to inflate the closing price, which other various derivatives contracts could be based on. So that is irrefutable evidence that the precious metals futures market is, at least to some extent, being manipulated. However a large concentration of this debate is based not on platinum and palladium, but on gold and silver, and particularly gold.

Numerous hypothesises have been put forward as to the motive behind alleged suppression of the gold, ranging from a central bank conspiracy to keep gold prices low, to large trading banks simply exploiting their market dominance for easy profits, or even a combination of the two with the central banks and large bullion trading operations working together in some kind for cartel to keep gold prices low. (more)

Robert Shiller Says Double Dip Imminent

Bloomberg Businessweek - August, 30 2010

* The Gold Digger. Thomas Kaplan the mad se arch
for the world's most primitive source of wealth.

* Politics. Chris Christie: The GOP's austerity rock star.

* Companies. GM's new tough guy.

* Etc. Grab a pillow! The rise of the workplace nap

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Chart of the Day