Tuesday, September 14, 2010

Pimco-BofA: Bonds Yields May Plunge to Eisenhower Low

Bond investors are growing more convinced that Federal Reserve Chairman Ben Bernanke will push Treasury yields down to the levels of the 1950s with another round of asset purchases.

Goldman Sachs Group Inc. and Pacific Investment Management Co. project the Fed will resume quantitative easing by purchasing U.S. government debt as soon as this year to prevent what they see as a 25 percent chance the economy will slip back into a recession. Bank of America Corp. says the central bank will send the 10-year note yield to a record low of 1.75 percent in the first quarter of 2011.

Derivatives show investors are betting on lower yields at a rate not seen since the Fed began buying Treasuries in March 2009, even after companies in the U.S. added more jobs than forecast and manufacturing expanded faster than estimated in August. Policy makers are attempting to push borrowing costs lower and investors into higher-yielding assets such as corporate debt to help sustain the expansion and spur hiring. (more)

Natural Gas Prices and Investment Choices

Natural prices has been in declines since the start of this year from $6.00/mmBTU to $3.883/mmBTU last Friday mainly to capacity build up. Here is the natural gas price chart since 2005:

click to enlarge

Let us look at the chart in more details:

Long Term Trend: During the five year span, NG prices went up to $14.00+/mmBTU twice: during the end of 2005 and in the middle of 2008, a two and half year span. If history repeats, we may see another major NG price run up next year. Another $14.00? It is a possibility.

Short Term Trend: The NG price had a major run up from September to December last year. After it set an all time low of $2.50 in September 1, 2009, it went up to as high as $6.00 in December, an 140% increase. This year' low (so far) was also set in September 1 at $3.70. It closed at $3.883 last Friday. We may see the near term momentum change during the next few months. History repeat again?

If we assume that the natural gas price bottomed at this price levels, what may be the stocks which may benefit from natural gas bull runs?

Our possible picks are SD, GMXR, CHK, HK, APTG, and SGY. (more)

The Truth About Gold and Silver ETFs

(TheStreet ) -- Silver and gold prices are on the rise, making physically backed exchange-traded-funds very tempting investments. Before you buy, here's what you need to know.

There are five physically backed ETFs traded in the U.S.: The biggest, SPDR Gold Shares(GLD); the cheapest, iShares Comex Gold Trust(IAU); the newest ETFS Physical Gold Shares(SGOL) and the two silvers, iShares Silver Trust(SLV) and ETFS Physical Silver Shares(SIVR).

When you buy gold and silver physically backed ETFs you do not own the physical metal, you own a paper representation. With respect to the gold ETFs for every share you buy, you "own" one tenth of an ounce of gold, while for silver, it's one ounce.

The actual metal is stored by a custodian, usually one of the large banks like JPMorgan(JPM) or HSBC. The share-to-metal correlation erodes the longer you hold the shares. The fund must sell gold, for example, periodically to pay for expenses which decreases the amount of gold allocated to each share.

If investor demand outpaces available shares then the issuer/trustee must buy more physical metal to convert it into stock. Conversely, when investors sell, if there are no buyers, then the metal is redeemed, the trustee must then sell the metal equivalent. Precious metal ETFs are not owned for leverage, but simply as a vehicle to track the spot price. (more)

In Canada Six in 10 live pay to pay


The recession may be officially over, but six in 10 Canadians are still surviving from paycheque to paycheque, a national survey showed Monday.

Fifty-nine per cent of Canadian workers say they would be in financial trouble if their paycheque was delayed by just a week – the same proportion as last year when the economy was still mired in a downturn, according to a poll of 2,766 people by the Canadian Payroll Association.

The survey comes as the OECD today warned that record high debt levels have left many Canadians vulnerable “to any future adverse shocks.” Also Monday, a Statistics Canada report showed household net worth fell 0.6 per cent in the second quarter, largely due to falling stock markets. Liabilities of households increased, meantime, led by mortgages and consumer credit.(more)

The Market Is Zooming Towards A Very Bullish Level

A technical look at the market right now should be very heartening for the bulls, argues Mike O'Rourke at BTIG:

The improving technicals don’t end with short interest. The S&P 500 moved back into positive territory for the year and once again climbed above its 200 day moving average. The index is closing in on that important 1128-1130 resistance level. The 1128 level was the close on the day of the flash crash. On that note, today the Vix hit its lowest level today since the day of the flash crash. The 1131 level was the intraday peak of the June rally and the truncated right shoulder of what appeared to be a potential Head & Shoulders top. The July rally peaked out in August at a high of 1129 the day before the FOMC meeting. As we noted on that day, the only closes the S&P 500 has registered above 1130 since the flash crash were immediately after the announcement of the EU’s “Shock & Awe” backstop that weekend. The importance of this level is rising because now it has also become the neckline for a Head & Shoulders bottom.

Doomsday warnings of US apocalypse gain ground

Economists peddling dire warnings that the world's number one economy is on the brink of collapse, amid high rates of unemployment and a spiraling public deficit, are flourishing here.

The guru of this doomsday line of thinking may be economist Nouriel Roubini, thrust into the forefront after predicting the chaos wrought by the subprime mortgage crisis and the collapse of the housing bubble.

"The US has run out of bullets," Roubini told an economic forum in Italy earlier this month. "Any shock at this point can tip you back into recession."

But other economists, who have so far stayed out of the media limelight, are also proselytizing nightmarish visions of the future.

Boston University professor Laurence Kotlikoff, who warned as far back as the 1980s of the dangers of a public deficit, lent credence to such dark predictions in an International Monetary Fund publication last week. (more)

Investing in gold buying on drops and taking profits when overbought

How to navigate the gold sector

Precious metals soar as investors flock to gold and silver. But are they looking deep enough to truly understand the current trends at hand?

When reviewing the metals sector I like to look at it from different angles to get a solid understanding of the patterns and trend forming. I follow multiple time frames along with monitoring the gold mining stocks. Gold stocks tend to lead the price of gold bullion and when its out performing the price of gold substantially by 10% or more you should be expecting a pause or pullback in both gold stocks and gold bullion prices temporarily.

Below are a few charts showing the long and short term trends for gold. (more)

BNN: Top Picks

Rob Lauzon, portfolio manager, Middlefield Capital Corp., shares his top picks.

click here for video

Buffett Rules Out Double-Dip Recession Amid Growth

Warren Buffett ruled out a second recession in the U.S. and said businesses owned by his Berkshire Hathaway Inc. are growing.

“I am a huge bull on this country,” Buffett, Berkshire’s chief executive officer, said today in remarks to the Montana Economic Development Summit. “We will not have a double-dip recession at all. I see our businesses coming back almost across the board.”

Berkshire bought railroad Burlington Northern Santa Fe Corp. for $27 billion in February in a deal that Buffett, 80, called a bet on the U.S. economy. The billionaire’s outlook contrasts with the views of economists such as New York University Professor Nouriel Roubini and Harvard University Professor Martin Feldstein, who have said the odds of another recession may be one in three or higher.

“I’ve seen sentiment turn sour in the last three months or so, generally in the media,” Buffett said. “I don’t see that in our businesses. I see we’re employing more people than a month ago, two months ago.” (more)

Retailers – Reality Check Time

Jim Quinn / lewrockwell.com,

Having worked for a big box retailer for 14 years, I understand the dynamics of a high-growth rollout of stores as a key to increasing market share and profits. Some of the best retail names in the US have practiced the identical strategy of concentrating many stores in each market to drive the small competitors out of business. This strategy worked wonders for Lowes, Wal-Mart, Target and Kohl's during the early part of this decade. The combination of solid same store sales and opening new stores is a fantastic combination during good times. The results actually make the CEOs of these companies think they are brilliant. Their store expansion models based on rosy assumptions are followed like they can't go wrong.

What these CEOs didn't realize was that their expansion plans were based on lies and frauds. If they had advisors who could give them a reality check, they could have avoided the massive downsizing that awaits them. Their hubris didn't leave room for a reality check. The population of the US has grown from 281 million in 2000 to approximately 308 million today. We've had a 10% population increase in 10 years. Consumer expenditures have grown from $6.7 trillion in 2000 to $10.3 trillion today. This is a 54% increase over the course of the decade. Amazingly, real average weekly earnings have only gone up by 6% in the last decade. (more)

Chart of the Day