Saturday, October 2, 2010

John Paulson Says to Buy Dividend Stocks and Houses, Sell Bonds

At the end of last week, the market ripped higher presumably from hedge fund manager David Tepper's comments when he said he likes equities here. Now add to the mix another well known manager in John Paulson. His hedge fund Paulson & Co of course made billions from his bet against subprime as detailed in the book, The Greatest Trade Ever. Given his success, everyone now latches onto his every word, hoping for advice.

Paulson did divulge some of his latest views at a lecture for New York's University Club. Simply put, he said to buy stocks and sell bonds. His favorite stocks are blue-chips with dividends such as: Johnson and Johnson (JNJ) and Coca Cola (KO). Playing on his 'recovery' theme, he also continues to like Bank of America (BAC), Suntrust Banks (STI), and Regions Financial (RF).


Paulson says to simply replace low yielding bonds with higher yielding stocks. A 10 year Treasury yields around 2.6% and so stocks with earnings yields of 7-8% are much better options. While Paulson did not mention these names, a quick scan pulls up companies with even higher earnings yields such as Medtronic (MDT) at 9.43%, ConocoPhillips (COP) at 10.52%, and Microsoft (MSFT) at 8.53%. (more)

Bloomberg Businessweek - 04 October - 10 October 2010

Bloomberg Businessweek - Worlds leading business magazine. Timely, useful, provocative, innovative. Each issue of Businessweek features in-depth perspectives on the financial markets, industries, trends, technology and people guiding the economy. Draw upon Businessweeks timely incisive analysis to help you make better decisions about your career, your business, and your personal investments.

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HES Radio - World Financial Report

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Siddharth Rajeev and Vincent Weber: Uranium's Upside

While the prices of gold and silver are reaching death-defying heights, uranium stocks are waiting in the wings. In this exclusive interview with The Gold Report, Sid Rajeev, head of research for Fundamental Research Corp. in Vancouver, exposes the reasons why now-stagnant uranium plays have more upside than gold or silver. He and his research associate Vincent Weber uncover some plays that allow investors to take advantage of all three.

The Gold Report: Sid, in your interview with The Gold Report in February you said gold could creep back down to around $750 an ounce by 2012 if there is a strong economic recovery in the U.S. Has anything in the last eight months changed your mind?

Sid Rajeev: We have made some revisions to our forecast, but our overall outlook on the market and gold has not changed. We were expecting a gradual recovery in the U.S.; however, the recovery has been much slower than expected. The housing and labor markets continue to be weak. We have been seeing a lot of mixed results in the past six months. These factors have created a lot of uncertainties in the market. Gold most often is the answer for uncertainty, which is why gold prices are at such high levels.

Even though the recovery has been slow, we believe that the U.S. is in a much better position than it was last year. Unemployment levels have dropped. It's now close to 9.6% versus more than 10% last year at this time. The stock market is a leading indicator—the TSX Venture Exchange is up 29% year over year. These are signs of improvement. (more)

More Reasons Gold Is Going to $2,000

The biggest holder of U.S. Treasuries isn’t happy.

And why should they be? They’re sitting on the sidelines holding US treasuries worth $797 billion. That’s quite a chunk of change.

Of course I’m talking about China.

The Chinese have been the biggest foreign creditor to the United States and in recent statements they’ve made it clear that Washington needs to maintain the value of the dollar.

“We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I’m a little bit worried,” said Chinese Premier Wen Jiabao.

It’s estimated that around 50% of China’s total reserves are held in US treasuries. And they know that the reserve currency they hold is depreciated with each passing day.

With so much riding on the price of the dollar you can bet that Beijing has been keep a close tally on America’s spending — and the results can’t be pleasing. (more)

Is the US Government About to Forgive Mortgage Debt?

Is it possible for the US Government to choose to forgive mortgage debt? Sounds outrageous? Read on for the legal theory behind this claim and let me know what you think? I thought it was little esoteric as well, but as I looked deeper… Well, I’ll let you be the judge.

A lot of attention accrued to Representative Grayson’s calling out of foreclosure fraud, and for good reason. The story is absolutely amazing, and kudos to a member of congress that defends his constituency.

It’s not as if other entities have failed to take notice. ZeroHedge has its usual witty commentary regarding the possibility of foreclosure transactions potentially being unwound due to fraudulent foreclosure activity. The NYT ran an article stating that Fitch will look into lowering the credit rating of companies that participated in the submission of inappropriate foreclosure paperwork, which apparently seems to include an awful lot of companies. It goes on to state (as excerpted by Zerohedge): (more)

Weekly CFTC Report - Kill (Dollar) Bill

This week's CFTC Commitment of Traders reports validates what everyone knows: that the "short dollar" is now the biggest groupthink trade in the world. Or let us paraphrase - the "Ben Bernanke QE2 Is Imminent" trade is now the biggest groupthink trade in the world. One glimpse at the move in the COT data confirms what we speculated earlier when we discussed Goldman's virtual certainty that QE2 is coming in 31 days: that if there is no QE2 announcement, the shock that would reverberate from this as all the Kill (Dollar) Bill trades are unwound, may just blow up world markets and make the flash crash seems like a dress rehearsal for midgets (of the SEC intellectual variety). Of course, what this means for contrarian traders is more than obvious. (more)

How To Buy a Home at a $100,000 Discount

To pare down their growing inventory of properties, Fannie Mae and Freddie Mac are scrambling to unload nearly 150,000 foreclosed homes. And that means 2004-esque deals — like requiring as little as 3% down, offering to pay a portion of the closing costs and arranging special financing and warranties for repairs and renovations.

It's another option for home owners who want to trade up — and an easier way into the market for first-time home buyers, says Dean Baker, co-director of the Center for Economic and Policy Research who studies the housing market.

The best bargain might be the home's price. A SmartMoney analysis revealed that buyers could save $100,000 by buying a Fannie or Freddie home instead of similar fair-market properties just a few blocks away.

And while many of Fannie and Freddie's homes are at the lower end of the market and in less-desirable areas, a search of Fannie Mae and Freddie Mac listings revealed that buyers could find properties in good neighborhoods — and for $100,000 less than comparable houses nearby. For example, a five-bedroom, three-bath with a backyard, deck and two-car garage in tony Alexandria, Va., was listed for $445,000, $100,000 less than the average listing price in the area, according to Four blocks away, a similar non-foreclosed colonial is listed for $639,900. (more)

10 things you'll be paying more for soon

Buyers who are holding on to their money waiting for lower prices, may want to start spending now. The U.S. Bureau of Statistics' Consumer Price Index shows prices are on the rise and they are going to continue to climb.

Before prices get too high, here are 10 things you may want to buy now. The price of these items are on the rise and soon they will be costing you plenty more:

1. Coffee
The price of coffee futures recently hit a 13-year high, which drove up the price of a cup of Joe at places like Starbucks. Blame bad weather in South America and low U.S. stockpiles of coffee beans.

Coffee from Folgers, Dunkin' Donuts and Millstone already cost an average of 9% more. Kraft Foods raised prices on Maxwell House Coffee and Yuban coffee products by about 9% in September, translating into a price hike of 5 to 30 cents per pound of ground coffee and an increase of 2.5 cents per ounce for instant coffee.

And prices on single-serve K-cups -- sold as Tully's Coffee, Timothy's Coffee, Newman's Own Organics, Caribou Coffee and other Green Mountain Coffee brands -- will rise 10% to 15%, starting Oct. 11.

2. Cotton clothing

Again, blame the weather in part for this increase. A drought in China is damaging cotton crops there, causing the world's largest cotton producer and consumer to increase prices. Another major cotton producer, Pakistan, was devastated by floods, and another, India, is restricting its exports.

All that should add up to another $2 on the $12 t-shirt you planned to buy next year, reports CNN Money, along with higher prices for jeans. With 80% of U.S. cotton exported, it may be good news for U.S. cotton farmers, who are at an advantage compared to their competitors in the far East. For consumers, maybe it's time for a polyester revival? (more)

The Economist – 02 October 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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Crisis and collusion The 50 years under OPEC have been eventful

The Economist,
OPEC, the cartel of oil producers, celebrated its 50th anniversary on September 14th. The organisation was founded in 1960 with the explicit purpose of manipulating oil prices by controlling supplies. It has generally proved successful. OPEC controls around 80% of the world's proven reserves and over 40% of the world's production among its 12 member states. The Gulf states that dominate OPEC have the biggest reserves and lowest costs, so can most easily turn the taps on and off when required to keep prices high. Despite the slow return to health of a sickly world economy, oil fetches a lofty $75 a barrel, which Saudi Arabia, OPEC's most influential member reckons is "ideal".

Have Central Banks Lost Control of the Gold Market?

A brief history of Central Bank control of gold

When Eurodollars appeared in Europe, European central banks were not happy and sold them for U.S. gold. Then President Nixon, in his infinite wisdom closed the ‘gold window’ [After Europe had boosted their reserves after sending around 12,000 tonnes of gold across the Atlantic into European vaults]. In a mutually beneficial but clandestine accord, the world then saw the U.S. dollar rise to be the sole global reserve currency. It has continued to reign supreme because it is the only currency that is used to buy oil, oil that we all need.

Control lost

After 1971, gold began to rise in earnest as every man and his dog bought some, taking the gold price from $42.35 to $850. This was a public statement that the global investing public did not accept paper currencies with no gold to back them. These had become simply government obligations with no settlement date.
Central banks had to act to ensure the public accepted these currencies and were moved away from gold as money. To do that, the U.S. and by extension the I.M.F. decided on limited [limited because central banks still wanted it in their vaults as an important reserve asset] gold sales through auctions. All the gold sold there was snapped up. The reality of central banks wanting to keep gold then kicked in and the auctions were halted. (more)