Thursday, October 28, 2010

The Rare Earth Bubble Is About To Go Into Overdrive

We've been writing a lot lately about the mania for rare earth stocks.

Companies like MolyCorp and Rare Elements are surging despite having no revenue (let alone income).

All that moves them are headlines. Every time China reduces exports to Japan, they surge. When a German economic minister mentions that his country is at the whim of China, they surge.

And now, there's a new reason they can surge: A rare earth ETF. Gone is the need to do any research or anything like that. Just buy the Market Vectors Rare Earth/Strategic Metals ETF (REMX), which will begin trading today, and your work is done. So long as the bubble continues, you're in good shape.

CFTC's Chilton Admits Silver Market Subject To "Fraudulent" Influences, Says Manipulation Should Be Prosecuted

If this is not some nasty and quite early April Fool's joke, this is very, very bad news for JPMorgan:


Now... where are all of those tin foil hats...

The below has just appeared on Reuters. It seems the CFTC has its cross sights on quote stuffers. It is about damn time.

The U.S. futures regulator laid out plans on Tuesday for how it could use new and beefed-up legal tools to foil traders who seek to manipulate prices or defraud investors.

The Commodity Futures Trading Commission said it also wants to ask for comments on whether to crack down on certain practices used by high-frequency traders -- such as "quote-stuffing" -- but it stopped short of immediately proposing new rules specifically aimed at algorithmic trading. (more)

Economic Crisis and The Protest Movement: French Lessons for U.S. Workers

The world watches as France once again erupts in protests, demonstrations, and strikes. So much is at stake. If France's corporate-dominated government is able to increase the retirement age, other governments will be empowered to follow through with their plans to do the same.

If labor, student, and community groups succeed in stopping the pension reform -- or toppling the government -- workers in other countries will likewise be inspired to fight back and organize in the French fashion.

The worldwide recession has encouraged business-focused governments to pursue the kind of anti-worker policies they've been discussing for years. There is common agreement among these governments on a global scale as to the necessity for these polices. Working people disagree.

There have already been massive demonstrations or general strikes in Greece, Ireland, Italy, Spain, Portugal and elsewhere. In the U.K., massive cuts to the public sector -- 500,000 job cuts -- have been announced that could cause a similar backlash. (more)

Chart of the Day: Homes in Australia and Hong Kong overvalued, in Japan and Germany undervalued Housing

Amidst record unemployment, US companies hoard $1 trillion of cash

(Reuters) - U.S. companies are hoarding almost $1 trillion in cash but are unlikely to spend on expanding their business and hiring new employees due to continuing uncertainty about the strength of the economy, Moody's Investors Service said on Tuesday.

As the economy stabilizes companies are also more likely to spend on share repurchases and mergers and acquisitions, Moody's added.

Companies cut costs, reduced investment in plants and equipment and downsized operations in order to boost cash holdings during the recession. As the corporate bond market reopened many companies also boosted cash levels by selling debt and refinancing near-term debt maturities.

The US unemployment rate, meanwhile, sits at a whopping 9.2 percent. (A graph of the unemployment rates state by state can be found here). (more)

The 40-Year Food Outlook

The short-term (1-3 year) outlook for agricultural commodities is bullish enough. When you start looking out decades, the picture becomes one of an epic bull market.

Feast on the following highlights from an August report by the United Nations Food and Agriculture Organization, working with the Organization for Economic Cooperation and Development…

  • World population will grow 2.3 billion by 2050, to over 9 billion
  • Nearly all this growth will come in developing countries
  • This population growth will require a 70% increase in global food production
  • In developing countries, production will need to nearly double
  • Making this happen will require annual investment averaging $209 billion.

And if you break out the details, that $209 billion figure is just the private investment required if the percentage of the world that goes hungry stays static. (more)

Where can we find 20,000 tonnes of gold?

Having broken out convincingly into new high ground, gold and silver have now paused for breath. Despite the sharpness of this week’s reaction, their performance indicates good underlying strength.

This is not to say there is no speculative froth – of course there is. Rather, speculators play a distant second fiddle in this market. Bullion is still doing what it has been doing for the last year: when the commercials on Comex hit the price it backs off rapidly on little volume, until someone very big takes the opportunity to clean the market out. It becomes another ratchet on the torturer’s rack for the commercial shorts, who find that every time this happens they end up being stretched further.

On last week’s rise there were early signs of panic, as the commercials attempted to reduce their exposure. However, the commercials’ net short position on Comex is still a very high 933 tonnes. Convention suggests that the commercials know best, and even if they have an extreme position, they will still crush you. And indeed, the big commercials, being too big to fail and with the comfort of the Fed’s antipathy to gold, could increase their short positions even further. This is now developing into the biggest game of chicken the markets will probably ever see. (more)

Insider Selling Volume at Highest Level Ever Tracked

The overwhelming volume of sell transactions relative to buy transactions by company insiders over the last six months in key leading sectors of the market is the worst Alan Newman, editor of the Crosscurrents newsletter, has ever seen since he began tracking the data.

The strategist looked at insider trading activity amongst the top ten companies that make up the Nasdaq such as Apple [ AAPL 307.83 -0.22 (-0.07%) ], Google [ GOOG 616.47 -2.13 (-0.34%) ] and Amazon [ AMZN 167.51 -2.44 (-1.44%) ].

Then he analyzed the biggest members of the Retail HOLDRs ETF like Gap [ GPS 19.34 -0.34 (-1.73%) ], Target [ TGT 52.73 -0.41 (-0.77%) ] and Costco [ COST 62.98 -0.70 (-1.10%) ], as well as the top insiders in the semiconductor industry at companies such as Altera [ ALTR 31.04 +0.71 (+2.34%) ], Broadcom [ BRCM 41.56 +4.34 (+11.66%) ] and Sandisk [ SNDK 37.87 +0.68 (+1.83%) ].

The largest companies in three of the most important leading sectors of the market have seen their executives classified as insiders sell more than 120 million shares of stock over the last six months. Top executives at these very same companies bought just 38,000 shares over that same time period, making for an eye-popping sell to buy ratio of 3,177 to one.

McAlvany Weekly Commentary

Jim Rogers Interview: Why History and Philosophy are so Important to the Decisions of Today

Many companies top earnings forecasts

The stock market might seem boring lately, but earnings are providing plenty of excitement.

Nearly half the companies in the Standard & Poor's 500 index have reported their third-quarter earnings, and a record 81% have delivered results that are better than expected, says John Butters of Thomson Reuters. If the season ends this way, it'll beat the record set in the third quarter of 2009, when 79% of companies beat expectations.

Companies actually have beaten expectations handily for a while. In fact, three-quarters of companies topped expectations on average the past four quarters, Butters says. But this past quarter was off the charts, considering that 62% of companies historically beat expectations. Just 13% of companies have missed profit forecasts, and 5% have matched them this quarter, Butters says.

"Investors are getting surprised with the strength of corporate earnings," says Michael Farr of Farr Miller & Washington. "It's been great." (more)