Thursday, December 9, 2010

Buy FAZ Below $11 Profit from a short-term pullback in financial stocks with inverse ETF

Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) — This exchange-traded fund (ETF) seeks daily investment results, before fees and expenses, of 300% of the inverse of the Russell 1000 Financial Services Index. The fund normally creates short positions by investing at least 80% of net assets in financial instruments that, in combination, provide leveraged and unleveraged exposure to the index.

A pop above the 50-day moving average, now at $12.15, would signal a run to $13.50. Traders should not chase inverse funds like FAZ. Exercise patience and try to buy at $11 or lower.

Leveraged ETFs seek to deliver multiples of the performance of a benchmark, while inverse ETFs seek to deliver the opposite of the performance of a benchmark. These ETFs entail unique risks, including, but not limited to: the use of leverage, aggressive and complex investment techniques, and the use of derivatives. Returns over longer periods will likely differ in amount and even direction of the underlying.

These products are not suitable for all investors. They require active monitoring and management. Stop-loss orders should be used to protect against losses.

Chart of the Day: Flows Into US Bonds

Bond Vigilantes Could Target US: Roubini

Economist Nouriel Roubini on Wednesday voiced concern over a compromise on extending tax cuts struck by US President Barack Obama and Republican leaders, saying the agreement could expose the US to bond vigilantes who will drive up bond yields.

Nouriel Roubini

Bond vigilantes – the term was coined by economist Ed Yardeni in the 1980s to describe major investors who demand higher yields to compensate for the perceived risks resulting from large deficits - could derail the country’s precarious recovery, some economists say.

Roubini, who has been dubbed Dr Doom since he accurately forecast the latest financial crisis, said on Twitter: “Obama-GOP tax deal costs $900 billion over two years. US kicking the can further down the road. Are bond vigilantes starting to wake up?”

Republican leaders and the White House agreed earlier this week to extend tax cuts on all income groups for two years and extend unemployment benefits in a deal which they hope will spur economic growth and cut unemployment.

Roubini is not alone in thinking the deal could worsen the US deficit and put the country at risk.

Chinese central bank adviser Li Daokui said on Wednesday the fiscal health of the United States was worse than Europe's, and that the dollar had so far been shielded from trouble because markets are still focused on debt-laden European countries.

US bond prices and the dollar would fall when the European situation stabilizes, Daokui said.

Silver 101: Production By Country

From the same folks at Money Choices who brought to you: "Gold 101: Who's Got It And Who's Finding It" now comes the 101 lesson in silver: world silver production by country. While his may not come as news to many, the bulk of production comes out of three distinct countries: Peru, Mexico and China. And with the price of the metal having surged more in the past several months than virtually any commodity, suddenly the producers may find themselves with substantial leverage to dictate terms of delivery: think of what happened to Rare Earth Minerals when China blocked exports briefly. With the US not even in the top 5 of world production, could we soon see the formation of yet another cartel, especially when one considers that unlike gold (so the thinking goes), silver also has industrial uses?

Jim Rogers: 'Britain is totally insolvent'

US speculator Jim Rogers is known for his outspoken views but today went further than usual suggesting Britain is 'totally insolvent'.

In an interview on business TV channel CNBC, Rogers, who made his name making millions while partnered with legendary financier George Soros, suggested Britain was the true sick man of Europe.

He said: 'Greece is insolvent, Portugal has a liquidity problem, Spain has a liquidity problem, Belgium has been cooking the books for a long time, Italy has been cooking the books for a long time and the UK is totally insolvent.'

Rogers, who has repeatedly warned that inflation and commodity prices will race ahead in coming years, was being interviewed about the next stage of the European debt crisis. (more)

Guest Post: How To Profit From Brokerage Research

How to Profit From Brokerage Research

Though brokerage analysts are frequently wrong with their recommendations and price targets, there is value in their research. The key is to know what to look for and what to ignore. Here are three key items I discuss in my book, Better Good than Lucky: How Investors Create Fortune with the Risk-Reward Ratio.

The buy or sell rating is typically the most often quoted part of a research report. The inherent problem is that brokerage analysts are infatuated with the word “buy.” According to, approximately half of all stocks covered by analysts currently have the equivalent of a “buy” recommendation. Conversely, just 2.5% have the equivalent of a “sell” rating. (Obviously, if so many stocks are buy candidates, wouldn’t a more cost-efficient strategy for brokerage clients be to simply invest in an index fund, such as the S&P SPDR (SPY)? Such a strategy would certainly save on transaction costs, while still providing exposure to many of those “buy” candidates.)

The simple fact is that analysts loathe putting a sell rating on a stock. This is why you should look past the rating and instead pay attention to what factors the analyst is looking at. Specifically, focus on industry statistics, specific ratios and other criteria that shed light on how the business is doing. For example, if the analyst cites a specific industry report or publication, see if it is available on the Internet. Such data will give you a good framework for doing your own analysis of business trends. (more)

Comex Gold Ends Sharply Lower on Profit Taking; Some Near-Term Chart Damage Inflicted

Comex gold futures prices closed solidly lower Wednesday on heavy profit-taking pressure after hitting an all-time record high on Tuesday. A firmer U.S. dollar and higher Treasury yields Wednesday added to downside price pressure in the gold market. Some near-term technical damage has also been inflicted in gold the past two days. February Comex gold last traded down $26.60 at $1,382.40 an ounce. Spot gold last traded down $19.50 at $1,382.00.

The U.S. dollar index traded firmer Wednesday, which was modestly bearish for gold. The dollar index is in a four-week-old price uptrend on the daily bar chart and technical odds are increasing the index has put in at least a near-term low. The greenback has benefited recently from ongoing financial woes in the European Union.

Rising U.S. Treasury bond and note yields this week have also boosted the U.S. currency and helped to somewhat pressure gold. The higher returns on U.S. government debt have served to pull in some fresh investor demand for U.S. Treasuries and away from gold.

The London P.M. gold fixing was $1,385.50 versus the previous P.M. fixing of $1,420.00 an ounce. (more)

McAlvany Weekly Commentary

2010: Our Listeners Questions Answered, Part II

National Inflation Association Response to Ben Bernanke's Bulls**t on 60 Minutes.

15 Firms With Potential to Double Profits

Last week, economic woes in Europe had pushed many to the sidelines. With a sense that a fresh crisis in Europe can be averted (at least as seen by the euro's rebound on Wednesday), investors marked up stocks with big gains across the broad. By that logic, a reasonably benign global economic picture in 2011 could keep investors in a buying mood.

Where will they turn? Growth stocks. At this phase of the economic cycle, investors tend to gravitate toward companies with the most robust growth prospects. With that in mind, here's a look at companies in the S&P 500 that are expected to at least double their profits in 2011. If we are indeed on the cusp of an economic upturn that lasts into 2012 and beyond, then profits for these firms are likely to keep growing.

Even as these companies are expected to post solid profit rebounds next year, their share prices have also been on the rise and most don't appear to be bargains in the context of near-term profits. Instead, if you think that 2011 is just the start of a profit rebound, then it pays to look at these stocks in terms of their peak earnings performance (I went back and looked at the strongest year of profits of the last decade for each company). (more)