Tuesday, January 4, 2011
Las Vegas is the kind of region that evokes strong and varied reactions. Many people see Vegas as freedom and a state of mind, while others curse it as a Sodom and Gomorrah, den of iniquity. Yet when you strip away the glitz, glamour and gambling, you get down to the real guts of the metropolis – MONEY. (more)
That said, there have been developments worth reporting, foremost among them a condition that persisted for the entire month of December. Believe it or not, the S&P 500 traded in overbought territory every day this last month. That is, price action on the index remained more than one standard deviation above the 50 day moving average for the entire period, a condition that most observers agree constitutes ‘overbought’.
What Does it Mean?
Possibly nothing. There’s not a lot of correlation between stocks, or even whole indices, trading in overbought territory for extended periods of time. That said, it’s certainly not prudent to be a buyer at this stage. If the market remains overbought for another week or two, maximum, there will very likely be some sort of retreat that brings both price and sentiment back to historical norms.
As far as shorting the market goes – as we recommended in our last missive, Short Bunny – the overbought data adds a few more pounds to an already weighty short-sell argument.
This might, too: (more)
With that in mind there are three sectors to watch as we begin the new year. First, small cap stocks (IJR), the January effect revovles around small cap stocks. The statistics show January is the month that sets the tone for the sector. Thus, we should pay attention to the sector heading into the new year. Technically the small cap stocks have been performing nicely already. In December IJR was up 7% for the month. One would have to ask if the January effect came in December as the Santa rally came in early December versus the end of the month? I still like the outlook for the small cap stocks and for that matter mid-cap (IJH). The chart below shows the pullback to support last Friday and the solid uptrend in play as we begin the new year. (more)Learn How To Get Ripped
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The worst performance by Treasuries since the second quarter of 2009 reflects prospects for faster U.S. economic growth rather than concern that rising budget deficits will drive investors away from government debt.
While the average yield on Treasuries rose to 1.89 percent from 1.42 percent at the end of September, according to the Bank of America Merrill Lynch Treasury Master index, the price of credit-default swaps tied to U.S. debt declined to 41.5 basis points from 48.4 basis points at the end of September, Bloomberg data showed. The dollar rose 1.5 percent against an index of currencies of six major U.S. trading partners.
The drop in swap prices and the greenback’s strength shows bond vigilantes aren’t ready to punish the U.S. for its spending. Pacific Investment Management Co. and JPMorgan Chase & Co. raised their growth forecasts after President Barack Obama agreed to extend George W. Bush-era tax cuts as reports show gains in retail sales, manufacturing and consumer confidence.
“More than anything else, it’s a growth story,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “From the fiscal stimulus to the monetary stimulus to the tax extensions, it’s the belief that the U.S. government is all in.” (more)
The pizza company operates more than 9,700 franchised and company-owned stores across the globe and appears set to grow further.
Domino's is booming internationally, especially in India, where 70 new stores were built this year. As the country's number one restaurant chain, same-store sales were up 41% in the first half of 2010.
In the United States, same-store sales increased 11.7% in the third-quarter, and the company projects more than 19.2 million pizzas will be sold this year.
There are only a handful of possible explanations of why he is doing this. (1) He doesn’t care, and his radical environmental agenda comes first. (2) He hates oil companies so much that he’s willing to have his political fortunes damaged further by dragging down the economy. (3) He hates capitalism so much that he’s determined to “gut” a leading industry such as energy. (4) There is raging incompetence in Washington. (more)
But these hard assets aren’t the only things climbing… look at the prices of these other commodities. Coffee futures have jumped more than 60% in 2010, and sugar has nearly doubled in the past six months alone.
Wheat prices are up more than 46% in the past six months despite seesawing through much of the third and fourth quarters. Corn’s up nearly 57%, and soybeans are up better than 51%.
I could go on and on…
What’s behind these moves in commodity prices, and what does this mean for your investment portfolio?
In past Smart Investing Daily issues, we’ve made the connection between the U.S. dollar’s performance against other currencies and the rise and fall of commodity prices.
This link is simple: Every commodity priced in dollars is subject to price fluctuations based on the value of that dollar. That’s why some commodities make great hedges against a falling dollar.
What’s Behind Commodity Price Gains?
But is the U.S. dollar behind these major commodity price gains? (more)
This year will likely be remembered for its broad, unpredictable market swings.
As one might expect in a time of volatility, making all the right moves with your investment portfolio and retirement plan was a challenge. What didn't help matters were the mistakes and overreactions many investors made, moves that could hurt them both immediately and for years to come.
But there are also some easy steps to take to recover from the mistakes of 2010 for a better 2011:
Problem 1: Analysis Paralysis
When confronted with questions about what direction to go in with their financial plan, many decided to go... nowhere.
Mark Byelich, president of M.J. Byelich & Associates, a Pennsylvania-based financial services firm, says the problem is not just lacking the confidence to stick with an investment strategy, but even having a well-considered plan to start with.
"I talk to so many folks who say they held back from making any contributions to their 401(k) because they were unsure what to do with the market," he says. "There is this stagnation. Everyone is just sort of stuck in the mud, uncertain of what to do."
"You can dissect it down to, 'Maybe I didn't get out of bonds a month ago' or, 'I sold my commodity allocation because I thought we were at the top,' or 'I didn't buy gold,'" he adds. "But I think it comes down to a more fundamental thing: 'I didn't really have a real asset allocation plan, I didn't have a real financial plan and therefore I don't have the confidence to stay in the game.'" (more)
1. Equity Markets--Faber believes a correction is imminent for the stock market as bullish sentiment (AAII sentiment) nears record levels and mutual fund cash positions remain very low. Furthermore, the latest upward move in stocks has occurred on declining volume, which is usually bearish from a technical point of view. The correction should occur in January. That being said, you should be buying into the correction as it represents a good buying opportunity. Faber prefers energy companies and speculative stocks such as home builders and even AIG. He goes on to say that the third year of a Presidential cycle is very good for speculative stocks versus traditional blue chip value plays.
2. Gold and Silver--Reiterates his favorable opinion on gold and silver. Doubts they are currently in a bubble as some analysts postulate. Faber notes that investor exposure is very low when you look you compare it to the world's financial wealth, meaning that gold and silver are still under-owned and have room to run. (more)
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In the end, of course, the Soviet and Japanese threats to American supremacy proved chimerical. So Americans can be forgiven if they greet talk of a new challenge from China as just another case of the boy who cried wolf. But a frequently overlooked fact about that fable is that the boy was eventually proved right. The wolf did arrive -- and China is the wolf.
The Chinese challenge to the United States is more serious for both economic and demographic reasons. The Soviet Union collapsed because its economic system was highly inefficient, a fatal flaw that was disguised for a long time because the USSR never attempted to compete on world markets. China, by contrast, has proved its economic prowess on the global stage. Its economy has been growing at 9 to 10 percent a year, on average, for roughly three decades. It is now the world's leading exporter and its biggest manufacturer, and it is sitting on more than $2.5 trillion of foreign reserves. Chinese goods compete all over the world. This is no Soviet-style economic basket case. (more)
Several experts say that the main forces behind the bull run in commodities last year, namely strong economies in emerging markets coupled with worries about the health of the U.S. and Europe, are likely to remain in place this year.
David Beahm, vice president of economic research Blanchard & Company Inc, a New Orleans-based investing firm that specializes in tangible assets like gold and other precious metals, says gold could hit $1,650 an ounce in 2011. That's about 15% higher than current levels, which are already flirting with record highs (not adjusted for inflation.)
Beahm said that the Federal Reserve's quantitative easing program should lead to more weakness for the dollar as the central bank continues to purchase long-term bonds. He added that the Fed may need to do even more to jumpstart the economy, especially if the unemployment rate remains high. (more)