Wednesday, January 26, 2011
Bob Chapman wrote in the International Forecaster of January 22nd, 2011 :"....Since 2000, when we began recommending gold and silver related assets after having exited the stock market in early April, the market is down about 80% versus gold. That means the only reliable guide to value is gold, not the dollar. The dollar has dropped from 13.80 Mexican pesos to 12.00 in a year. Mexico is considered a second world nation and its currency is appreciating versus the dollar. That is becoming typical and will continue to be so. The Mexican economy will grow 4% in 2011, and will have 4% inflation, far better results than in the US, and Mexico has not stimulated its economy. Not only do we have the dollar falling 20% versus gold annually, but also we have the dollar falling versus inferior currencies. That means creditors of US Treasuries are receiving a negative return of over 6%. What can they be thinking of? This is a form of default. Even with these conditions the stock market reflected by the Dow will probably trade between 10,000 and 13,500, while gold and silver again gain a real 20% plus, year after year, as long as budget deficits climb....."
In December, the SSA said retirees essentially can no longer do what are called do-overs, or the free-loan strategy. Here's how it worked: You claim benefits at a given age and then years later repay what you received, pay no interest, and then file for benefits again, getting a higher monthly amount because you delayed filing until a later age.
"This strategy is equivalent to a 'no interest' loan from Social Security," said Boston College's Center for Retirement Research.
Not many folks used this strategy, but the Center estimated the do-over tactic could cost Social Security an estimated $6 billion to $11 billion per year. Under the new rules, you can suspend and re-apply for your benefit only within the first 12 months of applying for Social Security, and you can only do it once in your lifetime. (more)
The first indication appeared in November, when our Depth Charge system detected unusual put buying in an exchange-traded fund that tracks short-term Treasuries. Another indication appeared last week, when investors shifted a record $949 million into mutual funds that own floating-rate securities.
The figure, based on data from EPFR Global, followed another record of $859 million the previous week. Floating-rate notes usually pay interest based on the three-month Libor index, which tends to follow the Federal Reserve's overnight lending rate closely. Investors tend to buy them when they expect short-term rates to increase because their coupon payments automatically adjust higher.
"We expect floating-rate issuance to increase over the year as things improve and the Fed starts moving," said Mirko Mikelic, who overseas $18 billion of fixed income at Fifth Third Asset Management. "It's tough to gauge when that will happen, so people are preparing for that." (more)
Earlier, Marc Faber appeared on Bloomberg TV, in what may go down in history as his most scandalous interview ever. When asked, in advance of the SOTU address, what he thinks of the president, Faber, who appears to have had enough with all the bullshit, propaganda, and lies, replies: "I think he's done a horrible job and I think that will continue, I think he is a dishonest person, and nothing has changed... Some politicians are more honest than others. I don't think that I have a very high regard for politicians, I have a high regard for businessmen and for people who work, and not for people who abuse the system continuously. And in comparison to other politicians, I think he came in on a platform as a president that would want to change the government in Washington, and actually he's made it worse... We foreigners, we just laugh at someone like Mr. Obama. I was very critical of Mr. Bush, but at least he had one line and he stuck to that line, and at least he set out to do a thing and he was relatively straight on the thing that he did. He may have been wrong, but at least he didn't change his mind continuously, and didn't prostitute himself." If nothing else, how many other people do you know who will compare, in front of a live Bloomberg audience, the president of the formerly greatest country in the world to a whore?
As for what Faber thinks the real state of the union address should be, he says:
What was not said in the press release was much more important and may go down as one of the biggest turning points in the history of America. Bringing on QE2 meant QE1 ($1.75 trillion) failed to provide a sustained recovery. It also exposed the $12.3 trillion total spent or loaned by the Fed since the meltdown of 2008 failed to give the economy a lasting boost. The Fed did save some businesses and all the big Wall Street Banks from bankruptcy, but we now know nothing has really been fixed.
This brings me to one really important question. I put this question to a group of well-known market experts, economists, investment bankers and big thinkers. The five guys you are about to hear from have at least one major thing in common. They all predicted tough times for America when most didn’t see it coming. So, I asked them all last week to peer into the not-so-distant future for their take on “What happens when QE2 ends?” (more)
Yet, although a stock's price proves little on its own, a 2006 analysis of 81 years of trading data found that stocks priced below $5 a share beat more expensive stocks (above $20 a share) by more than 0.8 percentage points per month, or 10 percentage points a year. Results for a data set that dates back only to the 1960s, but incorporates more companies, showed a smaller, but still significant difference: Low-priced stocks returned about 0.5 percentage points more per month than high-priced stocks. Perhaps that's why companies seem eager to split their shares when the opportunity arises, and why the average stock price hasn't changed much since the Great Depression, even though consumer prices since then have multiplied more than tenfold.
Below are listed three U.S. stocks with single-digit prices and glowing recommendations, on average, from the analysts who cover them. "Buy" recommendations don't necessarily predict good returns, studies show, but recommendation upgrades do. Opinions on these shares have turned sweeter over the past eight weeks. (more)
While it's understandable that companies are a little gun-shy after the recent economic downturn, as the economy improves the issue becomes: what do these companies do with all of that dough?
That's not a bad problem to have.
Companies with lots of cash on hand are able to capitalize on various investment opportunities fairly easily. They can make acquisitions or grow organically without going to the costly debt or equity markets in order to fund their growth. And if they do seek financing, investors will require much lower rates of return than if the company was cash-strapped.
Secondly, companies with plenty of cash can reward shareholders through stock buybacks or dividend payments. This is especially true of mature companies. Larger companies have fewer growth prospects, so it makes sense to return an increasingly large portion of earnings to shareholders.
Think about Microsoft (MSFT - Analyst Report) in the 1990s compared to the 2000s. The company grew tremendously for several years, but inevitably that growth slowed. Now the company rakes in the dough and pays out a decent amount to its shareholders. It began paying a dividend in 2003 and paid a special dividend of $3.00 per share in 2004. The company recently raised its quarterly dividend 23%. Expect more dividend hikes in the future. (more)
Housing Double Dip
Steve Forbes: Nouriel, good to have you back again. And before we get an update from you, I just want to promote your book on how to cope with the crisis and get a crash course. And while the economy's maybe potentially crashing, your book went up in terms of sales. Congratulations.
Nouriel Roubini: Oh, thank you. It's a pleasure being back with you and having this dialog today.
Forbes: As a writer myself, I envy your success.
Forbes: Well, I have to start off--over the holidays you bought a very nice apartment in New York for $5 million or so. People are wondering, is that a sign the market is turning or you just found something you liked and bought it?
Roubini: Well, my view on housing is that actually the housing sector is double dipping. Of course you can find a buy at a price much lower than listed, then it is a buy. But if you're looking at the macro data, where in the spring of last year, a time where prices were going up and demand and supply was increasing, but that was all driven with the fact with these first-time homebuyer tax credit.
So anybody who wanted to by a home, bought it by April. As soon as their tax credit expired, demand collapsed, prices started to fall again. So demand is falling, supply is increasing because there is a shadow inventory of millions of not yet foreclosed homes. Therefore, prices are going to fall even further.
So if there is one sector of the economy I would say that is already double dipping, that certainly is the housing and real estate sector. So unfortunately, what is locally working might not be at a macro, national level still working. (more)
“Inflation is here,” he tells Yahoo’s Tech Ticker.
“The first place you would expect to see it is in commodities, particularly agricultural commodities and precious metals. That’s exactly what we’ve seen.”What’s causing inflation? “It’s all because of (expanding) money supply, quantitative easing and stimulus,” Schiff says.
"This is the consequence of what the government has done to try to stimulate the economy by running huge deficits. The Fed prints money to buy up Treasurys. That expands the money supply and diminishes the value of money.”
So it’s we citizens who pay for government stimulus efforts. “We are paying for the government through a debased standard of living and a higher cost of living,” Schiff says. (more)